Will silver ever be cheap again?

Why is this untrue statement so widely repeated? It is easy to check. http://us.ishares.com/content/strea.../slv_vic_11_2011.pdf&mimeType=application/pdf

A little multiplication will prove that SLV is fully backed by physical silver. And since every bar has a verified serial number, there is no double counting or duplicate ownership.

 

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Exactly, and this point was proven in 1979 when the Hunt Bros tried to corner the Silver market in 1979 and was the reason they failed. When they ran the price up to $50.00 which is $148.00 in 2012 dollars, people were melting anything and everything they could get their hands on by the truck loads. The Hunt Bros. were not counting on this massive influx of above ground silver and it simply overwhelmed them. After the crash, this glut of silver remained and stagnated the prices for years to come

 

The Hunt's failed because the exchange changed the rules, not because grandma decided to melt her silver tea set.

 

Yes, my bad on that. I was incorrect. I had heard my story over the years and took it as fact, which it is not.

Mike

 

It was putting pressure on the price, though, but I agree the major cause was margin change.

Btw, I will reiterate, the CME does not really care where the price goes in my view. They make money on trades, and only wish to facilitate trades. The margin requirements are not changed in a back room full of nefarious plots, I was told the volatility calculation is publicly published. Anyone wishing to keep track of the volatility of a market can do so, and plug it into the model the CME uses and SEE when the exchange is going to lower or hike margin requirements.

The CME makes money on the float of the money changing hands on the trades. However, they MUST ensure all of the money is there every day for the trades, hence they raise margins when volatility measures increase.

WAY too many people will tell know the exchange "bankrupted" the Hunts by raising margin rates. To me, it was simply the Hunt's not paying attention to volatility measures they should have known would have led to margin increases.

 

It is an absolute fact that mining supply does not meet demand. To say that I am flailing while you dispute factual information, well, we have a word for that here, kettle. You are patently incorrect about that. Try looking them up instead of assuming they are a certain way because of price action in manipulated markets.

If silver were still as abundant in the ground as it used to be then it would still come out of the ground 17 times more abundant than gold. It doesn't matter whether this includes primary silver mines are not. The fact is, we would be seeing 17 times as much silver than gold if 17 times as much existed in the ground. This is undisputable.

As for your numbers on the total cost of mining, I will defer on that one since I don't have those handy. However, this does not change the fact that if all the primary silver mines were opened up that the production cost of silver would rise. You are deflecting from the point here.

For the SLV, it is logically sound to conclude that any money invested in paper silver keeps the price lower than if it were invested in real metal, since the paper doesn't have the metal to back it up, and thus buying SLV does not impact the physical market to the same degree. This is irrelevant to going long or short, or who is making what money. The point is that it diverts real demand.

To answer your honest question, yes, I do believe it is based on facts. I could ask you the same.

 

Epithermal deposition is scientific fact, and as such it is also a fact that the majority of silver on the planet was deposited near the surface of the Earth's crust. The only thing that I have personalized about that is that most of the silver near the surface of the Earth's crust has already been mined. We can conclude with certainty that going forward it will continue to be more costly and more difficult to maintain existing levels of mining production.

I have never disputed that the silver "used up" every year may not become available again. That is irrelevant to the fact that some of that silver MUST become available in order to avoid a shortage each year. To say that silver used in coins and jewelry does not constitute demand is unsupportable.

 

Just because every bar has a unique serial number does not mean that every paper contract has its own uniquely serialed bar. You have pointed to a link, but you have not quoted anything in it to prove me wrong or you right, nor does any such information exist in it. This link proves they have as much silver as they say they do, but that doesn't mean that they have enough silver to back up their paper contracts which are conveniently left out of the scope of the inspection. Your link does not cover the context of what I am talking about.

