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CONFIDENTIAL

The Silver Situation
Mary Maroney
The squeeze in foreign silver supplies in the.United States
market which has followed the end of the war is seen by the proponents
of higher prices for silvor as having placed the metal in a strategic
position* The highlights of the market position for the past throe
months have boon: (1) the revocation in August of W B Order M 199
P
which limited and controlled the usos of silver; (2) the practical
dis appear tine * of foreign silvor supplies as the result of this ordor;
o
and (3) the incroaso in tho O A coiling price for imported silvor from
P
U5 conts to 71*11 cents por ounce* Although apparently intended as a
do-control adjustment which would bring moro foreign silver into tho
United States, the l a t t e r action has backfired and has not only failod,
to improve receipts from abroad but hus touched off a wave of speculativo interest which has had quite the opposite effect*
Coincidentally with theso developments, Senator McCarran
has introduced into Congress b i l l s proposing an increase in the Treasury
prico for domestically produced silver from 71#11 cents to |1.29 per
ounce, tho monetary value. His b i l l s would also abolish tho 50 per cent
tax on profits in silver transactions uid end tho Executivefs power over
silver imports, exports, and acquisitions* O the other hand, Repren
sentative Cellar hr.s reminded Congress th<ut ho hus a bill boforfc tho
Committee on Y/ays and Mqons to wipe out the Silvor Purchaso Act end
tho support tho Treasury has givon sinco 193U to silver prices. .Another legislative itoqi, of immediate intorost to the market, is that
introduced by Senator Green to extend boyond Decombor 31 tho time during
which the Treasury, under the original Green Act, jiwy make i t s "free"
stocks available to domestic industry. ITithout foreign silver, tho N w
e
York market is reported ablq to got along on domestically producod silvor,
which tho Treasury is not buying, plus the Treasury's releases from i t s
"free" stocks. Failure to extend tho Treasury's authority to continue
these releases, however, would put tho market undor serious pressure.
This l a t t e r situation indicates how rcdically tho position
of silvor has changed in world markets during the war. I t is suggestive
also of the strength of inflation sentiment in v/orld commodity markets.
Traditionally silvor h^s had a strong affinity for tho movements of
commodity prices. Because of the United States subsidy to domestic
production, howover, end tho p t r d l u l policy of purchasing all foreign
silvor offered, this affinity has boon overshadowed for some years by
the Treasury's largo accumulation of silver stocks. N w thut these
o
stocks ere being reduced, silvor may recover i t s pro-doprossion sensitivity as an inflation index. The chcjrt showing prices of silvor on
tho N w York market since 1913 is of interest in this connection*
e
Tho bases of the war-time, chang© are sovorul* /.s i s shown
by the accompanying tublo of imports 0.1 the important contributors
to our largo pro-wur receipts huve greatly altered their relation to
our market in recant yocvrs* Doclining production, due to manpower
shortages, has boen partly responsible for tho change* Larger coinage




- 2 -

COWIDgNTIAL

requirements arising from the higher world price level have had some
influence* In addition, many countries have experienced a notable
demand arising from hoarding. Another abnormal factor with the Latin
American producers hus been the unusual demand for silver objects,
particularly jewelry, which these countries could satisfy by retaining
their bar silver for home manufacture. The wur-tim© restrictions on
production in the United States h^ve afforded double protection to
foreign manufacturers in limiting the ©mount of competing c i v i l i a n
goods of United States origin and in keeping our coiling on foreign
bar silvor prices low.
At the same timo thfct imports have boon f a l l i n g , domestic
consumption of silver has byen r i s i n g rapidly. In the war industries,
there hus boon an extension of silver-using technology as well ae subs t i t u t i o n of silvor for scarcer, motals, especially t i n and nickol. We
have also became exporters on a substantial scale to a l l i o s in need of
silvor to meet coinago and hoarding demand. Notwithstanding a severe
limitution on the output of non-essential silver manufactures i n the
United States (to 50 P o r °ont of 19l+l~19h2 production), i t hes boon
nccessery to mfcko available some of tho Treasury?s so-called fffrooff
( i . o . , non-monetiz©d) silvor for industry and for lend-louso export,
as well as to shift to non-consumptive uso in plants* writing on w*r contracts somo of the silver bucking silvor c e r t i f i c a t e s . At the present
timo, the treasury 1 s stocks of umonctizod s i l v o r , whilo s t i l l subs t a n t i a l , <*rc some 900 million ouftcus bolow their early May X9k2
figuro, which was tho high point of accumulations. Thoy now cmount
to approximately I4.9O million ouncos, of which i t i s estimated that
approxlxa&tely 210 million i s obligated for monotiz&tion.
present agitation for higher silver* prices, therefore,
springs in a general way from the fact that stocks in the United States
market are dependent on l e g i s l a t i v e action. Our 19W+ consumption of
silver amounted to 120,000,000 ounces. This was six times the pre-war
figure. Although consumption for war purposes hus been shut off, the
figure for this year w i l l probably again be large because of the backlog of c i v i l i a n demand fed by high purchasing power. United States
production in 19WU was 37 million ounces? although ronowod operations
of tho gold mines i s again contributing somo by-product silvor to the
supply, i t does not seam th&t 19U5 production w i l l bo a groat deal
l&rgor. Thus tho Treasury1 s authority to continue snlos from i t s
freo silvor i s of grout interest. Tho amount of t h i s froo silvor
remaining in tho Treasury, approximately 280 million ounces,would
soom to be adoquato to moot our coinage end industrial, requirements.
Tho question of tho authority to continue releases i s tho important
factor in the bullish sentiment and there hc.s been no indication of
o f f i c i a l policy one way or the other.
There h&ve been somo indications tht.t tho situation i n our
market h~s h^d upsetting consequences in the larger foreign markets.
%n Mexico, the r i s o in our price increased tho intrinsic valuo of
th© silvor pe$o abovo i t s monetary vulua so that tho Mexican Govorn*mont hus attempted to r e t i r e the outstanding silver coins c\t a 20 por
cent premium. Despite the fact that t h i s premium cancels out tho




