Silver is down 70% from its high of $48.70 an ounce back in April of 2011. And the calls from the mainstream are for silver prices to fall farther, as the Federal Reserve has stopped printing paper money and inflation is nowhere in sight. I beg to differ.
As the price of one ounce of silver reaches a four-year low, investors are running to buy the gray precious metal. To them, they see the price decline in silver as an opportunity.
On Friday, October 31, as silver prices broke to their lowest level since 2010, silver coin sales at the United States Mint soared. The Mint sold 1.4 million ounces of silver American Eagle coins on that day alone. This was the highest in daily sales since January of 2013. (Source: Reuters, November 5, 2014.)
Sales of silver coins at the U.S. Mint are soaring. The table below shows the change in ounces of monthly silver coins sold at the Mint from July to October of this year.
CHANGE IN DEMAND FOR
SILVER COINS, U.S. MINT
July to October 2014
|Month||Ounces Sold in Coins||% Change|
Data source: The United States Mint web site,
last accessed November 6, 2014
Up until November 6, the U.S. Mint had already sold 1.26 million ounces of silver in coins.
The Royal Canadian Mint is experiencing similar high demand for the gray precious metal. According to its spokesperson, since September, the Royal Canadian Minthas started to ration its popular Maple Leaf silver coins due to high demand.
And as silver prices continue to slide lower, there will be supply constraints. Silver mining companies will have to halt their production at mines where the cost of production is higher than the market prices, because it’s senseless for them to produce silver at a loss.
Outputs at silver mines in Canada are already taking a hit. Between January and July of this year, outputsfrom Canadian silver mines amounted to 335,425 kilograms (kg). In the same period a year ago, total output was 463,738 kg—a decline of almost 28% year-over-year! (Source: Natural Resources Canada web site, last accessed November 6, 2014.)
From the current level, the gray precious metal will have to rise to only $31.00 an ounce to double in price—a level not unseen. And looking at the long-term chart of silver prices below, you will note that the long-term price trend is still to the upside for silver. This tells us that the bullrun that began in 2002 hasn’t ended.
Chart courtesy of www.StockCharts.com
In the end, the decline in precious metal prices is a blessing in disguise for investors—be it for gold or silver. As prices have declined, mining companies have been forced to reduce production at mines that are no longer profitable. Now that they have tightened their belts, I potentially see stock prices of some well-managed gold and silver production companies doubling if precious metal prices rise just 20% to 30% from here.