"I love the smell of napalm in the morning"

[jim4silver]

Looks like either a day to go shopping or a day to cry, depending on one's perspective. Everything (except rhodium) is getting smashed today. I may be adding some new PMs today. What to buy?


Jim

 

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[Bigheed]

ya I am looking forward to this opportunity, I'm cash heavy right now and the price is right!

 

[jim4silver]

ya I am looking forward to this opportunity, I'm cash heavy right now and the price is right!

I picked up some palladium maples today. I will buy more silver if it drops below $26.50, which is the general area of huge support. If it breaks below that level, I see $20 as the true bottom in this correction.

I used to believe the pundits that say silver may not be available at this level or that level. But the truth is, even a true PM bug has his/her limits, and if we get much lower, I believe some bugs will get scared and unload, bringing more metal on the market (at the local coin store). I have enough physical that I may even play the silver etf if we get in the lower 20's, that is if physical is hard to find or has too high premiums.

Whomever doubts the power of the big shorts to keep certain PMs down should have learned their lessons by now. Even with massive worldwide QE and such, gold and silver can be moved down with ease. This will only stop when the physical and paper prices break for good, or the big shorts become big longs. I figure the latter will happen before the former, at least in silver and gold.

Jim

 

[jeff of pa]

yes very odd ! TreasureNet - Metal Prices

although it makes no sense to be why they are selling,
I'm glad I was wrong on the $30.00 base.
still's got a ways to go for me yet.

at least another $20.00 with a long enough stint there to cause premiums to disappear,
as the truly desperate try to sell at any cost

I'm still willing to pay $5.00 an ounce for U.s. silver

 

[TreasurePirate69]

I still think we are heading below $20 in the next two years. I just listened to a video by Mark Dow that I completely agree with. He basically restates my exact feelings on the matter by saying that people have been wrong about the inflationary effects of QE and that the prices in 2011 were mostly fear based. He says that the hedge funds are dumping gold because they are coming to the realization that there is no second catastrophe and that they were wrong about the reasons why they bought gold in the first place. Here is a link to the video. It sounds logical to me.

Are Hedge Funds Dumping Gold? - CNBC

 

[TreasurePirate69]

yes very odd ! TreasureNet - Metal Prices

although it makes no sense to be why they are selling,
I'm glad I was wrong on the $30.00 base.
still's got a ways to go for me yet.

at least another $20.00 with a long enough stint there to cause premiums to disappear,
as the truly desperate try to sell at any cost

I'm still willing to pay $5.00 an ounce for U.s. silver

I think the highlighted sentence above is very important. I'm still buying a little bit here and there on the way down just in case I'm completely wrong. But I am not going to make any big purchases unless we get below $20. And even then I'll wait for us to maintain it long enough such that people recognize it as the new standard price level and premiums disappear. I think $15 silver and $800 gold are where we are heading in the next 5 years.

 

[jim4silver]

I think $15 silver and $800 gold are where we are heading in the next 5 years.

Based on how crappy silver has done for the past year or so, I would almost agree. But not quite. Here is where you are possibly wrong on the notion physical silver would ever be priced at $15 for more than a relatively short time.

The costs to mine gold and silver are what they are, and for silver the cost is over $15 right now. Even though most silver is mined as a "byproduct", it still costs money to extract it. You will often see the term "cash costs" when a mine says how much it costs to mine a metal. I am no expert on this subject, but I have read that there is another factor, called "complete costs". I don't know exactly how these are factored, but the "complete costs" supposedly are a more accurate figure on how much it takes to get an ounce of silver out of the ground and refined, etc. I have seen this figure range from $18 to $28 over the past year.

Pretty much everywhere silver and gold are mined the costs to produce are going up: fuel, electricity, labor, equipment, leases paid on the land, etc. None of these things are going down and most likely will go up for the next 5 years at least. Thus most likely the cost to produce PMs will keep rising, making a company's complete costs higher over time. Also, it is said that in many places, the "easy" gold, silver, platinum, etc , has already been mined, and they will have to go deeper and in more dangerous terrain to keep extracting good ore.

Even if everyone hated silver, the price is not going to last long at or below the cost of production. At some point the mines close until price starts moving up again. Most countries now have instituted some form of QE and there seems to be a race to devalue currencies across the boards by printing. Since the inflation numbers everyone talks about don't include fuel and food, do they (the cpi numbers) really even matter? Gasoline is up 100% or so since 2008; prices for most items at the grocery store are up much higher than 5 years ago as well.

