Wednesday, October 8, 2014

Comment On My Now "Classic" Seeking Alpha 2011 Silver Thread $SLV

In January 2011, one of my posts - Watch Out For The Silver Bubble - was posted on Seeking Alpha. The silverbugs were apoplectic. However, as I pointed out at the time

"The massive margin between the spot price and the cash mining cost is going to cause a huge increase in supply over the next few years. Pan American Silver projects that it can raise production from ~20 million ounces to 45 million by 2014. (In the entire year 2010, the U.S. Mint minted and sold under 40 million ounces of silver.)"
For a variety of reasons, silver has indeed gotten crushed. I saw just today there was an astute comment on the thread (which is now almost four years old):
"I am a mega buyer in the $9 to $10 range - the low for silver in Oct. of 2008.

Right now the Fed is worried about its own survival and wants to hand the fiscal great recession hot potato back to congress. But once the Fed sees the economic collapse drawing near, they will print and shower the currency on main street rather than squirreling it away in bank reserves.

When that happens I want to long and leveraged in silver.

My guess is that $9 to $10 is the zone coincident with max pain for the Fed and for the economy. I would like to see a lower low in price at that level with a higher low on the MACD before going all in."
Speaking of Pan American Silver, their latest investor presentation has a 2014 production target of 26 million ounces. Much less than the 45 million that they projected back in 2011. They claim a cash cost of $12 per ounce.

Still, they were able to increase production by 30% over three years even though the price has gotten cut almost in half.

Single digit sounds like the right price target. Mines should be closing down at that point.

1 comment:

Stagflationary Mark said...

As you may recall, I owned physical silver from mid 2004 to early 2006. It treated me very well.

Sold at just over $10 for a 50% profit. No complaints!

February 24, 2011
Silver Bubble Construction Set

If these charts have any merit, then silver is either in a bubble or silver has priced in a great deal of future pain for savers. Perhaps hindsight will show that it was a bit of both? It's just one more reason I've been willing to buy 30-year TIPS.

In hindsight, 30-year TIPS performed much, much better than silver since I wrote that.

From the comments:

Very few people on this earth understand Silver
As I write this, Silver is at $45, up $15 bucks since this article was written just eight weeks ago.
The internet is a wonderful thing. You can find articles written over the past few years saying silver was overbought at $12, at $15, at $18, at $20 at $30.. The long awaited correction the "experts" keep warning us about never comes.

None of these "experts" understand the first thing about what is driving silver.
- Anonymous

My replies:

This post was intended to show how a silver bubble is formed. I'd say that since silver is up 33% in just 8 weeks the article still has merit.

I would also point out that you have decided to capitalize silver as if it is a holy metal worthy of our worship. That would imply to me that you think silver is good at any price. Time will tell.