Here’s Why I’m Bullish on Silver Prices
Silver prices remain down for the year, but don’t look away from the fundamentals. They suggests the precious metal could soar. Don’t be shocked if silver prices see a massive move in 2016 and beyond.
You don’t really have to be a rocket scientist to understand what’s happening in the silver market. We have a very basic economic problem at hand. The demand is soaring and due to lower silver prices, supply is facing severe headwinds. This is a perfect recipe for higher prices.
We have been paying significant attention to major silver production regions and big silver mining companies. Saying the least, we see an outright collapse in production of the gray precious metal. This could have a major impact on silver prices. Basic economics suggest that when demand rises and the supply declines, prices shoot up.
Silver-Producing Region Reporting Dismal Figures
Consider this, in the first nine months of 2015, U.S. mines produced 821,000 kilograms of silver. In the same period a year ago, this figure was 862,000 kilograms. According to some simple math, silver production in the U.S. declined close to five percent. (Source: “Mineral Industry Surveys,” U.S. Geological Survey, last accessed December 21, 2015.)
Look at Canada, too. There’s a massive decline in silver production there as well. In the first 10 months of 2015, silver mine output in Canada amounted to 318,884 kilograms. In the same period a year ago, it was 413,364. (Source: “Production of Canada’s Leading Minerals,” Natural Resources Canada, last accessed December 21, 2015.) This is a decline of more than 22% year-over-year.
Mind you, the U.S. and Canada are among the top 15 silver producers in the world.
When we start looking at silver miners, we see them struggling to produce more.
First Majestic Silver Corp (NYSE:AG), in its third-quarter financial results, said, “Management believes leaving higher cost ounces in the ground is a prudent choice for its shareholders until silver prices improve.” (Source: “First Majestic Reports Third Quarter Financial Results,” First Majestic Silver Corp, November 16, 2015.)
What really interests us is the company’s production decision. Lower silver prices are forcing First Majestic to simply stop producing certain grade grounds.
Hecla Mining Company (NYSE:HL), one of the biggest silver producers in the U.S., reported a decline of roughly 10% in its silver production in the third quarter of this year. It produced 2.59 million ounces of silver. In the same period a year ago, it produced 2.86 million ounces of the precious metal. (Source: “Hecla Reports Third Quarter 2015 Results,” Hecla Mining Company, November 4, 2015.)
Know this: if silver prices go down further, miners will cut back on their silver production.
Why 2016 Looks Good for Silver
Going into 2016, investors should at least pay attention to the gray precious metal. I remain severely optimistic.
You see, markets can remain irrational for a very long time. We have seen this over and over again, though they eventually come back to their senses. When I am looking at silver prices, I am seeing something similar. The fundamentals of the silver market are getting better by the day and the price isn’t doing much. This could change going into 2016.