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Chart of The Day: The Slippery Slope of Sliver
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..
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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
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i've been buying it since it was 12 bucks an oz... and i'm still a buyer, not a seller.
this charade can't go on forever, and just because the euro is crashing before the dollar, doesn't mean that somehow the dollar will magically be 'worth' something more - by comparison. even if it's fantasy 'worth' is better than a completely failed experiment.
it's value in shiny turds is not going to compel me to trade it for shiny turds.
Here is my evil plan:
1. The Euro FreakShow flys apart like a poorly desinged flywheel.
2. Spooked, everyone flees to the USD. Commodities crash as the USD rises.
3. BUY BUY BUY Physical gold, silver as well as some select miners.
4. The sheeple figure out - 'Hey, the US's problems are worse than Greece!'
5. Commodities resume the uptrend.
Will it unfold this way? Who can say. But I'm dialed in, finger on the BUY BUY BUY trigger.
That's what I wuz thinkin too RafterMan
Minor correction:
1. Agree. Curiously, on that note, this was a fascinating read on flywheels for energy storage. I had no idea of the history of this application. A bus system!?!?! Very enlightening.
2. Agree.
3. Agree. This will be '08 all over for paper PM prices. I think there will be a significant disconnect between physical prices and spot and it might be (semi) permanent. On top of this, I think the paper price will be driven so deep, that JPM can unwind its short position in its entirety. Nothing stopping the COMEX from jacking margin to 100% while the price tanks so JPM can unwind. There will not be a scrap of physical at those prices either, so keep that in mind and grab what you can get at prices you can afford.
4. Sort of disagree. I think the sheeple are figuring it out now. Tea party on the right, OWS on the left. Politicos/Bankers are cornered pretty soon. Its war or hangings at this point, so you know where that ends up.
5. Disagree. Commodities go to the moon because the dollar heads down the shitter.
But hey, I am just a crazy redneck living in Alaska, so pay no mind to me.
Regards,
Cooter
Dust off your copy of Alone in the Wilderness w/ good ol Dick Proenneke
I loved that show!
Flywheel flys. What else would we expect it to do? Euro(pe) has been doomed from the start. Too much laziness and greed and football; not enough rigorous scholarship. I feel late always trying to be prepared for the doom coming here.
Your plan is great. Mind if I borrow it?
ditto!
"I'm buying some more silver. You can call me crazy if you want."
pacosan: Words to live by.
Oh, I get it. We should all flee to the safety of the Euro. Haha, good advice.
When describing the fall of silver, this stupid shithead forgot to mention the COMEX margin increases in the wake of a not-for-profit sale of silver in the afterhours market. Also neglected that silvers the most shorted v, supply commoditiy. Oh well, what would you expect from a stupid shithead.
Strannick
You may find this interview with Turd Ferguson and Jim Comiskey of MF Global discussing the metals market of interest (see the second half of the discussion). He mentions your point and others re. silver - the Chicago traders also sense that there is manipulation going on:
http://www.tfmetalsreport.com/podcast/2760/tfmr-podcast-5-jim-comiskey
If you think he is a shit head, give the post a Poor = 1...
Four people gave it a 5... until I crapped on that fallacy parade...
LOL!
Maybe it has some merit/value if you trade and aren't protecting wealth. But that isn't my world view, so I can't say. People who trade this market are insane; its a rigged casino. You are either the house, or you aren't.
Physical PMs are roughly equivalent to cashing in your chips and heading for the door.
Regards,
Cooter
This article can't even get the basic facts right:
"..and rise to a record $42 by the final three months of 2012" - Er, since when is $42 a record?
"...were as high as around $52 in April, and now it's at the $32 range, a 58% plunge" - Er, a fall from $52 to $32 is not a 58% plunge. If you bought at $52, at $32, your purchase would be worth 61.5% (approx.) of the value you paid.
What the f**k is this s**t?
So far this article has shown us that the author,
1. Can't spell silver
2. Can't calculate percentages
I would like to add that $32 is not a "range". The only other mistake he needed was an annoying misuse of the word "irony"
Here another mixup of the basic facts;
'and expects the metal to average only $27 in the fourth quarter of next year, implying a 1% loss from the current level.''
Bad bad piece
Haven't looked at the exact numbers, but my guess is they're talking quarterly averages here. While the record for silver is over $50, the quarterly average is lower than that amount.
If they were quarterly averages, it would be mentioned as such, since nobody uses that metric to measure prices. It is strictly bad math from a bad investment company.
