$35+ an ounce! $50+ soon??

You know what, I was just thinking about this thread and that poster's predictions. He was certain it was going to move that much. But you're right, better luck next time.

 

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Its a good lesson as to the value of internet "prophecies". If someone will rationally state why they think certain prices are going up or down I will listen/read. If someone I don't know simply "tells" me what the price of something will do "for sure", then I know how much worth to give that opinion.

Thanks for bringing it up guys. Too many predictions are made on the internet, and too little follow up.

Chris

 

The problem with this is that we won't see a stronger Euro until 2015, at least. This has been the case since Aug 2010, at least. Beyond the margin bumps (which merely drive out speculators), there are fundamental reasons that we won't see sustainable $50 silver anytime soon.

 

I think you all have valid points. Like one of my favorite economists says “If it's raining in Brazil, buy coffee." It makes sense to me that naturally the price of silver will raise as a hedge against inflation. I don't think silver has been as vigorously marketed as gold has. Regular consumers will be able to get their hands on physical silver and big time investors on ETF's. It was GOLD GOLD GOLD the last couple years, and now I can feel the silver buzz going around. I see it on Yahoo Answers, Estate Auctions, and forums like this. Once it starts, it can spread like wild fire. JMHO.

 

Stronger relative to what?

 

Doesn't matter right, only the absolute number. Right?

 

I've been told by some that the price of silver is regulated by the government. Which explains why its not vigorously priced at a normal ratio to gold. Anybody have any clue if there's any truth to this?

 

Man the Euro is going to crash completely. The Chinese will continue to devalue and manipulate their currency, while catering to Greece and other Countrys in trouble. When they go, they will go. The Euro = longterm trouble. Germany has a strong monetary system, and they are already posturing for the Yuan to take over as the world currency by 2020.

 

Germany has very little to gain from China becoming dominant since their main export partners are France and USA. And Chinese are starting to compete in lot of sectors that German companies are strong in.

 

I'm not so sure about this. The dollar index could go to 150 but if all other currencies in the world are being debased it still might not buy as much gold as it does today. The Japanase, the British, the Swiss, the Chinese, they've all done their own versions of QE this year. I guess it depends what you are referring to as the absolute number.

The price of silver is set on the COMEX paper market, so as far as I can tell it is regulated by the CME Group which solely has the power to raise or lower margin requirements which have impacted the price of silver more than anything else this year. The only evidence I have seen that the CFTC (government) is doing anything to regulate the CME Group (or at least the markets that they self regulate), aside from the ongoing investigation into silver manipulation which is still languishing along after years now, is that they are finally ready to implement position limits (maximum bets on paper contracts). However, there will be exceptions to this, and the position limits that will go into effect 60 days after the word 'swap' is defined as per the recent CFTC vote will only be effective for the current month (called a 'spot month'), meaning that position limits will not be in effect on futures contracts for future months which impact the current price just as much as the current month, at least not until they have roughly a year to analyze the impact of position limits on the 'spot month'.

As for why silver is not priced at its historic ratios, well, I think we can erase physical supply and demand from the picture. Eric Sprott has stated that 50 to 70 ounces of physical silver is being sold for every 1 ounce of gold. This means that as much if not more money is buying up silver as compared to gold since the G/S ratio is roughly 50 to 1. If physical supply and demand were the only factor, then silver should be priced much higher since it is not only commanding more buying than gold, but it is also much more rare above ground (7 billion oz gold available vs. less than 600 million oz silver available). In spite of the fact that more silver is mined per year than gold, the supply/demand dynamics for silver are at a lower ratio since silver is used up and unrecoverable in many applications (notably nano-silver), where as once gold is mined it is merely moved around but never actually goes away.

So then the only logical reason for today's pricing is due to the paper markets, which trade 1 billion oz of paper silver contracts every single day, more than a year's worth of mine production which was 735 million oz last year. This means that the supply/demand dynamics in the silver market are weighted (365 [days] * 1 billion) to (1 [year] * 735 million) for paper vs. physical. To do the math to find out how much of the physical market accounts for the actual price I would take 735 million [physical] / (365 billion + 735 million) [total] = 735,000,000 / 365,735,000,000 = 0.002 which is only 2/10ths of one percent of the total market volume.

I suppose one could argue that mine production is not the same as the physical market volume, but the above ground available supply is less than a year's worth of mining anyway. So in that case the percentage would be even smaller. Sure you could throw investment silver into that and probably bump it up, but even then it would still be maybe 2% at best which is staggering in and of itself. Even if it was 50%, that's not a real market.

 

For starters, the trend of nano-silver is unlikely to support any sort of demand matrix, since the FDA continues to state that there are no marked benefits to colloidal silver. By extension, that would imply that uses as an anti-bacterial agent may be found to be overstated when all is said and done. Even so, given the design of nano-silver, the vast majority of silver used in nano-design is oxidized... so they're using "toning" rather than the silver itself.

