Is There A Price Point??

BAJJERFAN

Is there a lower price point at which the physical metals gold and silver would would simply quit trading or quit being produced by the mining companies?

mrpaseo

Yes.

BAJJERFAN

<< <i>Yes. >>



Care to speculate on what that might be?

derryb

futures (spot price) should continue as long as there are buyers and sellers.

halt in production is a decision based on each mine depending on costs vs. return. Mining Cos. may decide to close only certain mines.

Keep in mind there were buyers, sellers and producers when gold was $50.

mrpaseo

<< <i>

<< <i>Yes. >>



Care to speculate on what that might be? >>



Without the specifics of what it costs to mine, the companies do not mine for free. Inherently that tells me that if the value of said commodity (Any commodity) dips below the processing cost, the mines would quit processing until the process is worth it (Financially).

As I have read, when the SPOT for Silver goes up, so does the number of mines that process for silver (Knowing Silver is a by product of other mining, all mines do not process out the silver if it is not economical), likewise, when the SPOT of silver goes down, so does the amount of mines that will process it.

The point where it is no longer cost effective to mine for Silver is the price point (If I am understanding your question correctly). This tells me that no matter what I pay for Silver, it will NEVER be worthless (Much like a few stocks that I dumped money in and then watched the share price go to one cent then just vanish.

As for the paper metals, I really do not understand these, they are paper backed by metal not dug yet (As I understand it but I may be wrong).

mrpaseo

<< <i>Keep in mind there were buyers, sellers and producers when gold was $50. >>




The cost to process Gold back then was less as well.

agentjim007

Keep in mind there were buyers, sellers and producers when gold was $50

And you could get 5 White Castle's, fries, and a drink for a quarter.

Jinx86

agentjim007, I was going to say average yearly income was $3000.

cohodk

Miners will curtail operations if they perceive the price will stay low for an extended period of time. I expect them to announce decreases in operations and mine closures shortly.

Baley

don't savvy miners use the futures markets to hedge, and have locked in deals to sell tomorrow's production at yesterday's price?

RedTiger

The answers are yes and yes. However, the prices to shut down exchange trading are extremely low. Once in a while a commodity gets delisted because there is not enough volume for the exchange to justify the costs. Again, it would be an extremely low price for that scenario. More likely are political and/or economic events that cause the shut down of exchanges and that might also happen with a very high price for metals. Gold mines can and will shut down one by one because each has a different cost structure. As for silver, keep in mind that silver is rarely mined separately. Most of the silver comes as a by product from copper mines. So as long as it is profitable to mine the copper, the silver will keep flowing.

Another point for gold mines is to separate the marginal costs from fixed costs. While the total cost of production for a gold mining company may be $1000 an ounce, just to pull a number out of the air, even if the mine is shut, there are still fixed costs, such as executive salaries, licenses, depreciation on equipment already bought. The operating cost to mine is a percentage of the total cost. Most companies will keep mining as long as the operating costs are lower than the price of gold, even if the total cost per ounce exceeds what they can sell the gold for. The reason is that shutting the mine down still leaves the company with all the fixed costs. Shutting down production may result in a bigger loss, even if a company may be in the red at the current price of gold. The other option is to liquidate the company or file for bankruptcy, and that may happen if the price stays low for a long time.

PerryHall

Agree with RedTiger. As long as we live in a free society, gold and silver and all other commodities will be bought and sold as long as people want it. If a PM price drops below the cost of production it will continue to trade based on peoples perception of its value which will be influenced by the size of any stockpiles that may be overhanging on the market.

morgansforever

If major mining outfits scale down production, wouldn't that increase the price of gold, as long there's world wide demand?

derryb

Golden Minerals Announces Suspension Of Production

cohodk

<< <i>If major mining outfits scale down production, wouldn't that increase the price of gold, as long there's world wide demand? >>



Nor necessarily, but it may create a floor.

BAJJERFAN

My question was prompted by a comment by Ray in another thread about buying boatloads of ASEs when silver hits $3 and ASEs are $5. So who is going to be supplying all of these $5 ASEs?

cohodk

<< <i>My question was prompted by a comment by Ray in another thread about buying boatloads of ASEs when silver hits $3 and ASEs are $5. So who is going to be supplying all of these $5 ASEs? >>



If ASEs are $5 and people are selling them, then those sellers would be of the thought that silver is high or has limited investment potential or need to spend the piggy bank. Think of the socio-economic situations that would cause one to believe $5 silver was high. Do you think owning silver would be a high priority?

