Silver price discussion and analysis

The short position in silver is the lowest its been in years, massive short reduction last week.

"Well, the Commitment of Traders Report lived up to its advanced billing...especially in silver. In silver, the bullion banks decreased their net short position by an incredible 16,446 contracts...which is 82.2 million ounces. I've never seen a 1-week change this large in silver, ever! The net short position in the Commercial category declined to 121.3 million ounces. It's been many years since the Commercial net short position has been this low.

The '4 or less' bullion banks are now short 159.7 million ounces...and the '5 through 8' Commercial traders are short 42.9 million ounces. So these eight traders combined are short 202.6 million ounces of silver, which is 167% of the entire Commercial net short position. If these eight Commercial traders disappeared, the remaining Commercial traders [Ted Butler's raptors...all 34 of them] are massively long the silver market, just like everyone else.

In gold, the Commercial net short position declined by 30,945 contracts...or 3.1 million ounces...and is now down to 16.7 million ounces. Like silver, it's been many years since the Commercial net short position in gold has been this low.

The '4 or less' Commercial traders are short 15.3 million ounces...and the '5 through 8' Commercial traders are short 4.1 million ounces. These eight Commercial traders [almost all of them bullion banks] are short 19.4 million ounces of gold, which represents 116% of the Commercial net short position.

Just like in silver, if these eight traders vanished, the remaining 41 traders in the Commercial category are net long the gold market.

What's even more incredible is the fact that since the Tuesday cut-off, there has been a further 20,000 contract decline in gold open interest, just on Wednesday and Thursday alone...plus further declines in silver open interest as well. I'm only guessing here, but I'd say that the true COT numbers are actually much better than yesterday's report indicate.

But, as Ted Butler has been hammering away to me on the phone all this week, the fact is that the real reason the price declined was because of paper trading on the Comex...and it had nothing whatsoever to do with real-world supply and demand fundamentals. Eight [and probably much fewer] traders in gold and silver control the price of both these metals...and that's flat-out illegal. They hold a short-side corner on these two markets. The tail is wagging the dog, as there is no true price-discovery mechanism allowed to operate in these markets. Can you imagine how fast the CME and CFTC would react if eight or fewer traders had a long-side corner on any commodity??? Ask the Hunt brothers and you'll find out...and they didn't even get close to the position sizes that JPMorgan et al, hold. Then there's the Sumitomo copper case...but I don't have time to get into that here."

http://www.caseyresearch.com/gsd/home

I agree that clearly the price of silver is not determined by fundamental values in the near term, but if you have a look, none of the commodity markets are. They are all governed by expectations of future supply and demand. Look at copper, smashed recently but the supply/demand equation has only gotten stronger, by my number consumption was up 7% in September with supply reasonably flat.

Copper of coarse is being smashed as producers hedge in at above $3.50 because if there is another global recession then $1.50 /lb is not out of the question.

Now back to silver, if you consider the fundamentals of the metal, demand is growing strongly, supply is also growing strongly, there is no real structural deficit that will play out over the coming medium term, unlike copper. If silver maintains a price of above $30, the supply side reaction can be severe. Silver can be mined for an average cash cost of $10/oz.

In my research silver does not have the fundamental shortage of supply compared with expected demand growth to justify a price over $25 / oz into the medium term. I think it will return to equilibrium when more players like CCU start producing at huge margins.

This could take 3-5 years though, so if you still want to make a buck on this pony its probably got life left in her yet.

TabJockey said:

If silver maintains a price of above $30, the supply side reaction can be severe. Silver can be mined for an average cash cost of $10/oz.

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That right there shows you don't understand the silver market.

Silver is supply inelastic, doubling the price will only marginally increase supply BECAUSE it is largely byproduct. No mine will up its main production because silver prices are up, sure it is nice that the byproduct credit is up, if they get it, if they have not already sold it to the likes of Silver Wheaton, but there will be no real supply response.

Silver is also demand inelastic simply because very small amounts of it are used in any given product and there is no ready substitute for it at anywhere near silvers price. Again doubling silvers price will have no meaningful impact on the margin in the goods that are produced using silver or the demand for it.

Silver does not react like copper, it is a very unique market. The main driver of silver price is the marginal demand for it as an investment product, its role as a precious metal. If you take the time to study precious metals you will notice that unlike most things demand tends to rise in line with price over time and that will be the case until the wider economic issues are solved, debt is paid down and real rates go substantially positive.

Your mistake is to 1. analyze industrial silver like it is copper, it is not, it is inelastic from a supply and demand stance. That means price tends to over and under preform in bull and bear markets. 2. ignore investment demand, the silver price is all about investment demand at the margin, which currently is large and growing fast.

