Guest Post: Silver Is Getting Too Popular… Right?

Tyler Durden's picture

Submitted by Jeff Clark of Casey Research

Silver Is Getting Too Popular… Right?

It’s no secret that the silver market is red hot. As I write, silver American Eagles and Canadian Maple Leafs are sold out
at their respective mints. Buying in India has gone through the roof,
especially noteworthy among a people with a strong historical preference
for gold. Demand in China continues unabated. Silver stocks have
screamed upward.

So, as an investor looking to maximize my profit,
I have a natural question: is the silver trade getting too crowded,
meaning we’re near the top? Have the masses finally joined the party
such that we should consider exiting? After all, it’s not a profit until
you take it, and you definitely want to sell near the top.

There
are several ways to measure how crowded the silver market might be. I
prefer to look strictly at the big picture and not get caught up in the
weeds. This means I’m looking for signs of market exhaustion or the
masses rushing in. Nothing says “peak” more than an investment everyone
is buying.

So how crowded are silver investments right now? Let’s first look at the ETFs.

  

At
$35 silver, all exchange-traded funds backed by the metal amount to
$20.7 billion. You can see how this compares to some popular stocks. All
silver ETFs combined are less than a quarter of the market cap of
McDonald’s. They’re about 10% of GE, a company that still hasn’t
recovered from the ’08 meltdown. Exxon Mobil is more than 20 times
bigger. And this isn’t even apples-to-apples, as I’m comparing the
entire silver ETF market to a few individual stocks.

This is even
more interesting when you consider that it’s the ETFs where most of the
public – especially those that are new to the market – first invest in
silver. So while the metal has doubled in the past seven months, total
investment in the funds is still far beneath many popular blue-chip
stocks.

Okay, maybe all this money is instead going into silver
mining stocks. How does the market cap of the silver industry compare to
other industries?

  

While
you fetch your magnifying glass, I’ll tell you thatthe market cap of
the silver industry is $73.1 billion. It barely registers when compared
to a number of other industries I picked mostly at random. The dying
newspaper industry is over 26 times bigger. Drug manufacturers are 213
times larger. Heck, even the gold market is 19 times greater. And here’s
the fun one: the market cap of the entire silver market, with all its
record-setting prices and stock-screaming highs, represents just
one-third of one percent of the oil and gas industry.

To be fair,
there are a number of sectors that are smaller than silver. Radio
broadcasters ($43.2B), video stores ($10.9B), and sporting goods stores
($2.5B) have puny market caps, too. But then again, who's buying DVDs or
baseball mitts to protect their wealth from a coming inflation?

Silver hardly resembles the picture of an investment that is too crowded.

I’m not saying one should rush to buy silver right now. After all, it has
doubled in seven months. Unless this is the beginning of the mania,
prudence would certainly be called for at this juncture. The price will
always ebb and flow in a bull market, and an ebb is overdue. 

The
question, of course, is from what price level it occurs. What if a
correction doesn’t ensue until, say, a month from now, and the price
falls back to… where it is now? I remember some articles in January that
insisted silver would fall to as low as $22, and, well, they’re still
waiting and have in the meantime missed out on some huge gains. For
silver to fall back to $22 now would require a 40% drop; not impossible,
but I wouldn’t hold my breath.

Fixating on market timing takes
your focus off the ultimate goal. In my opinion, instead of worrying
about what will happen next week or even next month, focus on how many
ounces you have, and then buy at regular intervals until you reach your
desired allocation. This has the added benefit of smoothing out your
cost basis. And don’t forget to buy more as your assets and income
increase.

This is a market where you'll want to be well ahead of
the pack. Someday in the not-too-distant future, average investors will
be tripping over themselves to join in. That will make the market caps
of our silver investments look more like some of the others in the
charts above. And that will do wonderful things to our portfolio.

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Sudden Debt's picture

Personally, I don't know anybody who is buying silver.

Let's say, I know about 100 people in my inner circle.

And none of them knows anyobody who buys it but me.

That doesn't sound so crowed to me.

 

Silver might be called "hot" if 1 out of 10 people start to invest in silver.

 

LawsofPhysics's picture

Buy more.  All these folks will work for you soon enough.

TruthInSunshine's picture

Sorry for the OT -

Gundersen says Areva document is out that says Fukushima is greatest disaster of modern times unfolding. Reports have been kept guarded; he has seen the report.

Exact Areva report quote: "We are witnessing greatest disaster of modern times."

Video link in blue with my summary of his presentation:

April 6th Video of Arnie Gundersen, of Fairewinds Energy.

Closing Ranks: The NRC, the Nuclear Industry, and TEPCO are Limiting the Flow of Information

Gundersen says No 1 and No 2 are in deep trouble, plutonium was ejected from fuel pool during explosions, and that heavy, radioactive mud are making remaining structures unstable. Says info has been witheld and documents exist proving it. Says Areva has filed reports that show nuclear fuel in all 3 reactors reached 5000 degrees, which is higher than melting point of stainless steel and Zircaloy. Also says that disintegration of core is obvious. Says unit 2 containment was breached ALONE by hydrogen explosion. Areva and NRC know this yet failed to disclose it. Areva report states all crops and dairy products within a minimum of 50 kilometers are totally contaminated. Says unit 4 fuel pool cracked due to earthquake, and now with no water, Zircaloy/Hydrogen reaction was inevitable. Water didn't boil out, but leaked out due to crack. Says largest release is coming from unit 4 and that all releases are being volatalized. Exact Areva report quote: "We are witnessing greatest disaster of modern times."

illyia's picture

Thanks for tragic report.

Truth hurts.

trav7777's picture

Need to see Areva doc; won't take his word for it.

Fuel pool crack was the biggest worry...a total coffin corner.

That said, UCB is showing markedly declining rad levels across the entire isotope spectrum.

TruthInSunshine's picture

I take his word for it. Did you watch the video?

Go to 06:46 of the video.

 

 

Global Hunter's picture

thanks for the link and your points.  I don't find much of it surprising to be honest, if everything was fine they'd have been open.  Thanks to Arnie too.

Creed's picture

quit posting this shit in every thread

rosiescenario's picture

Since the boiling (not melting) point of Fe is 3134 K (2861 °C)...5000 sounds absurdly high...Iron boils and vaporizes at 3,134....I would rather doubt that 5,000 degrees was reached....if it had been nothing would have contained it.

anonnn's picture

Careless author, you are. Those are NOT exact quotes, either from Gundersen or his sources.   

Goto Gundersen site and use your own eyes and ears:

http://www.fairewinds.com/

Another helpful source is ex-skf' website:http://ex-skf.blogspot.com/2011/04/m71-or-74-aftershock-and-status-of-nu...

And another:   http://www.youtube.com/user/leakspinner

TruthInSunshine's picture

From New York Times tonight:

Powerful Aftershock Complicates Japan's Nuclear Efforts

While a spokeswoman for Tokyo Electric dismissed the analysis, a spokesman for the Nuclear and Industrial Safety Agency of Japan agreed that it was possible that the core had leaked into the larger containment vessel.

The possibility raised new questions. The Nuclear Regulator Commission said that its speculation about the flow of core material out of the reactor vessel would explain high radiation readings in an area underneath, called the drywell.

But some of the radiation readings taken at Reactors Nos. 1 and 3 over the last week were nearly as high as or higher than the 3,300 rems per hour that the commission said it was trying to explain, so it would appear that the speculation would apply to them as well. At No. 2, extremely radioactive material continues to ooze out of the reactor pressure vessel, and the leak is likely to widen with time, a senior nuclear executive said.

“It’s a little like pulling a thread out of your tie,” said the executive, who spoke on the condition of anonymity to protect business connections in Japan. “Any breach gets bigger.”

