I've definitely run into confusion with this before, but through some research I've found several prevailing belief systems about silver. While I do not know which one is true, and many can be true simultaneously, they all point towards silver scarcity. My general world view on silver is relatively close to the average of world views, so my numbers will be general.
Starting assumption: Over the course of history, human kind has mined approximately 42 billion oz of silver vs. approximately 5 billion ounces of gold. The majority of gold ever mined (Greater than 90%) still exists, in a useful form, to humans. The majority of silver ever mined has been consumed by industry and only 10-50% of silver ever mined still exists in a recoverable form. The 10-50% depends on what level of scarcity you ascribe to.
Different Scenarios you can find online:
1.) There's only a few hundred million ounces of silver left, excluding jewellery. This is what Jason Hommel believes and writes about in some of his mid 2000s papers. Jewellery is excluded because silver is so cheap vs. labor that silver will need to triple or more before jewellery comes to market. If you believe that all silver coins/bullion is less than one billion ounces, like a fair number of people online then you by necessity suscribe to scarcity situation 2.
2.) Silver may or may not be rare (Depending on your belief system on silver) but it is definitely over-leveraged by financial institutions. Example: Ted Butler (I believe) has made the claim that for over physical ounce of silver that exists, there are 100 paper ounces of silver that exist. So regardless of whether physical silver is rare or not, people have been led into believing that silver is so abundant by being able to "Invest" in silver by buying paper that represents silver, that few people think it is rare. The best example of this are the naked shorts (JP morgan et al) for silver. Naked shorts mean that these bank institutes are shorting silver, just like they short a stock, so that there is a corresponding long who can theoretically call in the silver (take delivery) at any time. If this was a stock, then cash could be exchanged and all is well. But since this is physical silver, if the long takes the delivery of silver, JP morgan could never deliver because they do not have the silver, but the world thinks they do. Worst case scenario would be if the ETFs and the COMEX actually have none of the silver they claim, but this remains to be seen.
The major point of view #2 is that there are many phantom ounces of silver in existence. They exist only on paper, but they've fooled people into assuming they exist in reality, and thus they keep the price down because people assume there are billions of ounces, not millions of ounces, and thus there is no scarcity price premium. Yet.
3.) There are a few billion ounces of silver bullion, and between 15-20 billion ounces of silver in the world if art, jewellery, bullion, and coins are included. This is the view of silver that is the most optimistic on the part of the number estimator, and in my opinion grossly overestimates the amount of bullion and coins, but is probably pretty accurate in terms of art/jewellery/silverware silver. If this case is correct, a silver shortage isn't necessarily on the horizon unless an economic collapse occurs and there are hundreds of millions of middle class folks around the world rushing into precious metals. Again, this isn't my particular view on silver scarcity, but it can definitely be found and there are some arguments to support it.
4.) Scarcity through impending mine collapse. If you're a proponent of peak oil, then you'll understand this argument well. There is a fair amount of evidence to support we're nearing peak silver, and that soon (in the next couple of years) silver production is going to be begin falling off after a human history's worth of increasing production. Using united States geologic survey numbers, if we were to mine silver at the current rate of 600something million ounces a year, then dividing known reserves by 600something million ounces a year means there will be no silver reserves anywhere. All mines will be tapped out. Granted, our production will begin to taper off dramatically as we approach scarcity and as price increases, more silver will be found, but not enough to sustain our current rate of mining past the middle of this decade (I bet!). Also, as we near the end of reserves, oil will almost certainly be going up so that the cost to extract, and thus the cost to sell, silver will begin doubling very quickly. This viewpoint is very solid as it doesn't require any estimates of above ground silver. It is a well established fact that reserves are running low and silver needs to go up by multiples of its current price for new exploration to begin and for the harder-to-reach extraction to begin.
5.) Scarcity through population growth. Previously in history there have been 30-40 billion ounces to one billion people, or 30-40 ounces per man, woman, and child. Now it appears that there is probably closer to 1-2 ounces(If that!) of silver per man, woman and child.
6.) Scarcity through price. The gold market is worth approximately 5 billion (guesstimate of others guesstimates) of gold multiplied by 1200 dollars, or 6 trillion dollars. If my math is right. In the silver market there are, let us say conservatively, 10 billion ounces of silver. 10 billion multiplied by twenty dollars is 200 billion dollars. The silver market, in terms of value, is 1/30th the size of the gold market. Therefore the silver market is very prone to shocks and any flight into precious metals could theoretically rise the price of silver by multiples of its current price whereas that would take substantially more money to accomplish a doubling in the price of gold. So in this case silver may or many not be scarce, but it is so cheap that any amount of money flooding into the market could cause the market to catch on fire.
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