Eric Sprott: Why Are Investors Buying 50 Times More Physical Silver Than Gold?

Tyler Durden's picture

By Eric Sprott

Why are (Smart) Investors Buying 50 Times More Physical Silver than Gold?

As long-time students of precious metals investing, there are certain things we understand. One is that, historically, the availability ratio of silver to gold has had a direct influence on the price of the metals. The current availability ratio of physical silver to gold for investment purposes is approximately 3:1. So, why is it that investors are allocating their dollars to silver at a much higher ratio? What is it that these “smart” investors understand? Let’s have a look at the numbers and see if it’s time for investors to do as a wise man once said and “follow the money.”

Average annual gold mine production is approximately 80 million ounces, which together with an estimated average 50 million ounces of annual recycled gold, totals around 130 million ounces available per year. In comparison, annual mined silver production has averaged around 750 million ounces, while recycled silver is estimated at 250 million ounces per year, which adds up to approximately 1 billion ounces. Using this data, there is roughly 8 times more silver available to buy than there is gold. However, not all gold and silver is available for investment purposes, due to their use in industrial applications. It is estimated that for investment purposes (jewelry, bars and coins), the annual availability of gold is roughly 120 million ounces, and of silver it is 350 million ounces. Therefore, the ratio of physical silver availability to gold availability is 350/120, or ~3:1.1

Now, let’s examine how investors are allocating their investments between gold and silver. The data below is from the US Mint showing gold and silver sales in ounces:

Source: US Mint (

As you can see, investors are choosing to buy silver at a ratio to gold that is well above what is available. This uptrend doesn’t show any signs of slowing either. The ratio of the physical silver to gold is both rising and extraordinarily above the availability ratio of 3:1.

We can also use other data such as the most recent issues of the Sprott Physical Gold and Silver Trusts. The last Gold Trust issue in September 2012 raised US$393 million and the last Silver Trust issue raised US$310 million. On the basis of prices for each metal at the time of issue, we could purchase ~213 thousand ounces of gold and ~9.1 million ounces of silver. This represents a purchase ratio of 43:1.

If we examine ETF holdings in both gold and silver, we note that in the period from 2007 to 2012, the increase in silver holdings amounted to 12,000 tonnes, compared to 1,200 tonnes of gold – meaning, investors purchased ten times more silver than gold.

These are only three factual data points to consider, but there are other indications that silver investment demand is way out of line with availability. Our favourite question to the bullion dealers we meet, is to ask the ratio of their dollar sales in gold versus silver. The answer is that dollar sales are equal, which means that physical silver sales relative to gold are greater than 50:1.

A recent news headline on Mineweb read, “Silver Sales to Outshine Gold in India.2” It went on to quote a bullion dealer that “investors and jewelry lovers prefer silver jewelry these days.” As the largest importer of gold in the world, it would be impossible for India to purchase an equivalent amount of silver, as it would require more than one billion ounces, essentially more than the current annual mine production.

While these last two confirmations of silver demand are anecdotal, the statistics from the US Mint, the ETFs, and our Physical Trust issues, are factual.

For the time being, the silver price is essentially set in the paper market where the daily average trade on the Comex is approximately 300 million ounces. An outrageous number when you compare it to the daily mine production of about 2 million ounces. As Bart Chilton, Commissioner of the Commodity Futures Trading Commission stated on October 26, 2010, “I believe there have been repeated attempts to influence prices in silver markets. There have been fraudulent efforts to persuade and deviously control that price. Based on what I have been told and reviewed in publicly available documents, I believe violations to the Commodity Exchange Act have taken place in the silver market and any such violation of the law in this regard should be prosecuted.”3

Which brings us back to the phrase “Follow the money.” In our view, it is almost inconceivable that investors would allocate as many dollars to silver as they would to gold, but that is what the data shows.

The silver investment market is very small. While the dollar value of gold in the world approaches $9 trillion, the value of silver in the forms of jewelry, coins, bars and silverware is estimated at around $150 billion (5 billion ounces at $30 per ounce). This is a ratio of 60:1 in dollar terms.4

How long can investors continue to buy silver at the current ratios when the availability for investment is only 3:1? We are surprised that the price of silver has remained at such a depressed level compared to gold. Historically, the price ratio between gold and silver has been 16:1, when both were currencies. Today the ratio is 55:1, so what are the numbers telling us? We believe this is one of those times when smart investors will be well rewarded to “Follow the money.”

On behalf of all of us at Sprott, I wish you safe and happy Holidays and a prosperous New Year.

P.S. – US Mint Sold Out of Silver Eagle Bullion Coins Until January 7, 2013
The Mint recently informed authorized purchasers that all remaining inventories of 2012-dated Silver Eagle bullion coins had sold out and no additional coins would be struck. Since the 2013-dated coins will not be available to order until January 7, 2013, this leaves a three week void for the Mint’s most popular bullion offering.

