The cost of taking silver out of the ground is too low and is in the $10-15 per ounce range. Production will increase until demand is saturated and there will be significant overshoot to the down side as is always the case.
Right now silver production is well in excess of industrial demand and the balance is being stored by investors. The ONLY road to new highs in silver is accelerated demand by investors. Not flat line increase in demand, accelerating demand.
This is a dynamic market with industrial use far exceeding investor demand. People who buy silver for investment purposes are the small fry. They are insignificant to the larger market. For example industrial consumption of silver by the electronics and medical industries were 500 million ounces in 2010. ALL of those pretty coins minted for collectors and investors totaled 100 million ounces. Even jewelry use was larger at 167 million.
The bottom line is that unlike gold, the silver market cares much more about how many iphones get produced than it does about hyperinflation. A 20% decrease in industrial demand could DESTROY the silver market and swamp smaller investment demand with a flood of excess and unused metal.
I was a big believer in silver and gold and for years I touted them on this board. I'm not so sure about gold, but I am continuing to short silver through writing call options and I can't imagine another run to $50 like happened last year.
Iwog, I think you need to take a look at the cost of silver to pull it out of the ground in the future and currently. The number is now $29/oz when all costs are accounted for.
I'm sorry but I've looked at this issue extensively and this is simply incorrect. Silver would continue to be produced even if it was $4 an ounce because it is the byproduct of so many other mining activities. True costs for silver are similar to true costs of sawdust which is used to construct lumber and the true cost of waste oil which is used for biofuel.
In fact if there wasn't a market for it, silver would have to be discarded after being separated from copper, tin, and gold.
I want to be clear about something. I've been a silver bug since I was 14 years old. I used to buy and sell silver coins in middle school. From 2002 to 2011 I had 10,000 ounces of physical silver stored in a vault and countless shares of SLV. My entire life has been saturated with the love of this metal. I know all there is to know about it. I've read every scrap of data on it.
However you cannot fight a market where production is exceeding consumption by 20%. Investors do not have limitless appetite for a non-performing hard asset, ESPECIALLY when another hard asset like real property earns and income and is at historically low levels.
I've done extremely well buying silver and extremely well selling it too. There is no road for silver to go back to $50 an ounce. None.
From your chart, mine production is 761.6 (2011) vs 594.5 (2002) which is a 28% increase for 10 years and is a 2.8% yearly increase only. In 10 years, the industry has only been able to increase production 2.8%/year even given the technological advances. This is something Eric Sprott keeps pointing out.
"Compound interest is the eighth wonder of the world. He who understands this, earns it,,,,he who doesn't,,,pays it"
Also, I'm curious what factors lead you to buy silver in the first place in 2002 because silver was sitting a $5/oz for so many years before that and didn't take off until 2004? The chart from 2002 and 2003 that you give from the silver institute doesn't show any particularly good reason to buy in 2002.
I had an extremely good reason to buy in 2002. I had money then.
I was broke during the 1990's. My silver purchases in the late 1990s were limited to a few silver rounds or eagles twice a year at a coin show.
underwater, i skimmed over most of your posts, read word for word some of them.
I remember in the late 1970's, my Safety Ed/classroom driver Ed teacher in public high school in San Jose telling us kids he was hoarding silver so he could retire early. He was not my driving instructor, but was for some of my friends. They told about him having the place on his route, where he could get out and buy some more silver during the lesson.
Back in the classroom where he would discuss the merits of silver to the rest of us, well his apologetics sounds a lot like yours. "Good luck", because luck is what it will be if you do well on it.
I hang on a couple of silver forums myself. Some of these guys don't just buy a couple ounces or even a hundred at a time, they buy a thousand. I have never seen such investor demand for silver. Imagine the demand of the rich, probably creating underground vaults. I even know of one person, not rich but who had to build vault in their basements for the silver inheritance.
I'm not a metals expert but I think we are in a bull trap. I'm seeing silver miners start back up, same for gold miners, even the small operations, it's profitable now. My only advice for underwaterman is wait until the next recession hits and maybe then you'll agree a little bit more with Iwog, keep your dry powder ready for it.
That's what I'm waiting for. Silver is the patient man's game. That is why I started buying in 10-20 oz. chunks/dips learning more and more as years go by.
Some of these silver estimates are based on declines in fossil fuels, well, we've still got enough oil to fry ourselves, look at the tar sands. We keep coming up with better technology to get to the stuff. Yes, we've taken the easiest stuff first but their is plenty more where that came from.
Only higher fossil fuel costs, green revolution, or solar parring with electric costs will send silver prices skyrocketing, but that's just what I think.
Short term (now-3 years):
Silver has consolidated for a year and a half. If you look at the 10 year chart 1 1/2 - 2 1/2 years is pretty much par before the next move up. This crisis is an order of magnitude bigger than the 70's crisis, yet silver hasn't come close to the inflation adjusted high...I don't understand why anyone would think it's over. Even if the fundamentals are bad it should still rise do to bubble greed mentality.
Medium term (5-10 years):
Gold 5k-10k? Silver $300-$1000?
Pure silver has the highest electrical and thermal conductivity of all metals. Silver possesses the lowest contact resistance of all metals. Add to that its strong antibacterial properties.
If you understand anything about peak oil you understand how important silver is going to be. My biggest worry would be silver being declared a strategic metal by the government or military.
