Silver has fallen sharply in price after reaching historic highs, and some investors are wondering whether it is time to take profits. The founder and head of investment company Azuria Capital, Otavio Costa, holds a different view: the current decline is a correction within a growing cycle, not its end.
In 2011, the silver rally was halted by an increase in production, which quickly adjusted to high prices. Today, prices have risen even higher, yet production remains at the same level.
What stopped the rally last time
Mexico — the world's largest silver producer — is used for comparison. From 2005 to 2011, the metal rose in price from about $7 to nearly $50 per ounce. Mines responded instantly: output grew from about 2.5 million to 4 million kg per year.
That is typically how commodity rallies end. A high price makes mining profitable, companies ramp up output, there is more metal on the market — and the price goes down. That is exactly what happened in 2011.
Why things are different now
This time, silver rose above $90 per ounce and then quickly pulled back to $60. However, production in Mexico did not react to this.
Since 2018, Mexican mines have been producing roughly the same volume, even though silver has risen in price several times over during that period. The supply surge that killed the rally in 2011 is not happening now.
Whether to buy silver
The current decline looks more like a discount than a reason to exit the asset. As long as production does not catch up with demand, the metal has something to stand on, and after the correction the price may continue to rise. The key thesis: a sharp pullback should not be confused with the end of the cycle.
Cryptalist analysis: The structural supply deficit in the silver market remains the determining factor: producers are not increasing output even at multiple price highs, which fundamentally distinguishes the current situation from 2011. For institutional investors, this is an argument in favor of holding positions and gradually adding on dips, although the metal's volatility requires disciplined risk management.