Silver shortage?

[Cointreau]

http://www.arabianmoney.net/gold-silver/2014/08/11/shanghai-surprise-for-silver-supply-should-boost-prices-higher/

No yawns please!

[Luker]

Top 7 Reasons I’m Buying Silver Now

Jeff Clark

|

August 11, 2014 - 2:00pm

 

I remember my first drug high.

No, it wasn’t from a shady deal made with a seedy character in a bad part of town. I was in the hospital, recovering from surgery, and while I wasn’t in a lot of pain, the nurse suggested something to help me sleep better. I didn’t really think I needed it—but within seconds of that needle puncturing my skin, I WAS IN HEAVEN.

The euphoria that struck my brain was indescribable. The fluid coursing through my veins was so powerful I’ve never forgotten it. I can easily see why people get hooked on drugs.

And that’s why I think silver, purchased at current prices, could be a life-changing investment.

The connection? Well, it’s not the metal’s ever-increasing number of industrial uses… or exploding photovoltaic (solar) demand… nor even that the 2014 supply is projected to be stagnant and only reach 2010’s level. No, the connection is…

Financial Heroin

The drugs of choice for governments—money printing, deficit spending, and nonstop debt increases—have proved too addictive for world leaders to break their habits. At this point, the US and other governments around the world have toked, snorted, and mainlined their way into an addictive corner; they are completely hooked. The Fed and their international central-bank peers are the drug pushers, providing the easy money to keep the high going. And despite the Fed’s latest taper of bond purchases, past actions will not be consequence-free.

At first, drug-induced highs feel euphoric, but eventually the body breaks down from the abuse. Similarly, artificial stimuli and sub-rosa manipulations by central banks have delivered their special effects—but addiction always leads to a systemic breakdown.

When government financial heroin addicts are finally forced into cold-turkey withdrawal, the ensuing crisis will spark a rush into precious metals. The situation will be exacerbated when assets perceived as “safe” today—like bonds and the almighty greenback—enter bear markets or crash entirely.

As a result, the rise in silver prices from current levels won’t be 10% or 20%—but a double, triple, or more.

If inflation picks up steam, $100 silver is not a fantasy but a distinct possibility. Gold will benefit, too, of course, but due to silver’s higher volatility, we expect it will hand us a higher percentage return, just as it has many times in the past.

Eventually, all markets correct excesses. The global economy is near a tipping point, and we must prepare our portfolios now, ahead of that chaos, which includes owning a meaningful amount of physical silver along with our gold.

It’s time to build for a big payday.

Why I’m Excited About Silver

When considering the catalysts for silver, let’s first ignore short-term factors such as net short/long positions, fluctuations in weekly ETF holdings, or the latest open interest. Data like these fluctuate regularly and rarely have long-term bearing on the price of silver.

I’m more interested in the big-picture forces that could impact silver over the next several years. The most significant force, of course, is what I stated above: governments’ abuse of “financial heroin” that will inevitably lead to a currency crisis in many countries around the world, pushing silver and gold to record levels.

At no time in history have governments printed this much money.

And not one currency in the world is anchored to gold or any other tangible standard. This unprecedented setup means that whatever fallout results, it will be of historic proportions and affect each of us personally.

Specific to silver itself, here are the data that tell me “something big this way comes”…

1. Inflation-Adjusted Price Has a Long Way to Go

One hint of silver’s potential is its inflation-adjusted price. I asked John Williams of Shadow Stats to calculate the silver price in June 2014 dollars (July data is not yet available).

Shown below is the silver price adjusted for both the CPI-U, as calculated by the Bureau of Labor Statistics, and the price adjusted using ShadowStats data based on the CPI-U formula from 1980 (the formula has since been adjusted multiple times to keep the inflation number as low as possible).

The $48 peak in April 2011 was less than half the inflation-adjusted price of January 1980, based on the current CPI-U calculation. If we use the 1980 formula to measure inflation, silver would need to top $470 to beat that peak.

