While going through the morning mail and news your sleepy Gold Enthusiast ran across an article in Mining Technology, a nice little industry website that gives lots of hints and clues over the year. Much of the time the content is kinda dry unless you’re into digging holes and processing tons of dirt to extract treasure. Which is really what miners do – they’re grown-up little boys with really big toys looking for buried treasure.
As it seems, are precious metal market columnists. We just mine information sources trying to screen out the valuable from the mud. Not so different, but with a lot less dust in the air.
So this morning there appears an article about how silver production is “inefficient” and the market “uncertain”, and how that means silver might be losing its luster as a precious metals investment. The author seems to believe that since silver production is inefficient and costly, and silver companies have not been making a lot of profits lately, the logical result is that people will want silver less.
He also goes on to cite the fact that current solar technology uses 20 grams of silver per standard panel, and admits that this actual use might, in fact, be a boost for the metal.
Your friendly Gold Enthusiast poked around a while and didn’t find a bio on the article’s author. So rather than send JP Casey a note with a few explanations, said friendly will offer these thoughts.
Yes indeed, silver production is a bit weird. It always has been; nothing has changed. Silver seems to always be the second sister; its common title of “poor man’s gold” is just the start.
Silver is one of those strange metals that seems to be present only when other valuable things are around. Even in relatively high concentrations, it seems silver is always somebody’s poor sister. Even the best silver deposits are often accidentally, such as back when no one knew what in the blue mud being pumped out of mines in Virginia City, Nevada. In that case, it turned out silver was really the most valuable product, but this outcome is surprisingly rare.
Today silver is most commonly produced in concert with zinc and lead. Both of those are in high demand in manufacturing, as well as being toxic to varying degrees. Once again, the second sister. And while silver is nowhere near as toxic as lead, sometimes the chemical mixes used to extract it are, which can lead to costly cleanup issues even when companies are doing their best not to accidentally poison the environment.
Layer on the fact that miners tend to be dreamy types, who are not always great with business management but are focused on “what if the big deposit is just 2 inches from where I shut off the diggers?” Watching mining shows on TV convinces one that most miners are basically starry-eyed children who managed to get a big loan.
But, production issues do not dictate demand, especially when a metal is deemed to have “the highest electrical and thermal conductivity of all metals.” By itself that pretty much guarantees industrial demand, the question is simply what numbers are we talking about.
In the end, old, grizzled traders know that markets are places where positions are argued and deals are finally struck. The buyer usually thinks they paid too much and the seller thinks they didn’t get enough. You can’t make the mistake of confusing production issues with demand or you risk losing a lot of money to gain a simple education.
Silver markets heaving to and fro are not a problem, they are the market at work. If production costs are high then businesses will fail until the supply drops to the point of rarity and price can rise appropriately. Even modern socialists eventually learn that you can’t get something for nothing, and all costs are eventually paid.
So don’t be afraid of market volatility. Read the news, watch the charts, and after a while, it’ll sink in. Silver is going up and down because that’s the market we have right now. The so-called smart money always buy down near bottoms – even if not at exact bottoms – and sell up near peaks – even if not exact peaks.
Pay attention, get smart…
The Gold Enthusiast
DISCLAIMER: The author has no position in any mentioned security. The author is long the silver sector via small positions in USLV, PAAS and SVBL. He may daytrade around these positions but has no intentions of trading out of these core positions in the next 72 hours.
The iShares Silver Trust (SLV) rose $0.08 (+0.48%) in premarket trading Thursday. Year-to-date, SLV has gained 4.82%, versus a 11.92% rise in the benchmark S&P 500 index during the same period.