So how you can conclude that there is no structural deficit I don't know, that is unknowable when it comes to a precious metal that has monetary demand.

Silver supply is certainly inelastic at the moment, as most of it is produced as a by product, but a medium term supply response is unavoidable if prices stay at these levels. There are numerous economical silver assets around the world which are not being developed because of the general uncertainty surrounding the silver price into the medium term (3-5 years).

You would have to be brave to start developing a silver mine today with a projected cash cost of $10/oz for production 2014. However if silver holds above $30 for another year or two investors may be willing to take the punt.

I agree with the idea that demand will increase with price. Silver has certainly enjoyed riding on the coattails of gold over the past few years however I question the assumption that is it a monetary store of value similar to gold.

In european culture silver has a monetary history but demand growth is coming from Asia, which has much less regard for silver than it does for gold. I would argue that most of the investment demand growth coming for silver is not because of the increasing status of precious metals vs fiat currencies in the current world economic outlook but simply punters out to make a buck in one of the few markets around currently in a strong upward trend.

I think you can look to price correlation with equities as proof that silver is very much a risk asset as opposed to a defensive asset. The spot price tanked very very hard (12% in day?) in the last equity market sell off and I would expect this correlation to continue.

Perhaps you are thinking on a much shorter time frame than myself Mr Z? What sort of market predictions are you making? If silver is supply and demand inelastic then what price do you believe equilibrium is at?

TabJockey said:

Silver supply is certainly inelastic at the moment, as most of it is produced as a by product, but a medium term supply response is unavoidable if prices stay at these levels. There are numerous economical silver assets around the world which are not being developed because of the general uncertainty surrounding the silver price into the medium term (3-5 years).

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Unless you are suggesting that there are many pure silver plays of significance yet to found and developed, which is unlikely given that most silver is discovered as byproduct, then I am not sure where you think that this supply response is coming from?

TabJockey said:

You would have to be brave to start developing a silver mine today with a projected cash cost of $10/oz for production 2014. However if silver holds above $30 for another year or two investors may be willing to take the punt.

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Which speaks to the point, even if you have found it as a pure play are you going to develop it? Again how is that encouraging a big supply response?

TabJockey said:

I agree with the idea that demand will increase with price. Silver has certainly enjoyed riding on the coattails of gold over the past few years however I question the assumption that is it a monetary store of value similar to gold.

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Silver actually has a better combination of fundamentals than gold, it is a misnomer that it "rides on golds coattails"

TabJockey said:

In european culture silver has a monetary history but demand growth is coming from Asia, which has much less regard for silver than it does for gold. I would argue that most of the investment demand growth coming for silver is not because of the increasing status of precious metals vs fiat currencies in the current world economic outlook but simply punters out to make a buck in one of the few markets around currently in a strong upward trend.

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Plenty of silver goes to India, China is a net importer and is only just opening its markets to precious metals investment. Silver is the poor mans gold where ever you go, it will be the same there. To suggest that the Chinese will pass on silver while taking up gold is a little short sighted. At this point that is also something you cannot say with any authority, it is a punt on your part, do you really understand the likely Chinese reaction that well? I very much doubt it! Silver is also a small market, investment demand from the current sources is more that enough to tilt this silver market to the sky.

TabJockey said:

I think you can look to price correlation with equities as proof that silver is very much a risk asset as opposed to a defensive asset. The spot price tanked very very hard (12% in day?) in the last equity market sell off and I would expect this correlation to continue.

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You really need to look at when and how that sell off happened in the futures market to understand what really happened. To try and draw a fundamental conclusion from that price action is misguided. Very large lots where offer in the very illiquid access markets in a way that no seller seeking to maximize price would. Instead I suggest you look at the response to that price plunge, many dealers in the US sold out of physical silver that day. The demand was huge ---> that tells you how it is regarded from an investment stand point in that country!

TabJockey said:

Perhaps you are thinking on a much shorter time frame than myself Mr Z? What sort of market predictions are you making? If silver is supply and demand inelastic then what price do you believe equilibrium is at?

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To predict the silver market in terms of price would be an arrogance on my part. Short term? No, I have held silver since the $4 range and listened to people like yourself rationalize why it cannot go higher every step of the way. The thing that always seems to be missing from their equations is what is happening to the globes major currencies and an appreciation that silver has actually been money for a greater period of human history than gold. The investment demand for precious metals will not abate until the western worlds economies have resolve their debt issues and have stabilized their currencies OR the east has become widely trusted with open, deep and liquid financial markets, they holders of the recognized reserve currency and they have internal demand going and are growing independent of anything the west is doing.