Flashes of extremely intense radioactivity have become a serious problem, he said. Tokyo Electric’s difficulties in providing accurate information on radiation are not a result of software problems, as some Japanese officials have suggested, but stem from damage to measurement instruments caused by radiation because it exceeds the maximum dose that they are designed to measure, the executive said.

“It’s killing the measuring equipment,” he said. “They’re blaming it on software — it’s their meters getting cooked.”

Broken pieces of fuel rods have been found outside of Reactor No. 2, and are now being covered with bulldozers, he said. The broken pieces may be from rods in the spent-fuel pools that were flung out by hydrogen explosions.

Keith Bradsher contributed reporting from Hong Kong, and Matthew L. Wald from Washington.

 

This had been in the original article (I can prove it), but has since been removed by the New York Times:

 

"They're running bulldozers around to bury the stuff so it doesn't cook people going by," he said.

 

It was the last sentence of the article as of 7:40 pm on April 8th and has been since removed.

Here is a link with the last sentence NOT since redacted:     

 

http://2012indyinfo.wordpress.com/2011/04/07/powerful-aftershock-complic...

i-dog's picture

I was also amused last night (Japan time) by a TEPCO spokesman on NHK saying "There is no damage at all at the plant. The workers will go outside to investigate [if there is any damage] after the Tsunami warning has been removed."

WTF?!

RmcAZ's picture

And what exactly does this have to do with silver?

Wait to post it in the next ZH thread about the plant... there's only 3 or 4 per day. All of which predict that the entire world is utterly fucked.

New_Meat's picture

Only Daiichi-3 had MOX fuel in the core--no MOX in the pools nor in other cores.

u b rather breathless here, take a knee.

Steam-Zirc reaction at 2,300 DegF is exothermic, so would reach 5,000 DegF and prob is the "burning" phenom we've been discussing for > 10 days.  We've seen secondary containment buildings blow-out panels doing their blow-out thing.

NRC may "know" stuff, but do not KNOW stuff, in sufficient KNOW to make definitive statements.

Highly likely that SFP and RWST and other safety related vessels cracked and leaked--in the timelines discussed here there were sequential reports of each unit running out of cooling water (I guess RCIC turbine pump suction went dry due to cracked feed pool--just a guess).  And perhaps wetwell crack/imbalance in forces from RCS fracture?

What else did Madame Non say?

- Ned

SparkyvonBellagio's picture

To the moooooooooooon and beyond. What a gift horse rocket.

I think I need to buy a gun's picture

sell your silver stocks if you wish....my coins are insurance and for the kids

augie's picture

same boat. I dont know anyone who has physical silver. Then again the 25-30 age group isn't particularly savy when it comes to planning ahead. Perhaps i'm not a good example.

Sudden Debt's picture

I'm 34 so the group I know is between 30 and 40 and they aren't so good in planning ahead either :)

I'm like to only one who got his pension in order already and downpaid most of my debt.

 

 

Turd Ferguson's picture

SD: You're hanging out with the wrong crowd. In Turd's World, almost everyone owns some physical silver.

magis00's picture

TUUURRD!!  YOU THA MANNN!!!! 

 

 

(warming up for some Masters watching ... from the couch.  Don't own that much physical)

Chicken_Little's picture

I'm part of the Turd Herd and have lots of physical, but I can't find one of those hats anywhere...

 

High Plains Drifter's picture

how big is your world?  i don't know anyone except myself who fools with physical metals........nobody.......i bet in this town the number might be less than 20 for town of 60,000.

 

DosZap's picture

All of my friends I have given heads up, have either said, I do not have the capiltal (could buy and sell me 10x's).

And are investing in equities like maniacs.But has no capital.

Others, "I do not believe in investing in Commodities".

Not once, has ONE come back to me and said "Darn, I wish I had listened to you earlier".

These are business owners, and well off professionals...they act like things will be as usual, like they have for the past in their lives.

So, I do not push metals on anyone.When the ball drops, can't say I did not warn you.