I’m not counting on silver going that high (at least I hope not, because I think there will be literal blood in the streets if it does), but clearly, the odds are skewed to the upside—and there’s a lot of room to run.

2. Silver Price vs. Production Costs

Producers have been forced to reduce costs in light of last year’s crash in the silver price. Some have done a better job at this than others, but check out how margins have narrowed.

Relative to the cost of production, the silver price is at its lowest level since 2005. Keep in mind that cash costs are only a portion of all-in expenses, and the silver price has historically traded well above this figure (all-in costs are just now being widely reported). That margins have tightened so dramatically is not sustainable on a long-term basis without affecting the industry. It also makes it likely that prices have bottomed, since producers can only cut expenses so much.

Although roughly 75% of silver is produced as a by-product, prices are determined at the margin; if a mine can’t operate profitably or a new project won’t earn a profit at low prices, the resulting drop in output would serve as a catalyst for higher prices. Further, much of the current cost-cutting has come from reduced exploration budgets, which will curtail future supply.

3. Low Inventories

Various entities hold inventories of silver bullion, and these levels were high when US coinage contained silver. As all US coins intended for circulation have been minted from base metals for decades, the need for high inventories is thus lower today. But this chart shows how little is available.

You can see how low current inventories are on a historical basis, most of which are held in exchange-traded products. This is important because these investors have been net buyers since 2005 and thus have kept that metal off the market. The remaining amount of inventory is 241 million ounces, only 25% of one year’s supply—whereas in 1990 it represented roughly eight times supply. If demand were to suddenly surge, those needs could not be met by existing inventories. In fact, ETP investors would likely take more metal off the market. (The “implied unreported stocks” refers to private and other unreported depositories around the world, another strikingly smaller number.)

If investment demand were to repeat the surge it saw from 2005 to 2009, this would leave little room for error on the supply side.

4. Conclusion of the Bear Market

This updated snapshot of six decades of bear markets signals that ours is near exhaustion. The black line represents silver’s decline from April 2011 through August 8, 2014.

The historical record suggests that buying silver now is a low-risk investment.

5. Cheap Compared to Other Commodities

Here’s how the silver price compares to other precious metals, along with the most common base metals.

Percent Change From…   1 Year Ago 5 Years Ago 10 Years
Ago All-Time
High Gold -2% 38% 234% -31% Silver -6% 35% 239% -60% Platinum 3% 20% 83% -35% Palladium 14% 252% 238% -21% Copper -4% 37% 146% -32% Nickel 32% 26% 17% -64% Zinc 26% 49% 128% -47%

 

Only nickel is further away from its all-time high than silver.

 

6. Low Mainstream Participation

Another indicator of silver’s potential is how much it represents of global financial wealth, compared to its percentage when silver hit $50 in 1980.

In spite of ongoing strong demand for physical metal, silver currently represents only 0.01% of the world’s financial wealth. This is one-twenty-fifth its 1980 level. Even that big price spike we saw in 2011 pales in comparison.

There’s an enormous amount of room for silver to become a greater part of mainstream investment portfolios.

7. Watch Out for China!

It’s not just gold that is moving from West to East…

Don’t look now, but the SHFE has overtaken the Comex and become the world’s largest futures silver exchange. In fact, the SHFE accounted for 48.6% of all volume last year. The Comex, meanwhile, is in sharp decline, falling from 93.4% market share as recently as 2001 to less than half that amount today.

And all that trading has led to a sharp decrease in silver inventories at the exchange. While most silver (and gold) contracts are settled in cash at the COMEX, the majority of contracts on the Shanghai exchanges are settled in physical metal. Which has led to a huge drain of silver stocks…

Since January 2013, silver inventories at the Shanghai Futures Exchange have fallen a remarkable 84% to a record low 148 tonnes. If this trend continues, the Chinese exchanges will experience a serious supply crunch in the not-too-distant future.

There’s more…

• Domestic silver supply in China is expected to hit an all-time high and exceed 250 million ounces this year (between mine production, imports, and scrap). By comparison, it was less than 70 million ounces in 2000. However, virtually none of this is exported and is thus unavailable to the world market.