If Central Banks lose control all bets are off. I would hedge with something you think is good during a greatest depression, and The Long Emergency. Also one should hedge hyperinflation/WWIII/'Free Gold' by holding some gold past the expected bubble peak. If gold goes to 5k-10k it will likely settle at 2.5k-5k long term, so still a great buy.
-We are just now entering the timing band for silver to break the previous peak. Since it had the largest run up and correction so far obviously it wasn't going to break out any earlier than the 3 previous moves and corrections (04,06,08)
-Gold made a series of lower highs and lower lows in 2008 and then went on to exceed the previous top by 85%
-Benny still had more tricks up his sleeves like nominal GDP targeting
Underwaterman: Your conspiracy theories are somewhat deluding reality.
The business model goes in ten year cycles, I would say that business cycle is ramping up, I see silver production is still peaking, but so is investor demand which is pushing between 15-20%! I like to compare the silver chart to the gasoline chart, they are quite similar, but for me, gas is easier to understand. Still, if you think silver is going up when the next recession hits then good for you, buy more now, but I'm waiting until people are desperate for cash to back my truck up.
I dunno about what the nominal dollar price for silver oughta be right now. But for the extreme inflation scenario it may be a safer bet for joe sixpax like me than gold.
Besides the 1934 precedent with the gold for Americans, there's other problems with it if the price is too high. Like, I could see a scenario for any legal sale of gold having a 1099 form being issued for every trade. Or, a sophisticated counterfeiting with plating of tungsten pieces. Sure, a bullion dealer may have the resources to authenticate it but not a Joe Sixpak like me. And, anything physical with a high value density per milligram becomes a theft/robbery target, like on your way from your hidden stash to the place where you trade it for cash.
The true cost of pulling silver out of the ground is around $27/oz as I posted in the article above. Production can't just increase to meet demand because 70% of silver comes from mining other metals and there is essentially no above ground supplies of silver to draw from
I simply don't accept the assumptions contained in your article. Silver was produced when the price was $4 an ounce so obviously something is seriously wrong with any estimate at $27.
There are massive above ground supplies of silver to draw from. When the price goes up, it all heads to the assay office. I personally melted $35,000 worth of holloware and flatware when it was over $40. I packed it up in a big box and mailed it in.
I'm trying to hone my investment thesis but I can't improve it unless I know which assumption is wrong to analyze.
That source is over 18 months old. Yes silver went nuts after this article was written and then crashed. I was long until September and then sold off and went short. I wrote about it real time on this board.
Reviewing the article, almost none of the things it mentions are true anymore. The mint is not sold out of silver eagles. 100 ounce bars are plentiful. Investment demand is down, not up. Fabrication demand continues to slide. Silver production as a byproduct of gold, tin, copper, and other metals continues to rise. (remember silver would be produced from these sources if it was $2 an ounce)
About the ONLY thing that would cause me concern right now is the graph doesn't have the right characteristics of a bubble resolution. In my book, this is offset by an almost textbook perfect 5-year bubble market peak which has been present in every bubble from the Nasdaq to Platinum to oil.
You might be right and we might see $50 silver again, but I think the odds are against it and I'm betting the other direction.
He created PSLV because of the fraud of the SLV (doesn't settle in metal and is non-transparent) and if you read the prospectus, puts the investers at the last of the line for reimbursements for the 100 pieces of paper encumbered on each ounce of silver sitting there.
hehe, the SLV price manipulation meme. You do realize that SLV and GLD have the bars that they claim right?
1980??? Seriously??? You're going to counter a chart that shows 200 years worth of trends with a chart that shows 29?
You posted the wrong chart anyway. The money represented on your chart is sitting at the federal reserve doing mostly nothing. Not one penny of that newly created cash is being spent on gold and silver, in fact right now it's going into mortgages.
You should be looking for a new bubble in real estate, not metals.
1) worldwide concurrent massive money printing and
2) gold and silver are assuming their 5000 year old role of money again after this 40+ year experiment of taking the dollar off of gold.
Speculative forces trump everything else.
Printing of money isn't anything new. Japan did it in the 1990s and blew up their debt to twice our levels. Reagan tripled the deficit in the 1980s and Nixon closed the gold window in the 1970s.
So silver can be used as money. So can cars. So can computers. So can homes and dogs and cans of beans. There is nothing exotic or special about silver other than its use in industry, which is dictated by economic forces and currently consuming far less than is being produced.
I think $10-15 is supportable however what we have today is a sliver glut. A LARGE silver glut with millions of ounces being stockpiled in vaults for no purpose whatsoever.
Make no mistake here. A billionaire can crush the silver market on a whim in either direction. Those coins that you and I put away are meaningless next to contracts that exceed the world's total silver supply by an order of magnitude.
In an environment of shortages, futures traders can get into big trouble. That was the situation in 2011.
However that situation has resolved itself. There is plenty of physical metal available and more being added every day. Anyone can buy silver in any amount. These are NOT conditions that lend themselves to a run at new highs.
Not one penny of that newly created cash is being spent on gold and silver, in fact right now it's going into mortgages.
Bull Shit. In case, you haven't heard, we are in middle of a credit crunch. This money that the FED is printing is going directly into gold and silver, because, the banks are simply not lending to deadbeat fucked borrowers like you.
You're going to counter a chart that shows 200 years worth of trends with a chart that shows 29?
Do you think if I extend this graph another 170 years back, you will see anything as spectacular as what you see now? Being a dumbass that you are, you don't even know that we were on a gold standard before 1933, so the money supply remained pretty much constant for 400 years.