I didn't take you to raise...........

 

High Plains Drifter's picture

yeh they think that things will just keep on going like they always have during their lives. they cannot believe that this is the end of the line. they figure, that the government will fix it as they have many times before and anyone who goes around making warnings is paranoid idiot........

smlbizman's picture

i widow's house i have been completly remodeling...has given me authority to purchase 150,000.00 in silver in gold......she is the lower middle class, that husband invested and received the asbestos settlement...i told her she should have at least 15 20 % in metals.......we are half way thru the processess

InconvenientCounterParty's picture

Well, I'm old. Some might say crusty? But I hang out with many females in their 20's. They prefer paper because it folds and is carried more easily when wearing beach attire. So I oblige.

Stay thirsty my friends.

signed,

The most interesting man in the world.

Dr_Dazed's picture

Why not the Grandpartent?  And while we're at it, if the general consensus is that the USD is toast, why aren't we all borrowing to the hilt when we expect to be able to pay back later with play money?

augie's picture

I'm 25 sir, I haven't progressed through that stage of therapy yet. I"M THE VICTIM HERE! ME! ME! ME!

see i'm working it through, give me time.

Idiot Savant's picture

People talking about silver/gold isn't a good barometer. Gold & silver are still largely considered relics of bygone times, and a sign of being a bug, or nut. Plus, if you hold physical, it's best to keep quiet so you don't end up being the target of thieves. I would never discuss gold/silver in a crowded conference room at the office.

While still a small fraction of the populace, I guarantee that a lot more people hold precious metals than one would think.

nope-1004's picture

I agree.  Who's stupid enough to go around talking about the 5,000 oz's they have in their basement?

I'm sure some are, but many are simply quiet.

I went to the dentist about 4 months ago and the lady cleaning my teeth was telling me that her and her husband invested in PSLV because they think silver is going through the roof.

Another instance, a few weeks later, literally freaked me out.  Was getting a haircut from a lady that mentioned she is planning on holding onto her grandparents sterling silver collection because her financial advisor told her silver is headed straight up.

Is it crowded?  Probably not.  But word is out.  So, I see where the trade could be lower in nominal terms, but the fact remains the mints are sold out, and I highly doubt Blythe and the Morgue are buying from the mints.

More people hold a few oz's than you think.  They're just hush hush.

Shock and Aweful's picture

I started buying silver back in 2004 ...and even though the price is about 9 times higher now...the amount of people I know that are holding physical metal is about the same.

Until the mainstream media gets ahold of this story...and we really start to see mania buying....I will not be too concerned.

All you have to ask youeself is this: 

Are the issues that are creating inflation and financial uncertainty out there going to be solved or go away anytime soon?  If  you honestly think that our nation will find a way out of the debt trap we are in...and you think that the U.S. Dollar will be worth more and more over the next couple years...then what the hell are you buying silver for anyway? 

 

Seriously....when I start to think that silver might be overvalued...all I have to do is put it into perspective and compare it to other things....is silver any more overvalued at $40.00 an ounce than an Ipad 2 is at $600.00?  Is it any more overvalued than Facebook is...at $50,000,000,000  Or is it more overvalued than our paper currency...which is worth less and less all the time.   The price increase of silver is based MOSTLY on the weakness of the dollar.  When we start to see the average retail investor start to buy silver...you will know...because we could see prices go up by $5.00 a week...$10.00 a week....I personally think we are still in the early stages of a run  - there will be corrections along the way - which usually just shake out those who do not truly believe in the fundamentals of sound and honest money...

 

LET IT RIP!!!!

 

 

DosZap's picture

...and you think that the U.S. Dollar will be worth more and more over the next couple years

Yes I do, they are not going to do QE 3.(if so, it will be because things have gotten even worse, and the sheeple will demand something be done).

QE 2 ends, and the mkts will plunge(maybe not right away), but the dollar will get stronger, and I look for the sheep to pile back into Treasuries.