• Chinese investors are estimated to have purchased 22 million ounces of silver in 2013, the second-largest amount behind India. It was zero in 1999.

• The biggest percentage growth in silver applications comes from China. Photography, jewelry, silverware, electronics, batteries, solar panels, brazing alloys, and biocides uses are all growing at a faster clip in China than any other country in the world.

These are my top reasons for buying silver now.

Based on this review of big-picture data, what conclusion would you draw? If you’re like me, you’re forced to acknowledge that the next few years could be a very exciting time for silver investors.

Just like gold, our stash of silver will help us maintain our standard of living—but may be even more practical to use for small purchases. And in a high-inflation/decaying-dollar scenario, the silver price is likely to exceed consumer price inflation, giving us further purchasing power protection.

The bottom line is that the current silver price should be seen as a long-term buying opportunity. This may or may not be our last chance to buy at these levels for this cycle, but if you like bargains, silver’s neon “Sale!” sign is flashing like a disco ball.

What am I buying? The silver bullion that’s offered at a discount in the current issue of BIG GOLD. You can even earn a free ounce of silver at another recommended dealer by signing up for their auto accumulation program, an easy way to build your portfolio while prices are low. Check out the low-cost, no-risk BIG GOLD to capitalize on this opportune time in silver.

The article Top 7 Reasons I’m Buying Silver Now was originally published at caseyresearch.com.

Select ratingCancel ratingPoorOkayGoodGreatAwesome

Cancel rating

Poor

Okay

Good

Great

Awesome

Your rating: None Average: 4.5 (4 votes)

 

About Jeff Clark / Commentary Author

For over a quarter-century Casey Research has been helping self-directed investors earn superior returns through innovative investment research.

http://www.silverseek.com/commentary/top-7-reasons-i%E2%80%99m-buying-silver-now-13465

[silversword]

[Pipers]

bit rude that Silversword,

 

Though it did make me laugh

 

Sorry Luker

 

but I think that after World war 2 Britain was in more debt, than it is in now adjusting for cost of living etc.  Even after all that money we have printed and the banks have made out of thin air. The cost to the UK of selling all that Gold and Silver to the USA for weapons and food before the US joined the war, then the rest on credit which bankrupted the UK and the rebuilding costs, was a far heavier burden for the British than the neo-liberal experiment of the last 35 years.

 

I do agree we are in a mess, the problem is the strong hands are mostly in the east.  investing in Precious metals is one way to protect your self, because the money has gone in but the price rises haven't hit home yet. 

[LongJohnSilver]

bit rude that Silversword,

Though it did make me laugh

Sorry Luker

but I think that after World war 2 Britain was in more debt, than it is in now adjusting for cost of living etc. Even after all that money we have printed and the banks have made out of thin air. The cost to the UK of selling all that Gold and Silver to the USA for weapons and food before the US joined the war, then the rest on credit which bankrupted the UK and the rebuilding costs, was a far heavier burden for the British than the neo-liberal experiment of the last 35 years.

I do agree we are in a mess, the problem is the strong hands are mostly in the east. investing in Precious metals is one way to protect your self, because the money has gone in but the price rises haven't hit home yet.

The major differences between now and then were that we had a population conditioned to austerity and rationing, huge amounts of rebuilding to do which could ensure sufficient capacity to withstand a monetary loosening, labour shortages, and a population expected to live on average until they finished work and not much longer.

[SilverPirate]

I think it is all much simpler than this,

World resection over.

World industrial production back to full capacity.

Stock piles low.

Demand for metal.

Price rise.

[StackemHigh]

My view is that there will be a point where market forces will slowly overcome the price manipulators and the long slow rise of the silver spot price to where it should be.

 

"Da Moon" i don't think so but enough to make silver a wise investment.

 

Just my view and i'm sticking to it.

 

I'm buyin in now because when the price shifts a point the big boys will move in and create a silver shortage.

