That market signal was received by the mining industry. Since there are few primary silver producers, and those that do mine silver also typically mine gold and some base metals, precious metals miners had an incentive to invest more into gold production and less into silver.

Precious metals analyst Adam Hamilton wrote in a recent commentary, “As silver wasted away in recent years, its bombed-out prices heavily impaired silver mines’ ability to generate operating cash flows and profits. The silver miners were forced to adapt and shifted their focus and capital into adding gold production rather than boosting silver output.”

Hamilton notes that the top 17 components of the GlobalX Silver Miners ETF (SIL) produced a total of 72.2 million ounces of silver last quarter, amounting to a 4.4% year over year decline. At the same time, their total gold output increased by 11.9%.

What this suggests is that the silver market is being under-supplied. In fact, the Silver Institute recorded a 2.4% global silver supply shrinkage in 2018.

And things certainly aren’t looking up this year.

Silver’s mining supply problem could be a super-bullish driver of higher prices. Higher prices will eventually incentivize increased production from the mining industry. But it will take much higher prices sustained for some time in order to move the needle of mining production in any significant way.

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