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Chart of The Day: The Slippery Slope of Sliver

EconMatters's picture





 

 By EconMatters

 

Silver has taken some serious beatings lately, but there seems to be a renewed optimism in the market place towards the white metal as Bloomberg reported that

"Investors for now are getting more bullish. As well as adding to ETP [Exchange-Traded Product] holdings, they are also buying bullion coins, with the U.S. Mint selling 4.46 million ounces of American Eagles in September, the most since January.

....Combined assets in ETPs rose 4.8 percent to 17,515 metric tons since mid-July, equal to almost nine months of mine production, the data show. 

Money managers raised bets on higher prices for the first time in more than a month in the week ended Oct. 11, Commodity Futures Trading Commission (CFTC) data show. The net-long position gained 1.3 percent to 11,573 futures and options contracts."  

 

The median in a Bloomberg survey of 11 analysts, the metal may average $38 an ounce this quarter and rise to a record $42 by the final three months of 2012, which would imply about 18% and 33% gain respectively from the current price level.  China industrial usage, and investment demand partly due to U.S. Fed's record low interest rates, are cited as the primary reasons to be bullish on sliver.

 

But not everyone buys the China growth story with silver.  Morgan Stanley, for example, is pouring cold water by predicting output from mines will rise 1.4 percent this year, accelerating to 4.5 percent in 2012, and that the global oversupply of silver will persist until at least 2016.  Barclays also echos a similar bearish outlook for silver believing "the fundamentals still look very weak,” and expects the metal to average only $27 in the fourth quarter of next year, implying a 1% loss from the current level.

 

Bloomberg furtherpointed out that historically, silver has not performed well during crisis as the metal slumped 24 percent during the 2008 financial crisis, the most in almost a quarter century, while gold rose 5.5 percent.  So sliver, although considered as part of the precious metal family, may not preserve asset values as much as people tend to think if we head into a double dip recession or if some kind of crisis erupts.

 

Many investors, using gold as a benchmark, believe silver is an attractive alternative investment to gold as it is cheaply priced relatively to gold with the recent pullbacks.  Moreover, silver could still benefit from China and investment demand.

 

However, technically speaking, whenever you see two gigantic vertical Niagra-Falls-size drops, with several sizable mini drops in between--all within a 6-month time--on the price chart (below), without the justification of a far superior return, it is a sign that you would be much better off elsewhere in terms of risk / reward.

 

The chart below compares price performances of Gold, Silver and Dow Jones U.S. Gold Mining Index.  As the chart illustrates, silver would give you a lot more sleepless nights (EMS probably needs to be on standby as well) than Gold or the stocks of gold miners..  

 

 

Chart Source: stockcharts.com

 

 

Furthermore, based on market fundamentals, the recent data coming out of China suggest the world's growth engine is still fighting inflation and is definitely slowing down.  While we see a very low probability of a China Crash Scenario, this downshift will most likely weaken the demand side of the investing thesis for silver

 

We got a lot of flak when we warned physical sliver investors in April that the metal was at the bubble stage, and the pitfall of following the futures market actions.  At the time, based on the market condition and valuation, we concludedthat,

"This is the epitome of a bad investment. You’re supposed to buy low and sell high, not the other way around. Remember, you are an investor not a trader if you’re buying the Physical Silver Coins. Thus you have to be a “Value Investor”. And I am here to tell you there are no ‘Values’ in the Physical Silver Market, or any other Silver Market for that matter." 

 

Now fast-forward six months later, the price of silver has tanked almost 32%, whereas Gold has held up a lot better -- up 7.65% in the same period.  Silver coins, which represent the physical market, were as high as around $52 in April, and now it's at the $32 range, a 58% plunge, even worse than the spot silver.  So what that means is that some investors could be $20 underwater on each silver coin if they got in around the peak.

 

Currently, the valuation of silver may have improved from the bubble level six months ago; nonetheless, due to the uncertainty in the broader market and economy, the sector market specific thin liquidity, ridiculously high volatility and margin requirements, we maintain our rating that silver remains an ultra speculative / risky investment option that investors should stay away from.

