Silver price has been 70% lower compared to the previous peek at about $48 in 2011.
According to Lior Cohen from http://seekingalpha.com/ one of the main factors that keep silver investor hoping to see a major recovery is the expected changes in the production of silver in the coming years. Some analysts consider silver could make a comeback in the coming years on account of supply shortage – mostly due to cut down in production of other precious metals and base metals.
About 70% of physical comes as a byproduct of other mine productions:
- 13% from gold
- 38% from lead/zinc
- 20% from copper.
Although silver production has gone up in recent years and could keep growing in the near term, it’s only a matter of time before production winds down and changes course. Some analyst expect production to fall this year.
With prices of gold and base metals falling to new low levels, miners are cutting down capital expenditure. Miners are likely to eventually reduce their output or at least not grow.
However, there are few consideration to take note:
- It could take years before companies will substantially cut down their productions. So far, many companies have been aiming towards conserving cash and cutting debt by reducing capital expenditure and selling assets.
- A drop in production doesn’t pressure prices up for a long time without s a strong demand for silver. For the past few years the growth in demand was mostly driven by investors via ETFs and bars and coins. And to a lesser extent by the higher consumption for industry usage mainly in China. Now, on both fronts demand isn’t expected to grow any faster (if at all for investment purposes). Thus, without a stronger demand for silver, a modest fall in supply in the coming years won’t be enough to drive up price of SLV. From here on end, we still have too many factors from the demand side that may offset slower growth or even fall in production. So it could take years before lower production will become an issue for the silver market to push prices to higher levels.
- The golden age of silver during 2008-2012 was also mainly due to gold. As of the past few years gold hasn’t gone anywhere but slowly down. So without the push from gold it will be hard for silver to make it on its own or reach new highs.
The silver market is at the cross roads. Even though production could start to slowdown in the coming years, the big issue for silver will remain what happens to its demand side – most notably will investors keep stocking up on this precious metal. The usage of silver for industrial purposes (e.g. solar panels) is an important factor that could keep the market tight. But without another panic a devaluation of the U.S. dollar, it will be hard for silver to recover. For now, the Fed remains on the fence of raising rates, which keeps SLV from resuming its descent.
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