I still hold the notion that we will see $100 silver (it may only stay there for a short time, but it will get there) in the next 5 years or less, but I really thought it would be sooner. Just glad I diversified a bit.

Jim

 

[TreasurePirate69]

Well, the cost of production is indeed a valuable indicator. I just don't know if we can trust the current values being stated. As you pointed out, silver is usually mined as a byproduct so it is hard to tell what the actual cost of silver mining is. For starters, before the price of silver skyrocketed, many mining companies didn't even count it in the costs because they weren't specifically mining for it. Once the price went up and miners specifically started going after silver then the costs subsequently went up as well. This was to be expected because they were now committing specific resources toward finding and mining silver since they assumed it was now profitable. So this cause and effect relationship could be what is causing silver mining costs to be so high. Would the cost to mine silver go down if there was suddenly little interest in specifically going after silver? I don't really know. But the numbers are suspect in my opinion. I really don't know what a "reasonable" price for silver should be. Perhaps $30 really is reasonable. And then again, perhaps $100 is reasonable too. But I can definitely see silver going down to sub $20 levels based on past historical values.

 

[CubanHunter]

Well, the cost of production is indeed a valuable indicator. I just don't know if we can trust the current values being stated. As you pointed out, silver is usually mined as a byproduct so it is hard to tell what the actual cost of silver mining is. For starters, before the price of silver skyrocketed, many mining companies didn't even count it in the costs because they weren't specifically mining for it. Once the price went up and miners specifically started going after silver then the costs subsequently went up as well. This was to be expected because they were now committing specific resources toward finding and mining silver since they assumed it was now profitable. So this cause and effect relationship could be what is causing silver mining costs to be so high. Would the cost to mine silver go down if there was suddenly little interest in specifically going after silver? I don't really know. But the numbers are suspect in my opinion. I really don't know what a "reasonable" price for silver should be. Perhaps $30 really is reasonable. And then again, perhaps $100 is reasonable too. But I can definitely see silver going down to sub $20 levels based on past historical values.

If it is mined as a by product then the cost is almost 0 since all the investment is going into mining the actual metal, a byproduct is an extra they get when mining for the actual metal they are seeking. There are not many primary silver mines left so I dont think there are many mining companies commiting specifi resources toward fiding and mining silver... they just get it as a byproduct. It seems we are living the end of a bubble, QE's around the world has done nothing to increase the value of PM that means we will not have an skyroketing price due to money printing. The only thing left to do is wait until the price crashes to the bottom and buy a lot there.... we will have another bubble in the near future so we can dump at a higher price. At the end of the day it is all about the mighty dollar.

 

[jim4silver]

If it is mined as a by product then the cost is almost 0 since all the investment is going into mining the actual metal, a byproduct is an extra they get when mining for the actual metal they are seeking. There are not many primary silver mines left so I dont think there are many mining companies commiting specifi resources toward fiding and mining silver... they just get it as a byproduct. It seems we are living the end of a bubble, QE's around the world has done nothing to increase the value of PM that means we will not have an skyroketing price due to money printing. The only thing left to do is wait until the price crashes to the bottom and buy a lot there.... we will have another bubble in the near future so we can dump at a higher price. At the end of the day it is all about the mighty dollar.

Actually, in roughly 2/3's of the mines that extract silver, the silver is a byproduct and not the main metal they are going after. In 1/3 or so, silver is the main metal being sought. Numerically, there are many primary silver mines that exist. But in either case, the amount of return on the silver does have an impact on the mining company whether it is a primary silver mine or not. The companies still factor in return on all the metals they mine when making business decisions.

For example, in the platinum mines in SA, platinum is the main metal mined, and other metals like palladium, rhodium, and other PGMs are byproducts. However, the fact that rhodium's price has fallen so much over the past 4-5 years has had an impact on some of the mining companies' bottom lines, even though only 25 or so tons are mined each year is SA, compared with platinum at over 100 tons or so per year in SA.

Jim

 

[TreasurePirate69]

Actually, in roughly 2/3's of the mines that extract silver, the silver is a byproduct and not the main metal they are going after. In 1/3 or so, silver is the main metal being sought. Numerically, there are many primary silver mines that exist. But in either case, the amount of return on the silver does have an impact on the mining company whether it is a primary silver mine or not. The companies still factor in return on all the metals they mine when making business decisions.

