Silver Shortage To Send Price Soaring Above $20 In 2019

Silver peaked just shy of $50 during April of 2011. The price has been correcting ever since, falling below $14 per ounce in 2016 and again late last year. But there is a silver lining to such a deep and protracted price correction.

With silver prices under $20 per ounce for so long, a significant number of mines are unable turn a profit. And even the ones that can, are not generating enough cash flow for the mining companies to spend significantly on mine expansion or exploration drilling. Silver is often mined as a by-product of other metals, but prices have been down across most precious and base metals over the past 7 years.

Declining revenues and lack of earnings, make it difficult to raise capital or contemplate putting new mines into production. Several silver companies had to their mines on ‘care and maintenance’ or totally shelf plans to build mines that were once deemed economic.

The result is that silver mine output and overall production drops. There is a lag effect, as many miners will continue to produce in order to generate revenue, even if they are making little to no profit. But eventually, they are forced to close unprofitable mines and their project pipeline becomes small or non-existent.

Making matters worse, scrap silver supply levels have also been declining sharply in recent years. Scrap silver supply went from 260 million ounces in 2011 to just 138 million ounces in 2017.

This has been the state of the silver market lately, with the lowest levels of output since 2013. Economics 101 teaches that lower supply is a component of higher prices. But the concurrent impact of lower demand has capped any potential prices advances in recent years.

That could all be changing now, as silver has become increasingly attractive to investors looking for undervalued asset classes or safe-haven investments. Silver is benefiting from the persistent trade war, government shutdown, weakening dollar and a more dovish Federal Reserve. The FED held rates steady at the FOMC meeting yesterday and stressed that they will be patient with future rate hikes. They also suggested that the FED balance sheet may not shrink much further.

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While the silver price is up 3.7% in the past month, the Silver Miners ETF (SIL​) is up 8.2%. Our latest silver stock pick is up 23.9% in the same ...

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