[YouTube Video] The Massive Silver Shortage: What Banks Don’t Want You to Know6 min read

In a nutshell

In an interview with Daniela Cambone at the Toronto Gold and Silver Event, Keith Neumeyer, CEO of First Majestic Silver, discusses significant supply-demand imbalances in the silver market and reveals insights into banking industry practices that could be suppressing prices. Neumeyer explains that despite silver being an essential industrial metal required for everything from electronics to renewable energy infrastructure, its price remains artificially low due to paper market manipulation. He notes that banks short silver at a ratio of approximately 350:1 (paper to physical), creating a vulnerability should physical demand spike. First Majestic’s strategic acquisition of Gatos Silver has increased their production from 21 million to over 30 million silver-equivalent ounces annually, positioning them to benefit from potential price breakouts. Neumeyer also addresses recent U.S. tariffs on Canadian metals, revealing plans to bypass U.S. refineries by shipping Mexican production directly to Canada if necessary. Here are three key takeaways:

1. Supply-Demand Disconnect: Despite being in a fifth consecutive year of structural deficit and essential for modern technology, silver trades at an “absolutely ridiculous” 90:1 ratio to gold, with supply shortages potentially leading to manufacturing disruptions.
2. Market Manipulation: Banks actively manage silver prices through paper contracts, shorting at a 350:1 ratio (paper to physical) and using media influence to discourage retail investment that could disrupt their control.
3. Industry Adaptation: First Majestic has positioned itself as a core silver producer (53% of revenue) with record treasury levels and is attempting to break banking control by selling directly to retail investors through their mint.

Neumeyer predicts silver will reach $40 per ounce by the end of the year, with a longer-term outlook for triple-digit prices, suggesting the current price suppression is unsustainable as industrial and investment demand continues to grow.

Summary of “The Massive Silver Shortage: What Banks Don’t Want You to Know”

U.S. Tariffs and Industry Impact

(00:47 – 04:01): The interview begins with a discussion of newly implemented U.S. tariffs on Canadian metals. Neumeyer expresses concern that while the U.S. administration’s desire to bring manufacturing back is legitimate, imposing tariffs on commodities will only create inflation and hurt both countries. When asked how these tariffs might affect First Majestic’s operations in Mexico, Neumeyer reveals they’re unsure if silver will be included in the tariffs. If 25% tariffs are applied, they plan to bypass U.S. refineries (like Asahi in Salt Lake City) and ship directly from Mexico to Canadian refineries instead, which would ultimately hurt U.S. manufacturers who need silver for various products.

First Majestic’s Growth Through Acquisition

(04:01 – 06:25): Neumeyer discusses First Majestic’s recent acquisition of Gatos Silver, a $970 million transaction completed in January. This strategic move significantly expands their operations, increasing silver-equivalent production from 21 million to 31-32 million ounces annually and growing their workforce from 4,500 to 5,700 employees. Revenue is projected to increase from just under $600 million in 2024 to over $800 million in 2025. Neumeyer emphasizes that despite temporarily diversifying with the Jerritt Canyon gold acquisition (which has since been shut down), First Majestic has always maintained its core identity as a silver company, now with 53% of revenue coming from silver production.

M&A Strategy in the Silver Sector

(06:25 – 08:42): When asked about the recent wave of merger and acquisition activity in the silver sector, Neumeyer explains First Majestic’s strategic approach. He identifies three growth options for mining companies: buying explorers (high risk, long timeframe), developers (permitting risk), or producers. First Majestic focuses primarily on acquiring producing assets or near-production projects where permits are in place and they can contribute capital and expertise. Neumeyer notes these challenges are identical for both gold and silver producers. The company’s Q4 results showed an impressive 119% jump in free cash flow, with Neumeyer hinting that their treasury position is at an all-time high, something that will be formally announced in the coming weeks.

The Silver Supply-Demand Imbalance

(08:42 – 11:27): Neumeyer confirms reports of a significant supply-demand imbalance in silver, now in its fifth consecutive year of structural deficit. He expresses frustration that despite this fundamental situation, price discovery isn’t reflecting the reality, largely due to paper market influence. Silver currently trades at a 90:1 ratio with gold, which Neumeyer describes as “absolutely ridiculous” given that silver is a strategic, required metal for modern technology. Despite the Biden administration’s Green New Deal being off the table, industrial demand remains strong. Neumeyer references a recent White House meeting where plans were discussed to triple U.S. energy production, noting that whether through nuclear power or grid rebuilding, all electricity production requires substantial amounts of silver.

Breaking the Silver Price Ceiling

(11:27 – 14:19): Discussing the disconnect between gold breaking all-time highs while silver remains far from its record, Neumeyer expresses constant puzzlement over this situation despite silver’s strong supply-demand fundamentals. He speculates that a major disruption could occur when a significant consumer of silver—potentially a company like Apple or a major automobile manufacturer—announces production stoppages due to inability to source sufficient silver. Neumeyer criticizes the Silver Institute for doing a “terrible job” collecting demand data, noting that even manufacturers themselves often don’t know exactly how much silver is in their products due to complex supply chains and component outsourcing. He estimates a typical laptop contains approximately 2-3 ounces of silver.

Banking Practices and Market Manipulation

(14:19 – 18:21): Responding to recent claims about bullion banks being unable to cover their shorts, Neumeyer draws on his background in banking (starting in 1984) to explain how banks protect their positions “at pretty well any cost.” He describes a system where banks manage physical silver deliveries to industrial customers while maintaining paper hedges at a ratio of approximately 350:1. This figure is derived from the fact that about a billion ounces of paper silver trade daily (240 billion annually) compared to only 830 million ounces of physical production per year. During price spikes like the Reddit-driven “silver squeeze,” banks simply print millions of contracts to cap the price until retail buying subsides, then buy back at lower prices. To counter this control, First Majestic established its own mint to sell directly to investors, bypassing the paper market.

Retail Investment and Price Outlook

(18:21 – 21:03): Neumeyer observes that retail investment in physical silver fluctuates significantly with price movements—when prices rise, sales “explode,” and when prices fall, sales drop. He avoids specifically naming which banks might be suppressing prices but notes the interesting movement of gold into the United States. When pressed for a price prediction, Neumeyer reaffirms his long-standing call for “triple-digit silver” eventually, but more conservatively predicts $40 silver and $3,200 gold by the end of the year. He notes that silver faces resistance around $34-35 per ounce and is entering a seasonally weak period (March-May) for precious metals.