Silver Below Cost But Soon To Shine

First quarter results are in for silver mining companies and the data is alarming. The most profitable silver mining companies are now mining silver at a $2 loss per ounce! What makes this even more concerning is that if the oil prices continue to rise while the silver price remains low, the mining companies’ figures will only be worse by the end of the second quarter.

The chart below shows four of the top silver producers and their cost per ounce to extract silver from the ground. The purple bar marks silver’s current spot price. As the chart shows, silver pricing levels are currently at, or in the case of most companies, below mining cost.

The metrics for precious metals have been terrible for the last four years, yet gold is still up nearly 26% since the beginning of 2015. Gold was “the holding to have” as an investor from 2000 to 2011 but then fell off. Now, it is back again and making gains (slow though they may be), and no one is taking notice. Silver, however, has had the same terrible market metrics but has done nothing from 2015. In fact, it is down 7% since 2015.

Even more compelling is the current silver-to-gold ratio, which is figured by how many ounces of silver equal one ounce of gold. Historically, the ratio is 30:1, but today the ratio is 90:1. That means it takes 90 ounces of silver to equal one ounce of gold. Again using history as our guide, we know that when the silver-to-gold ratio becomes this out of sync, it is only a matter of weeks before the ratio normalizes. So, to get back to historical averages, silver would have to go from $15 per ounce to $44.31 per ounce without gold moving a penny. This kind of change would not be abnormal to see in the silver market as it is a very small and very volatile market. If this correction starts to take hold it would signal the beginning of a bull market, and when that happens, we expect to see exponential growth.

With these statistics it is even more evident now than it has ever been that silver has very little risk for those with patience. It is currently a great investment for the contrarian investor as the sentiment and price are lower than anyone has anticipated. Additionally, there is no cheaper hard asset available in the marketplace. Now is the time to get in and accumulate cheap product as the spot price sits around $15 an ounce.

Of course, this is easy for me to recognize as I am in the precious metal industry and keep a watchful eye over it. But most will miss this opportunity since the average investor does not buy in at the bottoms and instead buys momentum. We saw this most recently in the cryptocurrency market, which saw a boom that was largely fueled by market sentiment and psychology.

The next logical question is, “Why is silver still languishing when we know its global demand is rising?” This is mostly because of the massive amount of money printing that’s occurring, as well as quantitative easing and 0% interest rates. All of these things prop up a weak, vulnerable market, essentially prolonging the inevitable while defaulting or undermining the U.S. dollar. Unfortunately, the central banks and the Federal Reserve do not seem to see the long-term effects of their perhaps well-intentioned cause.

For you and your clients, the bottom line is that the bottom is in. Now is a fantastic time to treat silver as an investment and position yourself and your clients for exponential growth that is historically imminent. Contact us today to get more information or to learn more about how you can offer physical gold and silver to your clients.