Counter arguments

[theo]

These are some comments in response to a pro-silver article posted yesterday. I like to keep tabs on the counter-arguments to our thinking.


http://www.marketwatch.com/story/for-si ... genumber=2

[color=#004000]Adm Price
19 hours ago

Silver is not "cheap" at all at anywhere near current inflated prices. Silver has soared from $4 an ounce in 2001 to $50 an ounce in 2011 before falling significantly and coming down nearly 50% to its present price of around $28 an ounce and it has a whole lot further to fall to get back to its mean of $8 per ounce. Moreover, there is vast oversupply of silver in the markets. Annual supply is over 1 billion metric ounces with about 805 million ounces coming from new production and around 200 million ounces coming from scrap/recycling, but there is only demand for around 800 million ounces a year leaving a 200 million ounce overhang (over supply) in the silver markets which guarantees silver will continue to fall substantially.

[color=#004000]Harvey Texler

Sorry Myra, silver is anything but 'cheap.' For a metal whose cash costs are $5.16 to produce and whose fair value is at best in the 12-17 range, let's notget carried away with visions of declarations of cheapness and potential runs to the moon. There is an overhang of at least 7400 tons in the silver market, and if it were not for greedy ETFs and their wacky speculation, silver would be nowhere near where it is today. Aside from that, do bear in mind that silver is the single most risk-laden asset you could plow your gambling money into. It carries fully twice the risk that gold ownership entails and its returns have historically been under gold's. The last decade is NOT the new normal for silver. Silver in the teens is indeed on the horizon. Waaaaaa- I can hear the silver bugs right about now....[/color][/color]

Here is a counter point to what these two guys are saying.

[color=#000080]Theodore Shane Osborne II

$5.16 cash cost to produce is for the Zinc/Lead mines and generally only includes refining and shipping. Zinc/Lead mining creates 36% of overall mine production for silver. This does not reflect an actual cost of bringing the silver to market. Silver mining is 30% of total mining and costs are roughly $24 an ounce when you look at the silver mines numbers. New exploration pushes prices to $29 an ounce, but older established mines can produce and bring to market near $22.

Energy cost and environmental compliance will keep going up, and ore grades will keep going down going forward. Any price point below $29 is a buy.
[/color]
My take:

I'm not a numbers guy so I don't have a handle on the supply/demand numbers like I should. However these detractors are leaving out some key facts:

1. The dramatic increase in the money supply caused by QE and other monetary tools
2. The growing investment demand for silver.
3. The apparent silver physical shortages caused by this decrease in price.
4. The huge short position that JPM holds and the apparent manipulation that it enables.

[coppertone]

I like to read counter arguments as well. To be honest I get confused with the supply and demand numbers. Information varies from a current excess on one side, to stories that the surplus that resulted from the removal of silver coins from circulation has long been used up and were are currently chronically short.

I think there is a danger in viewing silver simply as a commodity. If that were the case for gold we would have no reason to continue mining as most of mankind's production is still present and has not been "consumed" and is present in surplus to current "needs". It is afterall just sitting around in vaults "doing nothing". Silver has a dual role, industrial and money. As silver's industrial role is an extremely recent one, it would an error to view it primarily in that light.

If the paper pusher's succeed in driving the price down into the teens, would there be willing sellers at that price (certainly not me!) and who would want to mine the stuff, with perhaps only by-product silver reaching the market. Perhaps just like a fiat currency the value of paper silver will fall to nothing while the price of real silver (or real goods, in the case of fiats) soars. With silver I think the owners of physical metal sooner or later will ultimately have the upper hand. I have read all that I can and I am still buying silver and I don't intent to relinguish it at less that what feel is it true value.

[bigjohn56]

It is hard to predict where the price of any commodity is going by performing a general analysis of supply and demand. For example, many years ago when copper prices were in a bear market and well below one dollar there was an analysis that endeavored to show that not only was copper not going to go back up but that it was likely to continue to decline into oblivion since it really wouldn't be all that useful in the future. This conclusion was backed by a myriad of charts and statistics and supported by expert opinions and written by a respected group of analysts. We can see how that concept worked out.

I would suggest that people focus their efforts on keeping a diversified investment strategy, keeping some dry powder at all times, and avoiding falling into the trap of needing to be right more than needing to make money. Just my humble opinion.

[Engineer]

I lost all respect for Marketwatch when I found out their reporters double as paid forum trolls.

[silverflake]

I agree with coppertone in that these two counter views on silver treat it as a commodity only and not as a fiat currency hedge. That's my main aim of ownership. Basically, I would rather have a 1 ounce silver eagle in my coffers than 30 pieces of paper with nice artwork and damn the overhang.

Frankly, I still feel that if silver did end up pulling a '2008' on us again and sinking down sub-$10, my gut and my heart and my bones tell me that the physical silver available out there would be absolutely gobbled up.

Two cents from silver. More passion than statistics.

I will keep stacking. you should too.

[theo]

According to an article in Seeking Alpha the average cost per ounce to mine silver was $26 for Q4 2012. This cost will only rise as energy prices increase and ore quality decreases.

http://seekingalpha.com/article/1217001 ... icle_title

[neilgin1]

I lost all respect for Marketwatch when I found out their reporters double as paid forum trolls.

really?!?....oh goodness.....appropriate new verbiage in relation to cyber comms..."trolls"....

i dont doubt AT ALL what you testify...but good source for this info?

[SilverDragon72]

I agree with coppertone in that these two counter views on silver treat it as a commodity only and not as a fiat currency hedge. That's my main aim of ownership. Basically, I would rather have a 1 ounce silver eagle in my coffers than 30 pieces of paper with nice artwork and damn the overhang.

Frankly, I still feel that if silver did end up pulling a '2008' on us again and sinking down sub-$10, my gut and my heart and my bones tell me that the physical silver available out there would be absolutely gobbled up.

Two cents from silver. More passion than statistics.

I will keep stacking. you should too.

If silver did drop to those levels, the available physical would indeed be gobbled up! I would be trying to get my hands on any that I could!

So, yes....I will keep on stacking!