The silver market has been small in Colombia since the end of XIX century; other countries in the region produce higher volumes of silver such as Bolivia, Brazil, Chile and Peru. Colombia has given 0.14% of total World silver extraction since 1900, so “El Dorado” is just a myth. Moreover, the silver market can be taken as a predictor of economic activity; these two variables are countercyclical, and in Colombia case as GDP faces an increase of 1.0%, the silver market faces a decrease of 0.57%. This result can be extended to World economy; as one realises the international gold and silver prices have shown an important reduction since the end of 2013, so it is expected that investors make their job in real sector. This scenario takes place because of gold and silver are taken as deposit of value for investors when economic crisis take palace.
Author: Humberto Bernal,
Economist,
e-mail: zhumber@gmail.com
Twitter: Humberto_Bernal
Colombia as others countries in the region such as Peru, Chile and Bolivia have taken the international attention for their precious metals such as gold and silver. However, the huge volume of these precious metals that were expected through the last half of XIX century and the first decades of XX century was disappointed for Colombia case; foreigners were expected to find huge volumes of these precious metals, but they did not find the place called "El Dorado”. This note can be taken as the second document about precious metals extracted in Colombia during XX and XXI century; the first document was about gold, see my weekly note April 21 of 2013. The point of this note is to show the main statistics of silver extraction in Colombia, and highlight the counter-cycle movement of silver market in Colombia and Colombian economic activity.
Colombia is a small country in silver production. Colombia has produced 1,577 tons of silver since 1885; it means an annual average production of 13.3 tons; this volume of silver can be valued in US$293 millions in 2013; it means 0.1% of Colombian GDP in 2013. The total volume of silver extracted from Colombia since 1900 shares in 0.14% of total World silver extraction since 1900; it means that Colombia is not a main supplier of silver such as the United States, Bolivia, China, Mexico, Russia and Australia.
Colombia used to extract high volumes of silver at the end of XIX century and beginning of XX century. Antioquia, Bolívar, Chocó and Córdoba are the main regions in Colombia where silver is extracted, but at the the end of XIX century and beginning of XX century were Antioquia, Chocó (Cauca region in that days) and Tolima. The total volume extracted between 1885 and 1902 was 50% of total silver extracted until 2013 as one realised in figure 1. Moreover, it takes attention that as international economic crisis started, the volume of silver extraction increased; for intense, after 1929 crisis and 2008 crisis.
Figure 1. Silver production in Colombia 1900-2012
(annual production, Troy once)
Source: 1900-1910: Ocampo,A. 2013 (1984). Colombia y la economía mundial; 1913-1921: Mineral statistics of British Empire and foreign countries 1913-1922; 1923-1930: Poveda, R. 2005. Historia económica de Colombia en el siglo XX; 1931-2012: UPME, Colombia webpage.
Silver price has shown an important increase in the last years, but this trend is changing. The average silver price since 1900 is US$8.2 per troy ounce in 2013 prices; however, after 2008 crisis the silver price increased to reach US$31.2 per troy ounce in 2012. In 2013, this price decreased to reach US$23.8 per troy ounce as figure 2 shows. This dynamic can be explained by the desire of society, mainly financial markets, to keep their wealth under dollar depreciation. Moreover, the silver-gold relative price has shown an important decline since 1980; by 1980 the silver relative price was 0.036 troy ounces of gold, and in 2013 this price was 0.017 troy ounces of gold; this can be explained by huge silver reserves; while gold World reserves were 52 thousand in 2012, the silver reserves were 540 thousand in 2012.
Figure 2. Silver international price
(annual average price, US$ constant prices of 2013 per Troy once)
The global economic crisis is ending
The price of silver and gold showed an important decline in 2013, so this is an economy signal that global economic crisis is ending. The international silver price was US$31.2 per troy ounce in 2013 and US$23.8 per troy ounce in 2012, and the international gold was US$1,668.9 per troy ounce in 2012 and US$1,411.2 per troy ounce in 2013; moreover, through the first moths of 2014 these prices have shown lower values; for intense, silver price was US$21.8 in february of 2014 and gold price was US$1,323.6 in february of 2014. If one takes this information and applies an econometric model of supply and demand for Colombia silver market, one realises that economic growth and silver market are countercyclical. It means as the volume of silver demanded shows a decline, the economic activity takes an upward path or the other way around; in Colombia case, an increase of 1.0% of Gross Domestic Product, the silver market shows a decline of 0.57% as table 1 shows (green row). This table shows the positive supply slope and negative demand slope; moreover, the supply is inelastic while the demand is elastic; the elastic demand can be explained by close substitutes such as gold. One realised that FDI in mining sector in Colombia pushed up the silver production in about 1.0% when this type of investment increases in 1.0%; finally, gold is a substitute of silver; as gold price increased in 1.0%, the silver demand increased in 4.8%.
Table 1. Supply and Demand for silver in Colombia 1900-2012
(annual data, variables in natural logarithms, econometric model under 3SLS)
| Variables | Supply | Demand |
| Silver price |
0.73%
|
-4.74%
|
| FDI in mining |
1.00%
|
|
| GDP |
-0.87%
|
-0.57%
|
| Gold price |
4.80%
|
|
| R2 |
0.65
|
0.98
|
| Observation |
108
|
108
|
Source: Own calculations Stata 12.1.
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