Lower spot prices have stimulated massive demand for physical gold and silver. The paper prices of these metals are completely devastating the industry, and their spot prices are unlikely to remain below the cost of production for very long.
The costs for silver mining increase every year, regardless of the market price. Gold and silver spot market prices currently sit below the cost of production for most major producers. Couer d'Alene Mines' cost to produce an ounce of silver has been $27.72. Agnico Eagle reported an average cost of gold production nearly $1,350 per ounce.
At $27/oz. US silver mines generally would break even. Below $20/oz they are losing money. Silver is not profitable to mine by itself. It comes as a secondary product of other metals. To mine for silver alone would cost easily $50-$100 an ounce.
All mining companies sell their by-product metals at market value. Some mining operations use hedges, or have a contracted price rate to insulate them against temporary price decreases. Sustained low prices are another story.
If the price of silver falls for example, so does the price for lead, zinc, copper and gold.
Every ounce of gold or silver mined to stay in business needs to be replaced with exploration for future deposits. This is a huge cost in the gold and silver mining industry. Without the exploration for more deposits, the current supplies simply run out.
The industry has such difficulty raising capital resources, locating new high grade deposits, and the political challenges with developing those deposits, that mining companies operate on pretty thin margins.
Should spot prices for gold and silver languish at current levels mines will be forced to suspend operations.
Mining as with all other industries, seems to have a correlation between production volume and cost. The more volume, the lower the complete cost to get the metal to the consumer. This current price environment will force smaller mines to consolidate, in order to reduce operating costs. This is similar to what agriculture was forced into 40 to 50 years ago.
Gold and silver mines are cutting costs everywhere they can. They're reducing capital expenditure, exploration, and development. While gold and silver mining companies have been cutting costs all along, a sustained dip in their prices could be catastrophic for smaller companies operating mines with tight or no margins at all.
If the price of gold goes down to $1,280 or $1,260 for a short time, most mines would try to continue operations. Most mining companies are reluctant to close a mine at the first sign of weak prices. The costs involved to close down and later reopen a mine are simply too great.
The longer these spot prices remain low, the more upward energy they're storing. Low prices are stimulating consumption of the actual metals, while mining production is slowing, and exploration for new materials has stopped completely. Unless demand suddenly stops, the prices have to increase, because demand will be outpacing supply.
To me this is a seldom seen opportunity to be buying as much gold or silver in the form of bullion or coins as I can afford, while the prices are so low.
To discover more about coins: collecting issues, money management, investing in the rare and bullion coin market, and much more, I invite you to visit http://www.heritagecoingallery.com for videos and free tips on buying coins at the best prices.
Article Source: http://EzineArticles.com/?expert=Paul_St._Julien
The costs for silver mining increase every year, regardless of the market price. Gold and silver spot market prices currently sit below the cost of production for most major producers. Couer d'Alene Mines' cost to produce an ounce of silver has been $27.72. Agnico Eagle reported an average cost of gold production nearly $1,350 per ounce.
At $27/oz. US silver mines generally would break even. Below $20/oz they are losing money. Silver is not profitable to mine by itself. It comes as a secondary product of other metals. To mine for silver alone would cost easily $50-$100 an ounce.
All mining companies sell their by-product metals at market value. Some mining operations use hedges, or have a contracted price rate to insulate them against temporary price decreases. Sustained low prices are another story.
If the price of silver falls for example, so does the price for lead, zinc, copper and gold.
Every ounce of gold or silver mined to stay in business needs to be replaced with exploration for future deposits. This is a huge cost in the gold and silver mining industry. Without the exploration for more deposits, the current supplies simply run out.
The industry has such difficulty raising capital resources, locating new high grade deposits, and the political challenges with developing those deposits, that mining companies operate on pretty thin margins.
Should spot prices for gold and silver languish at current levels mines will be forced to suspend operations.
Mining as with all other industries, seems to have a correlation between production volume and cost. The more volume, the lower the complete cost to get the metal to the consumer. This current price environment will force smaller mines to consolidate, in order to reduce operating costs. This is similar to what agriculture was forced into 40 to 50 years ago.
Gold and silver mines are cutting costs everywhere they can. They're reducing capital expenditure, exploration, and development. While gold and silver mining companies have been cutting costs all along, a sustained dip in their prices could be catastrophic for smaller companies operating mines with tight or no margins at all.
If the price of gold goes down to $1,280 or $1,260 for a short time, most mines would try to continue operations. Most mining companies are reluctant to close a mine at the first sign of weak prices. The costs involved to close down and later reopen a mine are simply too great.
The longer these spot prices remain low, the more upward energy they're storing. Low prices are stimulating consumption of the actual metals, while mining production is slowing, and exploration for new materials has stopped completely. Unless demand suddenly stops, the prices have to increase, because demand will be outpacing supply.
To me this is a seldom seen opportunity to be buying as much gold or silver in the form of bullion or coins as I can afford, while the prices are so low.
To discover more about coins: collecting issues, money management, investing in the rare and bullion coin market, and much more, I invite you to visit http://www.heritagecoingallery.com for videos and free tips on buying coins at the best prices.
Article Source: http://EzineArticles.com/?expert=Paul_St._Julien