Here are some links on the topic from my perspective:
http://seekingalpha.com/article/153279-silver-etfs-inaccurate-inventory-records
http://seekingalpha.com/instablog/1...-to-precious-metal-etf-investors-buyer-beware

and this link even has a section for "Duplicate Serial Numbers & Weights":
http://about.ag/slv/18Jan2012.htm

 

This wouldn't concern me. The analysis found that 0.000242% of the bars have identical brand/serial number/weight identification. I also didn't see any mention of dates, although they might be in there someplace. If this bothers anyone, they shouldn't buy SLV, but I don't see a problem here. I would trust the audit more than the rumor.

 

First, "with certainty"? Did the same "certainty" apply to natural gas and oil mining in the US? Because that "certainty" has bankrupted many in the last few years with new technology available. Likely maybe, certainty I believe you are overconfident.

Second, I do not believe reusable silver is unsupportable in demand calculations due to what you are using "demand" calculations for. You are trying to scare everyone in believing we are physically running out of above ground silver. If you wish to do that, then you need to take mine production less uses that are not used up to see how much is really disappearing. To not do so is to intentionally mislead investors on the rarity of above ground silver. This is commonly done on PM blogs who will also happily sell you silver after they have scared you, but simply do not think its needed here.

 

Actually, there is a word I missed that made your statement tecnnically true but totally irrelevant. "It is an absolute fact that "MINING" supply does not meet demand" Well its a good thing there are other sources of silver than just mining, huh?. These are of course are what Chris was talking about, the above ground recycled sources. It really makes little difference on how the demand is met, just wheather it is or isn't. To make a big deal about the "MINING" supply seems to be something the Kool-Aid drinking, tin foil hat crowd would blog about or those who want ot sell you silver at a premium over spot. The simple fact is supply has easily kept up with demand and that is evident in the price of silver falling to more reasonable levels. That is how a market works.

Now for some fact that actually matter. For 2011 the mining output for silver was at an all time high at 740 million oz. That is not really indicitive of a underground shortage of silver. Also if you still have concerns about mining, there are at least a half dozen silver mining projucts in the works that will be at full capacity by 2015 that will be producing an additional 90 million oz of silver. That is a good fact to know if you are long on silver. It also doesn't seem to indicate a shortage either.

Demand for Silver has been rather consistant over the past decade at around 875 million oz. per year. It has trended up slightly but actually dropped a bit in 2011. There were some increases in demand for industrial uses, but silver took a big hit because of lack of demand for film. There was also a slight decline for silver used in jewelry. So it does not appear like increasing demand is anything we can count on to drive silver up.


Now about this 17 to 1 ratio. You just need to get over that and understand how things work. That ratio is totally meaningless. The amount of Silver and Gold mined are separate things, and each is driven by its own demand. It is not like people just walk around and pick up all the gold and silver nuggets they find at random. This really just seems like another thing the tin foil hat crowd is blogging about. Think it through, man.

Now for the biggie. You believe you are a Silver "Investor" and you openly admit you do not know how much it costs to get silver out of the ground? Well, Shame on you. that is one of the most important facts to know. Let me know in a few years how this investing thing is working out for ya.

And finally we get to SLV. I have no idea what you have been reading, but SLV is 100% backed up by Physical Silver Bullion. Don't start talking about contracts and the like, because you clearly do not know what you are talking about. SLV's only holding is Silver Bullion. JP MORGAN is it's custodian and it is stored in their vaults in London. The have no meaningful cash position and they do not lend their silver. The silver is also audited by a major independent auditing firm that is responsible for auditing most of the major PM funds in addition to SLV. When money flows into the fund they buy bullion on the open market, when it flows out of the fund they sell. It is the market at work and reflects true demand. Anybody who wishes to invest in silver needs to look real close at SLV. The spread between buy and sell is small, they store and insure the silver for you. What a deal, and they do this for the small price of just .5%.
If you are looking to maximize returns, it is the way to go.

I just noticed one thing I missed. You have indicated price action has been the result of manipulated markets. I take it from you posts that this market manipulation is keeping silver low. I have found nothing to indiate that in my research. This again, just appears to be be some rubbish you have been reading from the kool-aid drinkers. But just for giggles, Who is manipulating the market and why? Facts only please.

