How Low Will Silver Go?

I thought that had been standard for Dentist in the U.S. for well over a decade.

 

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Peering into my crystal ball I see the bottom at $22

Oh wait, this is a snow globe...

I'll just have to rely on my history books...

History says whenever the stock market goes up for an extended period of time as a result of being artificially propped up, it eventually becomes unsustainable. The more it is propped up, the greater the fall. QE1,2,3 were for the express purpose of artificially propping up the market. You know it and I know it.

I think we're about to see what always happens when the market is propped up artificially for too long. We can't pay off the debt without massive inflation. We can't even SERVICE the debt without massive inflation.

Bargain hunters are buying up silver and gold so fast the physical supply may soon be exhausted. Some dealers are already sold out of everything.

Maybe running out of physical will be the tipping point, I'd look into my crystal ball and tell you exactly when and what will happen, but I can't seem to find it...

 

Because silver is largely an industrial metal, its price is depressed based on deflationary assumptions. If we are to assume there will be a global economic recovery, as anti-silver bugs suggest, then industrial demand, particularly from emerging economies, will pick up eventually. You cannot have it both ways.

 

I'd draw out 80% of my liquid funds to buy at that $21, then immediately call Provident to lock in a sale at their current offer of $23.98 each. Not much risk for a quick 15% return.

 

Right URL, but Total Supply and Total Demand are exactly equal each year because of "Old Silver Scrap". This means that mining supply + existing scrap metal is required to meet demand, with existing scrap meeting the shortfall and thus equalizing the numbers.

Last year it required 250 million oz of scrap metal to meet demand (note that this number is increasing over the years therefore increases in demand are outpacing increases in mining extraction), which was roughly 25% of the overall demand. That means mining supply met about 75% of demand. This shortfall goes on each and every year. It is not a sustainable trend over the longterm unless we see higher prices to bring more metal to market.

 

The economy doesn't matter because silver is still a monetary metal and will follow gold, and even disregarding that strictly looking at supply and demand fundamentals silver is at its lowest inventory levels in centuries. This literally cannot happen without price suppression. Government stockpiles are at zero. Silver eagles alone require more silver than the US can mine in a year.

 

The economy does matter because, although silver tracks the price of gold, gold tracks other commodities. There is a heavy psychological component to the markets, which is one reason why corrections can be so extreme or prolonged. One trigger for the recent commodities sell-off was slower growth from China. Slower growth from China and other Asian countries will have ripple effects through the global economy, which means more stimulus will be (perceived to be) needed. I am bullish on PMs for the long term because I do not see organic growth overtaking central bank-fueled growth.

 

I will meet you halfway. Economy matters a lot for short term price fluctuations, but it doesn't impact the bull market which is entirely based upon real interest rates. Yes the economy indirectly influences rates since a weak economy cannot sustain rising interest rates, but there is a degree of separation there. The economy can do whatever it wants, and if real interest rates are negative we will have inflation on all asset prices over time.

The silver supply/demand fundamentals are even independent of this bull market and won't come into play until there is either a full on shortage or the CME is history.

I also agree that markets are heavily driven by psychology, however I do not agree that this recent takedown had anything to do with psychology or China. If that were true we would not be seeing a disconnect between paper selling and physical buying, rather people would be selling physical, and that isn't happening.

It was a coordinated take down by Merrill Lynch (BoA), JP Morgan, and Goldman Sachs. Moynihan, Dimon, and Blankfein all met with the President Thursday 4/11 after all, and the STOCK Act (Stop Trading on Congression Knowledge) was also repealed the Monday after that (4/15) after being proposed by Congress on Friday 4/12, the day after they had their Thursday powwow, thus making insider trading OK for Congress due to repealing of any disclosure requirements just in time to profit from insider info. Merrill sold 5 million oz of paper gold that Monday morning. Then the HKMEX run by Nathan Rothschild piled on after hours. They aren't even trying to fool people anymore, but not many are paying attention anyway apparently.

After decades of price suppression to damage the public perception of metals and thus stifle competition with centrally controlled debt-based currency it ultimately doesn't matter what organic growth we have or what central banks do going forward. You can only keep a beachball on the bottom of the ocean for so long, maybe a very long time, but eventually nature will win out. The damage has been done. This is just damage control, hence the unjustified volatility. Volatility tells us that markets are conflicted. There is no reason for such confliction with inanimate objects unless there is coercion.

