Silver Bottoms & GSR Hits 86

It’s no surprise to investors that silver’s price is again testing new lows.  Indeed the metal saw a new low earlier this week not seen since the end of 2015 before it took off, rising 52% to a peak of $27 just a few months later.  On Tuesday we saw silver hit AU$19.37 or US$13.98.  That coincided with the Gold:Silver Ratio (GSR) hitting a high not seen in 25 years at nearly 86.

Needless to say sentiment is at lows not seen for some time with the chart below showing the year long trend:

Looking at the technical charts, firstly Daily, and silver is sitting below its 200 DMA and still well and truly in oversold territory but heading up.

Zooming out to weekly and we get an even clearer picture of what looks like a bottoming out happening with the RSI coming off an extreme oversold position and MACD heading positive.

Moving away from sentiment and technical trends let’s look at the fundamentals.  The chart below shows that US$14 price in the context of the Average All-In Sustaining production cost for the top primary silver miners who average $16.10.

Of those top producers, only one posted a profit in that last quarter, Fortuna Silver Mines with $6.8m.  The largest, Pan America Silver lost $9m and the worst, Coeur Mining lost a whopping $53m in the quarter.  Looking more simplistically at free cash flow you can see below that these group of top miners are on average spending $2.60 more per oz than the income received.  How sustainable does that seem?

Combined with the volatility on financial markets and the turmoil geopolitically at present, the above paints a very compelling picture of a wonderful entry or averaging down opportunity for silver.

We’ve posted the following chart before but it is worth revisiting what normally happens to BOTH the gold price and silver price when the GSR breaches 80.  The chart is out of date and we had a ‘false top’ at the start of 2016.  From there gold rose around 28% and silver up nearly 50%.  As a reminder we are currently back up at 85!