A Case For Much Higher Silver Prices
The folks during FreeGold (FOFOA) trust that when bullion revalues to $45,000, china would tumble down to $1.85. They settled this in their new article, FOFOA: Silver Dollar. Actually, FOFOA’s strange calculation was finished behind in 2001, when they saw bullion revaluing to $10,000 and china down to a measly $.50. At a time FOFOA wrote that forecast, a cost of bullion was $261 and china $4.37.
These would be considerable figures, if they done any sense. Unfortunately, a folks during FOFOA do what we call as “Forecast in a vacuum.” Basically, they arrive during their truth and steel cost sum though deliberation certain outward influences. When we contend vacuum, we am referring to a opening used in scholarship category when atmosphere and outward army were removed.
FOFOA is guilty of this in spades when it comes to their bargain of silver. Why? Because FOFOA and a hardcore supporters demeanour during a universe by glossy gold-colored glasses. Here is one of their excerpts from 2001:
When a entrance paper apparition cost of bullion is destroyed, promulgation a trade cost approach adult and approach down, several times, before shutdown,,,,,,,,,,,,,, the thinner paper markets of obtuse metals will be positively devastated. Yes we will see $50.00 china in a time,,,,,, $50.00 for a hundred unit bar,,,,, that is! No reduction a relations cost diminution for a other metals is in store. Even if these tangible dollar numbers infer incorrect,,,,,, relations acceleration practiced prices will uncover a accurate same ratios to gold. The benefit will truly be in gold!
Again, a folks during FOFOA trust a destiny value of bullion is streamer to a moon, while china gets burning down a toilet. Now, we am not going to get into all a sum given we remonstrate with FreeGold’s position on silver, however we am going to plea a few notable equipment in their article.
Here is object series 1:
What would occur in this Freegold unfolding is that a cost of china would diminution to a turn that compelled china mining during a margin. Now there are dual kinds of china cave production. There is primary china cave production, and delegate or china prolongation as a byproduct of mining other minerals. According to a Silver Institute website, 31% of tellurian china mining supply comes from primary china mines during an normal cost of $7.74 an ounce. So if a cost drops subsequent that number, afterwards we remove a primary china mines, though we still have a 69% of silver-as-a-byproduct mines, that brings us behind down to prolongation levels we saw when china indeed was reduction than $7.74 an ounce, that was as recently as 2005. And don’t forget that it got as low as $8.88 in 2008.
The folks during FOFOA trust a cost of china will tumble even during a hyperinflation as direct for industrial china declines. Thus, a descending cost will kill supply during a margin…. that are a primary china miners. Here is where they start to cherry collect data.
FOFOA states that a primary china miners normal cost per unit is $7.74 according to a Silver Institute (data supposing by Thomson Reuters GFMS World Silver Surveys). First of all, a $7.74 is a “Cash Cost” and not contemplative of all tangible costs. To arrive during a income cost, a association excludes many costs and deducts by-product credits. Thus, income cost accounting deludes a unassuming altered metals financier into desiring it usually costs $7.74 an unit to furnish silver. Most primary china mining companies need their by-product income to waken their change sheet. The china mining attention competence list their by-product steel sales as credits, though these aren’t credits if a association suffers loses though them.
Secondly, a $7.74 income cost figure is formed on 75% of a primary china miners. It says so in a 2015 World Silver Survey. The representation distance GFMS uses to get their income cost was 207 million oz (Moz), while sum primary china prolongation was 270 Moz. Basically, GFMS distributed that $7.74 regulating a largest producers and tip behaving miners.
Regardless, income costs do not paint a profitability of a company. As we mentioned above, a miners concede their by-product steel sales to arrive during a low income cost. FOFOA indeed links one of my articles deliberating income costs behind in 2011. Since then, my work has turn some-more worldly into calculating a “Estimated Breakeven” for a primary china miners.
FreeGold, FOFOA provides a instance of Hecla’s low income cost to clear their $2.75 cost for china after a large bullion reset:
Hecla Mining Company, who claimed a “cash cost” for china as a byproduct was usually $1.15 per unit in 2011, indeed had a “complete cost per ounce” of $23.88! … Wow! At a $1.15 per ounce, $2.75 would be a 139% distinction margin!
Hecla has one of a lowest income costs, given they have one of a tip by-product steel sales. Hecla’s 2014 full year by-product steel sales were a whopping 65% ($325.4 million) of their sum $500.7 million in revenue. By Hecla deducting their by-product revenue, they were means to state an ultra-low income cost of $4.81. However, my estimated breakeven for Hecla in 2014 was $18.87.
Furthermore, income cost accounting is not a GAAP – Generally Accepted Accounting Principle. The mining companies even state in their financial reports that income costs have no “standardized meaning” in a industry:
“cash costs per unit of silver”, that are used by a Company to conduct and weigh handling opening during any of a Company’s mines and are widely reported in a mining attention as benchmarks for performance, though do not have standardised meaning.
So, if a association has a same cost structure as Hecla, though a many reduce by-product steel revenue, their income cost would be aloft given their deductions would be lower. For example, if a association usually had 80% china income and 20% by-product steel sales, their income cost would be significantly aloft as their reduction was many lower. Again, this has 0 to do with a profitability of a company.
Here is object series 2:
But if a author was right about a “break-even area” for silver, afterwards how on earth did mines furnish 20,000 tonnes of china (and chuck refiners another 6,300 tonnes) in 2005, when a cost of china ranged from $6.39 to $9.23 per ounce? And how did we ever tarry 2003, when a cost ranged from $4.37 to $5.96?
