An analysis of silver production costs and the metal’s price action raises several questions about the strength of the market in the future.
In a recent report by Alan Kennedy, of Visual Capitalist, the cost to produce an ounce of silver in North America rose from $14.09 in 2021 to $19.44 in 2023.
Note that the price of silver dropped during that time and has recently recovered to trade at around similar levels to 2021, where it traded between $23 and $30 an ounce.
On Wednesday, the metal was trading around the $28.20 level.
The 37% increase in production costs in North America was not replicated around the globe, where regions such as Central and South America had similar production costs in 2021 compared to 2023. Meanwhile, Russia experienced large hikes in production bills. In 2021, it cost about $8.93 to produce an ounce of silver, compared to the current price, which has more than doubled to $17.05.
Do prices follow production costs or vice versa?
It is generally accepted in investing circles that production costs follow the spot prices of silver. However, the past two years have been an outlier. While many regions have substantially increased production costs, the price of silver has traded relatively flat for the past three years.
Recent upward momentum in the price of silver has correlated with increased industrial demand; however, white metal continues to lag behind gold's rally to all-time highs of $2,500 an ounce.
Silver’s rise in production costs could be a sign that the metal has room to grow as miners deploy more advanced technology to meet the increase in demand and higher prices.