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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