And PM's are going to take a big hit, if the dollar kicks but(but only for a short period).

The fundies are the same, and are not going to change.

Only way is if the GOP gets the POTUS seat, and gets radical on the debt(Paul Ryan style).

This scenario would cause the sheeple to think "Things" are going to get back to normal.

I, for one ,even in this FAR out scenario do not believe the American Sheeple will go with the Austerity measures he has put forth.This will cause Owbamba to get re-elected.

This election, he does not need that 38% cracker vote to get in.

Plus planning on spending up to ONE Billion dollars on the campaign, with really no competition will (IMHO) stop all hopes keeping him out.

Shell Game's picture

The fact that QE2 brought on the beginning stages of global revolt suggests the Bernank laid awake many 'o night knashing his teeth, thinking looong and hard about QE3 and the problems it will bring.  Very possibly you are right, a surprise no-QE3 is coming along to make food affordable, for a while anyway, in the frontier markets.  A good, old-fashioned market scare will help the coward Statists give QE3 the nod.

JNM's picture

$65B USD now for Fb.

So, that's $52 for Ag.

Sure.  Why not.

Shock and Aweful's picture

I started buying silver back in 2004 ...and even though the price is about 9 times higher now...the amount of people I know that are holding physical metal is about the same.

Until the mainstream media gets ahold of this story...and we really start to see mania buying....I will not be too concerned.

All you have to ask youeself is this: 

Are the issues that are creating inflation and financial uncertainty out there going to be solved or go away anytime soon?  If  you honestly think that our nation will find a way out of the debt trap we are in...and you think that the U.S. Dollar will be worth more and more over the next couple years...then what the hell are you buying silver for anyway? 

 

Seriously....when I start to think that silver might be overvalued...all I have to do is put it into perspective and compare it to other things....is silver any more overvalued at $40.00 an ounce than an Ipad 2 is at $600.00?  Is it any more overvalued than Facebook is...at $50,000,000,000  Or is it more overvalued than our paper currency...which is worth less and less all the time.   The price increase of silver is based MOSTLY on the weakness of the dollar.  When we start to see the average retail investor start to buy silver...you will know...because we could see prices go up by $5.00 a week...$10.00 a week....I personally think we are still in the early stages of a run  - there will be corrections along the way - which usually just shake out those who do not truly believe in the fundamentals of sound and honest money...

 

LET IT RIP!!!!

 

 

JNM's picture

I'm 26. I own 32.6 oz of physical gold and silver combined.  I'm trying (waiting for dips) to accumulate about 300 oz. of physical.  I *will* buy this much within the next year or two, and I will never exchange it for fiat.

To me, it's not an investment, it's a call-option on SHTF.

Maybe that's a better question, for the ZH community, rather than - "do you know anybody else".  How about "How much do you have? How much do you think you'll likely buy in the future?"  People could answer, as a fraction, if that makes people more comfortable.

 

SilverRhino's picture

Trade the gold for more silver.   Check this link for evidence of why this is probably a GOOD idea.   GSR = Gold:Silver ratio

http://stockcharts.com/h-sc/ui?s=$GOLD:$SILVER&p=D&yr=3&mn=0&dy=0&id=p51721759934 

June2010: GSR ~70

Today:  GSR 36.82

DosZap's picture

Could be a smart move.

But, there is a reason people have shied away from Slvr, it's not called the Devils Metal for no reason.

Gold goes up the stairs and down the escalator.

Slvr goes up the escalator, and off the side of the building.

More than a few have been murdered by over investing in the Devils Metal.

60/40....................

Burnbright's picture

Normally you would be right Dos but the evidence is overwhelmingly in favor of silver returning to at least a 20:1 ratio with gold. Some think it is going to trade on par for a short period, I would start trading it in for gold at 10:1 on down but silver really should be between 12:1 and 20:1. 

