This is Why NO $50 Silver

Put your theory to the test. Name the stock.

 

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For the purpose of the guessing game, I would say it sounds like First Majestic Silver.

 

And you would be absolutely correct.

 

Good call on Majestic gentlemen, are you guys still recommending at $19.43?

 

I cancelled my cable quite a while ago. I still get some channels...PBS, CSPAN, and TELEMUNDO! Btw, "Muy Buenos Dias" 6-7 AM EST is pretty impressive!! ...but I digress.

I've seen quite a few bubbles in my lifetime (my definition). Just because a bubble is a ways away from popping, doesn't mean it's not a bubble. I define a bubble as any investment where the price becomes progressively divergent from its intrinsic value.

Has the industrial demand for silver significantly changed? ...nope.
Has the physical supply of silver changed? ...yep.
Has the dollar depreciated anywhere near silver's appreciation? ...nope.
If any sector of our economy improves, will money flow out of silver? ...yep.

...BUBBLE!!! :thumb:

 

Interesting, maybe you would like to cite the source for your definition from antiquity. Otherwise your rant is just built upon your straw man “custom” definition and therefore meaningless. I’ll say this, it is amazing to me that you can insist that authoritative sources (i.e. Merriam Webster, Investorglossary.com, Investopedia etc.) are somehow irrelevant because you say so.

 

I think both... Silver will be in high demand for many years to come in MFG. But (IMO), whats making this jump in PM value, is that countrys and it's populations are starting to buy up PM for personal hoarding, as well as backing up their currancy should the Dollar and Euro collapse.
When the smoke clears from this monitary meltdown. Silver will flood the market again when people feel there currancy is safe or if a new currancy rushes in to replace the old one.

 

Definitions from antiquity won't be on the internet, obviously. So the next best thing is a discussion of bubbles from someone who was actually educated before internet pop culture replaced education. Vince Farrell does a pretty decent job. I guess CNBC is willing to quote him but not believe him.

http://www.cnbc.com/id/38848272

I agree that you are at a disadvantage in that the internet is your only source for this type of information, so you are an intellectual prisoner of that circumstance. Everything is called a bubble now, and perhaps the word has lost its meaning for the internet generation. Too bad for you.

 

...or someone that has experienced multiple bubbles. Look at post #45...that's all you need to know about what "is" or "isn't" a bubble.

 

Right on. Right on. Right on.

I can't believe anyone still puts any stock in CNBC's fear based hysteria.

 

I simply requested that you cite the source for your definition, I never said anything about it coming from the internet. Oh no, don't tell me your definition of "cite" requires that the citation be only of internet origin. And when did I ever say the internet was my only source for information?

Someone in the Cointalk forums has repeatedly admonished people to be careful of what they read on the internet. With your penchant for making up terms, misquoting, refusing to accept the dictionary as a source for understanding common definitions and generally clouding the issues, I'd say that's good advice.

 

I would respectfully suggest that a critical item to add to the list is the change in the cost of production. The cost to mine has gone up a lot, so the price has to rise to make it economical to open or operate a primary silver deposit. So prices can rise without necessarily signalling a bubble.

 

It is perfectly okay for you to accept the dictionary definition or CNBC definition, and I know I won't change your mind. If you read some of the articles by "oldtimers" like Vince Farrell, it becomes obvious that the terms bubble and extended bull market, or bubble and overvalued were not synonyms prior to the late 90s. It has a special meaning in relation to investments and economic events. Perhaps you are correct and the definition has been changed by popular acclamation, and the investment world is just a little dumber now for having lost a little bit more precision in the use of language. I will continue to use the term as described in the link I sent to you. Below is a link to a book that might help you go beyond the use of dictionaries in the search for investment understanding.

http://www.usagold.com/gildedopinion/mackay.html

Good luck to you.

 

The price of silver has increased 500% over the past five (5) years...are you saying that production costs have seen similar increases? :scratch:

This is exactly my point...they haven't. Silver reserves that weren't cost effective to exploit five (5) years ago are going into production...that's a fact; that was the whole point of the OP. Add that to the huge amounts of physical silver being hoarded by investors and I think we're building a bubble. (jmho)

I'm not rooting for a downturn in PMs...I LOVE PMs! I just think we should take off the rose colored glasses and consider the fundamentals of the investment.

 

The defintions for these terms remain distinct even today.

 

Another point I feel is important that many here may disagree.

Once the investment is sunk into acquiring the equipment and building the infrastructure to exploit these new reserves coming on line - contribution margin is the driving factor behind continued production - not profitability.

 

Yes. The cost of production has skyrocketed in the last decade and has tracked the price of silver pretty closely. The cost of production was probably around $5 per ounce a decade ago and is now probably in the $20 area for primary silver producers. The companies that mine other materials generally count silver as a credit against their other costs so the calculation isn't available, but their costs are up too. This is the piece of the analysis that is rarely discussed. What your comment misses is that l0wer grade reserves at existing mines that are now going into production benefitted from the exploration and installation of infrastructure at much lower cost levels. But the companies that are exploring for silver right now will never be able to bring deposits to market at anything like that cost. Economists proved long ago that it is the marginal cost of production that sets the price. Unless the world is willing to deplete current reserves and then do without silver, the price must remain high enough to let the new deposits to be economically produced.

 

Excellent point. This is what I have been saying off and on. If new mines come online, (could be almost any miner, copper, silver, gold), then more silver will be produced, and still will be produced even if the price drops as long as the incremental costs are lower than silver because sunk costs are...well sunk. This is common in commodities, long term high prices produce low prices due to higher supply.

The other thing I just want to point out to everyone discussing this is that "demand" is not equal to "consumption". This is a huge point, the biggest growing demand for silver is for investment purposes. This is NOT consumption, this is simply inventoried goods. At any point in the future ALL of this could come back onto the market. The silver market for years was truly in a deficit scenario, having to melt old stocks to meet current consumption. This was an important factor. However, today this is not a true statement, and every month millions of ounces are being bought by investors, and if those investors turn their backs on silver this will all come flooding back onto the market.

I will not bet my childrens college tuition that silver will not break $50, it very well could. It could break $100 with some global catastrophe happening. I just wanted to throw these ideas out there so that a couple of years from now people aren't looking around and saying, "what the heck happened? I didn't think $15 silver could happen anymore because of silver shortages!" I am not saying $15 WILL happen either, but it very well can, quite easily.

I agree with Cloud that silver is not a "bubble", though its a very strong run, and the level of speculative and non-historical participants is increasing at a high level. It seems I hear more silver ads every day flouting its performance. That's a warning sign, though they aren't as heavy as 1979 yet.

 

Existing mines are always driven by the forces you describe. And once the price drops or is perceived to be unsustainable, new mines will not come online because the investment case will not permit return on capital requirements to be met. Then, the existing mines start to high grade their ore to remain cash flow positive, which only serves to keep the price of silver depressed by producing below the cost of capital. Most ore bodies have a very limited life, so production starts to decrease anyway. Basically, mining is a terrible business over the long term.

 

/agreed. Just pointing out at $37 many more ore deposits are profitable, therefor mine extensions and reopening closed facilities will happen more than they would of at $15 silver, and once open it takes a while for markets to force them closed. In the meantime they keep producing. Even if silver dips but if copper stays high, more silver will come online as a ancillary mining product. Always remember a large percentage of silver is not mined for specifically, but is a secondary product, same as platinum and palladium. It happens with gold some too, but there are more specific gold mines than the other PMs.

Not trying to disagree with anyone, just pointing out a couple "buts" that I think are pertinent long term.