Silver and Gold are taking another dive.

[barrytrot]

While cost of production seems like it should be a key indicator I would be willing to bet that the "cost of production" is open to a LOT of change and innovation.

So it might be $20 today, but if silver is worth $17 and there is silver in the ground my guess is someone would figure out a method to get to it for $16/ounce.

Necessity is often the mother of invention. As is PROFIT. If you can make money by innovating you do. If you are already making money sometimes you don't. So now that silver is cheaper you can bet that the focus of miners will be to cut their cost of production so that they can still profit.

[Jonflyfish]

While I would like to take your word for it common sense dictates that I defer to the most reliable sources, and the CEO of SLW recently stated their cost of production for silver is $20/oz. Barrick has put cost of production for gold at $1300 as of Q4 2012.

Additionally due to silver being mined as a byproduct that actually defers its cost of production to other metals, so in those cases it is an undervalued number.

I am a very reliable source. I said many large contracts were executed. I didn't say what a production cost was. In the event that you are buying production from someone else, you don't have production cost, only transfer cost at the contracted price. But you can believe anyone you choose. Some believe in Sprott, Schiff et al. when silver was near $49 and calling for an explosive price higher. Beliefs and market reality when dealing with a fungible commodity aren't the same thing.
Price is where people disagree on value but agree to transact. It is the ultimate arbiter and the ultimate indicator or truth i.e. "put your money where your mouth is". One can believe in snake oil or reality. In the end, the price is the price.

Cheers!

You are an anonymous person on the Internet, not the CEO of a mining company. You said yourself that cost of production was very low, and then threw a number out in the next sentence so obviously were implying as much I don't care what the price is. I care about fundamentals, long term perspective. You can catch the waves if you want, but I'm following the tides.

Cost of production sources:
Silver @ $20 - http://money.cnn.com/2013/06/05/investi ... index.html
Gold @ $1300 - http://seekingalpha.com/article/1225891 ... ld-edition

Said that the price "thrown out" that they acquire (they are not the producer) was for some very large contracts. Don't believe me and don't believe that silver is a byproduct. That is fine. I have nothing to convince or prove.

Cheers!

[scyther]

Why would a mine sell its silver for $14 an ounce?

[Jonflyfish]

Why would a mine sell its silver for $14 an ounce?

Contractual obligation.

Cheers!

[scyther]

Why would a mine sell its silver for $14 an ounce?

Contractual obligation.

Cheers!

That's what I thought... they lost a lot of money on that deal...

[barrytrot]

Or they made money. If they made the deal most likely they properly hedged such that it was a "win" for them as long as they produced based on their normal schedule.

[scyther]

Or they made money. If they made the deal most likely they properly hedged such that it was a "win" for them as long as they produced based on their normal schedule.

They probably made money, but they could have made a lot more if they had been allowed to sell at current prices.

[barrytrot]

Or they made money. If they made the deal most likely they properly hedged such that it was a "win" for them as long as they produced based on their normal schedule.

They probably made money, but they could have made a lot more if they had been allowed to sell at current prices.

Sort of. Most of the time you make your business decisions such that you make the level of money you need/want to make. Making more than that is always "cool", but no one stays in business long unless they aim STRONGLY at the need/want level and focus on that. Making these post dated deals is the method that people can do that. Naturally playing the "will the price be higher game" might make you extra happy for a while, but as soon as you LOSE that game you generally are out of business.

[scyther]

Or they made money. If they made the deal most likely they properly hedged such that it was a "win" for them as long as they produced based on their normal schedule.

They probably made money, but they could have made a lot more if they had been allowed to sell at current prices.

Sort of. Most of the time you make your business decisions such that you make the level of money you need/want to make. Making more than that is always "cool", but no one stays in business long unless they aim STRONGLY at the need/want level and focus on that. Making these post dated deals is the method that people can do that. Naturally playing the "will the price be higher game" might make you extra happy for a while, but as soon as you LOSE that game you generally are out of business.

Makes sense. I just thought the contracts would have been renegotiated sooner, like maybe once a year. Just seems odd to me that they've apparently been selling at that price since it made sense to sell silver at $14 an ounce (2010 at least).

[barrytrot]

My guess is that it was a mutually beneficial contract. The Silver producer gets paid a portion of that money in ADVANCE and therefore funds their production costs with it and flows right into my "diagram" of making what you need/want very nicely. It reduces the producer's risk substantially to already have some of their income in hand prior to actually "making" the silver.

[beauanderos]

If you're holding a contract that says you sell me 4 million ounces of silver a year from your production stream for $6 an ounce... why in the world would you be willing to renegotiate that??? Either side to a contract is gaining something they want, sometimes the real cost is not something they anticipate. But they need the upfront capital to operate... which comes at a contractual cost.

[beauanderos]

Hard to catch a falling knife

It's easy if you use your face

[barrytrot]

Thanks for the visual beauanderos

[stlouiscoin]

just saw it at 18.91... I think it will drop to between 18.50 and 18.70 and steady out before the next dip.

jff, is it to early to tell , or did I call it

[inflationhawk]

Hard to catch a falling knife

It's easy if you use your face

I said A falling knife, not TWO falling knives!