Over the past 50 years, the demonetization of silver and the resulting under investment in mining has brought about a decrease in the silver supply . During the same period, industrial silver demand has risen rapidly, first with photographic film and then with the explosion in tech devices as the need for photographic film waned.
In the 1960′s, the US held about 4 billion ounces of silver. After the demonetization of silver, beginning in 1965 with most silver coins being changed out for a cheaper composite containing no silver and ending in 1970 when the 40% silver halves were no longer minted, the US offloaded its 4 billion ounces of silver onto the market over the next few decades. The extra 4 billion ounce supply being absorbed by the market lowered the silver price and gave a disincentive to invest in future silver production. Today, the US holds very little silver and silver mines are producing less silver than the market requires.
According to The Silver Institute, total mine production in 2010 was 735.9 million ounces and total industrial demand plus photography demand, almost all of which the silver is discarded after use, was 560.1 million ounces. Given these numbers, that leaves only 175.8 million new ounces available for jewelry, coins, silverware, and investment, which is not enough. The additional silver must come from silver already in existence, which was over 250 million ounces in 2010.
It is only a matter of time until counting on about 25% of total supply to come from existing silver will no longer suffice. Demand for silver is continually growing and set to grow even faster as the world becomes more dependent on technology and safe havens are sought after due to the debasement of currency. Higher prices are the only way that the necessary increases in silver mining production will occur.
Increasing silver mining production does not happen overnight and ramping up mining production to boost silver supply will likely prove to be a several year process. Only about 30% of silver comes from pure silver mines. The other 70% of silver is mined as a byproduct of other metals, which shows an additional hurdle to rapidly increasing silver mining.