Tuesday, January 31, 2012
Source: KMG Gold (1/30/12)
"If silver blasts through $40/oz, it's probably on its way to the all-time high. In that case, the next big move would be to the upside, with potential for $70/oz targets and triple-digit silver prices."
On Jan. 11, we expected the U.S. dollar to top as sentiment was uber-bullish, which would lead to a nice rally for gold, silver and (mining) stocks. That day, the USD index closed at 81.35, silver at $29.89, and gold at $1,641.
Today, the U.S. dollar stands at 78.90, silver at $33.89 and gold at $1,733.50, so we got what we expected.
On Jan. 9, we posted the following chart, which compares the current silver "bubble" to the Nasdaq Bubble a decade ago:
Now let's see where we are today.
Just like the Nasdaq, silver has set a lower/equal low, accompanied by a higher low of the MACD index, and has now rallied quite sharply:
Compare this to the Nasdaq:
An overlay of both charts shows us where we are today:
If we zoom in a bit:
If the pattern holds, we should be about halfway the "Bull trap," as many will view this as the Return to "normal."
If the pattern doesn't hold, and silver blasts through $40/oz, it's probably on it's way to the all-time high. In that case, the next big move would be to the upside, with potential targets of $70/oz and potentially triple digit silver prices.
As long as the pattern holds, I would be careful if silver hits $38/oz.
KMG Gold Recycling
Thursday, September 08, 2011
The price of silver has been closely tracking that of gold during the precious metal’s bull run lately. Silver’s role as a precious metal has, at times has avoided any price negative news that has affected the other industrial commodities.
Silver benefits from gold’s rising prices largely because investors, whether in the paper or the physical markets, view it as an attractive leveraged play on gold. Silver offers exposure to the rising demand for safe haven assets at a cheaper price, sometimes earning it the title of “poor man’s gold.”
Of course, choosing silver as an alternative to gold has its risks, especially since the white metal isn’t entirely a precious metal. Silver’s price movements can be heavily impacted by favourable or unfavourable market sentiments regarding the health of the industrial sector, making the silver market highly volatile and prone to large swings in prices.
“Regardless of what happens, silver is still silver,” says Michael \Gupton of KMG Gold in Winnipeg. “It is considered both a precious metal with monetary overtones and also an industrial metal – two positive traits that affect its value.”
Worth the risk?
In spite of the risks, many people still find silver an attractive investment as it has the potential to bring far greater return on investment. The return on investment for silver can surpass gold as price movements over the last year have shown. From August 31, 2010, the price of silver year-over-year gained 115 percent compared to 47 percent for gold; meaning, that one hundred ounces of gold you bought last year for $124,770 made you $57,750 if you sold it one year later. However, you could have put that $124K all into silver and made nearly $143K for a total return of 147 percent more than your return on gold.
Over this next year, analysts expect gold prices to reach even higher and for silver to continue outperforming gold. “When we look at gold versus silver, we feel that silver prices could enjoy more of a gain over the next year or so." stated Gupton.
Friday, July 08, 2011
plated item refers to an item that has a thin coating of silver plated onto a base metal. The silver coating can be a few ten-thousandths of an inch and will typically be used over base metal with lower value than silver. On the other hand, a sterling silver item is solid silver, with about 92.5 per cent or more of the pure metal.
In a nutshell therefore, sterling silver carries more pure silver than a silver plated item. Various methods can be used in determining the differences between sterling silver
and plated silver. Some of the most effective testing methods include the use of X-Ray Florescence. However, there are other test kits and methods that can as well be used to distinguish between the two.
Silverware typically refers to materials made from silver, whether cutlery or utensils. However, when silver is mixed with other metals, the product is called sterling silver. The mixing of silver with other metals is typically geared towards strengthening it, since silver is a soft, malleable metal. Sterling silver is generally accepted as the Silver Standard globally.
