A lot is riding on the demand side of the equation when it comes to metals’ price performance this year. Demand is the bigger wildcard with signals thus far being mixed in gold and silver bullion markets. The outlook for supply is more certain, and it isn’t pretty.

Endeavor Silver, one of the largest primary silver mining companies, announced last week that it expects to reduce production of the white metal by roughly 30%. The company’s El Cubo mine is not profitable despite efforts to reduce costs. Endeavor plans to halt development and exploration at the mine and process accessible ore only. By year end, the mine will be placed on “care and maintenance.”

Steve St. Angelo of SRS Rocco Report reviewed the company’s third quarter 2015 financial reports, which revealed the all-in sustaining costs at El Cubo at $18.48 per ounce. There will need to be a significant recovery in silver prices before the mine can operate profitably. Investors should expect other miners to announce similar plans to taper production in the coming months.

COMEX Gold Stockpiles Drop 73% in a Single Day

The drop in COMEX inventories of gold and silver may also contribute to supply problems in the bullion markets. Registered gold inventories had recovered very modestly from record low levels in December. However, last week stockpiles dropped an alarming 73% in a single day. 201,345 of the available 275,325 ounces of registered gold were reclassified from registered to eligible on Tuesday, rendering those ounces unavailable for delivery – at least until converted back. COMEX silver inventories also continue to fall.

It is true the declining inventory of registered metal isn’t necessarily a problem. Holders can very easily switch metal from one category to the other. But registered stocks of gold have never been this low, and certainly have never held this low for such an extended period of time. We may be seeing a genuine reluctance among holders of COMEX metal to let more go at current prices.