For example, in the platinum mines in SA, platinum is the main metal mined, and other metals like palladium, rhodium, and other PGMs are byproducts. However, the fact that rhodium's price has fallen so much over the past 4-5 years has had an impact on some of the mining companies' bottom lines, even though only 25 or so tons are mined each year is SA, compared with platinum at over 100 tons or so per year in SA.

Jim

But Jim, how in the world would someone accurately calculate the cost to mine rhodium in that case? Isn't it possible that a company who wants to boost the price of rhodium could easily inflate the costs in this case since there is no real way to calculate it accurately? Isn't is possible that this is what is happening with silver? A mining company has a vested interest in making you think their mining costs are higher than they are. This helps them to justify the high price of the metals they sell. For example, a company that mines copper also gets silver as a byproduct. Most of the time, they weight their mining costs mostly toward copper because that is their primary source of income and they want copper prices to be as high as possible. But low and behold, silver starts to take off. Now they begin to realize that weighting their costs heavier toward silver will help justify higher silver prices which maximizes their revenues.

It really comes down to a tradeoff between costs and revenues. Let's say that in one year they mined 1 ton of copper and 100 ounces of silver. Their total costs were $10,000. At one extreme they could say that all of the costs are attributed to copper production so the cost to mine copper is $10,000/ton and the cost to mine silver is $0/100 ounces. On the other extreme they could say that all of the costs are attributed to silver production so the cost to mine copper is $0/ton and the cost to mine silver is $10,000/100 ounces. Now in reality, they will report the numbers to be somewhere in between these two extremes but they have some wiggle room. What they can't do is claim that their costs were any more than $10,000. That price is a given. But they can likely fudge the ratio of copper to silver costs. When the price of silver is low, they are likely to fudge the costs toward the copper side to maximize revenue by trying to push copper prices higher. This makes it seem like the cost to mine silver is lower. When the price of silver is high (and the price of copper is low) like it is now, wouldn't you think they would bias the ratio heavier on the silver side? Couldn't the current price of silver be a self fulfilling prophecy of sorts when calculating the costs of production? In essence, the higher silver goes, the more it seems to cost to produce due to this cost biasing effect.

I may be completely wet on this theory. It just seems to me like it would be very hard to accurately quote the cost of silver production when it is primarily a byproduct of mining other metals. I would think that miners would have a vested interest in making us think that the current price of silver is justified by biasing their reported costs more toward silver than they have in the past. This of course only applies to those miners who get silver as a byproduct rather than from dedicated silver mines.

 

[skeeterd]

TP, I am no expert and I am just guessing, but I think that production costs for a mine with more than one PM mined would split the cost by percentages. For example: if a mine sold X amount of copper for $90,000 and Y amount of silver for $10,000, and mining costs were a total of $10,000, then copper gets 90% of production costs and silver gets 10%. The actual tonnage of each metal mined would not matter. Only the dollar amount sold. Again, I may be way off on this theory, but if I owned a mine, that is how I would keep track of my production expenses.

 

[jim4silver]

I don't own mining shares and probably never will because I like to have the metals instead. But I have learned much about the mining industry over the past few years. A mining co. is a business like anything else. If they are a public company they have to report things like any other public company. I don't believe mining companies are conspiring to affect prices by lying about their costs to inflate prices. Mining costs include huge equipment costs, labor, fuel, electricity, taxes, lease pmts, etc. and have been going up in many places around the world, just like our gas prices here are high based on past prices.

I guess a rough way to see what a mining company's costs are is to take their profit/loss and compare that with ounces mined. Some mining companies lose money in a year, thus they are "paying" more to mine a product than they get selling it. Complete costs is what you have to look at. If a mining company loses money in a year, it is safe to say their complete costs are higher than the market price of the metals they mined, otherwise they would have made a profit.

Some people like to think of mining like CRHing. They think whatever is found is like free money, but don't take into account the driving time, search time, gas costs, losing a few coins in the counting machine, etc. Not a perfect analogy but you see what I am saying.

Jim

 

[TreasurePirate69]

Skeetered, I think that is a reasonable way to look at it. But what you are saying somewhat supports my theory. As the price of silver went up in your example, the dollar amount sold would potentially go up causing it to get a higher percentage of the total costs. This is all despite the fact that no more silver (by weight) was actually sold/mined this year vs. last year at the same mine.

