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Major Silver Shortage by August 2012?

In my research this week, I came across a couple of articles that were particularly interesting.  They made the case that a silver shortage could be exacerbated by as early as August of 2012.  The first reason given was that currently there is a majority of long positions on silver in comparison to the shorts in place.  As we speak, there are currently 2 long positions in silver for every one short position.  This is truly amazing considering the massive short positions that have been held by major financial institutions like JP Morgan Chase and others.  This disparity in short positions compared to long ones shows how the overall disposition toward gold and silver now are changing.

Mining Strikes

The second reason brought up was the major silver mine strikes in both South Africa and Indonesia.  In South Africa, a one days strike was held in which tens of thousands of miners came out in opposition to current working conditions and wages.  In the Gold Fields mines in South Africa 85% of workers stopped working leaving mining activity virtually at a stand still.  Gold Fields is the world’s fourth largest producer of gold.  These strikes right now have only had a small impact on supply provided, but if they continue they could significantly reduce the supply readily available on the market today.  As if that is not enough many mining company are reportedly keeping larger quantities of silver as a reserve than before, which also places stress on the world supply.

Fuel Prices and Slow Economy

Third, most economists expect the price of oil to go up dramatically over the summer.  Many economists have estimated between $4.50 and $6.00 a gallon.  This major increase in fuel cost will also affect mining costs, which will increase the cost to the consumer.  Additionally, when fuel prices increase it usually means an economic slow down.  In these types of situations other metals like zinc, copper, and lead typically have reduced demand.  Right now approximately 75% of all silver mined comes as a byproduct of mining other metals like zinc, copper, and lead.  Thus a reduction in the demand for these metals will also reduce the available silver from mining activity.

Iranian War?

Finally, many experts believe a war with Iran is eminent.  If such a war were to break out the effect on silver would be dramatic.  Silver is used in a large number of military products.  The United States does not have a large mining industry in comparison to the rest of the world and would be very dependent on foreign allies.  There is also a strong possibility if war is declared with Iran that both Russia, China, and many other socialistic and communistic nations might not sell us large amounts of the metals any more due to their close ties with Iran.

How Likely?

Do I believe that a shortage will happen by August.  At this point it there are too many what ifs, but the important point is that it would not take much for a shortage to develop quickly.  So regardless of whether or not a silver shortage takes place in August or three years from now investors need to be ready.

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