Silver is thought to be the world’s oldest form of money and is formed from sulfur compounds beneath the earth’s crust. Silver is found deposited in the crust by volcanic or hydrothermal activity, where it often mixes with other metals to form metal alloys.
Keep reading to discover more about where silver is found across the globe, where the world’s silver mines are located, and how it fares as an investment metal.
Where is silver found in the world?
Approximately 30% of all silver is produced from primary silver mines, meaning the majority of the ore is comprised of silver mineralization. 70% of the silver produced is a by-product of mining base metals like copper, lead and zinc. In fact, most mining companies that are viewed by investors as “primary silver miners,” like Hecla, Coeur Mining and Pan American Silver, derive only 20-30% of their revenues from silver production, with the balance coming from gold and base metals. The only pure silver producer is Aya Gold & Silver in Morocco.
Central banks historically owned silver as part of their reserves. However, in the late 1800s, silver began to be “de-monetized,” as central banks started getting rid of silver as a reserve asset. The Bretton Woods Agreement finalised this process when the global monetary system was structured around gold and the U.S. dollar.
While central banks hold gold as part of their Tier 1 reserves, it is my opinion that silver will eventually be incorporated back into the monetary and banking system. After all, silver embodies the same monetary properties as gold. In addition, silver is valued at a fraction of the price of gold per ounce, giving silver greater fungibility and more practical use as a currency.
Who discovered silver?
Silver’s use as money dates back to at least the ancient Egyptian and Greek civilizations. No one knows for sure who discovered silver – or when – but archaeological evidence shows that silver has been used for at least 5,000 years. Slag dumps in Asia Minor and on islands in the Agean Sea suggest that humans learned to separate silver from lead as early as 3,000 B.C.
Most of the world’s silver mines are in North and South America, but there are also significant deposits in Poland, Turkey, and Australia. The world’s largest silver mine is KGHM’s copper mine in Poland, which produced 48.1 million ounces of silver in 2021. Mexico has four of the top-ten silver-producing mines globally.
How much silver is produced?
According to the Silver Institute, 822.6 million ounces of silver were mined in 2021, with another 176 million ounces supplied by recycling. The Silver Institute expects 1.017 billion ounces of silver to be available in 2022, but demand is expected to exceed supply by about 200 million ounces. Commercial uses (industrial, jewellery, photography and silverware) comprise 73% of the demand for silver, with the balance (27%) used for investment.
With the growing global emphasis on ESG initiatives, the use of silver in environmentally friendly applications, like solar energy and battery electric vehicles, likely will put even greater stress on the supply/demand deficit in silver. This leads to the conclusion that silver, in all probability, is undervalued as an investment. Currently, I believe silver is a good investment with a good balance of risk and return, especially compared to the stock market.
The chart above shows the ratio of the S&P 500 vs. silver from 1990 to the present. For the majority of that time period (60%), the ratio has been substantially below the current ratio of 160. In other words, from a comparative standpoint, silver is historically undervalued relative to the general stock market. The SPX: silver ratio bottomed out at 26 in 2011. This suggests that silver has the potential to outperform the stock market by up to a factor of 6.15 if the SPX/silver ratio reverts back to the previous low.
Silver as an Investment
The same holds true for the value of silver relative to gold. Over the same 32-year time period shown in the chart above, the gold: silver ratio currently is higher than it has been for over 60% of the time between 1990 and the present.
On the assumption that the current rising trend in the precious metals sector is at the beginning of a sustainable, extended bull cycle, I expect the gold: silver ratio to revert back minimally to 30, where it bottomed in 2011. Holding the price of gold constant would imply that silver has the potential for at least a 250% of upside relative to the price of gold. Although, regardless of the statistical analysis applied to silver as an investment, the supply/demand fundamentals alone suggest that silver has tremendous upside potential.
There are several different ways to invest in silver.
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Dave Kranzler is a hedge fund manager, precious metals analyst and author. After years of trading expertise build-up on Wall Street, Dave now co-manages a Denver-based, precious metals and mining stock investment fund.