 

I posted a similar comment on a silver dealers comment page and it was met with all types of negative comments. In no way do I mean to bash silver as I am all for the fundamentals and bought at $3/oz, $48/oz and now at 20-22/oz. Reading the last Silver Institute report I interpreted many statements to mean silver is mined as demand fluctuates. If industry needed more, more was mined, when demand dropped, not as much is mined. Other statements lead me to believe this was also the reason for such huge price swings. The most important thing I saw was that supply has been increasing but industrial demand was dropping more and more each year. Sure, investment demand is up but nowhere near as much as industrial demand has fallen. I also recall a few foreign mines stating last summer they would be profitable if silver was $10/oz. I think price will continue to drop for some time until something requires mining to ramp up significantly.

 

I've heard industrial demand was increasing, but it seems that was just more lies from the silver peddlers. Ugh.

 

I wonder if any PM investors have ever thought, what if silver declines to $12 say, & then stays there for 10-20 years? Like the LLLoooong bear mkt. in PM from 1980 to roughly 2000. I'd bet most would say that's impossible, & I may hear that here. And there is a phenomena where......if a given asset class is stagnant for many years, a lot of people lose interest. Say your neighbors are doing way better in the stock mkt. Real Estate is going up. While PM stagnate.

And waiting for Hyperinflation--or some other catastrophe--that doesn't happen--where you're the only one on your block with 90% silver coins to buy gas or canned goods--can get.....boring. I also think there are a whole generation of relative newbie PM investors who've only known--mainly--silver prices going up.

I love silver coins myself, but I think it'd have to go to $12 maybe for me to buy more, & even then I wouldn't be able to predict how long I'd have to wait for it to go up.....

 

The reason you received negative comments is probably because your information is faulty.

1. Silver is not mined as demand fluctuates, the majority of silver production is as a byproduct and will always be mined barring the shutdown of copper/gold and other primary mines that mine the silver as a byproduct.

2. Industrial demand has stayed fairly steady over the last 10 years. 368 million ounces were used in industrial applications in 2003, 490 million ounces in 2007, 465 million ounces in 2012.

Here is a link to silver institute where the numbers came from:

http://www.silverinstitute.org/site/supply-demand/

 

Using the same source ( for what it is worth)

The last 2 years shows that industrial demand has decreased by 6.95%, while in the same time mining production increased 4.55% and old silver Scrap went up 10.97%. Since all of the categories are measured in ounces, one can say that in the last 2 years as the economy has improved ( IMO) There has been almost 7% less used industrially AND the supply from mining and scrap has increased by over 11.5%, a 18.5% swing, Close to the drop % in the spot price of silver.

 

Though this forum is dedicated to bullion investing, I believe investing in numismatic coins is a way to hedge against swings in the precious metals market. I'll be the first to admit I have taken a hit to the jaw with the recent price drop, but to a large extent my wealth is intact because I have been buying silver coins with numismatic premiums (some have gone up). Though one's gains when investing in numismatic coins will not be as strong when the silver market moves up, buying numismatic coins is a good hedge, and the coins will somewhat track the price of silver as the silver price moves higher. Semi-numismatic coins like Morgan dollars and Mexican Cap and Rays from the 19th century, as well as Chinese silver coins like the Fat Man dollars, are among the coins I have in mind.

 

You are a wise man (no sarcasm).

 

well put sir

 

You may have also noticed that the scrap is always the precise amount required so that total supply = total demand. Scrap has to be bought on the open market to meet demand because mining supply is insufficient. Supply from scrap increased because if it didn't then demand would have exceeded supply.

It doesn't matter that industrial demand is going down (7% over 3 years) because each year more and more existing scrap is required to meet demand (the need for scrap inventory increased by 21% over that same 3 years) highlighting the growing discrepancy with mining supply being unable to meet total demand. That is the fundamental trend until it isn't.

As such, that 11.5% cannot be incorporated in with a growing supply. It actually showcases a growing demand that is outpacing any loss in industrial demand.

It's also noteworthy that the government net sales have all but stalled. They don't have any silver stockpile left.

Not only is demand exceeding mining supply more and more each year, but overall supply is becoming increasingly dependent on the willingness of physical holders to part with their metal.

 

Here's one of the better ones I bought at $21. Still about 20% over melt...

 

I did a quick look at a chart the other day and it seems like +/- $20/oz.

 

I'm guessing silver will go into the teens, like many. What I'm looking at right now is the strength of the dollar relative to other currencies (DXY) and the lack of money velocity in the economy, due to trillions of dollars sitting on bank balance sheets. For the time being, in my humble view, precious metals will trade inversely to the stock market and real estate, and the dollar mainly, and when the next economic crash comes (which will happen, since they come every few years) silver will rocket past its previous high of $50.