Gold prices and silver, 50 years?

Yes, all of these commodities are energy intensive, but my point is that the correlation between gold and silver and oil seems to be stronger. But let's move away from hairsplitting or speculation as to why the correlation with other commodities has broken down. You said you believe gold and silver have more room to go lower. Presumably, you believe they ought to be lower based on your interpretation of the data you posted. So, how much lower do you believe they ought to go? I believe you once posted that the cost to produce silver is under $10. Do you still believe silver ought to go under $10? I'm not trying to put you on the spot; I'm genuinely curious.

 

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Why are you comparing 20 years?....why not 15 or 25...?...When you can pic your starting date like that your stats are pretty worthless and can be manipulated in either direction just by changing the time span.

 

Actually, I re-read justafarmer's post and see he did not say silver should drop; only that its price seems out of alignment with other commodities. I misread his post and acknowledge that. It's just that I remember he wrote that the cost to produce silver is under $10 not too long ago. My assumption, based on that, was that he believes silver has more room to correct (which is not an unusual position).

 

Actually the period I selected was 21 years. Why did I select this - I was graphing some commodity prices relative to gold and silver over the last 20 or so years using 3 year increments.
So how did things stack up in 2001 (9 years later)
Oil
Gold bought 21% less in 2001 than 1992
Siulver bought 14% more in 2001 than 1992

NatGas
Gold 25% less
Silver 7% more

Corn
Gold 16% less
Silver 20% more

Beans
Gold 7% more
Silver 54% more

Wheat
Gold 1% less
Silver 42% more

Cotton
Gold 4% more
Silver 48% more

Lumber
Gold 42% more
Silver 102% more

Beef
Gold 6% less
Silver 34% more

Pork
Gold 8% less
Silver 32% more

Copper
Gold 24% more
Silver 77% more

Aluminum
Gold 24% more
silver 76% more

HR Steel
Gold 40% more
Silver 100% more

Assuming the website I used to gather my pricing info is correct and I entered them correctly.

 

$19.99!

 

As I said, $20 is an important psychological level for traders. Some easy money has been made on the assumption that the price would revert back to that level. With a stop-loss in place, it's a good strategy, IMO.

 

It's now over $20. I think it's a good price for silver. We can still buy at that level, but I don't feel like it's going to go too far below $20

 

You are probably talking about the following post I made in a different thread in june, 2013.


"I am of the opinion that the costs presented here are on the high side.
The Silver Institute states a cash cost of $8.88 per ounce. Some may disagree with this number but I feel it is reasonable and in the ballpark based on the fact annual mine output was 600 million ounces just 10 years ago at a board price of $5.00 and lower. I just don't believe the cost dynamics as being suggested in this thread over the last 10 years.
Be that as it may these folks don't operate under some kind of wildcat business model. Miners are not commodity speculators. Their production and price is fixed (for the short term - 12 - 24 months or so) through forward contracts, hedges and other such mechanisms. Impact from today's prices on mine production is another 1 to 2 years down the road.
As for the impact of scrap silver - it was a significant source of supply at $5.00 an ounce and will remain so at most price levels.
Well that is the way this Dumb Old farmer sees it."

Silver was producing a positive cash flow 10 years ago while trading @ around $5.00. Do you believe the production costs for silver have inflated 400% to 500% in the last 10 years?

 

Maybe not 400% to 500%, but certainly in the hundreds:

http://research.stlouisfed.org/fred2/graph/?id=DCOILWTICO

Now, we can debate whether a 200% or 500% (or 1000% for that matter) jump is justified, but these numbers tell me something big is going on. From my own investigation, it looks like global oil production has remained flat while the global middle class (especially in China, India and Latin America) continues to grow. The trend seems to be highly inflationary for commodities and especially oil -- sure, you can bet that this global growth will slow or maybe reverse, and some are betting this way based on the situation in Europe, China and the U.S. (a deflationary view), but if global resources are finite and the demand for them is growing rapidly, that tells me the trend is likely to continue, despite slowing growth or recession in the developed world. The U.S. is slowly having to cede economic power to emerging nations.

