Why One Trader Thinks "Silver's Plunge Is Nearing Completion"

Tyler Durden's picture

Precious metals fans have had to content with a triple whammy this year: not only is the dollar weaker, not only have cryptocurrencies - seen by some as a natural alternative to safe PMs, especially among the younger generation - soared since the start of the year, blowing out all other asset classes including precious metals, but gold and silver have largely gone nowhere despite a year of political volatility and central bank confusion.

There is a ray of hope however: according to Bloomberg's macro commentator Marc Cudmore, silver's "justified" plunge - as gold and silver have a strong correlation with real rates - is finally nearing completion, as "we are approaching the point where both higher yields and lower yields have the potential to boost the asset class."

The technicals are also turning: "In euro terms, silver is looking stretched to the downside based on its relative strength index, a momentum measure. It should also be supported by its 31-month upward trendline, which it’s testing now." Finally, "Monday is the first day of silver and gold futures trading on the LME. That might provide a fresh source of excitement and buying interest."

Finally, while there are "clear dangers involved when trying to catch a falling silver knife" Cudmore notes that "a risk-reward analysis makes an attempt appealing."

His full Macro View take below:

"Silver’s Justified Plunge Is Nearing Completion", by Mark Cudmore, a former FX trader who writes for Bloomberg

 

Silver is plunging and it’s even worse than it first appears when you consider that the dollar is having a bad year. In euro terms, the metal is down 24% from its April peak. Still, there are reasons to argue that the shift lower is mostly complete. 

 

Gold and silver have a particularly strong correlation with real rates since the metals provide no yield, and hence demand is inversely related to the opportunity cost of speculation.

 

An environment in which global bond yields are rising in the absence of significant inflationary pressures is about as bad as it gets for speculative precious metals, so the move makes sense.

 

However, if the rise in global yields persists, then severe spillover effects in other asset markets could prompt a bid for precious metal havens again. So we are approaching the point where both higher yields and lower yields have the potential to boost the asset class.

 

Technicals also look potentially buoyant. In euro terms, silver is looking stretched to the downside based on its relative strength index, a momentum measure. It should also be supported by its 31-month upward trendline, which it’s testing now.

 

Another thing -- Monday is the first day of silver and gold futures trading on the LME. That might provide a fresh source of excitement and buying interest.

 

There are clear dangers involved when trying to catch a falling silver knife, but a risk-reward analysis makes an attempt appealing

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29.5 hours's picture

"Nearing completion." Yup. Sure.

SubjectivObject's picture

fool me once .....

fool me 6 thousand times ...

Oh, and .... charts ....

29.5 hours's picture

"The technicals look potentially bouyant" gave me my morning guffaw.

Pinto Currency's picture

The daily price set in London is a complete fiction set with unallocated contract.

They trade ~1.5billion oz per day in London with next to no metal - the price can be anything.

50 cents or $500 /oz just push the button.

http://www.safehaven.com/article/44561/londons-palladium-markets-metal-s...

What he should say is that the price of digital coupons is nearing a low.  Maybe yes, maybe no.

 

What is interesting is that sometime this month, the LBMA is allegedly going to start report how much silver is in the London vaults:

https://www.bullionstar.com/blogs/ronan-manly/much-silver-held-lbma-vaul...

Whether the numbers can be trusted when they are released is another question.

The silver price may be in the process of being reset down to allow an increase when these inventories are released.

Time will tell.

 

espirit's picture

Methinks the author is basing this revelation on Au reaching $1200 oz.

On the other hand, machinations suggest there might be more downside to shake out PM longs into Cryptos.

Treacherous times indeed.

Heh. Lots of dry powder left to average down. 

Raffie's picture

Plunge? More like @ss screwing.

Don't worry the powers that be will let silver rocket to $17 then *WHAM* the beating will begin to start the cycle over.

PUMP & DUMP TO INFINITY & BEYOND!!

JRev's picture

"An environment in which global bond yields are rising in the absence of significant inflationary pressures is about as bad as it gets for speculative precious metals, so the move makes sense."

...except bond yields are NOT rising globally, they're rising in America and virtually nowhere else. UK holding rates near zero, Southern Europe still negative, Japan near rock-bottom. And this is ignoring that the Fed's rate hikes are merely tokenary (i.e. not even 1%).

Same shit, different day.

youngman's picture

You can bet that each one of those bars has several owners claiming the same bar

troubadourcapital's picture

Silver's plunge is indeed near completion. Silver is at a long term mean reversion extreme. At least a big rally will follow, even if this is still a bear market

http://markethistory.org/our-sister-fund-is-extremely-bullish-on-gold-si...

max-kisser's picture

...a long term rally - up by .50c then.

ArgentoFisico's picture

It's nearing completion because we are at or below cost of production (AISC) for most of the miners

GodHelpAmerica's picture

Reminds me somewhat of oil, where all the best deposits are exploited first, temporarily reducing the average all in cost, and fooling people into believing this is the new norm. And then cut capex to keep operations afloat in the short term, as they stare at long term output declines, and rising costs.

JRev's picture

Except unlike oil, output has not declined but continued to rise for silver. See below. 

JRev's picture

Miners are notoriously difficult to believe, though. Their production costs are constantly fluctuating and almost always juked. Read their prospectus sometime, or listen to an analyst like Jason Burack break down which miners are full of shit. I remember when First Majestic reported their all-in production cost at $21 and Keith Neumeyer insisted that it "couldn't go lower" without massive mine closures. Well silver plunged below $20 shortly after he spoke and yet First Majestic not only continues mining, but spins off a new company entirely! 