1 Sources: Gold data is from World Gold Council, and silver data is from Silver Institute,
2 Source:
3 Source: Bloomberg:
4 Sources: Gold data is from World Gold Council, silver data is from United States Geological Survey (USGS) and Silver Institute.

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StockProdigy's picture

My sentiments exactly!


Interestedly, the 'ALL IN' pivot for UNCOMPROMISED is $3475 for gold and $77 for silver.

Angus McHugepenis's picture

Speaking of silver, do any of you Bitchez have a problem with white spots on your silver coins? I've tried several methods to get rid of them but the simplest, most effective way I have found so far is to use a soft white rubber pencil eraser to remove them.

Anybody else got a preferred method you use?

Dr. Sandi's picture

Either handle them a lot so they get a good coat of protective skin oil, or keep them in a safe, dry place with no handling.

Besides, if they're bullion, spots don't matter. And if they're numismatic, keep them in a coin condom.

Angus McHugepenis's picture

Dr. Sandi: I wouldn't worry about it much if I was buying simple Maples but I only buy the more numismatic wildlife series coins (wolf, cougar, grizzly, moose, antelope).

The many coins I have that are sealed in thermo strips don't have a problem. It's when I buy the raw coins out of a tube that seem to be affected most, even though I immediately transfer them into solid plastic capsules. They also seem to be affected when stored in temperatures between 40-50 F. It's almost like they have a layer of frost on them but it doesn't go away when they are left at room temp for several hours. That's when I get out the white eraser, and it does a pretty good job. I just wish it wouldn't happen to begin with but at least I can clean them without too much fuss.

Maybe I should just dip them in WD-40 before encapsulating them (lol).

Dr. Sandi's picture

Wow. Sneaky spots when you're not looking. I wonder if it's condensation, considering the cool storage place. You might try sealing some uncooked rice in with the coins to soak up any moisture.

Just a wild guess. But even if it doesn't work, you've put away something edible with your metal for a rainy day.

CCanuck's picture

Angus, They have been named Milk Spots, The story is; the residue is a releasing agent used in bullion minting, due to chemical composition and concentration, they have affected some issues more than others. I have also used an eraser, leaves micro scratches, follow the grain, or direction of backround fields. I work P/t at LCS, our buy price is same on regular maples, milk spots or not, however wildlife or any other limited series do not get premium with milk spots, or have been cleaned up. They do look alot better cleaned, rather than milky, I have seen some with half the coin covered. No official reason or resolution has been issue by The Royal Canadian Mint, that I am aware of, the above information is from talk at the store.


Angus McHugepenis's picture

Thanks CCanuck. The guy I buy all my silver from is a certified Canadian Mint dealer. All his enquiries to the Canadian Mint as to what can be done about the "milk spots" have so far gone unanswered, and I see him regularly.

There are a couple methods to clean silver that I have personally tried:

1 - Fill an aluminum pie plate with warm water and sprinkle in a generous amount of baking soda. Let silver coins sit for several hours and flip them over every so often. Rinse in warm water after removing the coins and dry them with a clean microfiber cloth. This helps remove severe tarnish and other stains but does not usually work for removing milk spots in my experience.

2 - The only good method for removing milk spots that I have tried is the white eraser method.

WARNING: NEVER, EVER use hydrogen peroxide to clean silver. Try it once and you'll see why.

Don't ever believe a coin dealer or anyone else that tells you milk spots or other blemishes don't affect the value of coins. If you ever hear some retard tell you that sales pitch just walk away.

Tango in the Blight's picture

Do scratches matter? I have two coins which have scratches.

Angus McHugepenis's picture

Scratches don't matter if they are only visible under a magnifying glass. If the coins have visible gouge marks that's a different story. Only non-circulated (literally mint issued collector coins) should be pretty much flawless.

Any coin that is dirty to begin with will have scratches and other imperfections already. I just try to clean up the coins as gently as possible using the least damaging cleaners and microfiber cloths. Needless to say it is a long process, which is why I wouldn't bother doing it on plain Maples or other standard Mint issued rounds from around the world.

natty light's picture

There is a guy on YouTube named Drutter that shows how to clean silver using hot water and baking soda; it gets the black off.

infinity8's picture

This is true (i've done conservation work) - you want to mix the baking soda into hot water but, it doesn't need to be applied hot, Great for your teeth as well as a toothpaste (add hydrogen peroxide)..Also, try an "Artgum" eraser by Sanford. It's a tan colored, brick shaped "dry eraser". It crumbs, is absorbent, and totally non-abrasive. Good for lots of things- works on paper, stains on fabric - art supply store.

