Silver Prices: Why a 42% Move in Silver Could Be Possible in 2016

2016 year silver figures on the background of silvery Christmas decorations1 Reason Why Silver Prices Outlook for 2016 Is Bullish

Silver prices remain suppressed for now, but don’t be shocked if 2016 is a big year for the gray precious metal.

One thing must be understood: the silver supply side is getting crushed.

Major Silver-Producing Countries Reporting Declines

Each day, we have more evidence that suggests silver production in different mining regions is plummeting. We also see silver producers are facing severe scrutiny and some are resorting to desperate measures, trying to change their business model and resorting to adding gold production to their business.

Take Chile, the fifth-largest silver-producing country in the world, for example. In the first 10 months of 2015, Chilean silver production amounted to 1.25 million kilograms. In the same period a year ago, this figure was 1.31 million kilograms. (Source: “Chilean Silver Production,” Chilean Copper Commission, last accessed December 29, 2015.) This represents a decline of 4.58% year-over-year.

Additionally, silver production in the U.S. is tumbling. Consider this: in the first 10 months of 2015, U.S. mines produced 903,000 kilograms of the precious metal. In the same period a year ago, silver mine production was 965,000 kilograms. (Source: “Mineral Industry Surveys,” U.S. Geological Survey, last accessed December 29, 2015.) This represents a decline of close to 6.5% year-over-year.

In Canada, there’s an outright collapse in silver production. In the first 10 months of 2015, production of the gray precious metal declined 22% compared to the same period a year ago. Mines in Canada produced 318,884 kilograms of silver from January to October of 2015; in the first 10 months of 2014, they produced 413,364 kilograms of silver. (Source: “Production of Canada’s Leading Minerals,” Natural Resources Canada, last accessed December 29, 2015.)

Mind you, the U.S. is the ninth biggest silver producer and Canada is the 13th.

Silver Mining Companies Scrambling

When we look at silver-producing companies, we see them scrambling, too.

Look at Coeur Mining, Inc. (NYSE:CDE) as one example. On November 2, the company reported its financial results for the third quarter of 2015. It produced 3.8 million ounces of silver in the quarter. In the third quarter of 2014, Coeur produced 4.3 million ounces. Simple math tells us this represents a decline of close to 12% year-over-year. (Source: “Coeur Reports Third Quarter 2015 Results,” Coeur Mining, Inc., November 2, 2015.)

But here’s the kicker: the company produced an ounce of silver at an all-in sustaining cost of about $15.17. With silver prices below $14.00 an ounce, Coeur Mining would be losing more than a dollar on every ounce of silver it takes from the ground.

We see something like this happening at several other companies as well. Their costs are high, but silver spot prices are low. With this, I ask one question: will they be able to produce in the long run?

Economically speaking, it’s very difficult to continue.

Silver Prices Outlook 2016: Bullish

Going into 2016, it shouldn’t be a shock to anyone if the supply-and-demand situation comes into play. There’s clear evidence of demand surging and supply facing solid constraints—the perfect recipe for higher silver prices ahead.

It won’t surprise me if we find that 2015 was the year when we found a bottom in silver prices, and in 2016, silver prices start to move gradually higher and try to test the $20.00 level.

Time will tell us more, but it may be a happy New Year for silver precious metal investors.

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