Will silver ever be cheap again?

Can you back up your statement about "consistently decreasing supply".
Silver can currently be pulled out of the ground at $18-$20 per oz. total cost delivered. When silver was trading in low teens, there was not a lot of incentive to mine new silver, so mines closed, etc. etc. and we were dealing with the above ground supply which is of course limited.

When silver rises, then there becomes more incentive to mine, and we start really tapping into the below ground supply. Whatever you may of heard, there is no shortage of below ground silver, it is just a matter of the cost of mining.

So, what does that mean. Well in the short term, silver can fluctuate greatly, but in the long term, it will settle around the total cost of mining. So right now, the smart money is on silver drifting lower, and hanging in the low $20's. Of course, like I said, fluctuations can and do happen.

When playing the silver market, the folks who make the most money, are usually buying when below, the cost of mining, selling, or shorting, when above. These folks take advantage of the fluctuations, and place their bets accordingly.

Now silver can also be used as a hedge against inflation. With inflation, the total cost of mining will go up, and the long term price of silver should follow.

We do have a lot of dooms day folks here, but the fact is we have little or no inflation and it really makes little financial sense, to base an investment strategy on a dooms day scenario. The folks who do this in my opinion are just making a feeble attempt to justify their "stack"
The fact of the matter is, in the VERY remote chance of a total dollar collapse, you are going to have much bigger problems that a stack of silver will not help.

So that is my theory in a nutshell. Please share your reasoning of why silver is undervalued.

Mike

 

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In year 1989 there was very low probability of collapse of USSR ...
All those "the facts of the matter" and etc just disappeared along with people's savings
SO, in today's world even remote chance of 1 for 1 billion trillions happens sooner than one expects (remember LTCM and probabilities they counted on?).

As of silver ... Deflation will not last for long ... the fiat paper pressure will push to inflation and may be to hyperinflation (there is no way governments can pay for the liabilities they have with current dollars/yen/roubles/yuan).
I don't know what is there for some gov. bureau to write that silver with current rate of consumption will be used within 35 years, but they did write it (if I remember correctly the years of silver left).

For sure, when there is a chance of buying low - one should go for this chance. But who knows where is that point? I set myself the price where I am comfortable to buy ... for silver it is $32 and below (yeah, I am buying now, not for speculative purposes), for gold - $1650. If PM's go down - good, I can buy some more with the same $ allocated for buying PMs. I have no idea if silver is undervalued or overvalued. What I know for sure though is the fact that every day any commodity appreciates because all fiat depreciation. And I know that one day I will be rewarded no by some price appreciation but by retained purchasing power.

 

I'm thinking a lot about this also since I've been a long term fan of energy investing, and I've probably made more money from this sector than any other. I don't think the new discoveries will necessarily drive the price down, and there are many opportunities to profit from owning the companies making the new discoveries. The oil sands are also a big contributor and their cost of production is $70+. Without the oil sands, North America won't be energy independent, so there is a long term floor under the price.

 

True, they new sources are higher cost. However, I was also thinking about the consequences of not sending USD overseas and how that may tend to strengthen our currency.

Also, the same methodologies and calculations that everyone was using for peak oil are the same types of calculations they use to silver "running out" right? All of those calculations always ignore the fact longer term higher prices will lead to more production, production innovations, etc.

Frankly, at this time I am more bearish on PM than I was a week ago. I am still bullish on primary metals, though, and on stock market weakness have been increasing positions in copper and iron.

 

Hey, I am in no way an authority on this subject but I can take a shot at what I guess silver will do.
I think that being in the USA, I tend to look at the smaller picture when it comes to silver and other precious metals.
Factors like elections, gas and other energy prices, the NY stock market, the value of the dollar, etc.
I have to remember that there is the rest of the world out there and it is a bigger picture that influences the precious metals prices too. Yes, the economic, social and political USA is still a major factor in the world.
The USA is not exactly the tail on the dog but If people are optimistic about world conditions, I think that silver will go down in price. If they are pessimistic silver will go up.
Today, and short term, I am on the fence about world conditions.
I do feel that silver is going to continue to slowly drop at a steady rate until October.
I think it will rise again over the winter to $35.00 to $40.00 levels again by spring.

Looking at a 10 year graph, I can see a pattern of ups and downs if I want to.
It seems that every 2 to 3 years silver peaks at 100% the price it was then drops to 50% of what it topped at. Then it climbs again. What I see in this chart are areas and not specific points.