There is simply too much money sloshing around this system with no demand for it, no opportunity for it, a short look at the US banking system will confirm that. This fact will price any reliable returns close to zero in real terms, indeed negative in some cases. In such an environment demand for precious metals will continue and to point to short term, hedge fund driven liquidity events as fundamental evidence that the real safe haven in this world is UST's is misguided to say the least.

Every price has four elements in it, two sets of supply and demand. Supply and demand for the item itself and supply and demand for the currency that is being used to price the item. Most so called F/A's completely ignore the second dynamic, precious metals are all about the second dynamic, period, end of story. Analyze gold as if it where copper and you'd decide that price should have crash from the exorbitant $250 low to near nothing as there is plenty above ground supply that needs to be consumed before it makes sense to dig anymore up. Did that happen... no, have gold and silver out preformed virtually every other asset class since... yes.

End of story...

In all probability five to ten years are left in this market if they do the right things. That is despite the fact that silver production will rise over the next few years as it is unlikely that it will rise anywhere near fast enough. Joe six pack can't afford $1600 gold but $30 silver is another story all together.

Sales from the US mint
". Baring any further update on Monday, total sales for September are as follows: 91,000 ounces of gold eagles...13,000 one-ounce 24K gold buffaloes...and a whopping 4,460,500 silver eagles, which is the second largest sales month for silver eagles in all of 2011...to date."

http://www.caseyresearch.com/gsd/home

Many readers of Ted butlers articles actually send in figures from local bullion dealers. On these pull back days a lot of the dealers sell out of silver! If silver was actually price on physical demand the price would be a lot high, the fact is silver is priced off the paper market.

Lol, Mr Z is writing essays again.

tothemax6 said:

Lol, Mr Z is writing essays again.

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I'm sorry, I know we had this issue last time that I tried to make you concentrate beyond your capability. I will try and keep it short and as simple as possible in future. You know, at your level...

Received this in a subscription service today. I don't think it was actually provided for the subscribers, simply just noting to us that its a good read. Its the background story/timeline of the silver manipulation.

Its only short (1.5 pages), but a good read.

http://www.scribd.com/doc/67350783/Silver-Gorillas-CFTC-Etc-1

I simply can't believe how the CFTC and JP morgan get away with this.

When on evidence that was being reported of the JPmorgan manipulation a year or so back I was laughed at here on ASF when putting forward such propositions.

I do not need to post up much anymore as the message has now spread.

You can find a lot more on the subject by checking this website every day or so.

http://www.gata.org/

To which Ted Butler is often a contributor too.

I got bored with the whole idea back in 2003, it was just a fact of the market, you traded it and took the cheap silver with your profits. Looking back it was a gift. Now we are in transition the whole thing is less predictable and tactics have changed significantly. This game is not as easy to play as it once was.

I bet you when it ends, and it will, the manipulation crowd will still be yelling manipulation from the tops of the hills. Silver is volatile and will remain so for a while to come IMO... that much will not change easily, only the reasons for the volatility will change. I hope it gets back to being predicable, I'm lazy, I don't like working this hard to make a dollar.

PS -> I think that the general expectations of a free silver market are, shall we say, a little extreme. Freeing the market could produce a monster spike and crash that, ironically, could damage silver for years.

Mr Z said:

PS -> I think that the general expectations of a free silver market are, shall we say, a little extreme. Freeing the market could produce a monster spike and crash that, ironically, could damage silver for years.

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In spite of that I am going to go out on a limb and say that when it moves up next we are going to have a very big liftoff and it could be soon.

http://www.gotgoldreport.com/2011/10/comex-commercial-silver-net-shorts-lowest-in-eight-years-.html

As global economic growth disintegrates so will the demand for base metals – which 70% of silver is a by-product. On top of that, silver ore grades are relentlessly falling in mines throughout the world which takes an increasing amount of energy just to keep production flat. If the mining industry tries to incorporate more human and animal labor to offset declining oil based energy in the future, it will do so only at much lower rates of production than today. This is due to the fact that human or animal labor cannot match the extraction rate of diesel powered excavators or huge dump trucks when it comes to mining silver.

Then there is the negative effect of a global depression on the production of silver. Presently the world has entered into tremendous chaos and economic turmoil. Conditions are ripe for a complete disintegration of the financial markets, thus pushing the world over the edge into a new dark age of hyperinflationary depression. In this sort of atmosphere, countries may resort to the nationalization of mines as well as other protectionist’s policies.