 

We have written at length here,here and here, regarding the pros and cons and potential pitfalls of investing in the silver market, and strongly caution investors against even engaging in that market -- Let's just say even if you were an Olympic skier, you would not want to ski on that slope.

 

Further Reading:

 

A Not-So-Marginal Risk in Silver

Silver Market: Why CME Must Raise Margin Requirements By 30% (EconMatters Note: The Exchange has gone overboard on this.)

Physical Silver Investors Are Being Hoodwinked by the Futures Market

 

©EconMatters All Rights Reserved |Facebook|Twitter|Post Alert|Kindle

 


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Mon, 10/24/2011 - 08:18 | Link to Comment Silver Shield
Silver Shield's picture

I wrote the Silver Bullet and the Silver Shield when silver was $31 an ounce in February.

Since then it has been read by 350,000+ readers and translated into 7 different languages.

ALL of the fundemental reasons for investing is Physical Silver in that article are more powerful now, then back then.

Those that continue to be momentum monkeys in a doomed, rigged, paper, ponzi game will never get what is truly at foot here.

Those that do understand, smile and stack knowing that all of the plot twists are meaningless to the end of the story where silver remains the single best investment opportunity in human history.

If you doubt me, read Silver Bullet and the Silver Shield.

Mon, 10/24/2011 - 06:25 | Link to Comment just a dude
just a dude's picture

"Silver coins, which represent the physical market, were as high as around $52 in April, and now it's at the $32 range, a 58% plunge, even worse than the spot silver."

???  $20 = $52-$32.  $20/$52 = 38.46%.  Big difference between a 38.5% plunge and a 58% PLUNGE.  Am I missing something here or was this a typo?

Mon, 10/24/2011 - 08:17 | Link to Comment Slin
Slin's picture

"$20 = $52-$32.  $20/$52 = 38.46%.  Big difference between a 38.5% plunge and a 58% PLUNGE.  Am I missing something here or was this a typo?"

 

You are missing something, when... was silver 52?  It was beatin down before it crossed it 50, everyone, and I do mean everyone knows this.... That is a big miss dude.

Mon, 10/24/2011 - 19:12 | Link to Comment just a dude
just a dude's picture

Please explain what I am missing (and, no, I didn't miss the high of $50 and subsequent beatdown);  $52 was quoted from the article/post.  I agree it did not see $52.  Let's use $50; pretty sure you and I can agree on that. 

$50-$32 = $18.  $18/$50 = 36% (even further from a 58% PLUNGE).  The big miss to which you refer, Slin, is on the author of the article; try again.  So, apparently, the contributor for this article is terrible at math or is talking down silver/talking up an exaggerated correction.  Oh . . . you're a tool.

Mon, 10/24/2011 - 07:12 | Link to Comment angmikey
angmikey's picture

New math, or fuzzy math, however you see it.

Mon, 10/24/2011 - 19:13 | Link to Comment just a dude
just a dude's picture

Thank you.

Mon, 10/24/2011 - 03:50 | Link to Comment yabs
yabs's picture

haha

yes sorry I thought the article was about silver but its about slithers

Afdter seeing the mvie you are right beware of slithers

not a wise investmnet

Silver on the other hand is

Mon, 10/24/2011 - 04:36 | Link to Comment Tapeworm
Tapeworm's picture

Whatever the slippery slope is, all that one has to do is look at the purchasing power parity of slAg compared to your local currency.

 If gasoline and optics, like good muicroscopes and telescopes seem exceedingly inexpensive then it might be a good time to bail. For those that think that there will be land for sale at a silver dollar per acre come the deluge, you are nuts. The only way that doorstops go up from here is if the monetary system blows up and there is a mania to get the silver that you hold.

 Do your arithmetic on just what even the lowered price of silver coin will buy compard to its' old purchasing power when it was money. Multiply that times the productivity of those that deal in fiat currency and it still is wildly overpriced. The crap is heavy too if one wants to haul it to market. The last chance was the idiotic ratio of Platinum to Plata that was reached recently.