[Luker2]

The world’s worst ‘open secret’

Bill Rice, Jr.

|

Monday, August 11th

 

In my view, the manipulation (more accurately, “suppression”) of precious metal prices is the most recognized “open secret” in markets today.

 

That is, virtually everyone who participates in the markets that set PM prices understands - takes for granted - that prices are capped and will not be allowed to rise above a certain price point.

 

A recent commentary by Art Cashin pretty much makes this point.

 

Cashin points out that gold prices are in “backwardization,” which means today’s spot price is higher than the price one would have to pay for a near-term future contract.

 

Given this, why wouldn’t every trader sell bullion at today’s higher spot price and then take the proceeds to buy a contract at next month’s (lower) future price?

 

Such “arbitrage” tactics almost guarantee a profit. So why doesn’t everybody do just this?

 

The answer, speculates Cashin, is that “everybody” knows just because they bought “gold” or “silver” at a lower price doesn’t mean they will actually be able to take possession of the metals.

 

The “open secret” then is that everybody knows the metal is not there. They know that they are just trading “paper” not the real stuff. Whether they publicly admit it or not, they know the game is rigged - that the prices of real gold and silver are nothing close to the prices that are quoted in future contracts.

 

Stand and deliver

 

I’m one of many pundits who subscribes to the theory that price manipulation/suppression will end when it simply can’t continue.

 

Which means (in my understanding anyway) that it will end when someone (or many someones) purchase a significant amount of ounces, demands delivery, and then finds out that the seller cannot provide the product.

 

It seems to me that such a scenario could easily happen any day.

 

That this does not happen might be the best evidence of all that all the major possible buyers in the market are “in on the game.” They:

 

1) Know that large amounts of gold and/or silver do not exist to fill a sizeable order. Or:

 

2) They know that the act of simply asking for delivery would likely cause all hell to break loose in the markets.

 

They know that such a delivery request would, in fact, jeopardize the “status quo” economic and monetary system that depends on the dollar being considered a safe “safe haven” asset.

 

That is, China (or Warren Buffet or your state’s Retirement System) could make a silver order today that would end the Status Quo as we know it.

 

I follow silver more closely than gold. If, say, the nation of China invested a measly $1 billion to take possession of physical silver, they could acquire approximately 50 million ounces of physical silver ounces at today’s prices.

 

Theoretically, this nation could do this right now. Realistically, they couldn’t do this as who has even 50 million ounces of physical silver laying around in a vault to be picked up by a Brinks truck? And for China (or even Warren Buffet or Bill Gates) $1 billion represents spare change that can be found in between the sofa cushions.

 

A purchase of this size would almost certainly pay a handsome profit as a “buy order” of this scale would no doubt cause the price to explode upwards.

 

There’s a good chance such a purchase would create copy-cat orders or even “panic buying.” It’s not implausible that one giant order could lead to many more orders which collectively could lead to a major price spike.

 

In a few months, silver might be selling for $30 or $40, not $20. China’s (or Buffet’s) investment could double in value in a surprisingly short period of time.

 

But this does not happen. The reason it doesn’t happen is that China (or Buffett or JP Morgan) do not want it to happen.

 

Yes, they could double their “money” in terms of the dollar value of their silver portfolio, but they know that if gold or silver were to surge in price, the valuation of their dollar-denominated assets would plummet by probably an even greater percentage.

 

In other words, their mega silver purchase would likely harpoon their portfolios of stocks, bonds and treasuries. Indeed such a conspicuous foray into precious metals might change the “rules of the game,” a game in which they are faring quite well thank you.

 

“Why would we want to do this?” they have no doubt asked themselves.

 

Plus, in the case of China at least, this nation’s braintrust is quite content to accumulate precious metals gradually and at the lowest possible price. For all we know, the status-quo price suppression system might have been designed specifically for this purpose.

 

‘We’d like to make an order please’

 

So “price suppression” could end any day, today included. All it would take is one deep-pocketed player to effectively say, “okay, let’s shake things up and see what happens ...”