Thanks to the dupes for buying those shares in a bear market, I guess.

The fact remains that PRIMARY silver mines account for such a low percentage of mined silver overall it hardly matters whether they close. The second largest in North America closed just last week. Downward pressure on silver hurts those who only mine silver, but so long as copper, zinc, lithium, et. al. remain profitable, silver is merely an ancillary byproduct in the minds of most mining CEOs. 

Silver was pulled out of the ground for decades with the price per ounce sub-$5. A lot's changed since then, sure, but despite the recent downtrend, silver production has remained steadily UP for over 30 years now. With finished fuel costs at around 2x what they were in the 90s and more silver than ever being pulled out of the ground (despite mining CEOs trying to say otherwise), it's not inconceivable for silver to touch single-digit numbers. 

Scuba Steve's picture

How do you eat? Because you are talking out your ass and both sides of your mouth.

 

JRev's picture

A very refined, logical, ad-hominem free argument from yet another First Majestic bagholder. Primary silver mines account for an infintesimal amount of overall production - call me whatever you like if it makes you feel better, mash that down-vote button, but it don't change the numbers.

Honestly I'm surprised you can still type with that falling knife through your hand. 

Just because I think silver may have lower to go doesn't mean I don't think supply/demand fundamentals will overwhelm the paper game at some point. It's called having both a "short term" and "long term" outlook - I know this might be tough for you to comprehend, but sometimes those two outlooks are different! 

Scuba Steve's picture

Really?

So your premise is all mines/miners/mine-management are created equal?

JRev's picture

You initially picked a bone because I differentiated between primary silver mines and silver byproduct mines, now you accuse me of the opposite? 

Make up your fucking mind or get back on the meds, man. 

Scuba Steve's picture

Fuck you prick ... why in the fuck then would you say a word about First Majestic Silver?

Take your Opie luving ass back to Mayberry and STFU.

johnduncan78's picture

 "So we are approaching the point where both higher yields and lower yields have the potential to boost the asset class."  So it is either gonna go up or it will go down..........................................................One thing for sure-it will weigh the same tomorrow..................

PT's picture

Can you post a higher resolution picture of that graph?  I can't read the numbers, even if I magnify it.

This is it's picture

Whoever has predicted the bottom has always been wrong. 

Arnold's picture

I gotta top in Brooklyn I gotta sell.
Make you a good deal off the back of this truck here.

wmbz's picture

Go on, keep whacking it back, paper boyz. I have a box with some room left in it.

GubbermintWorker's picture

Just go and get you some.

Catullus's picture

It's 80:1 Silver to Gold. Buy silver. No charts needed

AlexCharting's picture

Gartman is psychic compared to ZH precious metals analyses. 

MrSteve's picture

Silver Wheaton changing its name is another clear sign of stress in precious metals finance and operations. Another sign a local minimum in prices is near this current level.

Scuba Steve's picture

According to JRev, clearly just a ruse ... /s

realmoney2015's picture

Yes, great ratio. Also if you buy candles buy ones with silver and help us get the word out, end the fed go back to sound money, silver and gold https://www.etsy.com/shop/ScentSavers

 

Silver and gold is real money

Inflation is theft 

Debt is slavery 

XAU XAG's picture

Looks to me like it is sinking like a stone with only

Monthly $15 to stop it

weekly 14.70/14.55

Monthly $14 to stop it

 

And Last daily $13.69

Place your bets

BillionDollarMonus_'s picture

Headline is "Why one trader thinks..." and yet the opinion is "according to Bloomberg's macro commentator Marc Cudmore". Hmmm...

ljag's picture

I gotta a grand that says I can stay solvent longer than they can manipulate. I hope they run the price down to where I started stacking>$6.90 per the oz.

Yars Revenge's picture

Wait to buy at $10 oz

JerseyJoe's picture

Last time that happen - there was no one offering.  It was a BS paper traded number.

anarchitect's picture

Another thing -- Monday is the first day of silver and gold futures trading on the LME. That might provide a fresh source of excitement and buying interest.

Flash-crash excitement and selling interest is more like it, assuming that these futures contracts are simply more cash-settled frauds unbacked by actual metal.

JerseyJoe's picture

Yep another place to naked short the shit out of the metals.   Doubling down and Asia suck up as much as it can in real metal.

The wheels will come of this scam.  

Jdhank's picture

All we need to know...Silver production is way Down, the mines can't produce profitably at current prices and demand is up.  Unlike Oil where production is Up and Demand is down.

I just bought more phys.

espirit's picture

Donchaknow they need to build moar Tomahawk missiles?

Ag is a cost factor.

LawsofPhysics's picture

"trader"...  "market"...

LMFAO!!!

"Full Faith and Credit"

 

same as it ever was, at least until the killing starts in earnest...

Calculus99's picture

If we're in a big tech world and tech will probably grow 100x over the coming decades (look at how it's grown 100x times already over the last few decades) and Silver is heavily used in tech, isn't Silver a massive buy anywhere below $20? 

I don't know, just starting to think about this. 

idontcare's picture

Tulips, steel, railroads, cars, oil, microchips, the cloud.........This has all happened before and it will all happen again.  

 

My bet is on Skynet and the Georgia Guidestones.

espirit's picture

Skynet maybe. T. Turner was full of himself when he had those built.

Peter Pan's picture

Everyone has a choice.

There are many cryptocurrencies and more to come.

There are many different banknotes.

There is a multitude of metal coins.

But there is only one gold and silver.

 

UmbilicalMosqueSweeper's picture

...and many ETFs and fake tits.