Raymond Reason's picture

The coin dealers never used to pay attention to the white spots.  Now most of them around here won't pay their normal rate for such. 

HellFish's picture

I have a tube or two of silver Maple Leafs with spots - nothing has worked - but lately I hear a pencil eraser.  I have not tried it as I suspect it it will be destructive.

Angus McHugepenis's picture

White erasers have worked pretty good for me and they don't cause any noticeable damage, and the end result looks much better than white "frost" all over the coin. I've even experimented with regular orange erasers and they work too but I think they have more grit in them than a white eraser, so stick with the white ones and if you see any dark flecks in the eraser don't use it.

Absinthe Minded's picture

Don't take them out of their plastic packages. Keep a handful for clinking, leave the rest in plastic. I've had mine since 2007 with no tarnish.

Yen Cross's picture

 XAU pivot is $1594. 100 week moving average, and assending(multi year) trend/line... Bitchez

Rogue Economist's picture

T'was the Nightmare Before Christmas

T’was the night before Christmas, when across all the seas
Not a Doomer was stirring, not even RE.
The False Flags were in the MSM all over the place,
While Politicians mumbled their words of disgrace.

The Diners were nestled all snug in their beds
While visions of Mad Max danced in their heads
WHD in his Red Afro Wig, and I in my hat
Had just settled in to watch Civilization go splat.

When out on the internet there arose such a clatter,
I sprang to the Laptop to see what was the matter.
Over to Google I flew like some birds,
To type in Apocalypse and other Keywords.

The news on the net was like new fallen snow,
Flakes of disaster everywhere I would go.
Off with my wandering keyboard fingers I went to visit
Zero Hedge, and 8 blowhard Collapse Pundits

The news was so bad I surfed ever faster,
searching wide to find the cause of disaster.
More rapid than Assault Rifle gunfire the news came on in,
Of Earthquakes, Volcanoes and all Human Sins.

Now Kunstler! Now Orlov! Now, McPherson and even Jim Quinn!
On Ruppert! On Gail! On, on Denninger and Steve from Virgin!
To TEOTWAWKI as we head for a mighty big fall!
Now Dash away, Dash Away! Dash away from it all!

As Mall Signs and Rooftops before the wild hurricane fly
When they meet with an obstacle, mount to the sky.
Every keyboard was flying, calls of the end came everywhere
The Doomosphere was just chock full of despair.

And then in a twinkling, I read on the net
Illuminati across the Globe were begining to Sweat.
Bond spreads were wide, Futures were down,
Derivatives and CDOs were beginning to drown.

Gold bugs were Frantic, piles of Maple Leafs high to the sky,
While at Safeway and Walmart not a Twinkie to buy!
Preppers were loading their Glocks full of Lead,
Hoping to be the last of the Doomers left dead.

Permaculture raised beds and hydroponics were secured,
as Industrialization’s Ills could not be cured.
Heirloom Seeds in Nitrogen vaccuum packs were stored,
Ground floor windows were covered with 2×4 boards.

In Central Park all the OWSers set tents on the Grass,
the showdown with the NYPD would now come to pass.
The truckers rolled in and the Hell’s Angels too,
then the Longshoremen came in from out of the blue.

In CONgress the budget went over the Cliff,
while Obama said, “Hey, what’s the diff?
My Man Benny has the Inkjets all ready!”
No worries folks, the economy will stay steady.

In Brussels at the IMF the Eurocrats fumbled,
playing violins as the Euro crumbled.
In Japan the Sushi was glowing,
While Abe made sure those Yen kept on flowing.

In MENA the Drone Aircraft were flying,
with Women and Children doing most of the dying.
In the Straights of Hormuz Mines were placed to counter the Drones,
So all the tankers and carriers would be sent to Davey Jones.

In China the economy was rocking,
Ghost Cities and Bridges to Nowhere filled up their stockings.
Foxconn workers off factory rooftops went jumping,
While the Iphones out of the factory kept pumping.

The situation was dire, the whole world was on fire.
Everyone everywhere all caught in the mire.
The whole human race so utterly lost,
Happy Motoring and Industrialization exacting a terrible cost.

RE sprang to his keyboard to give the Diners some HOPE,
even though the world seems at the end of its rope.
They heard him exclaim, ‘ere the Internet went out of sight,
“Happy christmas to all, and to all a Good Night!”


Shell Game's picture

'Abandon hope all ye who enter here...'  -Doomstead Diner (i.e. Collectivist Cafe)

Translator's picture

50 times cheaper than gold......duh

Yen Cross's picture

 Keep kicking ass q99x2     I'm trading Asia. How many JGB's can "Toyoda" sell in 4 days? Go Godzilla

XtraBullish's picture

Eric must be getting annihilated with redemptions - the same story since 2011 at $50 an ounce. How many ounces are getting spewed out by lead-zinc mines in Russia and China that are not in the official count. Carlos Slim hedged 10 years silver production in the $40's so I will bet Eric's assumptions are flawed and the black swan is the supply number. It is still going to $500/ounce in U.S. dollars because the USD is going to zero.