FOFOA’s matter here shows their stupidity as they destroy to means in a cost of oil and a attribute to a china price. we plead how a arise in a cost of oil impacted a cost of china in my arriving THE SILVER CHART REPORT. Here is Chart #24:
I accumulate a folks during FOFOA trust a primary china miners remove china ore though a use of energy. Quite crafty of them. Nonetheless, the cost of a tub of oil skyrocketed from $25 in 2002, to over $110 in 2011. Did this not impact a cost to cave silver? Are they teasing here? Again, FOFOA is guilty of FORECASTING IN A VACUUM.
I would suppose FOFOA would contend something like, “Well, if a cost of oil falls behind to $50 like it did in 2005, afterwards a cost of china should diminution to $7.32– a normal cost for a year. That competence make clarity if we continue to investigate a china marketplace they approach a folks during FOFOA, however things have altered extremely in a primary china mining attention over a past decade.
This is also shown in fact in several charts in THE SILVER MARKET REPORT.
I accumulate a tip primary china mining industry’s 40% diminution in normal furnish given 2005, competence have slipped past a ostensible vicious meditative of a folks during FOFOA. Which means, a mining companies have to possibly supplement new mines to makeup for a diminution in prolongation or routine a good bargain some-more ore to furnish a same volume of silver. This costs energy… that costs a lot of FIAT DOLLARS.
Here is object series 3:
But if we chuck in a small mercantile deflation, what FOA called “our mercantile function” that will diminution a industrial direct for china until many of a tellurian malinvestment is privileged away, along with a small cost mistake to a downside and a trace of all that supply overhang competing with a miners and chuck refiners, I consider $2.75 competence even be a small conservative. ;D
I don’t consider china will stay that low forever. As we pronounced during a tip of a post, it’s an well-developed steel with many good industrial uses. So, like America, where “a few plain mercantile ideals still exist and wait a event to arise like phoenixes from a remains of a burning transition,” we consider china has some illusory industrial uses and will arise like a phoenix (more or less) after spending some time during around $2.75 per unit (in consistent dollars of course.
FOFOA believes a United States will arise like a phoenix from a remains of a burning transition, and expenditure of industrial china will boost putting value behind into their low forecasted $2.75 price. As we can see, FreeGold usually values china as it pertains to a grade of expenditure as an industrial metal. Silly people.
This goes opposite 2,000+ years of bullion and silver’s STORE OF VALUE properties. FOA believes bullion will revalue aloft as it will behind all this meaningless fiat money, though they destroy to comprehend ENERGY IS THE KEY, not stupid fiat money. What happens to a tellurian financial and mercantile complement when a rise of radical oil prolongation starts in earnest?
Does FOFOA make any forecasts to what happens to a value of a $105 trillion in tellurian required resources underneath government when universe oil prolongation plummets? How do they see a U.S. rising from a remains when we finally declare a fall of a rarely leveraged shale oil and gas industry? How does a U.S. run on 70% or half of a appetite it’s used to?
The reason china will boost in value in a destiny has 0 to do with industrial demand, but rather as a outcome of investors relocating out of increasingly meaningless paper resources and into earthy ones to strengthen wealth. Silver is usually as good as a store of resources as is gold. It usually has reduction stored Economic Energy than gold.
Of march FOFOA will tag me as a china bug, though they destroy to comprehend we am a STORE OF WEALTH advocate, who believes china is a improved value going forward. This is due to a good bargain reduction above belligerent china in a universe for appropriation as a store of value compared to gold.
While we bottom a value of china now on a cost of oil, this will turn reduction of a guideline in a destiny due to a implosion of a rarely leveraged Treasury-Bond-Retirement-Insurance Fund-Derivative Market. The universe perceives there is a store of resources in these ostensible paper assets. Unfortunately, they are (as we settled many times) 0 some-more than ENERGY IOU’s. Energy contingency be burnt to give them value. And not usually a same volume of appetite subsequent year, though even some-more or a whole residence of cards comes crashing down.
This is not a same with earthy bullion and silver. They STORE appetite value in any coin. No appetite has to be burnt to give them value. They are prepared to be traded for appetite value sealed in products and services. Gold and china are loyal stores of value, while many paper resources are ILLUSIONS of value.
FOFOA fails miserably in bargain this ENERGY = MONEY principle.
The Fed Central Banks Prop Up The High Oil Price
Without a Fed and Central Banks propping adult a mercantile and financial markets given 2008, a universe could not means cost radical oil such as oil sands and shale oil. Without this additional oil supply, a Fed and Central Banks would not have been means to paper over a system.
Furthermore, a trillions in financial liquidity on tip of 0 seductiveness rates indeed pulled destiny oil prolongation forward. This is given a universe has gifted an eleven year tellurian required oil prolongation plateau. Basically, income copy and debt authorised us to take oil from a future. This will come behind to punch us tough when a U.S. Dollar finally collapses. Why? Because a diminution in universe oil prolongation will be some-more serious when it finally arrives.
This will means massacre to a infancy of paper assets. This unfolding is not found anywhere in a FOFOA playbook. Which is approach they usually value of china by how many is consumed by industry.
Lastly, we indeed trust china will outperform bullion in commission terms in a destiny due to it being some-more singular and some-more affordable. we explain this in my arriving THE SILVER CHART REPORT. There are 48 charts in a report. Some of these charts are from my work over a past 6 years, all updated and including new ones never seen before. There isn’t a singular announcement on a internet that explores a china attention and marketplace to a grade lonesome in THE SILVER CHART REPORT.