Silver’s Production Cost vs. Market Price

silvers production cost market price
by: Ben Tseytlin - on Gold & Bullion

Due to the current low price of silver compared to gold, the cost of mining and processing it frequently surpasses the market price by a substantial margin. Below is an analysis of what this means for the market, and how future investors can benefit.

An Overview Of The Current Silver Mining Landscape

By the third quarter of 2018, it became clear that higher labor, material and energy costs meant that the price of mining silver had increased significantly for companies which specialize in the process. A number of miners actually reported losses, including one of the largest, which is Pan American Silver.

Despite this, Pan American is still interested in acquiring Tahoe Resources, which has a silver mine in the nation of Guatemala. The mine there is called the Escobal and is the second largest silver mine on Earth, but has been inactive for about a year. This is because the locals are against it, and a regional court ultimately revoked Tahoe Resource’s license. Still, Pan American seems confident that they can move forward with the project.

The thing to understand about the precious metals business is that whenever market cracks appear, the firms which mine the precious metals will prioritize assets directly. Sadly, many investors don’t understand this and as a consequence they’ve given up on the metals and miners alike, but this is when smart investors do the opposite. Success comes from buying when the market is undervalued, not overvalued.

Silver Market Behavior

One interesting thing about all this is that silver prices, while not rising as high as investors have hoped, have still maintained strength despite the substantial selloffs which have occurred in the primary market. Many anticipate a time when investors will begin moving away from real estate and stocks and back into precious metals and the firms that mine them.

This might not be far off, as 2019 begin with a substantial stock market decline. It is debatable whether or not this will create the fear necessary to drive investors into metals in masse, but over the long run it doesn’t matter. The reason for this is because silver has incredible fundamentals that simply cannot be ignored.

It is the one commodity on the market right now that is massively undervalued, and this is at a time when many nations, including leading economies, are swimming in gargantuan amounts of debt. In particular, many Americans are maxed out in terms of debt and the Fed is reaching a limit on what it can do with interest rates. Finally, major technologies are on the horizon which will most likely change the world as we know it, including AI (artificial intelligence), robotics, nanotechnology, quantum computing, and planetary exploration and mining. None of these technologies will be possible without precious metals such as silver; so many wise investors anticipate much higher future prices than anything seen today. Historically, the ratio between gold and silver is the highest it’s ever been, meaning we are most likely near the bottom as far as silver price and production goes, which means the only direction that the metal can go from here is up.