Maybe the analysts that can do math are digging in on their ranch property in Idaho and weren't available for the propaganda assignment.
Regards,
Cooter
Econmatters... Isn't that Dian chu? Posted a lot earlier in the year about oil tanking and was very wrong.
Went off em after that
King world News has the other view to this article.
http://www.kingworldnews.com/kingworldnews/King_World_News.html
DavidC
I love reading the comments on these'heresy' articles.
don't invest in gold or silver, just accumulate and accumulate and... well, there.
Not one mention of the manipulation and purchases by sovereigns to support their toilet paper crash. The slippery slope is the author's credibility in selectively ignoring the dragon in the room, and Mr. Morgan's bitch blythe in your pants.
"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."
Ummm, that is a classic fade - especially when prices are going the other direction. That is NOT a bullish signal IMO. I so want to buy some more but think we see $24-$26 in next month or 2, or even $20 on a hedge fund/bank liquidation blow up. Name a price - with trillions sloshing in paper markets. (tho if we get to $20 it might be at $25 an hour later)
If silver goes down to $20/oz, you are going to need to have very special connections to buy any at that price. ALL bullion dealers sites will "closed due to maintenance".
IMO, the only physical Ag you'll find will be on Ebay selling for $10-20 over spot price.
<quote=GrinandBearit>
If silver goes down to $20/oz, you are going to need to have very special connections to buy any at that price. ALL bullion dealers sites will "closed due to maintenance".
IMO, the only physical Ag you'll find will be on Ebay selling for $10-20 over spot price. </quote>
Agreed, worst case is it goes to 20. Even at that the "real" price at auction or coin markets will be 30$. Best case is 100-200/oz in the long run.
Current EBAY premiums for silver transactions:
http://www.24hgold.com/english/buy_sell_silver_coins.aspx?co_id=0
Thanks for the link, Pinto. I don't understand why generic rounds would sell at twice as high a premium as Eagles (53.5% vs. 26.3%). And why a 59.6% markup on Libertads? Do these premiums reflect actual market demand or the ignorance of some market participants?
they reflect the stupidity of participants. Major coin dealers are selling for a few bucks over spot.
Despite what pumpers would have you believe, you can easily find abundant silver for reasonable premiums over spot. There is no disconnect and there is no shortage.
You as well as anyone knows oil production peaked. SIlver trades 1:1 with oil, because silver is monie, and oil needs to trade for a real asset. Gold's price is easily manipulated short term due to the extensive holdings of Central Banks. SIlver is harder to manipulate, but with the invention of SLV et al it is managible for now. But in the long run, how will the fiat ponzi hold the weight of the manipulation? Do the math Trav; if oil's price is going higher, then so is silver's.
And it won't be long until silver, like gold and platinum and oil, sees its production peak too.
Don't tell us Trav, tell these guys:
http://www.arabianmoney.net/gold-silver/2011/10/06/physical-silver-running-out-because-its-spot-price-does-not-reflect-true-investment-demand/
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/10/21_London_Trader_-_Sovereign_Silver_Buying,_Middle-East_Shortages.html
i don't really put much stock into what pumper shills have to say.
You bagholders latch onto any rumor you can find. Arabianmoney? Who the fuck are they? They make claims of silver being unavailable yet I can POINT YOU TO several MAJOR dealer websites that advertise it. Hell, do you need me to come down there and type it into your stupid browser for you?
Stop being so gullible
Trav,
Please give us some numbers or articles - something other than just your opinion. So far you're talking like someone with a short silver position.
SIFO (Silver forwards) are heading down indicating tightening market conditions:
http://www.lbma.org.uk/pages/?page_id=56&title=silver_forwards&show=2011
Premiums climbing and some bars out of stock:
http://www.apmex.com/Category/1193/100_oz_Silver_Bars.aspx
Whatcha got?
Trav has made it his stated purpose to murder or impoverish as many people as possible in order to prevent them from consuming "his" share of the precious oil. As such, nothing he says can be taken at face value, certainly not anything regarding investment. He bitches and moans about silver and "silver pumpers" while owning it himself. He talks about technical indicators saying things were "overbought" only after a crash, and ignores the same indicators when they say that paper is oversold. He further ignores the fact that open intrest is the most bullish it has been in eight years. That's eight years of a roaring bull market.
So basically, ignore him. Don't even try to do the opposite of what he says, because he will change what he says to try to make you poor.