As earlier stated; sterling silver will typically be made of 92.5 per cent pure silver and 7.5 per cent of other base metal. Base metals used in the making of sterling silver include copper, Zinc and platinum. However, copper is a most commonly preferred and widely used base metal. The use of Zinc and Platinum is mostly necessitated by the need to strengthen the silver. Copper is currently used as the standard base metal in sterling silver. Sterling silver carries a hallmark of 925, Stg, Ster, Sterling or Sterling silver. Any items that have no hallmark are silver plated.
Silver plated items have little or no silver in them. Most items of silver in the market, especially lowly priced utensils and cutlery are silver plated and contain very little of pure silver. Silver plated items are therefore not solid and will generally have lesser value and purity levels.
Currently, most of the world’s supply of silver-plate cutlery is made from base metals like copper, zinc and nickel. These base metals will typically be coated with silver layer. Stainless steel items are the most widely used forms ofsilverware
. As caution, perhaps it is better to be warned that whereas cutlery or utensils may claim silver content, they may not have any silver at all, or little of the same.
When buying cutlery and utensils, be careful what you buy. The fact that a material is silverware does not mean it contains pure silver. As explained here above, it may actually contain more of base metals such as copper and zinc that actual silver
Friday, June 17, 2011
Recycling and Refining. "Do I buy now or wait for a pullback and perhaps miss out on big gains?"
Silver has been on fire over the last three years, substantially outperforming its spotlight-grabbing cousin, gold. Because we believe this bull run is far from over, we advise investors to always maintain exposure to precious metals markets. Even if you haven't yet participated in the run-up of both gold and silver, I'm glad you're ready to look at the investment potential of silver.
The question every investor faces in a bull market is: Do I buy now, anticipating prices will continue higher, and chance getting clobbered if a correction arrives? Or do I wait for a pullback and possibly miss out on big gains? There's risk either way.
Our goal in this report is to suggest various ways you can invest in silver, while underscoring the importance of patience and discipline. Investors must remain patient to avoid chasing silver, overpaying, and draining their cash. Instead, we recommend that you use temporary price declines to steadily accumulate the best silver stocks and your preferred form of bullion. Looking back after this bull market has finally run its course, we think gold and silver will have amply rewarded those who bought smart, had meaningful exposure and stayed the course.
Silver: The Lay of the Land
There is ample data on the silver market to consider, but there are two specific issues regarding supply and demand that are critical to understand.
The first is industrial use. Demand from a number of industries that use silver has been flat or falling. Household demand for silver like cutlery, flatware and candlesticks hasn't risen in 10 years. Jewelry fabrication is up but a blip. With the shift to digital photography and image storing, use in photographic film processing continues to fall. And yet, total demand from industrial users keeps climbing.
So what's driving industrial demand?
Since 1999, consumption in electronics has increased 120%. Silver use in solar panels began in 2000, and usage is up 640% since. Silver was first used in biocides (antibacterial agents) in 2002 and, while a small percentage of total silver use, it has grown sixfold.
The point is that not only are the number of uses for silver growing, the demand within each of those applications is rising as well. This is important to keep in mind because, traditionally, the industrial component of silver tends to keep the price soft in a poor economy—and Doug Casey is convinced we're on the cusp of the Greater Depression.
However, these increasing sources of demand are now more likely to keep a floor under the price in the future. In fact, the Silver Institute forecasts that total industrial use of silver will rise by 36% over the next five years, to 666 million troy ounces/year. That's a lot of silver, meaning this portion of demand, which is roughly 60% of all fabrication, isn't letting up anytime soon.
The second issue is mine supply. Silver mine production has been increasing over the past decade, largely due to rising prices, allowing companies to ramp up production and bring more metal to the market. In fact, global mine production is up 33% since 1999. Meanwhile, total demand, as you'll see in the chart below, is also rising.
Mine Production Can't Keep Up with Demand
So what's the concern? In spite of miners digging up more and more silver, production alone can't meet global demand—and the gap has to be filled by scrap silver coming to market.
And there's a catch with scrap. While scrap metal comprises about 20% of silver's total supply, many of these new applications are difficult to reclaim. Some applications contain such small amounts that they're uneconomic to recapture, such as many biocidal and nanotechnology applications. With others, it'll be a long wait. Solar panels, for example, have a 20- to 30-year life. Still others are waiting on more-effective recovery programs; more than one-half of all silver in cell phones, TVs, computers and other electronics, for instance, still ends up in landfills. In other words, a growing portion of the silver that's consumed won't be returning to the market anytime soon.