BAJJERFAN

<< <i>

<< <i>My question was prompted by a comment by Ray in another thread about buying boatloads of ASEs when silver hits $3 and ASEs are $5. So who is going to be supplying all of these $5 ASEs? >>



If ASEs are $5 and people are selling them, then those sellers would be of the thought that silver is high or has limited investment potential or need to spend the piggy bank. Think of the socio-economic situations that would cause one to believe $5 silver was high. Do you think owning silver would be a high priority? >>



I was thinking along the lines of a pool of sellers being those who are buying now. What is the likelihood of there being a significant number of folks panic selling at $5 what they bought at today's prices? Now someone like the Mint who is satisfied with selling at a certain price over cost probably wouldn't care as long as they make their margin.

mrpaseo

<< <i>Agree with RedTiger. As long as we live in a free society, gold and silver and all other commodities will be bought and sold as long as people want it. If a PM price drops below the cost of production it will continue to trade based on peoples perception of its value which will be influenced by the size of any stockpiles that may be overhanging on the market. >>



Agreed, continue to trade it will but to further be mined at a constant loss it will not.

mrpaseo

<< <i>

<< <i>If major mining outfits scale down production, wouldn't that increase the price of gold, as long there's world wide demand? >>







Nor necessarily, but it may create a floor. >>



A floor will be created if there is enough supply to meet demand. As soon as demand out paces supply, the price goes up.

mrpaseo

<< <i>My question was prompted by a comment by Ray in another thread about buying boatloads of ASEs when silver hits $3 and ASEs are $5. So who is going to be supplying all of these $5 ASEs? >>



There are a lot of reasons why people sell at a loss, the most basic is to feed the family and pay the bills.

I don't think we will ever see $5 ASE's, the good thing about owning physical over paper is:

1) If all mines stopped mining for silver because the spot price was too low, then everyone in paper would be SOL.

2) We have become dependant on Gold and Silver over the decades, they have much more use than jewelry. That tells me they will never be worth nothing and I will be able to sell at any given time and get something in return.

One of the downsides of physical PMs is no dividends.

derryb

Normally a reduction in production is a result of a reduction in demand. However, price equilibrium based on supply and demand factors seems to no longer apply to gold and silver. The reason for this is one of heated discussion between the conspiracy nuts and those who have complete trust in market participants as well as those who regulate them.

disclaimer: I'm with the nuts on this one - why should the metals be exempt from the greed and corruption that has hijacked other markets?



<< <i>One of the downsides of physical PMs is no dividends. >>


Dollar devaluation is your PM dividend. Like normal dividends, it is not always guaranteed.

cohodk

Until the mines open back up and supply increases. This is why prices can trend sideways for a long time.

mrpaseo

<< <i>
I was thinking along the lines of a pool of sellers being those who are buying now. What is the likelihood of there being a significant number of folks panic selling at $5 what they bought at today's prices? Now someone like the Mint who is satisfied with selling at a certain price over cost probably wouldn't care as long as they make their margin. >>



The likelihood is nil as in none as described in your scenario in bold above.

derryb

Another important factor affecting price that should not be overlooked - the supply of dollars that chase any product.

BAJJERFAN

<< <i>

<< <i>My question was prompted by a comment by Ray in another thread about buying boatloads of ASEs when silver hits $3 and ASEs are $5. So who is going to be supplying all of these $5 ASEs? >>



There are a lot of reasons why people sell at a loss, the most basic is to feed the family and pay the bills.

I don't think we will ever see $5 ASE's, the good thing about owning physical over paper is:

1) If all mines stopped mining for silver because the spot price was too low, then everyone in paper would be SOL.

2) We have become dependant on Gold and Silver over the decades, they have much more use than jewelry. That tells me they will never be worth nothing and I will be able to sell at any given time and get something in return.

One of the downsides of physical PMs is no dividends. >>



I assume that most here who are "stacking" are doing so with discretionary funds.