 Go ahead and price capital goods priced in Ag as compared to any time in the past one hundred years. Do you really feel so sure that with the end of the world that your slver coin will buy as much as it does now? If TSHTF, there is nothing cheaper now than storage food when priced in silver, but that's your call. If you are trading real goods for argentum, this is your last chance. (IMO)

Mon, 10/24/2011 - 04:38 | Link to Comment Tapeworm
Tapeworm's picture

delete double click

Mon, 10/24/2011 - 02:51 | Link to Comment Mark_BC
Mark_BC's picture

I disagree with most posters here -- this article is not deceptive and presents a plausible analysis of the dynamics of what it says in the title -- slivers. I've had them before and they aren't something you want to keep. They can get infected.

Mon, 10/24/2011 - 02:04 | Link to Comment vincent
Mon, 10/24/2011 - 01:57 | Link to Comment vincent
vincent's picture

I'm not underwater, but I want to be.

Mon, 10/24/2011 - 01:50 | Link to Comment devo
devo's picture

Buying silver as an investment with the hope of turning a profit is missing the point. Buying it as a hedge against doomsday scenarios (and possibly inflation) is wise.

Also, silver is worth ~3x the government supressed market value. It could go down to $10 and you'd still break even if/when the time came when you needed to use it.

But, I hope more people stay out so I can buy some for cheap. Waiting to pick some up.

Mon, 10/24/2011 - 02:07 | Link to Comment siriyerji
siriyerji's picture

You are right.One should buy Silver/Gold what they can afford from the disposable income and not expect interest or dividend.Leveraging and expecting short term returns does not always work out.

If the silver goes to $10, I will buy more Silver miners (stock) for a higher percentage return 

http://i54.tinypic.com/2dj2a9h.png

Mon, 10/24/2011 - 01:42 | Link to Comment siriyerji
siriyerji's picture

Gold and silver mining stocks have not performed well .They always tella story in advance.

As long one is not leveraged ,buy physical and keep it as a long term inflation hedge.

Popular 1 oz coins (not exchange delivery size bars) prices dont come down even when futures price come down as there is a short supply (and can be easily sold)

Exchange delivery bars have no much premium but you have to find a equally wealthy person to buy it. not easily sellable in retail.(can sell in the wholesale gold Jewellery trade though)

SLV popular silver ETF (highly manipulated by Morgan & HSBC -Trustees) chart shows recent sell off has no down volume unlike in August. See the volume Bar chart of SLV

[IMG]http://i56.tinypic.com/1236pth.png[/IMG]

more  GDX charts TechTrading

Mon, 10/24/2011 - 01:24 | Link to Comment siriyerji
siriyerji's picture

Futures Exchange /Local Bullion exchange delivery size bar premium is always negligible. Hong kong/singapore/Tokyo/Mubai exchange delivery bars are peculiar local sizes and  not Comex delivery size.

In India  for a very long time 10 Tola bars (3.75 oz or 116.64 g. ) were popular with Gold shops and investors.

I used to whole sale 10 Tola Gold bars and used to order from south african and Australian mines via a major Bullion bank in Singapore.

Now Govt has banned 10 tola bars and only 1 kg bar (numbered) import is allowed.

When it comes to silver,the main use in India is utensils.Most Indian girls gets dowry of silver plate /cutlery,God Idols in silver etc during marriage.

Only recently Bullion bars are getting popular as investment (also due to street crime is increasing snatching gold jewellery from women) as spread is thin unlike jewellery.

For a long time 8gm pure gold coin with some Hindu god/goddes image is the norm for coin investment/gifts.

Mon, 10/24/2011 - 00:53 | Link to Comment web bot
web bot's picture

The problem with your flawed thesis is that an economic crisis is coming...

What's coming is not an economic crisis... what's coming is an economic collapse... something entirely different.

By the time this is over... we're looking at every commodity and hard assets as being a storehouse of value... watch what happens with trillions of dollars swish around the globe and how hyperinflation sets in in a matter of weeks.

Mon, 10/24/2011 - 00:43 | Link to Comment Rynak
Rynak's picture

Fundamentals --> Trashcan <-- Technicals

Neither your fancy charts, nor fundamentals matter, until actual physical shortages appear. And i do not just mean "oh, in theory, in N time supply will run out".... i mean "i ordered this, but there is no delivery"-type shortage.