KMG Gold Recycling and Refining
Tuesday, June 14, 2011
Silver is used in the photography industry mainly for the manufacture of light-sensitive film. Demand for silver in the photography industry is currently driven by the demand for high color film. Silver has been used in photography for decades to date, but its use has been waning over the last one decade, thanks to the advent of the digital camera. Industry estimates paint a bleak future for silver usage in photography, but demand for high color film is yet to fall critically. Mostly, silver nitrate is widely used in the manufacture of high quality color light sensitive film.
Images captured in shutter camera films are normally developed in studio darkrooms, due to the sensitivity of silver nitrate to light. When exposed to varying intensities of light, silver nitrate will react differently. The shutter camera captures images by use of a lens and regulated light (flash). The sensitive film captures and stores the image depending on the intensity of light or darkness. Therefore different qualities of images will be produced. The images can then be developed into photos by the use of Sodium Thiosulphate, in dark rooms.
However, analysts estimate that over the last one decade, the use of silver in the photography industry has experienced a sharp gradual fall in demand. This has mostly been attributed to the advent of the digital camera. Estimates reveal that for the last one decade, silver usage in photography has immensely declined. For instance, in 1998, the overall demand for silver from the photography industry peaked at a paltry 30.98 per cent.
This is reflective of the annual demand for silver in the photography industry for that year. Industry demand was for purposes of making silver halides and silver nitrates. When compared to demand for silver from the other industries such as jewelry, the photography industry only took a small portion of the overall supply.
By the beginning of 2000s, silver usage in photography had further declined. Estimates reveal that in 2001, silver demand from the photography industry had peaked at just 23.47 per cent. A good percentage of the overall silver supply for that year went into the jewelry industry. Increasingly, more silver is being demanded by the jewelry industry. From 2001, demand for silver from the photography industry maintained a downward trend, with overall usage peaking at about 14.3 per cent.
According to industry estimates, the years between 1998 and 2007 saw silver demand from the photography industry stabilize at just 50 per cent.
Demand for silver in the photography industry today is mainly from high color film manufacturers. Color films are still widely used in the making of films/movies due to their quality. By the year 2007, silver used in photography had peaked at a paltry 14.3 per cent. From 1998 therefore, there has been a gradual but steady decline in the use of silver in the photography industry.
Tuesday, May 10, 2011
PORT WASHINGTON, N.Y. (MarketWatch) — The massive decline in silver prices last week does not necessarily mean that the bull market in silver is over.
True, the recent run-up in prices was quite astounding. In just six months, silver prices doubled, almost hitting its all-time high set back in 1980.
Silver also outpaced other commodities — even gold. For years, it took about 63 ounces of silver to buy an ounce of gold. By last week, however, that ratio had been cut in half, to 32.
Bear in mind that, while there were two main reasons why silver shot up in 1980, there were several others this time.
Thirty-one years ago, the Hunt brothers tried to corner the market, which was rising anyway because of rampant inflation.
This time, there was no such squeeze, but rather, concerns over inflation, a rise in prices of other commodities (most notably oil), a fall in the dollar and widespread unrest in the Middle East and North Africa.
Good reasons for the rise notwithstanding, any item whose price soars the way silver did has to encounter headwinds sooner or later. Silver was no exception; its prices tumbled so fast that it lost a quarter of its value in a single week.
What precipitated such a plunge? The same thing that has caused other regularly traded items’ prices to reverse course in the past: a hike in margin requirements.
As prices for commodities rise, it is not unusual for their exchanges to increase margin requirements — the amount of money traders have to put down as collateral.
The higher the price goes, the greater the margin, as officials try to dampen the rise. By the same token, when prices fall, the exchanges usually reduce such requirements.
In the case of silver, margin requirements were hiked not once but a total of five times before they stopped the rise in prices and turned it into a decline.
Since silver’s jump both reflected, and was accompanied by, prices rises in many other commodities, when silver fell, so did prices of most other items.
