TECHNICAL SCOOP CHART OF THE WEEK

Charts and commentary by David Chapman

August 16, 2012

26 Wellington Street East, Suite 900, Toronto, Ontario, M5E 1S2 phone (416) 604-0533 or (toll free) 1-866-269-7773, fax (416) 604-0557
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Source: www.sharelynx.com

Last week COTW took a look at gold production so thought it appropiate to look this week at silver production. It was probably no real surprise that the answer was basically the same. Silver demand/produciton faces an annual shortfall of some 8,678 tonnes in 2011. On a silver ounces basis this translates into a deficit of 115 million ounces.

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Silver demand today comes primarily from industrial applications such as dental equipment, electrical and electronic products, automobile production, computers, musical instruments, medical equipment, batteries, catalysts and others. Silver also has considerable usage in medicine. Silver demand for industrial usage faltered in 2011, however, the Silver Institute www.silverinstitute.org and GFMS Ltd. www.gfms.co.uk (formerly Gold Fields Mineral Services) believe that industrial applications for silver will grow and with that demand will continue to grow as well. At one time silver was heavily used in photography, however, this use has been falling for years and today usage is less than half of what it used to be only 10 years ago while other industrial applications has grown 37% in the same time period. Demand has kept up on the industrial side even as the Euro zone has slowed down Chinese demand has been growing. The other fastest growing area of demand for silver has been investment demand in coins and medals. Demand there is up almost 270% in the past ten years while demand for silver for jewelry and silverware have fallen. Silverware demand is down roughly 45%. The table below from the world silver survey 2012 as provided by the Silver Institute shows the demand/supply picture over the past ten years. The annual deficit between mine production and demand has been made up from net central bank sales and silver scrap with some coming from producer hedging. Silver from scrap has indeed been sufficient enough that there has been new net investment in silver most every year over the past decade. This net investment in silver has resulted in COMEX silver stocks rebuilding following years of decline when silver prices were low. Higher silver prices have attracted more scrap silver over the years. Silver also has monetary aspects. During Roman times the silver denari was the most common coin in circulation for a number of centuries. The silver denari was first minted for the Roman Republic in 211 BC and it lasted until about the mid-third century AD when years of cutting the silver content resulted in a new coin called the antoninianus. Eventually the Roman Emperors cut the silver content that towards the end of the 5th century AD people wouldnt even accept the coins. It was the Roman Empires equivalent of printing money. Fortunately the Romans did not cut the gold content of the gold aureus and gold maintained its value. The US and Canada used to produce silver coins but the last silver coins in Canada came out in 1967 and the US stopped production in 1964. Today coins are made of steel and have little or no instrinsic value. Old silver coins are still available and their value has gone up not down. The worst case is that they are still worth face value and would even today be accepted as currency. However, given that the silver content in many of them was upwards of 90% their value has increased with the price of silver. As to todays steel based coins think of them as the Roman equivalent of cutting the silver content of the denari that eventually became worthless. As noted the chart immediately below from the Silver Institute shows the demand/supply over the past ten years. Below that is the a chart of cumulative production and demand that results in the supply deficit. As noted the supply deficit is primarily made up from central bank sales and scrap. The cumulative deficit is the equivalent of roughly 16 years of mine production.

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Mine production has been rising over the past decade even as in the previous decade mine production was actually declining due to low prices for silver. Demand slipped in 2011 but as noted earlier both the Silver Institute and GFMS Ltd. believe that demand growth will continue in the future as new applications for silver are found.

World Silver Supply and Demand

(in millions of ounces)

2002 Supply Mine Production Net Government Sales Old Silver Scrap Producer Hedging Implied Net Disinvestment Total Supply Demand Fabrication Industrial Applications Photography Jewelry Silverware Coins & Medals Total Fabrication Producer De-Hedging Implied Net Investment Total Demand Silver Price (London US$/oz) 2003 2004 2005 2006 641.1 78.5 206.0 925.6 2007 665.9 42.5 203.0 911.4 2008 683.6 30.5 200.9 915.0 2009 716.1 15.6 200.0 2010 751.4 44.2 228.7 50.4 2011 761.6 11.5 256.7 10.7

594.5 597.2 613.6 636.6 59.2 88.7 61.9 65.9 197.3 196.0 197.4 201.6 9.6 27.6 17.4 868.3 881.9 882.4 931.7

931.7 1,074.7 1,040.6

355.3 368.4 387.4 431.8 204.3 192.9 178.8 160.3 168.9 179.2 174.8 173.8 83.5 31.6 83.9 35.7 67.2 42.4 67.6 40.0

454.2 142.2 166.3 61.2 39.8 863.7 6.8 55.1 925.6

491.1 117.6 163.5 58.6 39.7 870.5 24.2 16.6 911.4

492.7 101.3 158.7 57.4 65.3 875.3 8.5 31.2 915.0

405.1 79.3 159.8 59.1 78.8 782.0 17.4 132.2

500.0 72.1 167.4 51.2 99.4 890.1 184.6

486.5 66.1 159.8 46.0 118.2 876.6 164.0

843.5 860.1 850.6 873.6 24.8 20.9 0.9 31.8 58.1 868.3 881.9 882.4 931.7

931.7 1,074.7 1,040.6 20.193 35.119

4.599 4.879 6.658 7.312 11.549 13.384 14.989 14.674

SOURCE: World Silver Survey 2012

Source: www.silverinstitute.org

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Source: www.sharelynx.com

copyright 2012 All Rights Reserved David Chapman

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