Silver today is trading in the $17 an ounce range. Does that make right now the perfect time to buy in?
As far as we can tell it looks like the bubble has popped but is this really the bottom for silver or is there still a lot more potential down side?
A big question to begin with is to ask why does silver have even have any value? The answer to that is two fold, it is used for speculation and it is used for real world purposes (jewelry, machines, and production).
Currently the question to ask is how much does it cost to even produce and acquire new silver. The answer to that is what should set the true bottom price of silver outside of the speculative pressure of buyers.
As you can see in the chart above average yield from mines has continued to decrease while the total amount of processed ore continues to increase. What’s also occurring is over the past thirty years it costs much more to mine and transport the mined ore around. This also doesn’t count the impact of the degradation of silver veins and the extra time, money, and energy now being taken to refine larger volumes of ore for smaller yields of silver.
However, silver could theoretically go even lower than $17. If this happened the physical mining market would stop mining silver because it would no longer be profitable. This would then force the price to rise up again.
What may be most important though when considering buying into silver is to ask yourself who it is that’s actually trying to sell you the silver. Silver sellers make a living off of selling silver to you, not from buying and holding silver themselves. These silver sellers will try to mislead you and lie to you about the value.
The best indicator of whether silver has hit bottom or not is to actually look at what that bottom is. As can be seen in the chart below:
As you can see silver’s historic average price is no where near $17 an ounce. It is actually as low as $5 an ounce. Which is also a price it has stayed at for on average the better part of the past 40 years. The only exception being the early 1980’s when the Hunt brothers tried to corner the silver market and drove the price up to $50 an ounce.
When thinking of investing in silver it is also useful to look at gold.
To put it in perspective, gold sat between $250-$450 from the early 80’s to early 2000’s before the current “highs”. In the chart above you can also see how the two commodities price trend.
Silver shares a role with gold as a perceived safe commodity that can store value. When the stock market goes down and the economy get’s bad people buy it up to preserve their net-worth and capital. This increased demand ironically raises the price of gold and silver and encourages even more people to start speculating on the price of the commodity further raising the price. This speculation is of course unsustainable as we are witnessing with the latest silver price “market correction.” Based on historic trends it looks like silver will continue to drop and so will gold. $18 doesn’t look like it will be the bottom but when it get’s down to $5 that seems like a good time to buy in.