This widespread plunge in commodities prices led many traders to conclude that inflation was not a threat. They reasoned that the economy was growing too slowly for this to happen; they also believed that the Federal Reserve would not let inflation flare up.
Others interpreted this decline to mean that there was lots of speculation in the prices of silver and other commodities — especially oil. This provided another rationale for expecting prices to fall.
But as the great philosopher, Yogi Berra, used to say: “It ain’t over till it’s over.” In other words, the threat of inflation has by no means been vanquished, and geopolitical concerns remain.
On the inflation front, the Federal Reserve has pumped gobs of liquidity into the financial system, leading to a jump in the monetary base and the money supply. Consequently, the five-year Treasury-TIPS spread has shot up to its highest level in at least four years, reflecting growing concerns over inflation.
As Monday’s action shows, it is far from a foregone conclusion that silver prices can only go lower. They led a rebound in the precious-metals sector as traders once again focused on the reasons why they drove prices higher in the first place: inflation fears and political unrest.
Monday, May 09, 2011
JUPITER, Fla. (MarketWatch) — How quickly the glorious springtime of silver turns into a winter of discontent. The selloff in silver saw the metal recently drop 20% from its highs, and we probably aren’t done yet.
But how low will silver SIN11 +6.92% go?
Here are some forces that I’m watching:
•The Chicago Mercantile Exchange raised margin requirements on silver futures four times in two weeks. While margin requirements must go up when prices go up, four times in two weeks sure is grist for those who say the big banks are short silver and will do anything to derail silver’s bull run.
•Disappointment over silver’s failure to breach the psychologically important $50 level last week is also a factor. The hot money is moving on to other things for now. This leads to a correction, a normal and necessary part of any bull market.
•And then there’s simple profit taking — many people bought silver at much lower levels and so they’re locking in gains. Certainly big funds run by George Soros and others are doing just that. And you know what, I told my subscribers to do that, too, because there’s nothing wrong with taking profits. Silver, gold hit by report of Soros selling.
Those short-term bearish forces, though, overlay these longer-term, bullish forces:
•Industrial demand for silver is enormous. Nearly 75% of the world’s silver supply is used to make everything from chemical reagents to jewelry to solar panels to plasma TVs. And with the global economy expected to grow by 4.5% this year, according to the International Monetary Fund’s latest figures, that industrial demand for silver is only going to increase.
•The decline in the U.S. dollar is threatening to turn into a collapse. The buck recently touched its lowest level against the euro since December 2009, and the U.S. Dollar Index DXY -0.23% was recently off 7.5% just in 2011. For a currency, that’s a huge move! Since silver — as well as gold and other commodities — are priced in dollars, they generally move opposite to the greenback. It’s what I call the “seesaw of pain” — somebody’s always getting hurt.
•Mine supply of silver is tight. While silver fabrication demand grew by 12.8% last year, silver mine production rose by only 2.5%, and mine supply accounts for 70% of all silver supply, according to GFMS. It’s hard for miners to crank up silver production because two-third of silver produced by mines is as a byproduct to other metals. Mine supply IS expected to rise this year, but it will be hard-pressed to keep up with the expected rise in demand.
The fundamental fact is that, despite the recent correction, both gold and silver are in big bull markets. Until that changes, pullbacks and corrections are buying opportunities.
The big bullish story in silver is just one aspect of the demand shift we’re seeing to China and other emerging markets. China used to be a major seller of silver supply into the global market; now it’s an importer. And it’s importing more and more commodities of all types. China has a huge and growing middle class who want all the things that big, fat Americans want — more food, cars, clothes and jewelry, TVs and other electronics.
Click to Play Alternatives to gold and silverAs gold and silver tank, assets besides commodities can hedge against inflation, according to David Goerz of HighMark Capital Management, who recommends high-quality dividend-paying stocks as well as small caps.
And it’s not just China. According to Goldman Sachs, 70 million people worldwide are joining the world’s middle class each year. In 20 years the middle class will add another 2 billion people, most of them from emerging markets. Many of these nations have a cultural affinity for gold and silver.