2002 $5
2004 $8
2006 $15
2008 $20
2010 $30
2012 $40
2014 $50?

According to the chart if it continues to follow a pattern, and world conditions remain pretty much the same, silver will bottom out at around $22.00 in the near future, and I do think that is a good guess at how low it will go but probably no lower. Looking at the history though within the next 3 years it could easily exceed $60.00 and quite possibly more.

 

You have really missed the point. To keep this within formum rules, I will not discuss the disadvantages of a Communistic rule, but will just focus the the collapse. When Soviet Russia collapsed, if anyone had silver, gold etc. these things still had value. The reason being If folks had them, they could run "someplace" with them. The US is a totally different story. In the rare event of a total US financial collapse, the effect would be huge and far reaching. You will most likley have no place to run to with your precious little silver bars and rounds. Your probelms will mostly revolve around simple survival. Since you cannot eat your silver or have it keep you warm, you will not have much use for it.

If you are planning for a dooms day scenario, a better strategy would be to stock up on can goods for survival and barter. Cigarettes and alcohol should also be stockpiled for barter. It would also be a good idea to stock pile weapons and ammo.

As I said, it makes little financial sense to stockpile silver for a dooms day scenario.

Mike

 

Past performance does not equal future performance. The chart cannot predict the price of future. As I stated earlier, the absolute best way to see if silver is over or under valued is to look at the total cost per oz. to pull it out of the ground.

Miie

 

Your observation about a stronger dollar is a good one. It runs counter to what many people expect.

I don't know if higher prices in oil will lead to higher production. The concept of peak oil doesn't imply we are running out of oil. It implies that since existing wells and fields have a natural decline rate of something like 5-7%, so the only way to increase supply is to drill at an ever increasing rate. The first 2billion barrels of new production brought on line each year only goes to replace the production declines from existing sources. And this number increases every year as world wide demand increases. It's a big hurdle.

 

I have been reading about the "peak" in oil production and declining production thereafter since the 70's. Its always about 15 years away that we will "forever after have less oil each year, and no amount of drilling can offset it". That is the "peak oil theory" I was referring to. Convenient how so many of these things are always 10-15 years away, huh? Close enough to scare us, far enough away to allow the authors to make a mint before proven wrong.

 

Well, conventional oil production peaked in May, 2005. Total production is still rising because of the counting of natural gas liquids and the like, but they aren't perfect substitutes so the current stats are a bit overstated. So I don't think the peak oil claims can be dismissed, even if they are late. Peak oil guru, Matt Simmons, indicated that the real test would come when the Saudi fields peaked and turned down. I never heard anyone claim that oil would peak prior to 2000. MK Hubbert thought it would be around that point, so he wasn't far off. I never heard any prediction of an earlier date. The first I read about it was in a National Geographic article in the late 90s while waiting for an eye exam. But peak or no peak, I have always liked the industry and it will probably continue to be my largest sector investment.

 

You may find a portion of your questions responded to in an old post of mine here:
http://www.cointalk.com/t192351-12/#post1277416

Additionally, silver is only coming out of the ground at 7 times greater quantity than gold according to current mining figures. That pales to the historical 17 to 1 ratio. Since the price of silver is higher than it has been for the most part in recent history I contend that it is in fact also decreasing in abundance below ground because of the decrease in this ratio which I attribute to epithermal deposition which is science, not my opinion. Basically due to the melting point of silver the vast majority of silver deposits were placed at the surface of the Earth's crust when the planet was formed. This trait is unique to silver, and will require more cost and deeper mining to sustain the same levels of output.

As I have pointed out in other posts, the cost of production for silver is also underestimated because it is mined as a byproduct, and does not factor into the cost of the mines. If there were primary silver mines the cost of production would be calculated much higher. Since this would require a higher price in order for that to happen the cost of production should rise if the price does, all else being equal, and since the cost of production rising would also impact the overall price it could potentially create a virtuous cycle.

 

But the cost we look at sir IS for silver only mines. Byproduct costing is too messy, but anyone wishing to invest in silv should be aware of massive quantities of silver being mined and sold every year regardless of silver prices due to this activity.

Cloud mentioned it before, then I looked into it, and it seems around $20-25 is the incremental costs of producing silver at a silver mine. Of course they could go lower than this on a short term basis, due to costs of closing mines. Any price above this is pure profit, and will subsequently encourage further production.

As to ratios and the like, don't you think more gold is mined due to price rather than anything else? Gold is 50 times the price of silver, you can afford a lot more expenses chasing it than with silver.

