Silver bounced back on Tuesday after its dramatic sell-off on Monday. Its price could well be volatile for a while but a number of factors may combine to drive it higher over the longer term (note: not investment advice), including investor fear of debt-driven currency debasement, the need to deal with the consequences of export restrictions by China (which controls around 60-70 percent of the world’s refined silver production), and investors speculating about the effect of those restrictions.
Silver is used in a wide range of industrial applications, and if anything the 60-70 percent number understates just how dominant China’s position is. Recycling apart, most silver is produced as a byproduct of mining other metals, and thus “needs” processing. Only about 20-30 percent comes directly from silver mines as that term is popularly understood. If it came to a squeeze, the Chinese supply would not be easily replaced.
Not completely unrelatedly, the Wall Street Journal reports that the U.S. competition with Beijing over rare earths and other minerals has reached the Cook Islands (population 15,000) in the South Pacific. Once a part of the British Empire, the Cook Islands are self-governing, but in “free association” with New Zealand, a status quite a bit senior to that enjoyed by, to mention an awkward name, Greenland vis-à-vis Denmark. Unlike Greenland, they have full diplomatic relations with a number of countries, including China since 1997 and the U.S. since, uh, 2023. Both China and the U.S. are actively wooing the islands’ government.
This matters because as the Journal’s Yusuf Khan explains:
Thanks to their location close to tectonic plate fault lines, South Pacific islands are surrounded by potentially enormous mineral deposits. The deposits are scattered across the seabed in the form of small rocks known as nodules, akin to black golf balls filled with cobalt, copper and manganese, as well as some rare earths.
Lorah Steichen, I suspect, would disapprove of all this. She is a global systems and policy manager at the Climate and Community Institute, “a progressive climate and economy think tank,” and a research manager at Transition Security Project (see below). In December she wrote an article for the Financial Times in which she criticized U.S. efforts to build up reserves of, or access to, critical minerals as a major misallocation of resources:
[M]any of the same minerals coveted for weapons systems are also indispensable to the technologies needed to decarbonise the economy. Military demand risks diverting these materials from sectors vital to the energy transition. Estimates suggest that at least 30 energy transition minerals and metals, such as lithium, cobalt and rare earth elements, form the material basis of the shift to green energy.
These materials are core components of renewable energy technologies and essential to electrification, used in wind turbines, solar panels and, critically, the batteries that store renewable energy, electrify transit and stabilise the electricity grid. Many of the materials now being funnelled into the National Defense Stockpile could instead accelerate the deployment of renewable energy technologies at a time when the narrowing climate window demands rapid, decisive action.
To put the green “transition,” which may deliver some benefits some time in the future, ahead of the immediate and infinitely more dangerous threat posed by the U.S. minerals and metal gap with China would, as so often with that transition, be to set priorities that would delight Beijing.
Steichen concludes that:
As mineral extraction becomes increasingly zero-sum and climate impacts intensify, the US faces a pivotal choice: continue shovelling resources into an expanding military apparatus or direct them towards an industrial strategy that delivers public benefits, stabilises the climate and provides the foundation for climate co-operation, including between the US and China.
The Transition Security Project “investigates the US and UK military industrial complexes as economic, climate and geopolitical threats.”