Here at Numis Financial we have been getting a tremendous amount of calls and emails regarding, when we anticipate the current precious metals market will “bottom out”. To answer this as scientifically and unbiased as possible, we wanted to shed some light on some key factors to consider before entering the market.
Physical Demand VS Paper Demand
Even though the paper markets have been selling off at a rapid rate (MARKET MANIPULATION) the demand for physical gold has been higher than ever before. The US mint has sold more metals in 2013 than the previous 5 years. See charts below.
Hard Cost to Produce 1oz of Gold
This evaluation is based on pure production costs along with basic supply and demand fundamentals. As the chart below indicates the hard cost to produce 1 ounce of Gold is between $1,135 (Gold Corp) to $919 (Barrick). With the current Gold spot price at $1,276 it is easy to see that if gold prices get any lower production will have to slow down or stop completely. If this does occur, there will be more demand than supply so naturally the physical demand for gold will increase gold prices back up to par production levels and beyond . Keep in mind with this evaluation there is no room for market manipulation, because we are only taking into consideration hard cost and not leveraged speculations. It is our opinion that the likelihood of gold prices going below $1,135 is very low; this creates a great buying opportunity for long term investors to cost average their metals position.
Hard Cost to Produce 1oz of Silver
In order to get a good grasp of production cost on silver, we looked at (Fresnillo) the largest silver mining company in the world. As you can see after all the expenses the hard cost to produce 1 ounce of silver is $20.88, currently silver is trading at $19.43. Ironically the U.S. mint has a 2 month delay in procuring American Silver Eagles. Using the same reasoning as we did for gold we feel that the likelihood of silver going below $19.00 is very low.
In Conclusion, fundamentally the economy has not changed. We are not producing more jobs, importing less goods or cutting down on our spending. There has been however a great deal of market manipulation that has occurred by the investment banks. Market manipulation can only go so far; at some point physical demand will supersede market manipulation and regulate prices.
All hard fundamentals and production evaluations point towards a bullish metals market from here on out. It is our opinion that now (more than ever) is the best time to take advantage of the market.