Have we reached peak precious metals? Many analysts think so.
Just to be clear, however, the idea of peak gold and peak silver doesn’t refer to a peak prices. The precious metals put in a cyclical price high in 2011. But annual mining production levels may have peaked in 2014-2015. This is what is meant by “peak precious metals.”
There is good reason to believe that newly mined supplies of gold and silver will decline in 2016 and beyond. The main culprit is low prices. In 2015, gold and silver prices spent most of the year trading below miners’ all-in production costs (which average $17/oz for silver and $1,150/oz for gold).
Primary silver production is already on the decline in the major producing countries. Last year silver output fell in Chile by 4.6%, in the United States by 6.5%, and in Canada by more than 20%!
What Scalebacks in Copper Mining Mean for Silver
It’s important to keep in mind that the majority of silver that is mined comes as a byproduct of mining operations for other metals. Fully 55% of all silver produced comes from copper, lead, and zinc mining. Another 13% comes as a byproduct of gold mining.
In order to understand the supply dynamics of the silver market, you have to take a look at what’s happening with base metals mining...
Much like gold miners, copper producers are struggling to cope with low spot prices. One of the ways they are trying to survive is by cutting production. Nine of the largest copper producers announced they would cut output by 200,000 metric tons in the first quarter of 2016.
The contraction in the base metals mining industry will contribute to supply tightness in silver. The silver market has experienced an annual supply deficit for most of this decade. That deficit could widen in 2016 and beyond.
The Silver Institute notes, “While such deficits do not necessarily influence prices in the near term, multiple years of annual deficits can begin to apply upward pressure to prices in subsequent periods.”