Mon, 10/24/2011 - 00:06 | Link to Comment bill1102inf
bill1102inf's picture

The real price of silver is what you sell it for, not what you pay for it, in volume, retail, or paper.

 

 

Sun, 10/23/2011 - 23:54 | Link to Comment YouThePeople
YouThePeople's picture

'The Slippery Slope Of Sliver'

by Sylvester The Cat

Sun, 10/23/2011 - 23:27 | Link to Comment scaleindependent
scaleindependent's picture

 

Trav, how low do you think Ag will go down to?  22, 25, 28?

TIA

Mon, 10/24/2011 - 09:10 | Link to Comment tmosley
tmosley's picture

I am also not Trav (Thank God).  In my opinion, there is no final downside target for silver, as the exchange is showing signs of extreme distress.  In the end, the exchange will fail, and the paper price will hit zero as the price of physical skyrockets in an industrial user panic.  

There are a few ways that this might not happen.  If the PAGE starts trading silver futures, and they don't try to suppress the price, the business could move East in an orderly manner.  Another possibility is that the CFTC actually starts doing its job and enforces the new position limits.

Mon, 10/24/2011 - 00:34 | Link to Comment HungrySeagull
HungrySeagull's picture

I aint trav.

 

I have a feeling 30.00 will be the floor.  If Europe teeters over into the abyss then I will be racing the 50,000 Chinese trucks trying to get a few coins at about 24 and falling.

 

Keep in mind, the more they fall, the easier it is to buy them.

 

Any street whore lasts longer than the John's wallet in the Kitco Silver ... it only takes a few minutes to establish a high or low.

Sun, 10/23/2011 - 23:12 | Link to Comment sodbuster
sodbuster's picture

The Slippery Slope of Sliver............ what is sliver?

Sun, 10/23/2011 - 23:36 | Link to Comment IrritableBowels
IrritableBowels's picture

x4

Sun, 10/23/2011 - 23:02 | Link to Comment yabs
yabs's picture

Tyler do you post econmatters purely for a laugh.

Their articles make cnbcs' analysis look good.

No "China Crash scenario"

what are you smoking?

If you want a scary chart try taking a look at the Shanghai index.

http://finance.yahoo.com/echarts?s=000001.SS+Interactive#symbol=000001.ss;range=5y;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=;

At least Silver is still up for the year

 

Econ matters

who ever writes your articles is a FULL retard

Sun, 10/23/2011 - 22:50 | Link to Comment Imminent Crucible
Imminent Crucible's picture

The chart shows us that silver is more volatile than gold or mining stocks. Didn't we already know that? And doesn't it demonstrate that when gold rises, silver rises exponentially faster? How seriously can we take a silver-bashing article that misspells it "sliver" three times?

Anencephaly is a tragedy, but an anencephalic whore is both frightful and loathsome.

Sun, 10/23/2011 - 23:42 | Link to Comment FEDbuster
FEDbuster's picture

They should have the M2 money supply graphed, too.  I think it is up over 30%, bullish for silver, gold, gasoline, food, etc.... 

Kyle Bass said stock up on guns and gold, I'm thinking guns, brass and lead is a more prudent strategy.

Sun, 10/23/2011 - 22:21 | Link to Comment Fate
Fate's picture

I was a coin collector first, beginning in my teens.  I collected US issues; one focus was Liberty Walking Half Dollars.  Being a student of ancient history, I also dabbled in coinage of Imperial Rome.

Then, around 2008, I began accumulating physical silver as a store of wealth:  US silver dollars, halves, quarters, and dimes.

Now I collect again, only this time it is exclusively ancient Roman silver coins, or denarii.  Tonight I hold in my hand a denarius of Emperor Marcus Aurelius.  Gorgeous, gorgeous coin, so full of history and romance... and meaning.  As a store of value, silver has endured the collapse of the Roman Empire, the Dark Ages, the Middle Ages, innumerable Continental wars, equally innumerable economic collapses, and two World Wars.  Now I'm supposed to believe some bankster shill telling me it is a bad investment?

