A Silver Hoard Near Record High Has Transnational Silver Abusers Concerned
Appearing on November 9, 1998, “India Silver Hoarding Worries Users Group,” penned by Silver Users Association spokesman Walter Frankland, stated:
“Is there a role for the Silver Users Association–in conjunction with groups in other countries–to take action that would focus on India and see if their market can be opened to freer trade? There’s no reason to wait around until volatility hits the market again, in my opinion.”
In the United States and the “west”, doused in mainstream media mustard gas, less than 1% of the retail public buys silver. In other countries, taxes of 50% and more on silver sales has dampened demand. But it cannot forever. The derivatives bull market has created a bull market in physical silver that does not exist and a pop-panic out of paper like the world has never seen will ensue. The war on silver will spin epically out of control, and there is no telling where the price may land.
That, alongside short-and-medium term speculation, is why investors’ holdings are near a record high set last April for silver, despite that hedge funds are the least bullish on silver in nearly four years. In the medium-term, speculators have reduced bets on higher silver prices by 72 percent since the end of February, according to U.S. Commodity Futures Trading Commission data. Silver products held in exchange-traded funds, however, have increased three straight months and now totals $16.2 billion, according to Bloomberg.
Since the first three months of 2012, silver has, for the lion’s share, been held under the $30 mark. Until March, silver appeared to be heading back towards $50 an ounce, its previous high, after climbing above $36. This was short-lived. Now, analysts, based on a survey by Bloomberg, expect the price of silver to average $33.02 an ounce in the fourth quarter. Despite any bias that a panel chosen by Bloomberg might encompass, silver remains on a long-term trajectory poised to continue its peak-every-two-years model.
The long-term, to be sure, is only in terms of human lifespans, for already the silver price has sat well-off its recent high in April of 2011 for a year-and-four months. That would mean that, although silver might have a doldrum 2012, it would then begin to rise significantly in early 2013. The price of silver will average $33.02 an ounce in the fourth quarter, 18 percent higher than its current price, according to the median of 13 analyst estimates compiled by Bloomberg. Silver could then easily be poised for a 100-150% rise in price in early spring 2013, landing it at least around $66 per ounce.
But, some hedge funds are predicting an economic slowdown which they surmise will curb demand for silver. On the opposite side of the rope in the tug-of-war for silver, many monied investors and main street investors are anticipating a price rise based on the implementation of global quantitative easing, spearheaded by the Federal Reserve. The price of silver tripled when the Federal Reserve purchased $2.3 trillion of debt through Quantitative Easing 1 and Quantitative Easing 2 from December 2008-June 2011. One can tease also from the chart below that in the late summer of 2007, as there was a stealth Q.E., silver responded predictably.
Much of the Bloomberg article is focused on the “schizophrenic” model for silver, which is a seriously flawed axiom from which to look at the silver price. Silver’s history is one much longer than that of Industrial Society. Industry has created novel demand for silver. And so, therefore, is predisposed to act as upward price pressure in the long run. Even if there were a complete collapse of industry in the world, in the fog of a broken price mechanism, silver would retain desirability. It would be psychologically comforting to many to default onto the money of their forebearers. Silver will be one item of many that has cultural relevancy were there to be an industrial collapse. It would be one of few with history as money.
“Since the beginning of the year it has reacted more like a base metal than a precious one,” said Frederique Dubrion, the Geneva-based president and chief investment officer of Blue Star Advisors SA, which manages metals and energy assets. “The main negatives are still in industry. We’re waiting for more quantitative easing, and that would be really positive.”
The idea that quantitative easing is the only basis for a rise in the price of silver is preposterous. What about war? An open war with Iran would send gold up, and then also increase industrial and fear demand for silver. Gold could head up towards $1900 if there is a further breakup of plans for an European Stability Mechanism (ESB). That would mean a price rise for silver. Quantitative Easing alone is not the only reason to expect silver to increase in price.
The silver price tumbled 29 percent from February-June 2012, but, as Bloomberg points out, the metals volatility is “masking what are already historically high prices.” Despite that silver is trading 44 percent below its recent high of $49.85 of April 2011, the two-decade average for the devil’s metal is $9.97.
“Industrial demand may remain weak at least for another six months,” said Jochen Hitzfeld from UniCredit SpA in Munich. “This makes the gap that investors have to absorb even higher,” said Hitzfield, who forsees an average 2012 Q4 price of $28.
Investors purchased 797 tons via silver-backed ETPs this year and are now holders of 18,093 tons, if one does not want to question the solvency of COMEX.That is more than eight months of global mine output. Investors sold a net 812 tons out of ETPs last year. Total silver assets are currently 2.9 percent below the record 18,639 tons reached in April 2011, and Barclays and Morgan Stanley predict that investors will buy 500 more tons in 2013. Hedge funds are adding to their depressed silver position, too. They doubled their net-long position to 9,323 futures and options in the two weeks leading into Aug. 7, according to the CFTC, although this is still 58 percent below the five-year average, a figure which clearly signals that more shorts have accrued as the global awakening in the wake of the 2008 banker-wealth confiscation, as well as the associated fear trade, has put the spotlight on silver and precious metals.
Although silver is usually tagged as schizophrenic metal due to its dual monetary and industrial applications, it really might be the options traders who are schizo. For example, the most held contract offers the right to buy silver at $50 per ounce by November 2013, whilst the next two biggest enable holders to sell silver at $20 by November 2013 and November 2012. For a comparison, the five largest gold options are all for purchases at higher than today. Those silver positions suggest that there is a tug-of-war taking place over the silver price.
The 100-day historical volatility for futures in silver is at 30.8 percent, which is a volatility more pronounced than gold, platinum, palladium and the main industrial metals traded on the London Metal Exchange. All these dynamics with the vast majority of the retail public not taking part in this popular investment – less than 1%.
Demand for silver will continue to increase. In India, where silver hoarding has been of concern to the silver abusers (big industry, mostly) for over a century (at least), gold and silver demand is expected to exceed 6000 tons annually by 2016-2017 from the current levels of 3000 tons. By 2025, according to the Mineral Exploration and Development Report for 12th Five Year Plan Period by the Ministry of Mines, that number could exceed 10,000 tons.
All of this absolutely worries the powers-that-be embodied in the Silver Users Association. Already in 2006, pre-crisis, Silver Users Association was expressing concern to the CFTC regarding the new derivative products pertaining to silver. They worried a dry-up in the physical would cause them to lose control of the precious supply.