 

If the price falls too far, the mines and smelters will withhold production, Then it will start back up. I am looking at long term trends and know that the run to near $40 has happened a couple times in the past two years, but the bottom hasn't gone to very low dips. In 2010 we were speculating in this forum if Silver would ever reach the $25 level with gold going to $1500. As long as the base seems to be rising, I am in.

Just sayin'

gary

 

Silver is like oil. It rises and falls with supply and demand. However, the long term trend of all PM prices have to be up as long as the the long term trend of energy prices are up.

It takes a lot of energy to run all the heavy deisel equipment involved in the mining industry. Then there is the energy involved in smelting and transportation of the finished product.

Not to mention human labor.

Oh, yeah, silver is going up.

 

^So energy prices are dropping. In fact they are down significantly this year. Thus, if your theory about silver vs energy pricing is correct, then we can expect to see a sharp downturn in silver prices.

 

I think everyone here would agree long term all PM will be up. The question would be is PM going up greater than the general inflation rate? That is the key. If PM is only going to track inflation, then I am sitting on a contra asset costing me money, since I would rather have an asset with a return instead of PM which actually has a negative yearly return since I have to pay to store it.

Always remember in all investments, going up with the rate of inflation is not a "win" but merely keeping even.

Having said that, since PM does tend to hold its value in bad economic times, if it only keeps up with inflation in times other assets ar going down, then that is valuable. As such, I hold PM as a contra asset as a percentage of a portfolio. To me at least, that is the most easily justifiable position for PM purchases. The rest of my PM purchases is for fun, because I like pretty coins.

 

Two factors drive precious metals. Cost of extraction from the ground and demand. Demand may be stimulated further by inflation.

Energy prices go up and down in the short run. Silver prices go up and down in the short run. But the long term trend for both is up.

Add in the factor of limited supply and unlimited future demand. In my view there is no direction but up long term for both energy and PMs.

 

Not unfair sir. I am simply nervous, because of the long lead time to open production, what this new production will do to pricing. Remember all of this PM price action has occurred without miners being able to really react to them, due to governmental red tape in opening mines. What if this new production hits just when the world economy is improving? Will there still be enough demand of investors worried about their currency to soak up this new production? What if prices start steadily falling like they did in the 80's? Will this convince most of these new PM investors to divest of this declining asset, further weakening the price?

Those are my worries about longer term, (5+ years) pricing. Yes, it could go up to $40 and up, but I also believe almost as likely that it could drop slowly down to $15 after these mines open up and the economy improves. As such, to me $28 silver is not screaming "deal" to me, but maybe about in the middle of two price possibilities I am seeing.

Just an opinion of course. No one follow my advice.

 

How reflective, I remember when in 1992 ( or thereabout) I purchased silver at under $4, and for the next 10 years or more I wondered along with the other bullion owners if silver would ever be worth the storage.

The key lately is the USD/Euro ratio. The silver spot follows it close to lockstep. If the Euro drops to parity, silver may be under $12, conversely if it goes back to 1.40+, silver may be above $40. Logic , such as supply demand, manufacturing needs, new technology needs, will not move it accurately. IMO.

Jim

 

Hi Jim,

Of course the strength of the green back plays a part in the price of Silver, but I disagree it is the only factor or even the most important factor. Silver may have been inversely following the strethening dollar lately, but that was not always been the case. From 2008 until 2011 that was not the case at all. Silver was making it's run and the dollar's general trend was getting stronger(with lots of ups and downs).

So how do you know when the current trend of stronger dollar/lower silver stops?
Also if that it what you still believe, would you agree that maybe you should not play silver at all. Just go long or short on the EUR depending on where you think it is going. This would be like cutting out the middleman and all the associated costs. It would be cheaper and much more efficient.

Mike

 

Well, I follow or at the very least agree with your advice
Somewhere in the old posts I am on record of shorting SLV when it was in the 40's. That position is now covered and if silver hits 15 again, I will be a buyer again. As you said, it just is not a screaming deal right now. I don't think the bottom will fall out, but I see it drifting lower and being dead money for years.


It's had its run, it fell, lets move on.

Mike