More Industrial uses for Silver (photovoltaics, rfid), Gold Reserves Increase with Price

    Higher gold prices mean higher resources because lower cutoff grades become economically viable (producers can absorb higher production costs without sacrificing margins). Osisko Mining on November 7 raised its inferred resource estimate solely due to the higher market price of gold. Osisko said that @ $1,000/oz production was economically viable at an average grade of 0.72 g/t but @ $1,800/oz the lower cutoff grade results in a 103% increase for inferred resource (from 5.32M to 10.79M ounces grading 0.51g/t or 29% smaller than at $1,000). Osisko's 3Q production was up 172% for gold (to 73,814 oz) and 147% for silver (to over 40,000 oz) between quarters. At Centerra Gold the higher price of gold led to a five-fold increase in third quarter earnings per share (35c vs 7c) while its revenue was up 132% to $278.4 million. The 500% change in earnings came mostlly due to the change in gold price (avg realized up 37.8% to $1705/oz) since sales increased 68.5% to 163,283 ounces (3q).

As for silver, production has risen in response to higher prices. From 1990 to 2007 demand for silver exceeded mine production by more than 1.5 billion ounces (The Silver Institute) but since then, production has met demand (recycling also helps balance demand - about 250M ounces of silver is recycled every year with all silver used in photography contributing back to supply this way). About 15% of silver production comes as a by-product of gold mining so higher gold prices, even if silver doesn't follow suit, will automatically increase silver production. Over history 45 and 40 billion ounces of silver has been produced (42.62B up to 2004) compared to about 6 billion ounces of gold. (goldeagle.com:The World's Cumulative Gold and Silver Production)

According to the US Geological Survey in 2009 silver mine production totalled 697.6M ounces a 23.86% ten year growth (annual basis) at the same time the average price rose by a factor of 2.2 while total supplies amounted to 922.2m ounces. Between 2010 and 2020 it is estimated that production will increase by 100-150M ounces while industrial demand alone increases by more than 250M ounces so supply deficits could become a factor again in the near future even though higher prices are causing more companies to build new mines/initiate exploration even in areas that have high production costs. Most of the increase in demand for silver is coming from industry (in 2000 it accounted for 35% of total demand but by 2009 it was over 50%). In 2010 silver supplies increased 14.60% to 1.0568b ounces but mine production was only 2.45% higher (contributed 70% of supplies in 2010 compared to 77.9% the year before). Net government sales of silver was nearly tripled to 44.8m ounces. On the demand side, industrial applications demanded 20.7% more in 2010 than in 2009 (difference of 83.6m ounces).

Silver Uses
Silver is a highly conductive metal (without much oxidation) and that makes it popular for use in electronics.
- RFID technology used in id tags. The antenna portion of it that is scanned and read is where the silver is used. The antenna can be scanned up to 15 meters away. Each tag uses over 1% of a gram of silver however billions of the tags are produced every year so it adds up).
- Jewelry remains the second largest source of demand at 167m ounces (2010) which represents a 5% increase on the year.
- Photography including x-ray film (however demand is falling due to digital replacements). Demand fell by 8.3% in 2010 to 72.7m ounces accounting for only 6.885 of total demand.
- Silver Coins : 8-10% of demand and increasing with people looking to invest in precious metals and gold perhaps becoming too expensive for some (bars aren't included, there are about 700M ounces of silver in bar form (large bars) that's up from just over 200M ounces in 2009).
- Medical Equipment & products such as pacemakers. Coins and medals increased 22.3m ounces in 2010 to 101.3m ounces (up 28.23% on the year).
- Photovoltaics/Solar Panels : The mirrors are coated with silver (specifically the energy conducting silicon cells). With solar energy use growing both in Europe/America & China greater demand from this sector is a sure thing.

Trends In The Gold to Silver Ratio Point To Lower Ratio In Bull Markets (gold & silver standard)

   The gold to silver ratio was 16 in 1980 when silver reached $50/oz but it was only there momentarily, for most of the next two decades it was over 65 (when gold ranged in price from $250 to $500), between 2000 and 2003 it was 60 to 80 before falling to 47 to 55 in 2005-2008 which is notable since that coincided with gold's rise from $425/oz to $1000/oz. In the ensuing years (2008-2010) the ratio nudged higher, remaining between 50 and 70 at the same time gold went from $800/oz to $1250-$1300 per ounce (about 4X greater than it was during any of the previous 25 years);

However following that period the ratio experienced one of its biggest declines to date going from 70 in February 2010 to 33 in April 2011, subsequently gold broke into new territory, gold was $1540/oz in April 2011 when silver reached $49/oz (end of month) signifying that over the long term, the ratio decreases when gold prices reach higher support levels. In February 2011 in the midst of a commodities bull market the gold:silver ratio reached its lowest level in 13 years,

Meanwhile gold reached parity with platinum on August 8, 2011, an unusual occurrence but not surprising given that concerns over platinum demand coincided with gold investment peaking due to economic uncertainty. Prior to that, the 20 year high was 0.93, attained in October 1992. Platinum was worth 24% more than gold at the start of 2011, by August 23, 2011 the difference fell to only 1.8% even though Jan-Aug platinum production was 12X less than gold production. (Long-Term Decline In Gold/Silver Ratio To Favor Silver) 2nd Graph: Gold to Platinum Ratio 2007-2011

The gold to silver ratio averaged 59 from 1976 through February 2011 but the average in the earlier years was much lower, the ratio average was 49.1 in the 1980's, 31.3 in the 1970's, 78.5 from 1990-1997 then 53.8 from 1998-2000; the current average of 44.5 (January through August 2011, update: as of Nov 19 the ratio is 53.2 which is about at the 1 year high of 54.24, average Jan-Nov is about 47) is still a lot higher than the 16:1 ratio that held up for more than 160 years from 1700 until the 1860's (was 16 during the US Coinage Act of 1873), in the 1930's was when things started to change but there was a new driving force there: China stopped using the silver standard spilling a lot of excess silver onto the open market, much more than industrial demand. In 19th century Britain, numismatically (coins were predominantly made of gold and silver) the gold to silver ratio was 14.29 as per the monetary law established in 1816 (20 schillings (silver) equaled 1 sovereign (gold). In France the ratio was set at 15.5 in 1803 the same ratio used the United States to determine the monetary relationship between gold and silver coins. Then, around 1870 the gold standard slowly replaced the gold-silver standard (silver was still used but fewer countries linked a coin's monetary value to the amount of silver it had (silver supply skyrocketed with higher US production rates while Germany and Scandanavian countries dumped silver onto the markets due to their abandonment of the silver standard). The ratio rose to a high of 30 by 1894. (Energy & Mining: The ratio gold and silver from 1800 to 1900)

Presently, the lower long term ratio has numerous causes: gold has few alternatives especially with regards to its biggest consumer (jewelery) and silver being much more affordable becomes a more attractive option. The price difference also makes silver a more attractive investment option (in January 2011 the US Mint recorded a one month silver coin sales record of 6.422 million ounces). Alternatively, the short term rise in the ratio is because the biggest investors in bullion (countries, banks, billionaires) favor gold and because a short term price correction always happens when silver rises too fast due to traders erring on the side of caution (if silver rises too fast traders begin to put more emphasis on technical data). In the year leading up to September 2010, gold soared 28% while silver grew only 4%, but in 2011 silver grew at a slightly faster pace showing once again that there's a time lag between silver and gold at the beginning of a commodities bull market. Production of silver is only about 9.5X greater than that of gold, another reason to consider the current price ratio of 43 to be too high.