EDITORIAL PAGE — A silver lining?

Ever since the misguided Hunt brothers were cornered by the silver market at the beginning of the last decade, the price of silver has floated downward with few convincing breakouts on the upside. This past year, however, has offered some consolation to silver bulls and producers.

Last year, for example, it broke its downtrend at the same time gold slipped the tethers of its long-term decline. Gold turned the corner at about US$330 per oz. Silver turned after bottoming at US$3.65 (approximately). Lately, the poor man’s substitute for the glitter of the real thing (i.e., gold) hit as high as US$5.60. It has since slumped to US$5.25. But judged purely on the fundamentals of the market, the dip could well be temporary. For the past several years world mine production has fallen far behind demand. In fact, ever since this decade began, mine supply has fallen short of market requirements: in 1990, a 42-million-oz. deficit; in each of 1991 and 1992, a deficit of more than 85 million oz.; and last year, a deficit projected by the Silver Institute at 143 million oz. Total mine and secondary supply last year was projected at 482 million oz., while demand was to reach 625 million. (The precise 1993 figures will be released by the Institute in May.)

However, industry players calculate the 1993 deficit could reach at least 160 million oz. In all likelihood, it will continue either at current levels or perhaps move higher. For one thing, significant new-mine supply will not be forthcoming since few, if any, mining companies are exploring for pure silver orebodies. It should be noted, however, that new gold and base-metal mines with byproduct silver will be coming on-stream to fill some of the void. (The one pure silver miner that comes readily to mind is New York-listed Sunshine Mining Co., which has been mining the metal for the past 100 years or so in Idaho. While silver prices stagnated, Sunshine diligently cleaned up its balance sheet — US$43 million in cash and silver metal and $9 million debt — and now is seriously exploring more high-grade silver veins. “We’re probably the only ones exploring for silver,” said company spokesperson William W. Davis.)

On the demand side, now that authorities in India have cut the tariff on imported silver, Indian offtake has climbed significantly. As well, the major jewelry fabrication centres in Italy and the Far East (notably Thailand) have boosted imports dramatically.

This serves fundamentally to underpin the market. As for the annual supply-demand deficit, luckless investors who bought at higher prices in earlier years take up the slack. These inventories were built up when silver prices began rising in late 1979 and peaked at about US$50 with the help of the Hunts’ “intervention” early in 1980. (For the information of those not familiar with the market, the Hunts brothers, whose fortunes were built on oil, tried and ultimately failed to corner the silver market.) A study conducted in late 1992 by Charles River Associates calculated the total investment hoard outstanding at about 2.2 billion oz. But as silver prices rise, the hoard will eventually come to market. Already, about one-tenth of the total might have been eaten up with the rise in prices last year. More will be drawn into the market as the year progresses. What it all points to is this: After an extended period of convalescence, the silver market may finally be entering the stage of full recovery.