Yes, silver demand will probably increase with the growing middle class in China, VietNam and other developing nations, but this won't be nearly enough to off-set the demand implied by investment in silver.

Silver price support from 2006-today has come largely from producer de-hedging and investors. For example, nearly 2/3 of silver demand in 2010 was derived from these two sources. Compare this to 2001, when these two sources accounted for less than 40% of silver demand.

The current demand for silver is very much "speculation" (which is exemplified by the collapse seen any time margin requirements are increased), and without much fundamental basis. Parabolic trend normalization shows silver around $29-$32/Toz for Dec 2012, and $40 for Dec 2014. This would be reasonable for actual demand outside of a speculative environment, which is one reason why there are such violent collapses in the price of the metal whenever margin requirements are bumped.

Source: http://www.silverinstitute.org/supply_demand.php

Like most of the members on this board, I'm long silver. Unlike many, I'm a seller of gold into strength and a buyer of rhodium. I'm still net long on platinum, but given the downtrend, I'm limiting my purchasing to technical reversals. This is probably costing me about $25 per ounce on the upside, but has saved me around $170 per ounce on the downside, so far.

Anyway, my point is that I'm long silver, not because of the demand generated from SLV and the futures market, but rather because I believe gold is over-priced currently (and for the foreseeable future). I'm not actively acquiring physical or paper silver at this point, and I kind of hope silver reaches $40+ again, since that makes transitioning from physical bullion to coinage cheaper. Of course, the opposite price trend (silver below $20) would create the same scenario, but I mainly collect Morgans, Liberty nickels and Seated half-dimes/dimes/quarters/halves, when it comes to US coinage. I don't collect seated dollars, as they're generally out of my price point.

Anyway, I'm long silver, but don't expect demand to increase until spring 2012, at the earliest. If prices trend back below $30 by year-end, I'll buy into weakness after the new year. Until then, I'm trying my darnedest to be short-Euro, net-long Asia (ex-Japan).

 

^
As for your argument of Silver prices going up here are some counter arguments:

If there is global economic slowdown all those metals that are consumed for industrial use Platinum, Silver and Rhodium will get hit hard. More than Half of Silver consumption is for industrial purpose.

Also keep in mind cost to mine Silver is only around $ 7/oz vs $700/oz for gold, the minute Silver even reaches $50/oz every gold miner will start switching to Silver since profit margin will be much higher increasing output drastically.

Amount of fake Silver items will also greatly increase if Silver prices go up making it unlikely that it will be used for any monetization why? unlike gold which is dense metal (Platinum, Rhodium) are metals with densities close to it they are as expensive as gold and Tungsten which is brittle is hard to work with you can may be use it for fake gold bars. But SIlver in other hand has density of around 10.5 a cheap copper/lead alloy with silver plating will fool most weight/measurements tests and even acid tests (unless you chip away the plating).

 

The one thing that has always puzzled me with posts about the evil CME is why does no one ever report when leverage ratios get raised back up. So many people jump on them as "manipulating the market" when they increase margin requirements, yet not one peep when they loosen them. The thing about these margin requirements is that the buyers are also manipulating the market, controlling many more ounces of silver than they have money for. How is this any different "manipulation" than what everyone accuses the shorts of doing?

Discussions on this board seem so extremely lopsided discussing how "unfair" the CME is and against buyers, while conveniently forgetting these important facts. If the CME was so dysfunctional why does the industry, who you would believe would benefit by higher prices, still sell there?

Just my opinion.

Chris

 

Tell me more about these mines that have a big "Silver/Gold" switch stationed by the entrance.

 

It will be how many companies that will pursue or continue their mining operations depending on how which metal yields a higher profit margin. Which in turn will affect the futures market.

 

Now that makes a lot of sense, I had to reread a couple times to get the gist. Now here's another question to follow-up on the physical vs. paper topic. Now I'm probably a lot like others who like the tangible feeling of owning physical silver/gold. Now it would make less sense to invest 5000 ounces in the physical stuff because of the bulk and weight of it all. If I were to invest into the Comex paper shares of silver, is there any potential downside as opposed to handling physical bars? Probably why I'm not an armchair investor, I just don't see the value in owning anything less than the real deal. Call me crazy I guess...

 

Did I make any arguments for the price of silver to go up? I'm fairly certain that my entire post was about how I expect silver prices to NOT go up anytime soon. In fact, I stated that I'm expecting them to go down in the short run, at which time, I'd make acquisition purchases.

I clearly stated that I expect the price of silver to be in the $29-$32 range in Dec 2012... that's 13 months from now. That means I'm calling for a drop in silver (though generally flat overall) over the next 13 months.

The argument against monetizing silver is a bit faulty. Counterfeiting of coins, regardless of the base metal, has harsh penalties. If you're going to counterfeit, it's still cheaper to counterfeit paper money, since the counterfeiter could care less about failure to last in circulation. Therefore, the argument isn't really one against monetizing silver, but against the metal, in general.

