Silver Squeeze Infographic

Adam Taggart
By Adam Taggart on Mon, May 20, 2013 - 9:29am

Here's a ray of hope, produced by The Austrian Insider, for those of you recovering from last night's 10% takedown of silver (about 2/3 recovered now):

The Silver Squeeze – An infographic by the team at The Silver Squeeze Free Infographic

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5 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5072
silver; eagles & premiums, production costs, supply

Silver Eagles are made under the control of the US government, a bureaucracy that doesn't give two hoots about making money and thus is not likely to be particularly responsive to shortage situations in the marketplace.

I suggest it is probably better to pick a standard product produced by a for-profit institution more likely to respond rapidly to price incentives - such as 10oz or 100oz bars.  Those premiums, not surprisingly, are far lower than those on silver eagles.

I wonder why the author of this fine piece selected a metric which just happens to have the highest markup, produced by a non-responsive government bureaucracy that tends to have supply issues after big market moves?

It's just one of those things which makes me go "hmm..."

I mean, I think silver is a good buy right now, but I just don't like hearing spin from any side.  If there's one thing I would ask, its "please, just the facts."

The demand points are all valid as are the cost inflation at the various mines, and likely would eventually impose a floor on price.  What might that floor be?  Here's a guy who did a calculation on the average cost to produce silver: $23.68/oz.  Lots of caveats in that number, but its a data point.  I believe it a lot more than I believe the old "cash costs" figure the miners used to quote.  Interestingly, we're below that point right now.

http://seekingalpha.com/article/1303691-the-true-cost-to-mine-silver-complete-2012-figures

From a supply perspective, we don't appear to be at peak silver.  Some data from the USGS on world silver production:

US Production, on the other hand, is abysmal.  We use about 7900 tons a year and we produce about 1100 tons.  If things got bad around the world, I could see a "silver confiscation" in order to secure supplies for industry.

http://minerals.usgs.gov/ds/2005/140/

 

jcat3022's picture
jcat3022
Status: Bronze Member (Offline)
Joined: May 9 2012
Posts: 78
Mining stocks up around 5%

Mining stocks up around 5% today.  Not going to say with 100% conviction the bottom is in, but it sure looks that way.

Looks as if a major player entered the market around luch time (EST) today.

Adam Taggart's picture
Adam Taggart
Status: Peak Prosperity Co-founder (Offline)
Joined: May 26 2009
Posts: 2939
Fair points

Dave -

I think your points here are all fiar. I like your idea of using a benchmark less prone to non-market influences than coins from the US Mint.

And, to complement your chart from the USGS, Chris and I recently spoke with their expert on silver. He agrees there is no "peak silver" supply concern in our short-term headlights (from a global production standpoint).

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5072
thanks adam

You talked with the USGS expert on Silver?  You guys get to do all the fun stuff.

Way back when I was first watching the crash course, I imagined looking at production numbers for all the various important commodities and seeing which things appeared to be peaking out.  Of course I promptly forgot about doing it because the task of getting data, formatting it, and then charting it smacked too much of doing Real Work at that time, but - funny thing, I happen to have the usgs data just lying around in a directory, so it wouldn't be too difficult to whip something up...

Dividing that world production data by world population might also give us an idea of what per-capita wealth is doing too.

I charted world gold production numbers the other day.  In 2007 it appeared to have peaked in 2001, but by 2011 gold production had (just barely) surpassed its 2001 high.  High prices, at least for now, managed to motivate more mining - likely the way high oil prices have us fracking the dregs from the shale.

I would dearly love to chart grams/ton for gold & silver mines, but I have no idea where to find that sort of timeseries.  I'm willing to bet the dramatic decline in the HUI/Gold ratio is driven at least partly by the decline in ore concentration, and at least partly by the massive printing of shares by the goldminers during the 2006-2008 period.  But finding out that, of course, smacks of Real Work also, and I'm not being paid by some hedge fund...

 

Grover's picture
Grover
Status: Platinum Member (Offline)
Joined: Feb 16 2011
Posts: 800
Short-term Headlights
Adam Taggart wrote:

And, to complement your chart from the USGS, Chris and I recently spoke with their expert on silver. He agrees there is no "peak silver" supply concern in our short-term headlights (from a global production standpoint).

Adam,

Great teaser. So, is the expert credible or just talking the "official book" as other government experts are prone to do? How far out are they looking? How much silver is left to be mined? Where are the new mines that replace the used up ones? At what point does ore quality, available energy, and price suppression make it too expensive to mine? Are percentages of silver in base metals constant, rising, or dropping? Is base metal ore quality dropping? How fast?

I'm sure I could come up with more questions. I see a finite mineable silver supply being available. Depending on the price of silver and quality of ore, the supply isn't fixed. If we exploit it faster, the short term prognosis is positive; however, it reduces the long term picture.

Grover

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