What happen to the Silver Market?

It looks like a lot of people who have been waiting to buy silver are looking at this as the bottom they've been waiting for. We may be closer to the physical market divergence than expected due to the effect this dip has had on supplies.

http://www.arabianmoney.net/gold-si...rice-does-not-reflect-true-investment-demand/

 

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Please be careful when predicting a "physical market divurgence". I have been around dips before, many actually, and I could have told you that premiums would have gone up this time, just like when silver dipped to $10 a few years ago, just like the early 80's, etc etc. This isn't my first rodeo, and this always happens on declines. No one sells, and people buy, until the market settles in and then premiums go to normal when enough supply hits the market.

The inverse happens at peaks, and on the way down. No one buys, everyone wants to sell. I have seen the best offer for 90% silver being 8x face less than the market, and I have seen coin dealer refusing to buy bullion bars at anything more than half market. This is the problem with physical markets that the paper markets were created to solve, actually.

Just some historical perspective. You could be right that "this time its different", but I will simply judge it to be just like the previous times until proven different. I believe its a safer bet.

Chris

 

Words of experience worth heeding, Chris. I do tend to get a little exuberant at times ( although rationally so in my mind ;] ). It may not be today, tomorrow, or in the next 10 years, but I have little doubt that one day one of two things must eventually happen. Either the price will diverge from the paper market, or the paper market will be one to one ounces on the physical market. I wouldn't be surprised to see the Pan Asian Gold Exchange accomplish the latter. Nevertheless, there is an obviously dwindling supply right now, and if the price is not allowed to reflect real life supply and demand dynamics it will only lead to more volatility.

 

I understand your sentiment sir, but were you buying silver when it went down to $10? Lots of people saying the exact same thing. Some dealers simply did not want to sell at that price, there was no shortage of silver, just a shortage of dealers willing to sell at that price. Big difference in terms of reading the market.

The problem with the prices diverging from the paper market is that market does allow for physical delivery if you announce it. If a dealer has enough money to buy the quantity, he can go to the CME last I heard and buy contracts to take physical delivery. As long as that is still possible, I do not see why they would diverge. Maybe at the retail level they can, but then again you should expect to pay more for small quantities.

All I am advocating is to wait and see, and please do not assume yet there is a vast shortage of silver. There very well is probably a shortage of silver available at these price levels, but that is because everyone remembers how it was $12 more just a month ago, and don't want to sell "at a loss" right now. Its normal and always happens. If a year from now there still is not silver available at reasonable premiums, then something weird is going on.

 

I picked up most of my stash when it dropped from $21 to $10. Although I went through a mint, not a dealer so I don't have that particular perspective.

I didn't say it had to happen soon, or that it was happening now. What I said was that it may be closer than expected, and it is expected by many to be 20 years out. I believe you've stated before that it would be unlikely for the supply to dry up, because the price would rise as supply dwindled, and people would begin to sell. But how is this supposed to happen when the paper market cares not for the supply of the physical market?

My point is that the paper price is not a true representation of the physical asset, yet somehow it has the power to control the value of that physical asset. If the price is controlled by paper supply and demand dynamics then it doesn't matter how far the supply dwindles, because there's always more paper.

The amount of silver available today should be a red flag with how much has been used in the last 50 years, and the fact that there is less silver now than any other time in the last 700 years. We should be working hard to conserve something that society is so reliant upon, but it's going for so cheap that it's barely worth even trying to recycle it. There are lots of people in the world today who could afford to buy every ounce of silver there is, and that seems void of logic to me.

 

I don't know where you get those figures, but silver production from mines has been trending up since 2002, and last year 735 million ounces were taken out of the ground. That was more than enough to meet non-bullion/non-jewelry demand in 2010.

 

Since I didn't address this specifically, just wanted to add that I agree that divergence would not happen as long as delivery can be made. However, very few in the COMEX ever want delivery. It isn't their reason for being in the market. Adrian Douglas and Bix Weir have both indicated that the leverage is at minimum 45 to 1, and more likely 100 to 1 of paper to physical, and of course I use the term 'paper' loosely as it's mostly digital. This has the effect of impacting the supply and demand dynamic by a factor of 45 to 1, or 100 to 1, whichever it is, since that is how much can be bought and sold under the guise of the physical asset without ever requiring that it actually exists.

 

Mines do meet industrial demand, but not total demand which requires available scrap to continue going down in order to meet the shortfall. Here are my sources.