As for mining... as I've stated elsewhere, silver is often mined as a bi-product metal. It's highly unlikely for a gold miner to convert to silver mining... they would merely filter through the waste material a bit better.

The reason the costs associated with silver mining are low is because of it's "biproduction" aspects. Either the alternate metals extracted with the silver are priced into the costing or the miners simply cost out the "mining" cost as the sorting cost.

Silver would need to see a ratio closer to 10:1 before it would make sense for gold miners to abandon projects in favor of silver. Let's use your math:

$700/oz gold = $1000 (rounded) profit
$7/oz silver = $27 (rounded) profit

Now, let's look at a scenario of $50 silver.

$700/oz gold = $1300 (rounded) profit
$11/oz silver = $39 (rounded) profit

Now, these assumes your $7 number is correct. I don't think it is. As I've stated before, the costs of mining an ounce of silver (without deducting production off-sets of zinc/copper/gold/etc) worked out to $17 per ounce last year. I'm not sure that number still holds, but that's where it was at.

This would indicate that the following scenario at $100/ounce silver:

$700/ounce to mine gold = $2300 profit
$20/ounce to mine silver = $80 profit

That's at a 30:1 ratio.

Now, if we assume silver reaches $300/ounce without gold breaching $3000/ounce:

$700/ounce to mine gold = $2300 profit
$65/ounce to mine silver = $235 profit

So, basically, the only time it makes sense for gold miners to completely switch operations to silver mining is at $300/ounce silver. That's not going to happen.

Now, if silver sustains $45/ounce, that will make it profitable for NEW miners to get into silver mining, as they would expect production costs (due to the higher costs associated with start-up and geology) closer to $27/ounce, yielding a 67% profit margin, versus the 80% or so risk premium associated with mining. So, the new miners wouldn't be profitable at $45/ounce, but they would argue the point (to their shareholders and the market, at least) that silver will expand with inflation, and "triple-digit silver" is the next step.

Effectively, current silver producers need $24-$27/ounce silver to maintain profitability (due to risk premium deductions). New miners who enter the market now would need $75/ounce silver as a long-term target to be profitable. They would need $45/ounce silver to show profitability, assuming they have great geologists, which would lower the risk premium associated with exploration.

The other problem with PMs (and other geological materials) is the lack of geology students in college for the last 20 years. There will be a shortage of geologists (not just great ones, but even mediocre ones) starting around 2017 (maybe as early as 2015, since many work for large petroleum companies) and ending around 2030/2035. Now, there are geology graduates, but they don't have experience, and the individuals with experience are old in their careers.

The biggest problem with the metals industry lies with WHO owns the resources. As I stated in my post defending the dollar elsewhere on this board, the US gov't owns a lot of the resource lands where copper/silver/gold/uranium/rare earth/platinum group metals are located.

On 26 Oct, the House agreed to allow Rio Tinto (and BHP Billiton) to engage in a land swap with the US gov't, granting the project mining rights to 2400 acres of the Tonto Forest -- the largest North American copper deposit. I don't know if the Senate has voted on this yet, but Obama's administration has already said they are against it for environmental and native American rights issues. I care about the environment, and I can understand burial rights, however, that's not why I'm against this swap. We're giving up the rights to the largest copper deposit in North America for 5300 random acres in Arizona. For all we know, the 5300 could be old mines / exhausted deposits owned by Rio Tinto.

Given how much backlash China received for trying to purchase companies/land on US soil, I think the idea of giving away land that we KNOW has value to the UK and Australia is simply ridiculous.

 

Will the 5% decrease in exportation from China affect the short term trends for silver? The percentage seems so deceptive, but since this is China we're talking about, 5% is probably a substantial amount.

 

Upside: Higher liquidity. Physical silver is highly illiquid. That's why it has such high price volatility.

Downside: Transaction risk. Because the holdings aren't actually held (they're mostly futures and obligations), there are requirements that the ETFs must adhere to with respect to holdings reflecting shares. This causes rolling of contracts to reflect the actual shares outstanding when there are too many ounces and buying when there are too few.

Basically, EVERYONE knows when the transactions occur (it's in the prospectus), as such, the day that the ETF has to purchase, prices go up (since the sellers know legally that the purchase must be made), and on the day that the ETF must sell, prices go down (since the buyers know legally that the sale must be made). It ends up resulting in a loss of around 1.8-2.7% per anum. In highly volatile markets (such as the swings seen in 2009-2011), that number gets as high as 4%.

 

Based upon 2010 Silver Institute numbers, a 5% decrease in exports from China would be ~4.9mm ounces. The total production in 2010 globally was 735.9mm. That means China's 5% decrease in exports is ~66.5 basis points (2/3 of a per cent) of global production numbers.