Amish,
It isn't perfect but it gives you a sense of premiums being paid over time.
Again, these are retail premiums. Bulk purchase premiums for near term delivery are likely considerably higher.
I suspect this market is going to blow because of real physical shortages and the fact that eventually all of the physical markets will bypass the Comex/LBMA prices.
Cool site!
Thanks Plad but you should never have said that - now all of the premiums can't be viewed.
The premiums to spot were approx. 25% for silver eagles and silver maples and 11% for 100 oz. bars.
I think silver is headed down, but with enough volatility so as to fool as many would be bulls as would be bears, while maximizing the sum of the two. This is what my cycle analysis tells me about silver. Take it or leave it.
Silver Cycle Model
Why would silver go down? Oil production has peaked, gold too, silver trades with gold and oil, silver trades inversely the dollar, what is going to stop the PM bull? Nothing. Silver is going higher.
A Silver posting on Zerohedge from an external guest poster claiming bullishness? This is a strong bearish signal. I have said it before and I say it again: Silver will hit $20 before it goes up again.
I sure hope you are right. If silver ever gets that low again it is to the coin store with the BIG car. Fill that sucker up. In the mean time lead/copper is still looking very good.
Yup! If I can *ever* get ASEs at 20/each like I did when I started buying silver (total cost), I am going to empty my savings accounts.
I was very heavy silver when I started getting into PMs and really have switched more to gold to balance out. That said, I could not pass up that price, especially with the global macro picture we have today. I don't trade, I am just a not quite middle aged guy who doesn't want to get raped/pillaged as the monetary system folds into a singularity and goes *poof* out of existance.
On that note, did you know you could buy Lundberg Farms rice direct? Damn, those prices are sa-weet for Japonica and Waheni (I'm about half coon ass and I likes my rice).
Sorry, got off topic ... buffing my food insurance via mail on Monday ... carry on...
Regards,
Cooter
I think the problem some people are having is they are using static pricing when considering the charts. Nothing is static in these markets, everything is falling apart. Silver went to $26 already, but during Asian trading. Who benefitted from the huge drop in silver? Asia picked it up 10% cheaper than the west did; the West never had a chance at that price! Who is controlling the markets? BAC? Yeah, right.
The game is over, everyone knows the war is going on. It is economic, thus why NATO went for broke in Lybia. The Western Front wanted Gaddafi's gold! They needed it! The system is leveraged so highly that even the slightest move could upend the fragility of the fiat ponzi.
Everyone is holding on and trying to maintain the status quo. CHina wants to buy as much PM at these prices as possible, America and Europe want to establish their Police States with authority. Yet they sides bicker amongst each other like the boys from Lord of the Flies.
So, the game is over, and all sides see each others next moves. The West will fight Iran soon, with Israel as its proxie. China will bow out of the armed conflict and try to secure enough US and European bonds to tell the IMF off, all while increasing their gold reserves. Russia will try and hedge too. The players have drawn sides, first to move could win, or first to blink could lose, and remember one thing, the stakes have never been higher.
One would think the maniacal policie makers would be sweating, yet Hillary cackles about death, and Bernanke laughs about monie. No one in this game is sane, which is why it is every man for himself. So do yourselves a favor, and get strapped. The war is on.
Buy silver
and it's not going to be pretty. I don't really care if silver goes to 20's, but if it does i will sell things to get more. But if it does go to 50, i would rather be converting my fiat toilet paper to silver and gold even at that price.
The best way to decide where the low is is by waiting for the top. We saw a low of $26 a few weeks ago. Let's see how high it goes from here before we talk about buying at a higher range. Until then, at $30, I'm buying.
This article is neither bullish nor bearish, it says you should not touch silver at all on the medium term (don't go long, don't go short), unless you like taking risks.
I agree "This article is neither bullish nor bearish" ...which is precisely why it's bullshit
Advising investors not to get involved because the "risk reward ratio" is too volatile is exactly what financial advisors (fleecers) cold blanket their clients with to get them into inane investments like the 'safety' of blue chips and Govt Bonds
Silvers volatility provides an awesome opportunity for fast profits and fast returns... if you don't like heat you shouldn't be in the kitchen
Why all the hate -- he's just saying that at the moment gold looks to be a better place to go than silver. I agree... I traded 75% of my AG for AU during the first six months of the year when the ratio was decent & am real happy about it. If silver gets back down into the low 20s I might be a buyer again.