Again, I'm no expert. I'm just throwing this stuff out there. I could be way off on how the real world works. I just find it funny that the cost to mine silver seems to go up when the price of silver goes up. Instead of being an indicator of what the lowest price of silver should be it seems to be more of an indicator of what the price of silver currently is. If the price of silver goes down then will the cost to mine silver go down too?

 

[skeeterd]

TP, I'm no expert either. I think it stands to reason that the cost of producing silver in a mine increases as the cost of silver goes up. If silver ( or any metal that is mined, or any product that is manufactured) increases in demand, then the price will naturally increase too. Simple supply and demand. As prices increase, mines spend more to go after silver. They will want to keep their costs low as any business would, but in order to increase production, their costs will naturally rise to. This would be true even if silver were a by product of the mine. The mine would increase overall production because the price of silver justifies it. I guess I'm saying that in my mind, I can see how the cost of producing silver is impacted by the price of silver. Not so much the other way around.

 

[Marchas45]

Here is a good article that explains the mining industry and their costs along with other reasons why the PM's will go up eventually. Read with an open mind.LOL

THE FORCES THAT WILL PUSH SILVER OVER $100 | SilverDoctors.com

 

[skeeterd]

Thanks, Marchas45! Interesting article.

 

[jim4silver]

Well, the cost of production is indeed a valuable indicator. I just don't know if we can trust the current values being stated. As you pointed out, silver is usually mined as a byproduct so it is hard to tell what the actual cost of silver mining is. For starters, before the price of silver skyrocketed, many mining companies didn't even count it in the costs because they weren't specifically mining for it. Once the price went up and miners specifically started going after silver then the costs subsequently went up as well. This was to be expected because they were now committing specific resources toward finding and mining silver since they assumed it was now profitable. So this cause and effect relationship could be what is causing silver mining costs to be so high. Would the cost to mine silver go down if there was suddenly little interest in specifically going after silver? I don't really know. But the numbers are suspect in my opinion. I really don't know what a "reasonable" price for silver should be. Perhaps $30 really is reasonable. And then again, perhaps $100 is reasonable too. But I can definitely see silver going down to sub $20 levels based on past historical values.

The below recent article illustrates what I was saying in this thread last week. Although it references a gold co., it proves what I was saying about properly valuing what it costs to pull an ounce of metal out of the ground. On a bearish note, the cash costs for gold and probably silver too, are still a quite a bit below the paper price right now for most mines. Not that costs of production matter in short term movements in gold and silver, long term it should act like a line of support so to speak on any mid to long term price decline.

Hoping platinum falls more so I can buy some cheaper. My palladium and rhodium are actually up for now since my purchases. Palladium still needs to correct a bit though. Don't underestimate the power of the "big shorts" and those who are interested in keeping silver down in being successful for a while in keeping the prices down. While the charts scream oversold, that doesn't seem to matter anymore. Based on Bernanke's testimony yesterday gold and silver should have gone up much more, but didn't.

Some of the bullish PM sites I used to read religiously have become borderline ridiculous in my opinion. I cannot stand to read most of them anymore, not because they have been wrong in their calls for the past year (we are all wrong at times, some more than others), but because of some of the recent articles and such they have posted and seem to state as factual. Some of it reminds me of the supermarket tabloids or worse.

I believe for the short term the dollar will rally more and I see them pushing silver back to 26.80 or so. If it closes below $26.40 or so, look out below. That is a large support area. If it gets broken, we will see 20 in the paper market. Whether physical is available at that price is anyone's guess.

I found a market pundit I have been reading for the past few months. I hated reading what he wrote because he was always bearish on silver and gold but explained why in his opinion. He has been right so far on pretty much everything he has said since I have been reading his site and saved me much $$$$ by taking action and diversifying my PM stash a while back. Will be interesting to see if he is correct in his call for silver and gold to remain lower for the near to mid term (although he says a minor up turn can happen because it has been pushed down so much so far). We'll see if he is correct.

All my opinion.

Here is the gold co. cash costs article:

Gold Miners Come Clean on Costs After Six Lost Years - Bloomberg


Jim

 

[lost]

Have you guys gotten a chance to read Jim (legend in his own mind) Sinclair's column at today's Silverdoctor.com? Maybe I used to much sugar on my cereal this morning, but he's starting to make sense. Might think differently after the sugar gets out of my system.