Marcus would beg to differ. 

Mon, 10/24/2011 - 00:16 | Link to Comment fourchan
fourchan's picture

that is a fantastic point +1

Mon, 10/24/2011 - 00:16 | Link to Comment pomogranate
pomogranate's picture

dude, Marcus is dead, which is what you'll be by the time your wet dreams actually come true.

Mon, 10/24/2011 - 00:28 | Link to Comment HungrySeagull
HungrySeagull's picture

Actually it's the Saladin that will determine the money in the future. Not us.

Sun, 10/23/2011 - 21:52 | Link to Comment El Gordo
El Gordo's picture

This is really good news.  I'm late to the party, so the longer the price stays down, the better chance I have to accumulate more.  Here's the real question - would you sell your holdings for the price quoted today?  If the answer to that question is no, then obviously the product is undervalued.  At what price would you sell, if any?  If the answer is "none" then again you have it right.  It's not about what the dollar is worth, it's about what the silver is worth.  Price up, buy a little less; price down, buy a little more - but always buy.

Sun, 10/23/2011 - 22:35 | Link to Comment CompassionateFascist
CompassionateFascist's picture

There is no DOLLAR price at which I would sell. When the dollar is gone, a 1 oz. US silver eagle will, at a green market, buy maybe 2-3 days of food. That's life itself. 'Course, this is only after Zero and his friends run out of Predators, Global Hawks, and the like.

Mon, 10/24/2011 - 00:29 | Link to Comment HungrySeagull
HungrySeagull's picture

No need. Not when you have one to 6 months food on hand.

Mon, 10/24/2011 - 03:36 | Link to Comment buyingsterling
buyingsterling's picture

Right on. Who wants to fight the mob at Walmart on meltdown day? People should consider having food, water, and a gun before they bank any metal. When things go bad, you can at least sit tight, metal or no metal.

If you store your metal at home like I do, and you've bought any of it from public sources, have your guns at hand. One of the most valuable items that can be stolen or hacked form a metal distributor is the customer list. People are stealing air conditioners from outside peoples' windows for the copper; what would the mob pay for a list of gold and silver buyers? Unless you're in a small town and friends with the bank manager, you can't really trust anyone else with your metal, so it's a catch 22. Great to have it - might have to kill to defend it. Like anything of real value, I guess.

Mon, 10/24/2011 - 09:02 | Link to Comment glokk26L
glokk26L's picture

When I bought the first time, I was asked if I was tax exempt.  I said no, guy said, fill out this form and you won't pay sales tax on this since it's likely you're investing.

I decided to pay the 7% to be relatively anonymous.

But I have guns too.  Two of them so I can say they're plural!

Wish I didn't rent so I could take some more permanent means of securing my shineys...

Mon, 10/24/2011 - 09:02 | Link to Comment glokk26L
glokk26L's picture

When I bought the first time, I was asked if I was tax exempt.  I said no, guy said, fill out this form and you won't pay sales tax on this since it's likely you're investing.

I decided to pay the 7% to be relatively anonymous.

But I have guns too.  Two of them so I can say they're plural!

Wish I didn't rent so I could take some more permanent means of securing my shineys...

Mon, 10/24/2011 - 08:46 | Link to Comment swiss chick
swiss chick's picture

not if you can buy it anonymously...

Sun, 10/23/2011 - 21:35 | Link to Comment Conax
Conax's picture

I find myself under water on a few fancy rounds bought since May, but the vast majority of the stack is in the green by over 240%. So the fiat spent back in '07 is safe and sound, well into the future. A hundred walkers bought in March are still up $230 even now. The more expensive stuff just has to sit for a while, but it will end up a positive asset as well. No worries at all.

All of the gloating about people buying silver back before the Mayday drive-by will pass.  

Sun, 10/23/2011 - 21:21 | Link to Comment walcott
walcott's picture

 

Just going back over some orders from about a month a ago.

Miraculously after the beat down the relative prices today gold to silver are exactly the same.