 

There is the rub in some respects. In what way are they "finite"? Theoretically or economically? Theoretically yes this number is fixed, yet we to this day do not know what it is on planet earth. Economically recoverable reserves is changing every day. Loook at aluminum. Its one of the most common metals on earth, yet until the 1880s was one of the most expensive because ECONOMICALLY we could not recover it from the ore. Then we developed a new procedure and now wrap fish in it.

I just read an article a couple of weks ago about nickel, and how the price of nickel got destroyed because the Chinese discovered a way to use pig nickel instead of high grade product, and demand for high grade nickel took a major hit. The same article, (in the WSJ), talked about all kinds of new methods of recovery for all kinds of minerals, and how the economically recoverable quantities keep growing despite BRIC countries because of technology.

I am just saying its not a simplistic argument. The reserves are not a static thing like a gas tank, with every mile you drive leaving you with less and less gas. With commodities sometimes you drive 300 miles and end up with 5 times more gas than when you started. This was the fallacy of peak gas and peak oil arguments. They NEVER assume technology will open up new reserves for use. They always start with economical reserves today and draw it down. History shows us repeatedly that humans will find a way to expand our economically proven reserves with technology.

 

This is an excellent point and one I have thought about myself when thinking about peak oil. I hope the optimists like Ray Kurzweil are correct in their optimism about our transition to more efficient forms of energy. The problem seems to be that we are still very dependent on oil, and though we are increasingly using other forms of energy, it's not clear that we are transitioning fast enough to avoid another oil shock as in 2008. I believe there are massive oil reserves that remain untapped, but I'm not so sure the resources and time are available to allow them to flatten the rising oil price any time soon. So, I admit I am influenced by Chris Martenson.

Going back to my previous comments, the link to the Federal Reserve website wasn't really necessary. Justafarmer's own data point to a very close relationship between the price of oil and that of silver over the long run.

 

I cannot disagree. I am not saying peak oil cannot happen, just pointing out the reason they predicted it 5 or 6 times already and it hasn't come to pass. I also agree pm is basically storable oil in many ways. However, since peak oil and peak natural gas has been predicted and failed, I was simply pointing out WHY the peak never materialized. This is important information if someone is investing on either a peak oil or peak silver hypothesis. You could get very burned betting silver or gold mining will peak by a certain date only to have it not be true. I have seen a few pm websites hint "we are running out of" pm, so wanted to educate others on the danger of investing on that argument. "Running out of" is a function of economical reserves, NOT theoretical ones, and very much can move dramatically, and that small difference could possibly clobber someone.

 

I don't know about oil, but I do know that the ore grades are going down right now. We may figure out ways of getting more silver out of the ground, but we're not doing it right now, so I think the price of PM's is going to have to go up in the short term at least.
Check the charts out in this article:

http://www.thestreet.com/story/12199323/1/new-trend-guarantees-higher-gold-prices.html

 

http://d1w116sruyx1mf.cloudfront.ne...nGradeoftheWorldsTenLargestGoldOperations.png

 

Revi,

I think this graph just represents that as prices for gold skyrocketed, it became profitable to mine lower grade ore. I do not think it represents that the quality of the global supply is in decline. But that is just my opinion.

Mike

 

ALSO, I would say that this chart stops at 2012. Have they calculated in Rio Tinto's new operation in Mongolia? The world's largest copper/gold deposit is being mined now. They are supposed to be producing about half a million ounces of gold per year for the next 40 years just from this one new mine. There are other new mines around the world being opened up as well. It takes at least five years to open a new mine.

Again, pointing out the danger of betting on "peak gold" might be very dangerous.

 

Peak silver is probably a better bet, especially at these prices. Will take at least $50 silver for any primary silver mines to start opening, probably considerably higher than that as well. Likely triple digit silver.

 

500,000 ounces, while a good amount, is less than 1% of what is mined every year.

Do you know how many grams per tonne they are getting at Rio Tinto?

 

I don't know about the next 50 years, but it seems as if silver is holding over $20 for the next 50 minutes anyway!
http://www.kitco.com/charts/livesilver.html