Btw, "I contend that it is in fact also decreasing in abundance below ground because of the decrease in this ratio which I attribute this to epithermal deposition which is science, not my opinion"

You used both "I contend" and "I attribute", then say its science not opinion. Kinda sounds like a lot of personal opinion wrapped up in a sentence in which you claim there is no opinion in sir.

 

Not unless everything around it comes down as well.....

 

In spite of these massive quantities, mining supply does not meet total silver demand. People investing in SLV should also be aware that they are hurting themselves by putting money into something that does not require the physical metal is backing it, and by doing so they are not applying any demand on the physical metal with their funds.

Epithermal deposition is science, and my contention about it is opinion. Please stop trying to spin my words.

 

Wowee,

You are really starting to flail here. If mining supply is not meeting demand, why is silver going down?

Silver is going down because supply is GREATER than demand.

Also, no one is twisting your words. Epithermal deposition is science, but you presented it as a fact to back up your claim that there is a shortage to the underground supply of silver. What epithermal deposition is, is a PROCESS on how silver deposits are formed. Absolutely no conclusion can be determined on the shortage or lack of shortage of silver based on the fact that silver is deposited by epithermal deposition.

In addition, in another post you used the ratio of Gold mined vs. Silver mined, to back up your claim of an underground shortage. The two metals are different and demand is driven by different criteria. The ratio has nothing at all to do with the price of tea in China.

For the next point, you totally dismissed both my numbers and Chris's numbers for the total cost of mining. As Chris pointed out we were talking about pure silver mines and not bi products as you claimed we were speaking of. These numbers you dismissed are facts, and you can look them up, yet you claimed the real cost is most higher, but did not provide a number, and again, no facts to back it up.

And lastly, do not drink the kool-aid about SLV as an investment vehicle. The only reason people are hurting themselves by investing in SLV, is the simple fact that silver has been going down recently. On the other hand, people who are shorting SLV, buying Puts or selling Calls are doing quite well.

In conclusion, I just have one honest question for you. Do you really think your logic on silver being Grossly undervalued is based on any real facts at all, or you are just hoping for the best because you like stacking silver so much?


Fair question, and something to think about.



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I doubt that you will see much upward movement in silver prices before the November elections. Rising PM prices reveal to the public how much the buying power of the dollar has eroded; that, in turn, reflects badly on the administration in power. Right now, once a month, I take the total money received from selling odds and ends on CraigsList, and use the money to buy silver; I think now is not the time to buy gold.

 

Like I said before Inflexion, a lot of what people call "demand" is not really demand but inventory. Silver coins minted in 1964 were listed as "demand" back then, but sure as heck show up as silver at melting pots today. I do not think "demand" if stated in silver that will physically disappear as a result of its use is as high as current silver production.

If you coin an ASE, or make silver necklaces, or silver tea pots, all of that silver is not "gone". If the price is right it will be melted down. To me that is simply not "demand" or "consumption" in the manner in which you are presenting it.

Btw I was not trying to spin anyone's words. I was pointing out you were incorporating 2 personal views into a statement you were wishing to present as "scientific fact".

 

Right now, in deciding whether to go LONG or go SHORT on SLV, I could produce a strong argument for both strategies. Cognitive dissonance at its best, LOL.

I will say that if stock markets tank in Europe, a lot of PM will be sold to meet margin calls, and that may drive prices down, a window of opportunity so to speak, for a month or two.

Post-crash, a drastically-falling Euro would encourage investors to buy PM, if only to preserve the purchasing power of their holdings, as well as provide liquidity, and prices should skyrocket afterwards. Those are anticipated trends, not predictions.

 

I agree. I know I am known as a PM hater here, but I see both sides as well. The PM bears could be right, but they could also be wrong. On many PM websites disagreeing with the prevailing thought is shot down, but luckily we have room here to be able to actually discuss the pros and cons. I tend to share my con arguments here more since my pro arguments are already discussed by multiple posters here already.

My personal view right now is the band its trading in is pretty fair, with decent profits for producers. If it dropped a few dollars I actually may look at adding to holdings. My holdings are long term, though, so it would take more than a few dollars for me to ever wish to sell them.

 

Not arguing your points but you are talking short term fluctuations which are very hard to predict. I really have no idea where silver will be in a year, but my whole point is silver is not undervalued at this time, but in fact it is a bit expensive. Long term, it really should be settling in the low $20 dollar range at which time it will be fairly valued.

Mike