Exactly. The exchange for silver vs. gold to a dime either way!

That is impossible unless the prices are artificially set

There is no margin effect. There is no supply and demand effect.

Price fixing. If anybody thinks this market is real and that prices

are set according to supply and demand. You're naive.

 


Also has anybody noticed for the past two months or so that every physical spot price has gone up or down together?

Every fucking day. There's no way to squeeze in a real trade. One that makes you cash on it anyway. Kind of like

having a moving point spread if you're playing football in Vegas. Your team covers 7. Then you go up

to the window and they inform you it was actually -10. You loose.

 

And think about how they beat gold? down in 1981. They held the price that way for 20 years.

So if you bought the high in '81 it was 20 year disaster. That's how they work. Like drowning somebody.

Hold your head or your assets (same thing) underwater long enough until you drown.

The people who rig this game are the ultimate murderous criminal syndicate cabal whatever you want to call it.

 

Mon, 10/24/2011 - 08:52 | Link to Comment swiss chick
swiss chick's picture

Totally agree...

Read Crossing the Rubicon...

Its not gonna stop

Sun, 10/23/2011 - 21:44 | Link to Comment jeff montanye
jeff montanye's picture

they can't be loving the news out of europe.

Sun, 10/23/2011 - 21:14 | Link to Comment dlmaniac
dlmaniac's picture

An article sponsored by Blythe Master?

Sun, 10/23/2011 - 22:48 | Link to Comment SilverDoctors
SilverDoctors's picture

This is clearly a biased piece written by someone who has a vested interest in keeping people out of physical silver.

"Silver was in a bubble in May"  A bubble? Really? As in >75% of the US population was invested in silver?

Um...less than 1% of financial assets are currently in gold, silver, and gold/silver mining shares COMBINED. Yes, silver was overextended in May, but calling it a "bubble" when less than 1% of the population was in silver is just a blatant freudian slip.

Silver is in a DECADE long bull market- NOTHING HAS CHANGED regarding its fundamentals, and it has corrected 50% from recent highs, its COT report is the 2nd most bullish in the entire bull market- and investors should stay away from silver NOW!?!

More like...BACK UP THE TRUCK!!!

http://silverdoctors.blogspot.com/

Sun, 10/23/2011 - 20:44 | Link to Comment PulauHantu29
PulauHantu29's picture

JPM hates physical holders of PMs from what I read here..and here.

If they (and GS) hate the PM market so much, why are they loading up warehouses throughout the country (maybe the world) with PMs and base metals.

Why did JPM grab half of Barry's total release of the emergency resrves (30 mil barrels)?

I agree with Kotlikoff, the economist from Boston U who says there will be a mad panic rush to Hard Assets as currencies are debased worldwide in an effort to slow the very destructive deflationary spiral we are in.

He makes more sense to me then these Shills on Wall Street. In any case, he has been 100% correct so far about oil, taxes, fiat printing, PMs and the Yuan RMB. Read his 2007 book. It's very informative.

GL!

Sun, 10/23/2011 - 20:50 | Link to Comment mayhem_korner
mayhem_korner's picture

 

 

Why the Morgue hates physical silver holders (like me), and why I smile every time another sleeve of Ag maples or bag of 90% comes in the door:

http://inflation.us/silvershortjpmorgan.html

 

 

Sun, 10/23/2011 - 20:29 | Link to Comment mayhem_korner
mayhem_korner's picture

So what that means is that some investors could be $20 underwater on each silver coin if they got in around the peak.

 

What does it mean for the ones who bought it at $9? 

All this stuff is great so long as the fiat system is maintained.  I think I'll just hold on and see what happens. 

Sun, 10/23/2011 - 21:11 | Link to Comment HungrySeagull
HungrySeagull's picture

Irrevelant.

 

Unless they used a credit card or borrowed money to buy it. he he he.

 

Buillion in your hands free and clear is a pure asset. Unencumbered freedom.

Sun, 10/23/2011 - 20:22 | Link to Comment Old. No. 7
Old. No. 7's picture

God they hate Silver. They can suck balls.

Do NOT follow this link or you will be banned from the site!