From: http://www.chrismartenson.com/blog/screaming-fundamentals-owning-gold-and-silver/59850



As of February, 2011 from http://seekingalpha.com/article/254040-silver-supply-vs-demand-equals-a-continued-higher-price

Current stats from Monex: http://www.monex.com/prods/silver.html

This is what I'm referring to in my other posts as the coming supply squeeze:
- 1900: 12 Boz available
- 1989: 2.3 Boz available
- Feb 2011: 600 Moz available
- Today: 300 Moz available

 

Since I'm on a posting spree why not extend it. Why is it that I need to debate at length information that is factually sound and readily available on a board for enthusiasts about the topic? :rollling:

 

As someone with connections to the mining industry, I would say that those figures are probably stretched a bit. 300 million ounces of *available* silver today? I find that very hard to believe, since more silver than that was used just to make 1964-dated US coins. Considering all the "junk" silver coins that exist in the world today, all the silver bullion rounds and bars that are out there, all the mine production that exceeds industrial demand each year (exceeding it by nearly 200 million ounces last year alone), I cannot believe that current world supply is a mere 300 million ounces.

 

One thing to keep in mind is that there are no good statistics. Some of what you posted appears to come from the statistics gathered by the Silver Institute, but some investigators have questioned the veracity of what they publish since it sometimes clashes with other available data. A table such as the one you provided looks to all the world like the final word, but is only as good as the methodology used to prepare it, and some other authors have pointed out the deficiencies in the method.

Just food for thought.

 

"Factually sound" is the key word here sir. I know you are pulling this data from sources and not making it up, but as Collect1966 points out, there seems to be inconsistencies in the data. I also do not believe there is only 300 million ounces of silver available today. The own chart from the silver institute says there has been 400 million ounces of "implied net investment", (my understanding of building inventories), just from 2009-2010.

We are not trying to pee on your cornflakes, simply challenging statements made either from these sources or opinions derived from them. I am sure there are cheerleading PM boards out there, but those are about as useful to an investor as those penny stock cheerleading boards are. What value is an assumption or conclusion you may have that cannot withstand criticism? I find criticism to be the best way for me to truly refine my thinking and beliefs, and frequently change my opinion based upon it. I simply am wrong at times, or have drawn erroneous conclusions, and someone challenging my statements is the best way I know how to either understand why I believe something, or see that maybe I am wrong.

That is truly our intent sir, to challenge statements we believe may not be correct in order for both ourselves and you to truly understand and justify our opinions. If at the end of the day you still believe what you believe, then great, and no harm done, and hopefully you may even have more reasons to believe the way you do.

Not trying to pick on you, but just yesterday I believe you were sure that the increased premiums and lack of silver for sale was showing you that there was a shortage. I simply stated how this happens every time a major correction takes place. Now, you can still believe there is a shortage, but maybe now you are not seeing those increased permiums as PROOF of that, merely something that may be proof, or it may be what I discussed, and its too soon to tell. I challenged your belief, and maybe changed your view slightly after thinking about the challenge.

That is all we ar trying to do. I believe we are all friends here, all trying to decide what to do.

Chris

 

This needs some perspective. Silver right now is 100% higher than its low from just last year. I wouldn't say siver was in a correction at all. What we had was a reversal of the next 100+% that took only a few months to happen.

Since we are talking about yearly mining output then it helps to keep this in perspective.

 

I don't know. Perhaps your therapist can help you find the answer ?

As for myself, I just have no life. This is something to pass time with, since I am not fond of TV watching and have purchased and read every author's new books that I am interested in.

since we don't gain anything by making or defending a point, it may be worth the time it takes to learn just why it is done ? Maybe.

 

I didn't find that to be true. A lot of shops I visited in the last 2 weeks had a surplus of silver on hand. I recently bought a little over 4 oz of foreign & US Philippines silver. I just finished putting it all into my spreadsheet, and it looks like I paid about $29/oz based on the mintage weight (probably more like $31/oz for actual silver weight, after accounting for wear).

There were some gems in there; including an 1838 1/2 Franc, an 1872 Gothic Florin, and an 1876 Newfoundland 50c piece... all at melt. One dealer's bin held another 10 or 20 oz of foreign silver, including about a dozen BU Australian florins... it was hard to tell myself "No! That's rent money you're thinking about spending!".

 

It wasn't. Last seen 7 years ago

 

Yes hold silver for the long term. Don't be satisfied with piddly $2 losses when you can hold for a decade and lose $20 an ounce. Gboulton "hold for the long term" last seen 9 years ago.

 

OUCH

 

Wow when I read this nonsense I knew this guy had long ago created a new account. Then I checked.....last seen 10 years ago.

 

Makes one wonder what we will see another 10 years down the line if..........