This page has been archived and commenting is disabled.
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..
|
|
|
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
»
- EconMatters's blog
- 24895 reads
- Printer-friendly version
- Send to friend
- advertisements -
"the U.S. Mint selling 4.46 million ounces of American Eagles in September"
Isn't that like 139 tons of silver sold?
I'm buying some more silver. You can call me crazy if you want.
That is peanuts to what India will import this year - "Kothari at the Bombay Bullion Association expects total silver imports in 2011 to surpass 4,000 tonnes"
"If one were to take long-term view, even present levels are good for investment in silver. Demand is mostly from the physical side and it is natural because after it reached new highs this year, everybody's attention is on gold and silver," said Gnanasekar Thiagarajan, director with Commtrendz Research.
Thiagarajan sees support for silver at $28-29 an ounce and the price eventually rising towards $45 by year-end.
http://www.moneycontrol.com/news/wire-news/india-silver-imports-seen-spi...
China imported 3500 tons in 2010. In 2005, China exported 3000 tons.
Well that's a third of the yearly India imports expected... A third is not peanuts; it's significant!
@Lunaticfringe @johny2 you 2 should talk
Gosh what to do? This article certainly clears that up. Not. Should I invest in bonds or the dollar? Maybe the euro? Or buy equities? Maybe the market is poised for a 3k ramp on QE3 news?
Here's advice from the fringe. Anytime a TBTF bank tells you what to do- do exactly the opposite. You can't miss.
No.
You swap silver for gold when the ratio heads below 40:1 and you swap gold for silver when it heads up above 60:1
Silver does well when markets are going up and it does terribly when they are going down. Which is why it's called the devil's metal, it's nature is partially industrial. Silver is currently heading for an ~80:1 ratio with gold.
Look at the 10 year:
http://www.kitco.com/Gold_Silver_Ratio_Charts/gold-silver-ratio-charts.html
Oh and if you are buying PMs with paper, you buy the opposite (relatively cheap) one.
Interesting perspective. Thanks.
Regards,
Cooter
yeah, right...hold on to your paper and sleep well, until you wake up one day and find out that it is worth nothing. or even better, go and gamble your savings away on the markets. Thanks for the advice.
In fairness...the article is not advising investment in paper silver either.
But yes, Morgan Stanley and Barclays have a vested interest in keeping investors discouraged until they've liquidated their short positions.
A hit piece it is.
AMEN
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
52 to 32 is a 58% drop? WHAT?? I love how no advice on what to invest in is given, because there is nothing to invest in. Strictly a hit piece. SHILL.
It's the new math.. It's actually 38% which is a 50% difference.. And coins are not 31 dollars either.. With a 4-5 dollar premium, they are 36-37 dollars each..
@phyuckyiu: "Strictly a hit piece. SHILL."
yeah I was thinking the same thing.
Any purported "analysis" of the silver market that doesn't even mention the well known, or better : NOTORIOUS JPM et al short manipulations, loses credibility immediately.
Is it good to invest in something with a 20,000% potential upside?
Agreed.
Global over supply????
What have they been smoking? Must be some "hopeium".
Global physical supply has never been so low. They must mean the global over supply of paper silver.
Holding paper, is holding exactly that - paper. I do it everyday. Just before I pull the handle!
Lets look at the true facts.
World silver production for ONE YEAR is about 900 million ounces.
The paper silver markets trade over one billion ounces - PER DAY!
The amount of freely available investment physical silver, on any given day is approximately 1.5 million ounces.
Where is the global over supply? This is not rocket science here!
The spot price is just a number.
The real price is what you pay for physical delivery in volume.
Did a Gold Man Sack shill write this article to prime the pump so they can buy a few thousand tons of silver?? I see you working here... Genius.
From what I can tell there are mostly people posting in here who realize how hozed we are by the central bankers and their owners. Yes they are owned.