So yes, we are seeing some air whoosh out of silver’s bubble. But I don’t think we’ve seen the real mania in silver yet. That doesn’t mean the metal can’t go lower. If the U.S. dollar rallies, that will likely trigger another leg down in silver. If the global economy slumps — and there’s the potential for that due to stubbornly high oil prices — that could knock silver lower as well.
If you want to short silver in the face of strong demand — like the 1.3 billion Chinese who seem ready to buy silver on the dips, or the billion people in India ready to do the same thing — good luck to you. I think you’ll need it.
As for me, I’m waiting for this silver correction to run its course, then I’ll buy again. A 50% retracement of gold’s recent bull run looks like a likely target, and a good place to re-enter the iShares Silver Trust SLV +7.25% , Silver Wheaton SLW +0.33% and other silver bellwethers.
Good luck and good trades.
Tuesday, May 03, 2011
The signals that indicate a correction...
KMG Gold Recycling
SO, US SPECIAL FORCES killed Osama bin Laden on Sunday. They may have also thrust a stake through the heart of the silver market, writes Eric Fry at The Daily Reckoning.
We will leave it to Wolf Blitzer and other world news commentators to articulate the geopolitical significance of bin Laden's rendezvous with 40 virgins. Our beat is financial...and in our little corner of the news world, the death of bin Laden seems like a perfect excuse for a long-overdue Dollar rally...and silver selloff.
The silver market has been hot...red hot...probably too hot. The Dollar, for its part, has been stone cold – sinking lower and lower with almost every trading day. Both assets are fully deserving of their respective price trends. The silver market, in other words, deserves to be soaring against the US Dollar. And over the next few years, I would not be surprised to see the silver price top $100...or even $200.
But over the next few weeks, the precious metals are likely to become a bit less precious for a while. Your editor does not raise this caution to suggest that silver be sold. Rather, he raises it to suggest that silver be bought...at lower prices.
To begin this brief analysis of the frothy silver market, please consider one essential fact: the following remarks are no better than guesses. Educated guesses, yes. But guesses all the same. To continue this analysis, please consider a few fascinating data points:
1) Silver has soared more than 50% so far this year, and 150% during the last 12 months.
2) The price chart of silver has developed a parabolic trajectory, typical of toppy markets.
3) Speculative trading activity is dominating many parts of the silver market. For example, recent trading volume in SLV, the $13 billion ETF that represents holdings in silver bullion, has been exceeding the trading volume in SPY, the massive $89 billion ETF that represents the S&P 500 Index. Prior to the recent silver frenzy, SLV would produce only about one quarter the daily trading volume of SPY. But now it is SLV's trading volume that routinely tops SPY's!
4) Various gauges of investor sentiment are flashing extreme bullish readings for silver. The Elliot Wave's Daily Sentiment Index shows that 95% of investors are bullish on silver. Likewise, the Market Vane's Bullish Consensus shows 93% of commodities traders are bullish on silver. When such an overwhelming majority of market participants hold such an overwhelmingly bullish opinion about a given asset, that asset tends to disappoint its fans...at least for a while.
Taken together, these various signs, indicators and portents say loud and clear that a major correction in the silver market is very likely, very soon. On the other hand, Ben Bernanke's reckless monetary policy – spearheaded by money-printing escapades that are so moronic only a PhD in economics could possibly devise them – say loud and clear that silver (and gold) are much better long-term bets than the US Dollar.
So why bother worrying about short-term risks in the silver market?
Good question. Maybe you shouldn't...unless you have an interest in converting these short-term risks into a long-term buying opportunity. The silver rally still "has legs," even if those legs might wobble occasionally.
Looking to Buy Silver
Saturday, April 16, 2011
Two weeks ago the precious metals space was closely following the fate of Sumitomo's San Cristobal mine, where a long strike had paralyzed work at the world's third largest producer of silver and sixth-largest producer of zinc.
While the strike was eventually resolved with concession to the domestic workers, a far more troubling report from Bolivian daily La-Razon states that Bolivia's president Evo Morales is now planning on expropriating zinc, silver and tin mines sold off by previous governments.