They Tried to Steal My Gold's picture

Your point is a valid point.....We really cannot get accurate numbers out of China or Mexico in regards to production. Mexico is the largerst producer of Silver I beleive. It doesnt surprise me that the world's wealthiest man lives in one of the largest corrupt countries in the world....and thus controls Silver....


Until Silver finds a less corrupt home base will be a while before they unleash the triple digits on Silver...



Dr. Sandi's picture

Iceland comes to mind. But I don't know that they have viable silver reserves there. But they seem to have rooted out the corruption for awhile.

Peter Pan's picture

Prophecies of $500 per oz of silver fell flat last time and will fall flat again. Don't get me wrong because I do think silver is good to buy, but the fact remains that those who want silver can still buy it. Nobody has been refused delivery which means silver has an equilibrium level of buyers and sellers.

The only way silver will spike for a time is when paper buyers ask for physical and even then the spike will only last for a while before silver settles down to a higher but not $500 level.

mwarden's picture

i am not smart enough to know what to do with silver. people like the fact that it has industrial uses, but to me that is confusing, because that means industrial demand for the metal is less when the GDP growth slows. so how the hell am i supposed to project what happens to silver under various economic conditions that i want to hedge against? like i said, i'm not smart enough to do that, so i stay with simpler metals. and i tend to include platinum in there, even though it does have some industrial uses as well.

blunderdog's picture

If foretelling the future was EASY, everyone would do it!

Yen Cross's picture

 Toyko fix #'s (  yuan Central parity)  ^6.2931 vs 6.2913

Dr. Gonzo's picture

Hold a Silver Eagle up to functioning currency to see which one is more impressive to behold. Then hold it up to a dead currency and see how much more impressive it becomes. You won't really care if there is a slight silver surplus in mining at the moment. Last I checked there is a surplus of dollars, Yen, and Euro being stuffed into the banking sector. Besides, any silver surplus could vanish in the twinkling of an eye at $30 an ounce. 

Dr. Sandi's picture

Since $1.2 quadrillion in derivitives are backed by $600 billion in collateral, I'd say there's about 2000x times as much money floating around as wealth to back it up.

This makes me a happy PM hugger.

Dr. Gonzo's picture

The thing that would scare me to death if I was shorting silver is that it is still so cheap that any homeless bum could easily afford to buy a U.S. Silver Eagle. 

Yen Cross's picture

GOD/JESUS. Gets get'er' Done!

Yen Cross's picture

 I'm rapidly losing interest in the "validity" of Zero Hedge. J.R. and myself discussed starting a financial website 3 years ago.

   People are leaving Tyler. People are losing trust/ People are tired of advertising that is the " antithisus of Zero Hedge"

AE911Truth's picture

People are leaving to where exactly?
I do not know of a more educational site. Please tell. A lot of people have learned an extraordinary amount from ZH, myself included.

Thank you Tyler!

Yen Cross's picture

 When is someone going to start growing some balls? I send charts over/  Leeeches, and wanabees!

Conax's picture

To even hold silver takes nerves and balls of steel.  Lose it in a boat accident and move on.

Future Jim's picture

If people have a proportionlly higher than usual interest in buying silver right now, then doesn't that mean the price might be high relative to gold?

Yen Cross's picture

  I'M RAPIDLY loosing my patience Tyler.  This moving comments to suit the thread?  I have made comments to people that you have manupulated to upset posters.

 You( Tyler), of all people are intoxicated with clix/

Dr. Sandi's picture

Comments move down with traffic on the thread. A lot of thread hijacking means comments move way on down really fast.

Somebody has to pay for all this free stuff. Traffic drives traffic, which increases bandwidth and CPU costs.

Unless you're AOL or some other crazy ubernational, most people can't afford to have a hugely successful website.

I speak from experience. We almost went broke paying for hosting for our visitors. Then our sugar daddy came along and blew millions of unwary pension dollars on us. They went bust too, because visitors do not bring money with them.

More than any other site I can think of, Zero Hedge is NOT AN ENTITLEMENT.

TWSceptic's picture

You're a fucktard / douche who deserves to get banned.

HowardBeale's picture

Uhh, because it is 1/50 the price of gold? Duh.

TradingChief's picture

Sprott is just pumping his own PF and book. He is absolutely overloaded in Silver.

Dr. Sandi's picture

They only way you can be overloaded in silver is if you swallowed it.