One of the problems with soaking-up the “conventional wisdom” on any particular subject is the risk of mistakenly being misled by a widely-held misconception, instead. Such is the case when the subject of“primary silver mines” comes up for discussion.
Any investor even modestly familiar with the red-hot silver sector will know that the majority of silver currently mined each year is produced as a “byproduct” of other mines (roughly 2/3 of all silver production). In other words, contrary to the vast majority of other metals, silver is unique in relying upon this “incidental” production to satisfy the massive and growing demand for silver both as an “industrial metal”, and as an investment/insurance/“good money”.
There are many supply/demand dynamics which flow from this current paradigm of production, but even before we get to those factors, we need to analyze how we ever reached this current scenario. Certainly, throughout thousands of years of history, “silver mines” (i.e. mines which primarily produce silver) have been just as prevalent as “gold mines” – subject to the qualification that local geology will make one or the other more predominant in any particular region.
The obvious question then becomes: how did the precious metals sector evolve into the current state where (on the one hand) we have most gold still produced from “gold mines” (i.e. primary gold producers) while with silver we are dependent upon mainly “byproduct” production for most of our silver? The answer can be reduced to one, very simple equation: the gold/silver price ratio...
Read the rest: