Bullish on Silver, Less So on Gold 26 comments
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It used to be that the price of silver followed the price of gold with a beta of around 1. Since last September, however, that correlation has broken down. In March 2008, silver topped at roughly $21.2, and by late October last year, it was down 60% (2nd chart). Meanwhile, gold topped at just over $1,000 and its maximum drawdown thus far has been about 28% (3rd chart). In the first quarter of 2009, as investors were looking for ways to secure their hard cash, they turned their sight to gold and it managed to pick out new highs while silver, the whipboy, was still down about 30%.
click to enlarge
To this day, silver is still down 35% from its high while gold is down only about 8%, but silver's beta has been steadily climbing toward 1 and it is my speculation that during the following months that movement will continue until silver's beta is around 1 (if you prefer the chart upside down, then click here). This, of course, means that I am bullish on silver. Although gold might start a new up-trend (which is not entirely certain right now), I feel that silver still has breath to keep on moving up. Whatever bad news might come out of the Fed, the Treasury or the White House in the following weeks will only help speed up the recovery of the beta of silver.
Disclosure: Long SLW
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This article has 26 comments:
We'll see panic buying and huge shortages of physical.
Meanwhile gold is sleeping while tremendous demand looms. From today's FT.com which also has an article on increased Central Bank buying.
"China is expected to keep buying gold to diversify its vast foreign reserves after it recently revealed it had been secretively buying bullion.
Beijing and Shanghai-based gold industry analysts said the country had almost doubled its bullion holdings. But they said China was likely to make as many purchases as possible within its borders, rather than turn to international markets where it could push up gold prices.
May-06Beijing’s exact gold purchasing intentions are a state secret, but industry analysts are betting on more purchases as Beijing has been clear about its desire to diversify its foreign reserves away from the US dollar. Although gold is quoted in dollars, its price usually rises when the dollar weakens.
The analysts base their bet, at least in part, on the history of another buyer: Russia. After Moscow announced it was buying bullion, it regularly disclosed information revealing almost monthly increases in its gold assets.
“I’m absolutely sure that they will continue buying because China’s gold holdings are very small in terms of the size of its economy and the growing significance of its currency,” says Paul Atherley, managing director of Leyshon Resources in China. “But we will find out about it only after they have done it.”
On May 07 09:16 AM yellowhoard wrote:
> If gold doubles, or more, to $2,000 per ounce, silver will steam
> on to $50 per ounce.
>
> We'll see panic buying and huge shortages of physical.
On May 07 10:03 AM Vuke wrote:
> It's been hard to get 999 physical silver in anything less than 1000
> oz. bars for some time. Puzzling, isn't it, it takes so long for
> mints to produce coinage when demand soars?
apmex.com
tulving.com
seekbullion.com
and I've been able to buy just about anything I want at anytime. One just has to know where to look. What....shortage??
On May 07 10:23 AM Kristjan Velbri wrote:
> Well, the only explanation that I know of is that the mints themselves
> have had trouble with acquiring physical silver.
>
> On May 07 10:03 AM Vuke wrote:
uncertain times. But they can afford silver. Silver has the
potential to be the market leader in the precious metals sector.
www.kitco.com/ind/Turk...
then that would explain a lot of what's happening, and justify a belief that silver will continue to rise ... If gold is being manipulated to stay under $1000, then silver is rising because it's not subject to the same sell pressure.
GATA's specific allegations can be found here: www.gata.org/files/PIR...
ourominas.com
I am bullish on silver, however I think the premiums charged on physical silver are totally ridiculous.
I also hold a long position on SW, and have for about 40 days.THe small cap stocks in sound silver comanies such as Endeavour and First Majestic also make good investment at this time but bear more watching as they do fluctuate more on both down and up
market indicators.I am bullish on buyingmore of these compahies should they decrease in value with the volatility in this rally pattern we now see.
I felt quite strongly about the very factors you have pointed out,so much so that I paid a 2 dollar premum per ounce for the purchase of actual physical silver which was then selling at around 12 dollars on the spot market about 30 days ago. As silver now touches the 14 dollar level I feel quite vindicated and also predict that silver will likely run up too a value in the low 20 dollar range , or possibly even higher as the cup analysis you mentioned indicates.
Fist Majestic Silver is an excellent source for physical silver, they are recapitalizing by simply releasing their accumulated reserves onto the market. Their 2 dollar premium per ounce may repel more folks as time goes on, and the upper ranges of silver value are approached, but so far the silver offerings of First Majestic have been sold very quickly.So the physical silver market still remains quite robust.
Please post more on this topic as time goes on. I am most interested in examining any other factors you might raise such as Silver Beta, which will indicate when the market is topped.
Thank you for a well written and well researched article.You hit it spot on.
But no one can predict the market 100 per cent of the time. The down side? I will have a nice silver anchor I can use on my boat
for a few years. So then the laugh might still be on me.
Cheers,
C7
Quote:
Release:#4016-97
For Release:May 7, 1997
CFTC Grants a Dual Trading Exemption to the Comex Division of the New York Mercantile Exchange
The Commodity Futures Trading Commission (Commission) has issued an Opinion and Order granting a Dual Trading Exemption to the Comex Division (Comex) of the New York Mercantile Exchange.
The Commission has completed its review of the Comex's petition for exemption from the Commodity Exchange Act's (Act) dual trading prohibition for its gold and silver futures contracts. The dual trading prohibition forbids a floor broker from executing trades both for himself or herself and for customers in the same contract during a trading session.
Subject to Comex's continuing ability to demonstrate that it meets applicable requirements, the Commission has determined that Comex maintains a trade monitoring system which is capable of detecting and deterring, and is used on a regular basis to detect and to deter, violations attributable to dual trading and, to the extent feasible, other violations involving the making of trades and execution of customer orders, as required by section 5a(b) of the Act and regulation 155.5. The Commission further has determined that Comex's trade monitoring system includes audit trail and recordkeeping systems that satisfy the Act and regulations.
A copy of the Opinion and Order may be obtained by contacting the Commission's Office of the Secretariat, Three Lafayette Centre, 1155 21st Street, N.W., Washington, D.C. 20581, (202) 418-5100.
www.cftc.gov/opa/press...
On May 07 12:15 PM Kristjan Velbri wrote:
> Missing_Link, I think you are right about that. I stumbled upon GATA
> myself the other day and went to the CFTC website to see if what
> they say is true and it was. Gold AND silver are being manipulated.
> Just take a look at these files at tell me it's not the case: www.cftc.gov/marketrep...
>
>
> GATA's specific allegations can be found here: www.gata.org/files/PIR...
Quote:
Release:#4016-97
For Release:May 7, 1997
CFTC Grants a Dual Trading Exemption to the Comex Division of the New York Mercantile Exchange
The Commodity Futures Trading Commission (Commission) has issued an Opinion and Order granting a Dual Trading Exemption to the Comex Division (Comex) of the New York Mercantile Exchange.
The Commission has completed its review of the Comex's petition for exemption from the Commodity Exchange Act's (Act) dual trading prohibition for its gold and silver futures contracts. The dual trading prohibition forbids a floor broker from executing trades both for himself or herself and for customers in the same contract during a trading session.
Subject to Comex's continuing ability to demonstrate that it meets applicable requirements, the Commission has determined that Comex maintains a trade monitoring system which is capable of detecting and deterring, and is used on a regular basis to detect and to deter, violations attributable to dual trading and, to the extent feasible, other violations involving the making of trades and execution of customer orders, as required by section 5a(b) of the Act and regulation 155.5. The Commission further has determined that Comex's trade monitoring system includes audit trail and recordkeeping systems that satisfy the Act and regulations.
A copy of the Opinion and Order may be obtained by contacting the Commission's Office of the Secretariat, Three Lafayette Centre, 1155 21st Street, N.W., Washington, D.C. 20581, (202) 418-5100.
www.cftc.gov/opa/press...
On May 07 12:15 PM Kristjan Velbri wrote:
> Missing_Link, I think you are right about that. I stumbled upon GATA
> myself the other day and went to the CFTC website to see if what
> they say is true and it was. Gold AND silver are being manipulated.
> Just take a look at these files at tell me it's not the case: www.cftc.gov/marketrep...
