Remember metals are priced to the highest MARGINAL cost of production
Good article:
seekingalpha.com
His point is correct that metals are priced to the highest MARGINAL cost of production. However, he applies this wrong to gold, and thus to silver as well. Although some (many?) gold mines may be able to produce gold at less than the current price, as the public's monetary demand for gold skyrocket, then many higher cost mines will need to be brought into production. This will of course raise the highest MARGINAL cost of production.
And for silver the supply & demand situation is even more severe, especially as the monetary demand heats up. That is why eventually you will see even mines like ORM.V (with it's 60 g/t grade) come into production.
Also he is forgetting that the rule of marginal cost of production does not come into play immediately, but over a decade or more. It takes a long time to bring new mines into production.
Also SRSrocco would I assume argue that the writer of above article is not accounting for cheap energy depletion in general. And I would not totally disagree.
I do not disagree with the author's bullishness on palladium, now that is has fallen 50% in price. I think growing international tensions over the dollar, it is increasingly likely will induce Russia to play it's palladium card. I did get out of palladium at $300, and I did have a private debate with Hommel about getting out of Pd at about $430, but bought instead because he was emphatic that he would not sell until it's price is higher than gold. I think now might be a good time to get back into Pd in a small way, as a small diversification to silver. |