Bloomberg reports that "Morales will announce a decree May 1 to “dismantle the privatization model,” said Nicolas Fernandez, a spokesman for state mining company Corp. Minera de Bolivia, known as Comibol. "The government is recovering all the privatized companies,” Fernandez said today in a telephone interview from La Paz. “When the decision is taken, Comibol will be ready to manage these mines.”" Among the contracts to be affected are those with Glencore International AG, Pan American Silver Corp., and most importantly, Coeur d’Alene Mines Corp., which is operator of the San Bartolome mine: the world's largest pure silver mine.
Notably San Bartolome and Sumitomo's San Cristobal "account for about 83% of the nearly 1.1M tons of fine silver Bolivia produced in 2009, according to Mining Ministry data" according to The Gold Report. If indeed this news is proven true, and we will know for sure in 16 days, looks for the price of silver to spike considering about 1.33 million kilograms of silver was produced in Bolivia 2009, according to the U.S. Geological Survey: an amount which will likely fall off a cliff following the utter chaos that is unexpected nationalization.
Bloomberg's report on this important development confirms that the potentially affected producers seem to be in a state of denial about this absurdly irrational development:
“Our property title is not subject to expropriation by the government,” Coeur spokesman Tony Ebersole said in e-mailed comments to questions.
Glencore spokesman Simon Buerk declined to comment and Pan American spokeswoman Kettina Cordero didn’t return telephone calls and e-mails seeking comment.
Bolivia produced 430,879 metric tons of zinc, 84,537 tons of lead, 19,581 tons of tin and 1.33 million kilograms of silver in 2009, according to the U.S. Geological Survey.
Nationalizing private industries is nothing new for the embattled Morales:
The government of then President Hugo Banzer sold off mining assets such as the Vinto tin smelter in 1999 in a drive to shed money-losing state companies and attract private investment. Morales seized the smelter from Glencore in 2007.
Morales took over gas fields and refineries on May 1, 2006 in a bid to increase state control over Bolivia’s natural resources. Private investment in the industry plunged 69 percent to $271 million in 2009 from $865 million a decade earlier, according to state energy company YPF Bolivianos.
With the political situation in Bolivia deteriorating (read the following update from La Razon on the strikes and blockade gripping La Paz) it is increasingly probably that the country's president will take irrational steps in order to safeguard his image, and supposedly to fill his coffers.
Friday, March 18, 2011
The silver-gold ratio has fallen to 39:1, it’s lowest level in over 13 years. Silver’s impressive rally over the last five weeks is no doubt a reflection of investor demand for safe haven assets in times of political and economic uncertainty. The political destabilization in the oil-rich region of the Middle East and North Africa has pushed up gold prices alongside of oil; and of course, silver has followed suit outperforming gold on the uptrend as usual.
Much of the run-up in investment demand for silver and gold over the past few years has been predicated upon the threat of rising inflation on the back of currency debasement.
While many a gold newsletter writer is still haranguing about the continuance of free money being dumped into the system by Helicopter Ben and the looming inflation crisis, some analysts are not convinced.
This latest rally in gold and silver prices is much more a function of speculative safe haven demand than any perceived threat of inflation. “I don’t think this is the Bernanke market,” said Robert Lenzer, writing last week in his StreetTalk blog on Forbes, “as he made it clear today that inflation is just the 2% he wants, and that’s despite the horrific run-up in food prices. And he’s beaten off deflation with QE2. No knee-jerk connection between Bernanke and precious metals. The connection for gold and silver is geo-political.”
And there are serious indications that the Federal Reserve will be ending the QE2 program early this summer, without any need for a third round.
Another threat to the “inflation thesis,” says The Steet’s Alix Steel, “is if central banks around the world decide to raise key interest rates.” The People’s Bank of China once again raised its rates recently, for the third time since October; and the European Central Bank has signaled it may do the same next month.
A major driver in the silver price over the last few years, exploding investment demand has succeeded in large part due to the creation of physically backed silver ETFs, which provided an easy way to invest for those previously denied access to the silver market.