-

COHFIDBNTIAL

3-

e s t i m a t e d p r o f i t t o bo d e r i v e d from f o r o i g n shipment, the Bank f s

retirement program i s reported to have met with comparatively l i t t l e
sueooss. The Bank intends to mint now coins with a lower silver content. The fidluro of hoardod silver to return w i l l , of course, make
loss newly minod silver civdlublo for sale on the world market*
In Canada, the Government h~s boon under pros sure to increase the domestic prico for silver above the present prico of I4O
cents Canadian but so far hus not yioldod. Of the llj. million ounces
of Canadian silver produced l u s t year, t*bout three-quarters was
required for domestic use. ill though comparatively l i t t l e production
c~*n tUce advantage of tfye highor United States price, un active market
in silver properties i s reported. In London, prices have boon raised
to correspond to tho United States prico. There h^vo been no other
repercussions sinco the market i s controlled <*nd there hc.vc boen no
special demands. There i s no indication as yet of any marked effects
of tho United States prico increase in India and China. In theso
markets, where hoarding i s very important, the quotations are considerably above tho United States prico.
Table 1

United States Imports of Silver Bullion
(in millions of ounces)
Imported from
Other
Toted United ecocide. Mexico Peru
L&tin J&pan
other
Kingdom
ijnorica

Period

1938
1939
19U0

246

83
39

191+1
19*42

13U

108

19U3

63

1*

166

51

1945 s Jan.-Sept.




3k

1
_
_

29
23

97
81

17
16

20
18

7k

18

70

75

Ik

k
Ik

31

13

8

—

2k

6
k

15

11

15
15

12

7

10

Silver Consumed in Industry and Arts
in the United States
(In millions of ounces)

1942
1943
ii

7
11

11
12

Ik

Table 2

1938
1939

8
10
11
12
8

20

k5
hk

72
101
130
120

8

—

7
6

k
k
2

CONFIDENTIAL
Tabl© 3
Silver Production
(In millions of fine ounces)
Area

1938

Mexico
United States

76
58
23
19
17
15
15

81

59

Canada

Peru
Other Latin America
Europe, excluding U.S.S.R.
Australia end Oceania
J»sia, excluding Japan

.Africa

1939

22
21
16
ll+

15
11

11

6
Total

191+2

83
67
2h19
15
13
15

191+3

1914+

63
37

78
69

85

71

22

5k

21

1+5

15
16

16
16

15
15

17

1+
1

12

1+
1

Not available
n
n
it

6

n

n

12

5

2t+7

192+0

tt

2t+0'

Table k
United States Silver Stocks
(in millions of ounces)
April 30, 19U5 October 31, 191+5

In Treasury
As security for certificates
1,158
Bullion
Dollars
363
In Goneral Fund
10
Dollars
10
Subsidiary coin
Bullion for recoin&go
1,360
"Froe" bullion
Outside Treasury
Dollars
Subsidiary coin
Total stock
l/
"
"
2/
3/
"*
"

2,901
1,521

Change

2,052

-8U9

1,535

1/1,273
~ 262
1,380

l!+

115
-101
-863

517
10

7
-_

1/3A90

-870

17

707

1+11+
51

53

10l+

363

603

3,315

293
2U0

V2,759

-556

878 million ounoos of thoso items are h-old by Office of Defense Plants of
the Reconstruction Finance Corporation in non-consumptive uses.
Less then 500 thousand ounces•
Of this amount it is estimated that approximately 210 million ounces ere
obligated for monetiz^tion.
Excludes silver contained in five cent piece coinage. Through June
tho latest dato available, 1+0 million ounces hc.d been consumed.
NOTBt




In the appended chart of Now York silver pieces, the line
since 1933 represents quotations on foreign silver. Tho
Treasury1s price for domestic silver is not shown.

NEW YORK PRICE OF SILVER
MONTHLY AVERAGE OF NEW YORK PRICE PER FINE OUNCE OF BAR SILVER
OFFICIAL PRICE'

CENTS PER OUNCE

140

CENTS PER OUNCE

140

•

120

120
-

100

100
-

-

I

\

80

80

A /

-

60
)

iw

\

I

40

\

-

J

1

u

60

|

k

40
m+mmm

mmam

-

20

-

1914

-

1916

1918

1920

1922

•MARKET PRICE LESS CARRYING AND MARKETING GHARGE8.




1924

1926

1928

1930

1932

1934

1936

1938

1940

1942

1944