Best of the Week
Most Popular
1. Climate Change Mass Extinction - Birds, Bees and Bugs: Going Going Gone - Richard_Mills
2.A Purrrfect Gold Price Setup! - Peter_Degraaf
3.Who Finances America's Borrowing? Recession Indicator for Independent Thinkers Part 2 - F_F_Wiley
4.America’s One-sided Domestic Financial War - Raymond_Matison
5.Gold Price Summer Doldrums - Zeal_LLC
6.Two Key Events Will Unleash Gold - Jim_Willie_CB
7.Billionaire Schools Teacher in NAFTA Trade Talks - Richard_Mills
8.Get Out Of Crypto Cannabis Bubble Before It Pops and Move Into Bargain Basement Miners - Jeb_Handwerger
9.Stock Market Could Pullback for 1-2 weeks, But Medium Term Bullish - Troy_Bombardia
10.G7 Chaos, Central Banks and US Fed Will Drive Stock Prices This Week - Chris_Vermeulen
Last 7 days
Soybean Price Hits 9 Year Low Due to Trade War - 24th Jun 18
Small Cap Stocks, Technology and Pharma To Drive A Renewed Market Rally - 24th Jun 18
Gerald Celente: Why You Still Need Guns, Gold, and a Getaway Plan... - 23rd Jun 18
Cheap Gold Stocks Bottom Basing - 23rd Jun 18
A Trade War Won’t Be Good for the US Dollar - 23rd Jun 18
SPX/Gold, Long-term Yields & Yield Curve 3 Amigos Update - 22nd Jun 18
Gold - How Long Can This Last? - 22nd Jun 18
Dow Has Fallen 8 days in a Row. Medium-long Term Bullish for Stocks - 22nd Jun 18
Trouble Spotting Market Trends? This Can Help - 22nd Jun 18
Financial Markets Analysis and Trend Forecasts 2018 - A Message from Nadeem Walayat - 21st Jun 18
SPX Bouncing Above Support - 21st Jun 18
Things You Need To Know If You Want To Invest In Bitcoin Now - 21st Jun 18
The NASDAQ’s Outperformance vs. the Dow is Very Bullish - 21st Jun 18
Warning All Investors: Global Stock Market Are Shifting Away From US Price Correlation - 20th Jun 18
Gold GLD ETF Update… Breakdown ? - 20th Jun 18
Short-term Turnaround in Bitcoin Might Not Be What You Think - 19th Jun 18
Stock Market’s Short Term Downside Will be Limited - 19th Jun 18
Natural Gas Setup for 32% Move in UGAZ Fund - 19th Jun 18
Magnus Collective To Empower Automation And Artificial Intelligence - 19th Jun 18
Trump A Bull in a China Shop - 19th Jun 18
Minor Car Accident! What Happens After You Report Your Accident to Your Insurer - 19th Jun 18
US Majors Flush Out A Major Pivot Low and What’s Next - 18th Jun 18
Cocoa Commodities Trading Analysis - 18th Jun 18
Stock Market Consolidating in an Uptrend - 18th Jun 18
Russell Has Gone Up 7 Weeks in a Row. EXTREMELY Bullish for Stocks - 18th Jun 18
What Happens Next to Stocks when Tech Massively Outperforms Utilities and Consumer Staples - 18th Jun 18
The Trillion Dollar Market You’ve Never Heard Of - 18th Jun 18
The Corruption of Capitalism - 17th Jun 18
North Korea, Trade Wars, Precious Metals and Bitcoin - 17th Jun 18
Climate Change and Fish Stocks – Burning Oxygen! - 17th Jun 18
A $1,180 Ticket to NEW Trading Opportunities, FREE! - 16th Jun 18
Gold Bullish on Fed Interest Rate Hike - 16th Jun 18
Respite for Bitcoin Traders Might Be Deceptive - 16th Jun 18

Market Oracle FREE Newsletter

5 "Tells" that the Stock Markets Are About to Reverse

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.


© 2005-2018 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

6 Critical Money Making Rules