The more investors take ETF positions, the more physical silver is taken off the open market, leading to higher and higher prices and increased demand. If the rumors about Chinese buyers planning to take delivery of SLV shares prove true, silver prices will surge even higher.
Analysts calling for $100 silver are surely making silver bugs salivate; however, let’s not forget basic economic principles. Despite the exponential growth in investment demand over the past five years, silver is still very much an industrial metal. Higher silver prices are obviously welcomed by silver investors, but no so much by the industrial sector that has to pay those high prices on materials needed for production. According to some insiders, end-users are already becoming frustrated with rising silver prices. The concern is that if prices continue to rise, end-users will look to more economical substitutes for the white metal. Such a move would lead to decreased industrial demand for silver long before prices could reach the three figure level.
Nonetheless, 2011 forecasts for industrial demand are strong with growth from electronic gadgets such as iPads, the renewable energy sector (e.g. solar panels) and the medical field. But, don’t expect demand to be on par with the significant levels seen in 2010. “This year, this type of news will not be quite as unequivocally good,” said GFMS’ Philip Klapwijk. “We’ve had such a significant rebound in industrial demand for silver that gains will be somewhat harder to come by this year compared to 2010.”
What about that supply deficit?
The proposition of a possible near-term silver supply deficit is hard to swallow for some who point out that the market has been in a surplus for years on rising output as a secondary metal from gold and base metal operations, and industrial demand from traditional sources such as photography has been slipping for years as well.
But the signs of an actual supply deficit in the physical silver bullion market are piling up, including the recent backwardation in silver futures prices on the COMEX. Other points of proof include the US Mint’s temporary discontinuation of US Silver Eagle production due to a lack of “sufficient inventories of silver bullion blanks,” and Sprott Asset Management’s announcement that it has encountered problems sourcing 1,000 ounce silver bullion bars in large volumes for its silver fund.
But skeptics remain. “In the silver market, there is enough silver, it is more to do with a short-term squeeze,” said Standard Bank analyst Walter de Wet.
Last month, the CPM Group dismissed the idea of a deficit in total above-ground supply, laying the blame on the recent tightness in the physical market on spot shortages of particular high-grade bars.
“There are rumors of shortages of physical silver circulating in the market. There are some spot shortages, but they appear limited to higher purity metal in specific forms and locations,” CPM analysts said in a report, specifically referring to the supply of 1,000 oz bars of 0.9999% and 0.99999% high-purity. There is a shortage of these bars because the majority of manufacturers focus their energy and materials on producing high-purity silver sponge for industrial applications such as solar panels rather than high-purity investment bars, and rising investment demand has in turn created a high demand for these specific bars, further creating tightness in the supply of said bars.
But what about the shortages in coins and 100 ounce investment bars? CPM Group surveyed Fidelitrade, Kitco and Northwest Territorial Mint (NWTM) last month and found “hundreds of thousands of ounces in 100 oz bars available for immediate delivery, and NWTM said it was steadily producing more each day.”
“In conclusion, there are short-term market developments along the lines of what CPM has repeatedly said to expect in February and March 2011, and there is spot tightness in high purity silver cast into bars as opposed to sponge. The rest is noise.”
In regards to the backwardation in March COMEX future prices, CPM analysts are not impressed and blame market congestion rather than supply deficits. They also point out that although the lease rate has risen to 0.8 percent from 0.3 percent, over the last three decades lease rates have ranged between 3 percent and 6 percent, making 0.8 percent still very low.
Still a good time to get into the silver market?
Yes! say those optimistic bullish silver bugs who see the price of silver surging higher and higher in the near to medium term.
James Turk, GoldMoney founder, has said silver is still in stage one of its bull market (gold, according to Turk, is in stage two) and won’t advance into stage two until the price of the white metal pushes past $50 an ounce, which he expects will happen in 2011. And because silver is still in the first stage of its bull market, it remains a good buy.
Speaking with Reuters at the annual Prospectors & Developers Association of Canada convention in Toronto Tuesday, Eric Sprott of Sprott Asset Management said silver will continue to outperform gold. “I watch where the money goes and the money’s going into silver. There’s as much money going into silver as into gold in dollar terms.”
