Categorized | Bitcoins, Gold and Silver

Silver Now Below its Marginal Cost Of Production

Recently, there has been much attention on Bitcoins since its price has been in a parabolic rise, Remember that everyone was talking about silver when it had its parabolic rise in 2010. What happened to the price of silver shortly thereafter? It corrected from $48.48 to now under $20/oz, which translates into more than a 60% correction in the price of silver. Although gold and silver have been going up for the past 12 years in a row, 2013 appears to be the first down-year for the precious metals market. Should we therefore be selling? Not at all. Accumulate a position when an asset is despised, not loved and talked about.

When Bitcoins were first introduced in 2009, very few people knew about this alternative currency and all the smart money was piling in. Now those same people who bought in 2009-2012 were quietly exiting the market, while dumb money began to pile in. I’m not suggesting that the Bitcoin frenzy is over, however, as we seen with silver in 2010, it is most likely due for a serious correction that could last for a while. As I write these words, Bitcoins reached the price of 1 oz of gold and then retraced back down to below 700$. There is some serious technical damage to this chart now; let’s see if it holds the major support level at $500.

 

Lets face it: gold and silver have done poorly this year. And even many bulls have thrown in the towel and given up in this market.

However, the reality is that when emotions and sentiment are removed, fundamentals couldn’t be any better for precious metals. Has the landscape really changed for precious metals? Is there any reason why you should not be looking into this market? Frankly speaking, the facts below make investing in silver compelling even though it would be a rather unpopular to do it right now:

  • Central banks around the world are still printing currency.
  • Debt is still exploding to unprecedented levels.
  • Still facing high unemployment in most countries.
  • There has been record demand for most precious metals dealers and mints this year.
  • Many shortages have been felt by mint dealers.

The point that is the most compelling for the precious metal investors is that silver prices at below $20 is now below its marginal cost of production. This means most miners will be losing money with every ounce of the precious metal they produce. Production cuts will continue until the supply of metals drops to point where price will have to start increasing; that is basic economics. Think logically about this. Production is curtailed while we are seeing record demand buying?! In fact I believe that the fundamentals for silver have improved since the knock down in silver prices since 2011.

“Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell. If you want to have a better performance than the crowd, you must do things differently from the crowd.” – Sir John Templeton

What I believe most people do not realize is that gold and silver, like Bitcoins, are also alternative currencies to the dollar. And the main difference is that silver represents something real, something from the physical world in which we live, and Bitcoins are virtual and have no physical backing other than demand from its adherents.

See these ridiculous low silver prices here.


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