>
>
> GATA's specific allegations can be found here: www.gata.org/files/PIR...
Yeah, conspiracy sells a lot better than the actual fact that if you are a bullion dealer and you are playing the game correctly, you are hedging your physical with futures. So when GATA says it's just amazing that when the commercials get very short, silver crashed from $20 to $9, it may just be that the dealers were hedging physical or forward sales to them, perhaps from mines looking to lock in a favorable price, and used COMEX to sell the offsetting position.
I know I was buying bunches of physical at over $20 and hedging it by selling COMEX. I got to buy physical at a nice discount to spot, hedged it and sold it at juicy premiums when silver went under $11, buying back my COMEX shorts at that point.
It's not rocket science...but it sure doesn't make as good a story as a nice conspiracy!!!
I have pointed out the huge number of short positions (this is what the GATA did as well) relative to long positions. The numbers don't lie. I further pointed out that such a sizable short position acts to push prices down significantly. But why did I say gold and silver were being manipulated? Because the short positions were so big there is no way they could've been covered. Not without the help of the Federal Reserve Bank of New York or some other central bank "lending" them the gold.
With all sort of conspiracy theories flying around, it's understandable that people are skeptical about such manipulations. But it's not a conspiracy, because they are carried out in secret whereas this one is pretty much as public as it gets.
On May 07 10:56 PM kohalakid wrote:
> It's not rocket science...but it sure doesn't make as good a story
> as a nice conspiracy!!!
> OK, I read the GATA thing.
> Yeah, conspiracy sells a lot better than the actual fact that if
> you are a bullion dealer and you are playing the game correctly,
> you are hedging your physical with futures. So when GATA says it's
> just amazing that when the commercials get very short, silver crashed
> from $20 to $9, it may just be that the dealers were hedging physical
> or forward sales to them, perhaps from mines looking to lock in a
> favorable price, and used COMEX to sell the offsetting position.
>
> I know I was buying bunches of physical at over $20 and hedging it
> by selling COMEX. I got to buy physical at a nice discount to spot,
> hedged it and sold it at juicy premiums when silver went under $11,
> buying back my COMEX shorts at that point.
>
> It's not rocket science...but it sure doesn't make as good a story
> as a nice conspiracy!!!
Why would the Fed need to "lend" them gold?? HSBC can initiate shorts on COMEX to hedge it's physical positions or take a spec position. They don't need Fed gold.
And these large banks being "bullion banks", I'd expect them to have huge short positions representing what their probable customers, mining companies, need them to do: sell their future production.
I think unless you have a very good understanding of all the aspects of the gold market (forwards, futures, swaps, leases, hedging, physical, location swaps, central bank operations, mining and yes, speculation, among others), it is impossible to look at COMEX, which is one slice of the pie and conclude anything from the COT numbers other than the week to week position changes.
The precious metals markets are not like the stock market. There is no fixed, registered number of "shares" available to trade, all neatly accounted for. This is a physical commodity that gets pulled out of the ground daily.
Your conclusion that a sizable short position pushes prices down is just plain wrong. Since each short is offset by a long, the market is balanced by definition. There could be 5 times the short positions there are now, which means 5 times the longs too, and prices could be where they are now, or higher, or lower. Why is a COMEX short position somehow evil? That's what the exchange is there for!!! To provide a wide array of traders, dealers, producers and speculators with a place to meet to do business.
GATA needs to get a different mission.
Give me a thumbs down on this, I don't eat thumbs, so if you take points away, I will not have my lifestyle changed. I am simply trying to help here, not win a prize for the _________est in town.
Keep searching, and try to get involved with the Constitution party,or at least read about if if you care to help save America from the depths of no history. Man, WAKE UP!
On May 07 10:23 AM Kristjan Velbri wrote:
> Well, the only explanation that I know of is that the mints themselves
> have had trouble with acquiring physical silver.
>
> On May 07 10:03 AM Vuke wrote:
By the way, I don't live in the States.
The point is how they do it : Short, long,swaps,options and all kind of high tech derivatives instruments !! GVT. does not do the dirty job they have friend to do it.
They play the short and long side simultaniasly and they profit in both sides !!
They are players, referee , rule makers and own the field !!