But, a few say the time to enter the market has passed.
HSBC Global Asset Management analyst Charlie Morris says he still supports having some silver investment, but not picking up more at these prices and at this time. “Not to say I think it’s coming down, but I think we’ve missed it. Buying something overbought and chasing it is rarely a good strategy.”
Many analysts are still bullish in the medium to long-term, but advise investors to stay cautious in the short-term and heed silver’s seasonal cycle
Standard Bank’s de Wet advises, “If you’re long silver, stay long, but it’s probably not worth the risk/reward getting in now. It’s not called the devil’s metal for nothing.” I believe he’s referring to silver’s infamous volatile nature characterized by huge swings on the downside.
“Silver is surging and gold has made new all-time highs, but the technicals indicate that risk is high and that better entry points may be presented in the months ahead,” said MoneyShow.com senior editor Tom Aspray. “For those who are not already long precious metals, my analysis continues to suggest that you will have a better risk/reward entry in the next few months.” Aspray is referring to the seasonal cycle of silver, in which late April, and the summer doldrums are traditionally marked by significant downside in silver prices, offering investors a chance to jump in the market at discounted prices.
Analysts are also warning of an upcoming pullback in precious metals prices before moving higher. Silver guru David Morgan told Mineweb’s Metals Weekly podcast listeners that he remains long-term bullish on silver with a price forecast of $40 for 2011; however, is exercising caution as he views gold as ready for a correction. “With all of this geopolitical tension it [gold] should be soaring to new highs and it’s not doing so. I’ve seen it time and again that people say gold is the best thing you can buy right now and I see it not reacting as favourably as it should be to what’s going on, on the ground on the political front. When that takes place the smart money usually is backing off the gold trade.”
Another bullish, but cautionary statement comes from CPM Group’s Jeffrey Christian, whose forecast puts silver trading in a range of $20 to $40 an ounce over the next few months, showing he fully understands the volatile nature of this market. CPM Group has advised “clients to not necessarily be buyers a $36,” while at the same time maintaining their long positions, buying “some puts to hedge against prices falling down.” Christian suggests investors looking to add to their silver holdings wait until the price pulls back to the $27 an ounce range, which he expects to happen over the next few months.
Besides the futures or ETFs market, there are still profits to be had in the junior mining sector.
Higher silver prices translate to higher silver miner share prices, notes Northern Securities analyst Michael Zylstra, who also points out that as prices for the metal rise the margins of producing juniors will as well. “A typical silver producer might have total cash costs around $5 to $10/ounce so, with the price of silver at roughly US$34/ounce, margins should be strong.” Exploration and development stage juniors will benefit from rising prices as well since majors will be looking to acquire further resources and increase production rates, making those juniors with promising projects very attractive takeover targets.
A look at the Silver Stock Index on Silver Investing News should give investors insight into how silver juniors are performing in relation to the silver market and against each other.
Thursday, March 17, 2011
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Silver could reach $150, or even $250, per ounce this year.
Why? Because silver prices are currently selling at a more than 50% discount.
The price of silver is much lower than history tells us it should be. To reach normal values, silver prices must more than double, increasing 100%, or more. And that's just based on history.
When you're considering the future of silver prices, you also have to factor in growth. As long as the dollar is down, silver prices will continue to rise. And with Ben Bernanke and the fellas at the Federal Reserve doing their best to crush the dollar, you can bet silver will keep going up this year.
Based on history and the dismal dollar, silver prices could reach $150 per ounce this year.
But nearly half of all silver doesn't get turned into coins, bullion bars or jewelry. Instead, it's used by industry to make everything from mirrors and musical instruments to methanol and medical equipment.
And with industrial demand finally returning after the 2008 crash, silver prices could soar even higher. Silver could be in for the ride of a lifetime, with prices reaching as high as $250 per ounce by the end of the year.
Can you afford not to own silver? We didn't think so.
But how do you choose a silver investment? Silver certificates, or "digital" silver is the smart choice.
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Silver prices could see serious returns this year. Will you be in on the silver prices boom? KMG Gold Recycling