Hacked Economy's picture

I agree.  If it approaches the classic 15:1, then I'll consider trading some silver for gold, but until then I'll keep acquiring the white stuff.  Gold is more stable, and silver is more volatile, but if you have a level head on your shoulders you can do fine with mostly silver.

hamurobby's picture

I agree, I started out at 60/40 and still about the same ratio in usd terms.

Silver is still climbing but gold is gold, and always will be.

I look at it this way, If I bought silver @ say 17., sold it @ 40 and then bought gold @1470, My actual per ounce original investment frn price is around $700 an ounce for gold. Still a pm, just trading apples for oranges a little at a time.

Burnbright's picture

 

I am 28. My approach to buying PM's was always toward purchasing something else. It isn't that I have a number I would be willing to sell my silver or gold for it is what I want to trade it in for, and that is a house. So far doing pretty good, I have 600 ounces of silver and 3 ounces of gold. When the time comes I believe that it will be more than enough to buy me a house, it already is a very substantial down payment on one if I wanted but even by the end of this year I don't see housing prices rising and silver should pass $50 dollars by this summer. I wouldn't be surprised if silver was in the $70-$80 range by the end of the year and housing prices droped another 10%. I think whithin the next three years I should be able to buy a house with what I am holding right now, I think within the next 5 years I will be able to buy a house with a fraction of what I am holding now.

The only thing I am trying to buy up before things get worse is ammo reloading supplies like lead, tin, powder, primers, and some metal working equipment so I can do metal fabrication. 

augie's picture

I want 24" solid silver rims for my prius, however much silver that takes.

SonnySkyy's picture

I started buying in January 2009, I'm up to about 250oz.  I don't really have a goal or a set amount I'm looking to hold.  I do a budget every two weeks, pay the bills, buy (and store) food, put some cash aside for beer and walking around money and the rest goes to Ag.  Like you said it's either a hedge against SHTF, part of a retirement savings plan or inheritance for my kids.  Whatever, it's a fun way to save.  Beats filling the safe with fiat all to hell.

As to the conversation, I'm 40 with large group of family, friends and co-workers.  Only my biker FIL owns gold and some silver proofs.  No one else messes with metals at all.  My investor brother thinks I'm nuts.

New World Chaos's picture

I'm 50+% silver, ~20% gold, ~20% equity in a good rental house in Auckland, and a few % silver miners, palladium, armageddon puts, and cash.  Only got into silver after discovering ZH in late '09.  For an anti-government paranoid who reads way too many conspiracy theories, this is inexcusably late.

Last year I turned three or maybe four people into silver bugs, and these have turned at least three more people into silver bugs.  It was pretty quiet at first; only after the big runup did people truly appreciate the subtle joys of buggery and start spreading my disease.  I'm an exhibitionist and thus far I have only met one silver miner bug, three gold bugs and one platinum bug. 

What's more interesting is who is not a silver bug:  Physicists.  I know quite a few, and there is only one bug in the group, and he is a gold bug.  You would think these guys would know that when you ignore objective reality, it will sneak up and bite you in the ass- but most of them just blow off the facts because they come from a certified loon. 

Among the physics crowd, there is my dad who sold an old wedding ring last year to prepay his 4.5% fixed rate mortgage.  He's a reliable sheep who even supported the bailouts.  There are two Obama worshippers who think the government and the Fed are doing a good job and everything will work out because there are so many good Democrats with Ph.D.s working on the problem.  There is the guy who kept everything in cash for a decade trying to save up for a 50% down payment on a house, but now he is dithering because prices are falling and rates are rising.  There are guys who are heavily into bonds because their investment advisors said that's the way to go for old people.  There are a people who think the crash of '08 was a natural hiccup of a complex system, there is no vast conspiracy of evil puppetmasters, and things are returning to equilibrium.

Congratulations, guys.  You are all smarter than the smartest idiots in the room.

tiger7905's picture

I know a few that have silver but I had to push each one to do it.

clymer's picture

ditto - one of my co-workers is in on it, and I turned him on to it. other than that - no one (and I have been pushing it since 07)