Silver Price To Head Higher As Cost of Production Forms A Base

Dow to Silver Ratio Dec 2013The huge rise in the price of silver since 2005 has been due to Investment, not Industrial Demand.  The price of silver remained below $5 since the late 1990′s even though there was a silver supply deficit.
The only way to destroy the price of silver is to crush INVESTMENT DEMAND….. period.  Hence, the work of the FED and member banks.
Many precious metal investors today are troubled by the current weakness in the price of silver and are concerned that prices could fall much lower.   While the price of silver could continue to fall a bit from here, it’s more likely we will see a higher, rather than a lower trend in 2014.
If we look at the table below, we can see the total three-quarters of financial metrics from the top 12 primary silver miners:

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Top 12 Silver Miners Total 2013 Metrics

By adding up all the figures, we can see some interesting data points.  For example, the top 12 primary silver miners recorded a combined $2.36 billion in total revenue for Q1-Q3, while their adjusted income amounted to only $1.4 million.

Thus, the average realized price received by the top 12 silver miners for the first nine months of 2013, was $24.58.  Their estimated silver break-even turns out to be one cent less at $24.57.

Even though this is the average for the first three-quarters of the year, the group was able to lower their break-even to $21.39 in Q3.  I don’t believe the break-even will be much less (and probably higher) due to the fact that the group sold 1.4 million more silver in Q3 than they produced.

Furthermore, the group produced 68.8 million oz of silver for the first nine months of 2013 while they sold 69.7 million oz.  I highly doubt they will continue to sell more silver than they are producing for the next several quarters.

It is quite amazing to see that these 12 primary silver miners had $2.36 billion in revenue during the first nine months of 2013 while only showing $1.4 million of adjusted income.  The power of the FED is mighty indeed.  The net income of a negative $554 million for the Q1-Q3 was due to the huge write-downs during the second quarter.

The Price Of Silver Is Below The Group Average Cost of Production

The current price of silver is $19.40, while the estimated break-even for the top 12 primary silver miners in Q3 was $21.39.  According to Kitco, the average price of silver so far in Q4 is $20.76 or 63 cents less than the prior quarter.

I imagine we may see continued losses from the group in the last quarter as the miners receive a lower price for their silver and as stockpiled silver sales are reduced.  However, there is a chance that we may indeed see a small gain for the group in Q4 if the by-product revenues increase due to stronger prices for copper, zinc and lead (Q over Q) and costs continue to decline.

The Low Price Of Silver & Market Sentiment

This chart from Shortsideoflong.com, shows both the price of silver and public opinion of the shiny metal.

Silver Sentiment Nov 2013

Here we can see that sentiment is now approaching the lows seen in June of this year.  What we have taking place are market sentiment lows as well as the price of silver below the break-even for the top 12 miners.

Yes, it’s true that most of the silver comes from by-product mining, however I have checked the break-even for Hecla and Coeur back in 2000, and I honestly say… the price of silver was not much lower than their break-even at the time.  So I doubt we will see much lower prices for silver.

The Fed and member banks are not that stupid to push the price of gold and silver too far below their break-even as it would as it would force investors to take more physical bullion off the market.

If we look at the next series of charts we can see just how much gold and silver have under-performed the commodity index:

Dow to Silver Ratio Dec 2013

Dow to Gold Ratio Dec 2013

Dow to CCI Ratio Dec 2013

The Dow-Silver ratio has increased 3.3 times since the low in August of 2011, The Dow-Gold ratio is 2.3 times higher than its low in August 2011, and the Dow-CCI – the Commodity Channel Index has only increased 1.8 times since the same time period.

How Jeff Christian can brush off gold and silver manipulation while the Fed & Central Banks prop up the entire market with $Trillions of liquidity makes you wonder why he fails to mention that a good part of his business is in Precious Metal Paper Derivative-Hedging.

You see, the huge rise in the price of silver since 2005 has been due to Investment, not Industrial Demand.  The price of silver remained below $5 since the late 1990′s even though there was a silver supply deficit.

So, if you have your head screwed on correctly, the only way to destroy the price of silver is to crush INVESTMENT DEMAND….. period.  Hence, the work of the FED and member banks.

I have to tell you… its hard to hold my tongue as I read and listen to some of the worst analysis to come out of alternative media…. forget MSM.  I am talking about the folks who are supposed to be part of the alternative media.

A good percentage of the energy analysis that comes from some of the well-known subscription services is absolutely atrocious.  You know exactly who I am talking about.  I am completely taken-back by how much the New Shale Energy Revolution is being hyped as our new savior on the alternative media.

Euan Mearns at the PeakOilBarrel.com brought up a very interesting concern as it pertains to Shale Oil & Gas Production.  In order for the U.S. to increase its shale oil production, it will need to grow its drilling rig capacity from 2,000 rigs up to 5,000 if we want to grow production from shale to the lofty levels that are forecasted.

However, Euan believes (I agree) that we may be able to increase shale oil production or shale gas production to the levels forecasted…. BUT NOT BOTH.  We just don’t have the drilling rig capacity to do this.

That being said, there is a much BIGGER THREAT that I will bring up in the beginning of 2014 which makes the problem of PEAK OIL pale in comparison.

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Comments

  1. Great heads up and informative post Steve, now I can’t wait (Just Kidding) to what zman say’s Lol Keep Stacking

    • That there is no physical demand and inflation is not a problem either?
       