 

“We’d like 50 million ounces of silver, please ... and while you are at it, could you throw in 2 million ounces of gold?”

 

If this nation or customer didn’t get their ounces and then called a press conference and told the world that their order was not being filled this would end “price manipulation” over night.

 

After all, the world is supposed to be over-run with gold and silver, right? There’s obviously a glut of the stuff as the price of silver has fallen from $50 to $20 in a little over three years.

 

If nobody wants this “barbarous relic” and demand is so low (which we are repeatedly told it is), why can’t the “market” provide a measly $1 billion worth of physical silver?

 

In one day, eyes would be opened, dots would be connected, “conspiracy theories” confirmed.

 

“So the silver market WAS rigged by the buying and selling of paper futures contracts” would be the only conclusion even The New York Times and Bloomberg’s could make.

 

After this tectonic paradigm shift, probably every investment fund with any dollar assets would scramble to sell their fiat and get as many ounces of “real money” as they still could.

 

So this is why precious metals were manipulated, people would suddenly understand. To prevent just this from happening.

 

Of course China and Warren Buffet and all the people who do or could participate in the precious metals markets know that there’s not nearly enough physical metal to satisfy any real order of any size.

 

It’s the proverbial giant Elephant in the Investing Room. Everyone knows it, but no one talks about it or acknowledges the obvious.

 

Rule 1: You don’t take possession of precious metals (at least orders of any size). Nor do you ever expect to take possession of precious metals. One simply knows the stuff isn’t there. This is something that is taken for granted; that is understood - the unspoken “secret” that’s really not a secret.

 

True, nothing is stopping anyone from asking for or demanding to take possession of a big order at any time of their choosing.

 

Nothing is also stopping any one of us from committing suicide today. But most of us don’t. The same logic is probably at work with those entities which take a pass on demanding possession of precious metals. Day after day, they choose to live another day.

 

Kick the can down the road. Preserve the Status Quo. Keep playing the game that’s made them wealthy and powerful.

 

Playing this game requires one to laugh at the notion that precious metal markets are in any way rigged or manipulated. Such conspiracy theories should be dismissed out of hand. Rigged markets? No way (Wink. Wink.)

 

Mavericks asking for possession ...

The person, company or nation that finally decides to break the unspoken “rules” will make a big order and then expect to have that order filled.

 

I don’t know about you, but I don’t see any suicidal “maverick” types out there. No “big players” with the power or courage to move markets up, up and away.

 

The Status Quo requires markets staying in a trading range that’s about where it bounces around today (roughly $18.60 to $21.75 silver).

 

If a default is to occur, that leaves us grassroots peons, buying in massive quantities we’ve never purchased before.

 

Or a series of “Black Swan Events” that will make just one Deep Pockets Player abandon “the game” (probably in an effort to look out for No. 1.)

 

As far as I can tell, it would take just one order by one nation, one bank, one fund or even one individual to bring about the “default” many pundits have long predicted - one investor, trader or nation that concludes they’d like to get as much silver or gold as they can while they still can.

 

Or maybe one nation (Russia comes immediately to mind) that decides to play real “hard ball” with the American Departments of State and Treasury.

 

Most big-time “players” in this market have every incentive NOT to force or risk a delivery default in the PM markets.

 

But it will take just one BSD to quit playing by the rules; to “call the bluff” so to speak, and say “show me your cards ... And, by the way, I want to be paid in physical.”

 

Just because someone has never taken an action before doesn't mean that circumstances can't suddenly change, and someone decides it's now in his best interest to change behaviors because of this.

 

"Yes, we've never demanded possession in the past, but we are now."

 

This too could happen today or tomorrow.

 

Which explains why many of us are still stacking today.

 

***

 

Bill Rice, Jr. is managing editor of The Montgomery (AL) Independent. He can be reached by email at bill@montgomeryindependent.com

 

http://www.silverseek.com/article/world%E2%80%99s-worst-%E2%80%98open-secret%E2%80%99-13466