Best of the Week
Most Popular
1.The Greatest Stock Market Crash Of Your Life Is Just Ahead… – Warns Harry Dent - GoldCore
2.Budget 2016: Borrowing, Lifetime ISA, House Prices, Economy, Syria, Brexit and Stocks - Nadeem_Walayat
3.Gold Price Intermediate Top - Clive_Maund
4.Brussels Terror Attacks, Death of the European Union, BrExit Wake up Call - Nadeem_Walayat
5.Stock Market Maybe This Time is Different? - Tony_Caldaro
6.UK House Asking Prices Break Above £300k! Housing Market Paralysis - Nadeem_Walayat
7.A Big Reason Why Silver Price Is Set To Soar - Hubert_Moolman
8.The Financial Crisis Has Just Begun; Is The American Dream Is Over? - Chris_Vermeulen
9.Gold Stocks Spring Rally - Zeal_LLC
10.GLX, GLDX, Baby Gold Bull Market Stillborn? - Rambus_Chartology
Last 7 days
Stock Market Downtrend Should be Underway - 30th Apr 16
Gold And Silver – A Clarion Alarm Call For All Paper Assets - 30th Apr 16
US Economic Statistics LIES, LIES AND OMG, MORE LIES - 30th Apr 16
Stock Market Strong Elliott Wave Relationship is Developing - 29th Apr 16
Fed's Kaplan: Brexit to Factor in US June Interest Rate Decision - 29th Apr 16
Silver Miners Strong in Grim Q4 - 29th Apr 16
Is Silver a better bet than Gold in the Near Future? - 29th Apr 16
How to Use the CoT Report in Gold Investing? - 29th Apr 16
Sri Lanka is Intriguing: Areas to Consider for Value Investing - 29th Apr 16
Gold “Chart of The Decade” – Maths Suggest $10,000 Per Ounce Says Rickards - 29th Apr 16
Are We or Are We Not in a New Gold Bull Market? - 29th Apr 16
Silver: The “Five Year Plan” and the Great Leap Forward - 28th Apr 16
Michael Hudson: The Wall Street Economy Has Taken Over The Economy and Is Draining It! - 28th Apr 16
AUD/USD - Trend Reversal or Just a Bigger Pullback? - 28th Apr 16
A Gold Revaluation Could Transform Your Financial Status - Overnight - 28th Apr 16
Monetary Policies Misunderstood - 28th Apr 16
Gold Bullion vs Gold Miners - 28th Apr 16
OECD Suggests BrExit Would Cut Net Migration by 1.2 Million by 2030 - 28th Apr 16
MP Naz Shah Punished for Tweets Made During Israel's Genocide of Gaza Palestinian People - 28th Apr 16
Global Recession in 2016 and Beyond - The Obvious Evidence - 27th Apr 16
Why Gold Bugs Need to Stop Listening to The Fear Mongers and Start Thinking for a Change - 27th Apr 16
BlackRock’s Fink: Fed to Raise Interest Rates by Quarter Point ‘at Best’ - 27th Apr 16
Gold More Productive Than Cash?! - 27th Apr 16
Donald Trump Will Fire Janet Yellen and Be Trapped - 27th Apr 16
Money Saving Gardening by Propagating Roses From Cuttings - Propagating Rose Plants Over 2.5 Years - 27th Apr 16
Facebook Censors Pro Trump and Negative Hillary News - 27th Apr 16
This is the Era of the Democrats and Your Taxes are Going Up - 27th Apr 16
Long Awaited Gold Price Breakout - 26th Apr 16
Crude Oil Price Double Top or Further Rally? - 26th Apr 16
Madness in the Crimex Gold and Silver Trading Pits - 26th Apr 16
Britain's Prospects: GBP and BREXIT - MAP Wave Analysis - 26th Apr 16
CRB, Gold, Oil, Cotton, Coffee - 7 Must See Commodities Charts - 26th Apr 16
Gold Price Target is $3,000 and Silver is $75 per Ounce - 25th Apr 16
Parameters for a Stock Market Sell Signal-in-the-making - 25th Apr 16
Stock Market Dangerous Divergence - 25th Apr 16
Gold Miners Nub is the Sweat of the Sun - 24th Apr 16
US Dollar Price Forecast - 24th Apr 16
Stock Market Upside Objective Reached - 24th Apr 16
Why Leftist Greeks have more reasons than Liberals to favour Entrepreneurship and Support Entrepreneurs - 24th Apr 16
The Dow Jones is a Catalyst for Misplaced Stock Market Optimism - 24th Apr 16
Why Russia Harasses U.S. Aircraft and Ships - 24th Apr 16
Stocks Bull or Bear Market Rally? - 23rd Apr 16
A Bright Future for Solar Power in the Middle East - 23rd Apr 16
Silver Commitments of Traders – Halloween is Arriving Early This Year - 23rd Apr 16
Good News, Bad News, Both Favor Gold And Silver - 23rd Apr 16
Mish's Sure Fire Proposal to End Japanese Deflation - 23rd Apr 16
Mish Shedlock: “EXCUSE ME MR. PRESIDENT, IS THAT A JOKE?” - 23rd Apr 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Catching a Falling Financial Knife

In Search of Silver

Commodities / Gold and Silver 2012 Feb 20, 2012 - 03:12 PM GMT

By: William_Bancroft

Commodities

Best Financial Markets Analysis ArticleIn this article about the silver price, Will Bancroft takes a look at what the last year has delivered for silver investors, and what the future of silver investment might hold. Read on for more on what Professor Roy Jastram called “the restless metal”.


Silver has been its normal restless self this last year, but holders of silver bullion might not feel adequately rewarded. The metal of the moon has witnessed soaring highs to within touching distance of $50/ounce, two vicious chops, but the silver price crucially sits only a few per cent higher than in February 2011. Volatility is part and parcel of silver investment, but silver investors have not been rewarded this last 12 months with the price appreciation they might have hoped for. The gold silver ratio now sits just below 52.

Why no gains in the silver price?

In early November 2011 we wrote an article about how silver might resemble a rocket ready for launch. So what happened to the Silver Rocketship? Was the ship not fuelled? Was the launch cancelled before the countdown?

We cannot know for sure, but silver investors are still waiting. And, while we wait silver is getting less air time and focus it seems. Maybe after achieving the headlines amongst the precious metals, silver is waiting for its golden big brother to lead the next leg higher in terms of price discovery.

Dr Stephen Leeb sees the precious metal complex just waiting for the right kick higher. When talking to King World News, Dr Leeb commented that “I think the world right now is extraordinary complacent and that complacent attitude could come to an end at any point in time. When it does, gold will begin to fly.  New highs will come very, very quickly and beyond that we will be in another leg of this bull market”. Dr Leeb is watching for the right spark to ignite the gold price.

It is true that sometimes gold leads and silver follows more erratically behind. For large parts of 2010 and early 2011 silver led gold. Some commentators wait for gold to move into a new trading range higher before the silver price will be able to push through technical resistance in the mid 30 dollars per ounce range. It would be good to see silver spend some time trading with conviction above $40/ounce. Last time silver ran at $50/ounce it went to fast and too early.

China in the silver market

Given China’s claimed role in silver price moves from $16/ounce to the price levels of today, it was interesting to see some recent market commentary about a recent lack of buying activity from China over the short to medium term. If you subscribed to the theory that China had been stockpiling silver, you might have taken Standard Bank’s recent findings as validation for your thinking and useful context for the stalling of silver’s potential up-trend. We know the aforementioned Dr Leeb has been talking about Chinese stockpiling of silver for some time.

Perhaps the Chinese had decided to draw down some of their inventory of silver bullion? Analysis from South Africa’s Standard Bank suggests as much, and that the silver price will not be able to push through $35/ounce until Chinese buying power returns to the market.

Familiar face to the silver market, Walter De Wet, Standard Bank’s London based strategist, commented that “as long as China does not import silver, the price is unlikely to rally on a sustainable basis”. Mr De Wet continued that their estimates suggest Chinese warehouses hold enough silver to supply industrial activity for 15 months, having risen from 12 months in 2011. This contrasts to Chinese stockpiles of only 4 months industrial demand in 2009. The takeaway is that Standard Bank believes Chinese silver stockpiles need to fall below 10-12 months industrial supply “in order for demand-pull pressure to build”.

This makes some apparent sense, and perhaps adds some context to the last year in the silver price. A large part of the bid has simply not been present in the market.

Walter De Wet adds some extra context finding that China’s new demand for silver “is not very strong at the moment” when one considers that the premiums that previously existed in the Shanghai market over the London silver price have subsided. These premiums at times reached $5/ounce in summer 2011, yet in February 2012 have been more regularly below 50 cents. Demand for physical silver bullion from China has clearly been lower, so the Chinese are now less willing to pay over the spot silver price to source silver bullion.

Where to next for silver?

If the up-trend in the silver price has lost its main stimulant in lack of Chinese participation over the last six to nine months, then perhaps silver’s price action is not as disappointing as first felt. Some market commentators have even been pleased with silver’s resilience in recent months of trading.

Silver investors with an understanding of this peculiar market understand silver’s moods and emotions. Holding a silver investment this last 12 years for a gain of over 650% has not necessarily been easy, but then neither was holding Apple shares over the last 13 years. Between February 1998 and February 2012 shares of Apple have appreciated over 85 times, from 5.9 to 502 dollars, but investors were tested by vicious corrections and some lack of direction in the share price that at times extended into the medium term.

Whilst the silver price bides its time, silver remains a legitimate part of a portfolio. Gold and silver can still be considered some of the most rational investment assets in this type of fracture financial environment. Precious metals are no one’s liability, and this attribute continues to make them stand tall. Silver is still underpriced in historical terms, and the gold silver ratio has some way to go before returning to the long term average of 15.

During Apple’s 85 times appreciation the period from February 2007 to February 2009 was one of these trying periods. We find some similarities for silver investors here, but if Standard Bank is right we should see a silver price on the move again later in 2012 when Chinese buying power returns to the market. No one, including ourselves, can tell you exactly when silver might begin to reward investors again but the fundamentals that got silver moving in 2000 are still there in force. We need to understand the nature of silver investment, and silver’s tricky and volatile nature, if this experience for investors is to be more educational and less frustrating.

Now a good time to load up on silver? Buy silver bullion quickly and easily using our next generation dealing platform…

Will Bancroft

For The Real Asset Company.

http://therealasset.co.uk

Aside from being Co-Founder and COO, Will regularly contributes to The Real Asset Company’s Research Desk. His passion for politics, philosophy and economics led him to develop a keen interest in Austrian economics, gold and silver. Will holds a BSc Econ Politics from Cardiff University.

© 2012 Copyright Will Bancroft - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife