Valuing commodities, especially silver, is one of the most complex investment challenges. Silver is not a company that generates discountable cash flows, nor does it have a business model or management whose decisions can be analyzed. However, simply viewing the market price as a direct reflection of immediate supply and demand or speculative momentum often leads to delayed, cyclical, or clearly biased investment decisions.

 Hence the need for a different valuation framework; one that doesn’t attempt to predict the future price, but rather seeks to estimate the potential fair value around which the price will revolve in the medium and long term. This framework combines economic logic that identifies the long-term price center of gravity with technical analysis that assesses current market behavior and determines which scenarios are most likely at the present moment.

Second:

Economic evaluation. The logic of marginal cost and the long-term center of gravity of price.

 

 In the long run, no commodity market can continue to price a commodity below its maximum marginal cost of production. This doesn’t refer to the average cost, nor the cost of the most efficient producers, but rather the cost of the last remaining product capable of remaining in the market . In this case, it’s the highest production price of the last ounce of silver produced. Companies that extract silver from the earth calculate the cost per ounce by dividing total costs by total production. When demand for silver or gold increases, companies operate their production lines at full capacity to capitalize on the often temporary price rise. This means an increase in the cost of producing an ounce. The highest production price per ounce is then used as the basis for the calculation.

 The mechanism of adjustment in commodity markets is not solely driven by demand, but—more importantly—by supply. When prices fall for an extended period, low-cost producers continue production, while higher-cost producers begin to reduce output, postpone expansions, or exit the market altogether. This gradual withdrawal reduces supply, pushing prices back toward a level that ensures the survival of marginal producers. Therefore, the highest cost represents an economic floor or long-term center of gravity for price, not merely an accounting figure. Why? Because the highest price is the price at which, when prices fall, higher-cost producers begin to reduce production, thus triggering a decrease in supply. At this price, the price begins to move toward equilibrium with the reduced demand.

 

2. Determining the economic basis of silver

 Based on the latest comprehensive production cost (AISC) data for silver mines worldwide, the highest marginal cost of producing an ounce of silver is around $36 per ounce or slightly higher. This figure reflects the highest-cost producer segment and is the most important factor in explaining supply dynamics. However, stopping at this level alone is not enough. Silver producers not only need to cover their operating costs but also require a reasonable return on invested capital that reflects:

 Adding this required return, the long-term economic equilibrium price of silver can be estimated to be around $40 per ounce . This price is not the current price, nor a short-term forecast, but rather the level at which a producer is indifferent to whether to continue or exit the market, as long as extracting silver costs them what they expect—namely, the costs of extraction plus their anticipated profits.
3. Two methods for calculating the fair value of silver.

 A common mistake in commodity valuation is searching for a single “fair price.” The probabilistic economic approach treats price as a variable that moves between different market conditions , each with its own logic and behavior.

 In the case of silver, the framework can be simplified to two main cases:

 Technical analysis is not used here to determine fair value, but rather to identify probabilities . Value comes from economics, while technical analysis is used to evaluate:

 In other words: Technical analysis answers the question , “Which economic scenario is most likely to come true now?”

 By reading the technical analysis of silver, it becomes clear that the market is in a strong upward trend , driven by a clear impulsive movement, where:

 But at the same time, signs of overbought conditions (Buy Climax) are appearing, a situation that indicates:

 In these cases, technical logic does not favor a direct trend reversal, but rather a price correction or a period of consolidation that allows the market to rebuild its base before any new upward wave.

 Based on this behavioral context, the probabilities can be estimated as follows:

 These projections do not mean that the trend has changed, but rather that the risk-to-reward ratio of buying at these levels is unattractive.

 The current fair value is calculated as a weighted average between two market conditions by multiplying the probability of an increase (35%) by the higher price (110 per ounce) plus the probability of a return to the economic price (40 dollars) multiplied by the probability of this scenario occurring (65%) in this case. This is to simplify the mathematics.

 where:

 Approximate result: Based on the above, the fair price of silver is $64–65 per ounce.

2. Interpretation of the result

 This number does not mean that the price “should” be at this level now, nor does it mean that the market will not exceed it. But it does mean that:

The fair price of silver without including technical analysis and its probabilities in the equation.
 The fair value accepted today (taking into account fundamentals and cyclical fluctuations) would be: ≈ $75-85 per ounce. This range reflects the higher cost at $36 per ounce, a potential price rise near current market levels (around $110 per ounce), and the possibility of silver returning to its base levels rather than remaining at record highs.InterpretationIf you are optimistic about demand trends (industrial and monetary) and believe the rise will continue, focus more on peak demand (around 60% to 70%), resulting in a price between $80 and $86 per ounce. Conversely, if you are neutral or cautious, focus more on fundamental factors (around 30% to 40%), resulting in a price between $70 and $75 per ounce. This means that the lower you assume the probability of an upward move from current levels, the lower the price will be. The opposite is also true. You are free to choose the probability percentage that best suits your perspective, but for simplicity, refer to the following table, which presents the probability percentages for all possible market conditions and the price of silver at each probability level.