When the nails of the peak silver coffin are added up, the death of increasing future supply is close at hand. The CEO’s and analysts in the mining industry are for the most part oblivious to these factors that will destroy their ability to make viable forecasts of future projects. It amazes me to see professionals plan a huge open-pit mine with a 25-45 year economic plan without any consideration of what the energy environment will be like at that time. For some strange reason, there is this false assumption that “If we build it, the energy will come.”

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For the serious investor this is a very comprehensive outlook backed up by solid facts in my view.

http://www.silvergoldsilver.com/index.php?option=com_content&task=view&id=45&Itemid=9

Got physical silver in the hand?

then no worries

Found this article. Pretty much makes it clear that the CTFC will probably have the vote on the18th. It is less likely that they will postpone again

http://www.reuters.com/article/2011/10/04/financial-cftc-hearing-idUSN1E7931HG20111004

What I am wondering is that after they vote these new rules in... what happens next? How long before these new rules are enacted? Immediately? Will this actually stop the silver manipulation.. and if it does, should be expect one last manipulation before the 18th of October to close all the short positions?

It is with some interest that the Perth Mint has been unable to keep up with silver bar production and has stopped accepting back orders. This is despite increasing capacity earlier this year.

This sort of thing has been said every time the price of silver has taken a tumble, so it's a bit like "The Boy who Cried Wolf", but if you look at the Perth Mint's own website right now, the 10oz, 1kg and 100oz bars are unavailable: http://www.perthmintbullion.com/au/View-All-Bullion.aspx

TabJockey said:

In european culture silver has a monetary history but demand growth is coming from Asia, which has much less regard for silver than it does for gold.

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I know I'm late to this discussion, but I would take issue with the above statement.

The word for bank in Chinese, Japanese and Korean is 銀行: [銀] means silver (not gold!), and [行] means movement, or circulation - the idea being that a bank is a place to trade silver.

China was the last country to leave the silver standard in 1935.

It's easy to make the argument that silver has a stronger and more recent history as a monetary metal in East Asia than anywhere in the West.

Amalgam said:

The word for bank in Chinese, Japanese and Korean is 銀行: [銀] means silver (not gold!), and [行] means movement, or circulation - the idea being that a bank is a place to trade silver.

China was the last country to leave the silver standard in 1935.

It's easy to make the argument that silver has a stronger and more recent history as a monetary metal in East Asia than anywhere in the West.

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True, but this is not to say that the silver standard was superior. As economies developed in the West, there was a default movement away from the silver standard and towards the gold standard (until the later was destroyed by politicians). This is due to the increasing transaction volumes that accompany economic growth giving gold the edge (higher 'value density'), and the higher inflation rate of silver (easier and more voluminous mining) making it a lesser quality money.

The same forces would have, and did, applied to the East. Japan moved to the gold standard as soon as it could (although this was partially due to the desire to access credit from Europe).

tothemax6 said:

True, but this is not to say that the silver standard was superior. As economies developed in the West, there was a default movement away from the silver standard and towards the gold standard (until the later was destroyed by politicians). This is due to the increasing transaction volumes that accompany economic growth giving gold the edge (higher 'value density'), and the higher inflation rate of silver (easier and more voluminous mining) making it a lesser quality money.

The same forces would have, and did, applied to the East. Japan moved to the gold standard as soon as it could (although this was partially due to the desire to access credit from Europe).

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Well bro you can not eat silver. Depression coming to a store near you. Go the greedy people enjoy your day out lol

Amalgam said:

It's easy to make the argument that silver has a stronger and more recent history as a monetary metal in East Asia than anywhere in the West.

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It's true but it will be hard to convince some people of that.

When you consider the value of gold an the average wage in places like India and China I think you will see many opting for silver as the price of the metals rise. Anecdotally many Americans are making that choice despite much higher levels of income.

choofer said:

Well bro you can not eat silver. Depression coming to a store near you. Go the greedy people enjoy your day out lol

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LOL... no you don't eat silver silly! You swap it for stuff you can eat, that is how money works

Why defending yourself is greed I will never know!

Now I will retire to my cave to chew on some Bison... CYA!

Amalgam said:

This sort of thing has been said every time the price of silver has taken a tumble

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Actually, to date, this has happened on the big price rises. I have spent too much time over the years pointing out to people that small product shortage is not a silver shortage. The very notable thing about this time is the demand was unleashed by the price fall, typically (although not logically!!) in the past this would kill demand for a time. This is a very interesting development, people are actually buying the dips!