      I think that wraps it up.  :)

    • BOP, better at cherry picking quotes than anyone in the MSM

    • “So, if you have your head screwed on correctly, the only way to destroy the price of silver is to crush INVESTMENT DEMAND….. period.”
      Regardless of manipulation (which is accounted for even when PM rise) the demand in PM is simply not there and big money is not hedging on inflation yet. Even at its peak beyond 1800oz, PM have been entirely suppressed. I don’t know which point he is proving/disproving on this one. A base in mining costs is nice to hear but I’m not ready to party yet. I can’t understand all the optimism I read on this when I think we can continue to have conversations like this for years to come. 
       
       
       

  2. All minners can make so much more money if they just stop selling any for a month or two.
    Yet they don’t want to try it. LOL Or, someone organize a strike for all the minners for a month or two. It will work as well.

    • They have contracts, that are long term, but I’m sure good lawyers could find some loopholes… 
      Good Point, @mliu!  Seems as though it may fix itself anyway
       

    • in other commodity markets if you fail to honor your contracts the other side will usually file an arbirtation and win a judgement against you.  The people they sell to have long term contracts and lawyers as well!
       
      If they have hedged themselves using cme tools, walking becomes impossible due to margins.

    • Mining is competitive, if they have long term contracts at higher prices you produce and honor and be happy you have them.  If you don’t you tighten the belt and live on skinny margins.  We know prices can’t stay under COP for a sustained period of time, however people with hedges, and those with smaller costs can make those downturns last longer than you would think…  
       
      The usual traders phrase is apt: “The market can remain illogical far longer than most can remain solvent”. In english, be careful with the size of your bet even when you know it is a sure thing.

    • Not if they invoke a ‘forced manure’!  lol
       

  3. Highest daily volume since June. What does it mean? Just some back and forth trading or a real shift in positions?
    2.5+ million contracts. And the market moved just 2.5% in total. I get the impression someone smart wanted to go long, and managed to do so at a really decent price.

    • probably just those luciferians manipulating prices higher again. I personally want to see lower prices for my next purchase, if we break long term down trend i will have to settle for higher! We came dangerously close to doing that on the daily charts today, went right to the trend and stopped, further supporting the thought that people with the big money pay attention to technical analysis, even if ultimately it does not matter.

  4. Here’s is one interesting story Concerning Copper. Makes you start thinking what a billion dollars can do. Lol Keep Stacking
    http://www.reuters.com/article/2013/12/20/copper-squeeze-idUSL6N0JX2FG20131220

    • wow ,a high Roller stepping up to the plate, hope this helps AG

    • “Makes you start thinking what a billion dollars can do.”
       
      Not having a billion dollars or any amount even remotely close to that, I can honestly say that the thought of what it would buy has never crossed my mind!  ;-)

  5. SRSRocco – Nothing new to you and reconfirms what you already know. Still, a few links to recent reports that you may not have seen yet.
     
    ZZ
     
    http://www.theguardian.com/environment/earth-insight/2013/dec/23/british-petroleum-geologist-peak-oil-break-economy-recession?CMP=EMCNEWEML6619I2

  6. Steve,
    We discussed this earlier offline.
    You are saying that break even production costs of silver have basically quintupled since 2000, as has price? that lends some hope for the next 10-15 years as I have set my horizon. Although I really should start saying 9-14 years. Especially as the large silver demand from India over gold restrictions seems to only advance any physical event.

    It’s true that us stackers are not bringing sufficient demand to this market to break it right now. We may well have forced the market into deficit this year, helped by low prices getting us more silver for our stackable budget. But with higher prices, we’d have needed an inflow of more buyers, which have been mostly absent. Few people possess the “farmers logic” as it’s called in my language, to buy when a commodity is low. To consume more is the more natural way to respond to low prices.
    Anyway, we may have a market in deficit, but depending how deep, and the size of above ground stockpiles free to market suppression (not for profit), it may take 30 years to deplete. And if silver goes to $35 and we fail to welcome in new stacking purchase power, the market may well go back into real surplus, just like that.
    My theory is that stackers like us basically spend all we reasonably can. That’s why silver demand in ounces is up, and multiplied by average price, it’s been flat. Some stackers gave up (threw the towel) or passed away. Some new ones came in. On balance : same stacking budget. Really, India going crazy with silver is the key physical indicator this year in terms of physical flows, not the dreaded ASE sales figures. India increase year-on-year demand by twice or quadruple the total ASE demand, I think? makes you think how irrelevant or stacking it. This market, to get into shortage, will need a long time of real steady inflow of new money to extract physical from the stockpiles. Mines are hurting, but not going offline quickly enough to have a huge impact.

  7. “The only way to destroy the price of silver is to crush INVESTMENT DEMAND….. period.”
    Wow what a statement… at under 9% of demand, I dont think I would have made a statement like that.

  8. XC Skater stated: “Anyway, we may have a market in deficit, but depending how deep, and the size of above ground stockpiles free to market suppression (not for profit), it may take 30 years to deplete.”

    The USGS reported in ’03 that we’ll encounter a silver mining near extinction event way before 30 years from now. There are only ~16 billion ounces of silver left to mine at anywhere remotely near the highest of double figure prices, with ~ 1 billion ounces mined per year, as needed primarily for industrial use. That’ll all be gone by ’30, just 16 years from now. The following article states the scenario most clearly and logically:
    http://siamkidd.blogspot.com/2013/01/silver-to-become-extinct-by-2020.html , and explains why the game will start changing by 2020, just 6 years from now.

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