The Silver Price, Oil, and the South African Investor

Posted by in Silver Bullion Blog on February 12, 2015 Comments off

Steve St. Angelo has pointed out that peak oil is relevant for the future prices of silver. Oil production is falling, while costs and consumption are increasing. Mining one ounce of silver requires a certain amount energy (i.e. oil). However, the cost of extracting and refining one unit of energy in the form of oil to retrieve that ounce of silver from the ground is likewise snowballing. In the long-term, a higher silver price is a mathematical certainty. Remarkably, it was higher oil prices that pushed silver to peak in price in 1980 and 2011.

Perhaps the least understood characteristic of silver is that silver is economic energy. It takes economic energy to mine an ounce of silver. This economic energy is then enclosed or captured. Owning one ounce of physical silver means possessing one unit of economic energy; energy that cannot be destroyed or deflated.

According to SRSrocco, the top twelve primary miners produced 92.7 million ounces of silver in 2013, and sold 92 million at an average realized price of $23.09. Using his formula, break-even for the group was $24.05 per ounce. This means that the group gave away their silver at a net adjusted loss of $0.97 per ounce. Such losses are simply not sustainable in the long term. Owning physical silver at these below cost prices is undoubtedly a wise decision indeed. Even if prices are manipulated towards the down side by JP Morgan and friends, such tactics have a life-span; it cannot last for ever.

South Africa is more susceptible to a Communist Socialist agenda than most realise. With the current undercurrent rhetoric of nationalisation of banks, mines, and farms, as well as land redistribution without compensation, the future socio-economic landscape is rather uncertain. In such an environment, silver represents real wealth, whereas fiat paper represents not only liability and debt, but vulnerability to wealth confiscation .Land can be confiscated, mines can be nationalised, retirement funds can be misappropriated, but silver has no counterparty risk. It is not an overstatement that it may be dangerous and irresponsible not to own physical silver to safeguard one’s financial future in such a volatile and uncertain political and socio-economic context.

In short, buy silver because it is below the cost of production, because oil price will only go up, and because you live in South Africa. If you already in the physical silver game, you should pat yourself on the back for taking the initiative to preserve and conserve the value of your labour. Remember, the fundamentals are on your side, even if the government turns out not to be. Just be patient and keep stacking.

Don’t forget to visit www.silver-sphere.co.za today to view our full range of silver bullion products.