Listen, Silver: We Need to Talk

Louis James, Chief Metals & Mining Investment Strategist

Dear Reader,

We’ve focused a lot on gold in these Daily Dispatches, but it’s not the only precious metal, of course, nor even the only monetary metal. Silver, indeed, is the word for money in Spanish, French, and other languages as well.

This week, we let Silver speak for herself, and hope our readers will take heed.

Sincerely,

Louis James
Senior Metals Investment Strategist
Casey Research

P.S. Newsflash: I’ve been invited to speak at the upcoming Stansberry & Associates Natural Resource Conference, Saturday May 31, 2014, at the AT&T Performing Arts Center in Dallas, Texas. Oddly enough, I wasn’t invited to speak about gold, nor any metals at all—but about my move to Puerto Rico in search of lower taxes. If you’re curious about my move to legally reduce my taxes while remaining in the US or want to hear the latest regarding resource investments, this event is the soonest you’ll be able to do so. For more information, click here.

Rock & Stock Stats
Last
One Month Ago
One Year Ago
Gold 1,302.12 1,311.40 1,462.00
Silver 19.69 19.98 24.14
Copper 3.07 3.01 3.24
Oil 100.60 99.19 93.64
Gold Producers (GDX) 24.46 24.48 30.58
Gold Junior Stocks (GDXJ) 37.44 37.98 51.40
Silver Stocks (SIL) 12.54 12.96 15.20
TSX (Toronto Stock Exchange) 14,533.57 14,299.49 12,329.51
TSX Venture 1,013.59 1,018.26 964.67

Listen, Silver: We Need to Talk

Jeff Clark, Senior Precious Metals Analyst

I wrote to Silver last week, and she answered back. I’d like to share our correspondence with you…

Dear Silver,

Happy anniversary. It was on April 25, 2011 that you hit $49.80 per ounce in the New York spot market.

Today, three years later, you sell for around $20, nearly 60% less.

Is your bear market almost over—or are these low prices here to stay? Your price has lagged gold this year, so your normal volatility is lacking. How much longer will you be stuck?

Jeff Clark, silver investor

Here’s her polite response:

Dear Mr. Clark,

I have good news for you. While some investors have lost interest in me and my price is at 2010 levels, things will soon change.

I put together this historical chart for you, and I hope you’ll share it with your fellow silver investors. It shows every major bear market over the past four decades. The black line represents what’s taken place from April 2011 through last Friday.

Of the seven prior bear markets, four lasted longer and three were shorter. Four declined less than today; two were about the same; and only one was significantly deeper.

If I were to match the two longest bear markets, my price would stay down until this October. If it matched the other two longer bear markets, it would end this summer.

Over the past 40 years, there has been no bear market that would extend my low past this October.

Or my low may already be in.

Either way, I think it’s safe to say that I’m close to the end of my down cycle. In fact, the historical data say the opportunity to buy me at $20 or less will soon be unavailable.

Let me relay some other data to you that also signal current prices can’t last too much longer…

The US Mint (Still) Can’t Keep Up with Demand

The sharp drop in my price in 2013 unleashed a wave of pent-up demand for silver coins. Look at the response from investors.

The question this year is if those record levels could continue to be supported. The first quarter is over, so I can tell you the answer…

The US Mint sold 13,879,000 ounces of me in Q1, 2.4% less than the 14,223,000 sold in the first quarter last year. Here’s the monthly breakdown:

  2013 2014  Gain/Loss
Jan. 7,498,000 4,775,000 -36.32%
Feb. 3,368,500 3,750,000 11.33%
Mar. 3,356,500 5,354,000 59.51%

January’s 36% decline from the prior year looks big, but it’s not what you think: the Mint didn’t begin sales until the end of the second week of the month. The monthly total thus reflects only 2.5 weeks of sales.

And March sales were the fourth-biggest month ever. Add in April’s sales figures and the US Mint is now on pace to exceed 2013 totals.

It’s clear that your fellow investors think my price will go higher.

Silver ETFs Have Net Inflows (Again)

You might remember that silver ETFs’ holdings were largely flat last year, unlike the mass exodus seen in gold funds. The pattern is continuing this year.

Holdings in my exchange-traded products (ETPs) have risen 3.5% year to date, an additional 17.5 million ounces. In fact, the net purchases by silver ETPs have totaled $354 million YTD, the largest influx of all commodity ETPs!

Meanwhile, gold-backed ETPs have seen sales of 500,000 ounces, about a 1% drop.

Jewelers Love Low Prices

Low prices for me have led to increased silver jewelry purchases.

As just one example, the UK reports that silver jewelry sales jumped 40.4% in February, to 351,791 items.

India Just Won’t Stop Buying

India imported 5,500 tonnes of me last year, 180% more than 2012. Imports comprised 20% of all global demand.

Last month’s silver imports were 250% lower. This was mostly due to the recent increase in import duties, and the fact that six banks got permission to import gold, which would soften purchases of me. This could partly explain why my price has struggled.

But as long as politicians keep gold restrictions in place, Indians will keep buying me.

China: More Silver for Solar

Chinese imports of me rose drastically in February, up by 75% month on month and 90% year on year to 358 tonnes, the highest since March 2011. Though lower the following month, March imports were up 16% year over year.

China’s solar industry is growing explosively. In 2009, it represented about 0.2% of the global market; this year, it’s estimated to be one-third.

It’s interesting to note that my price rose in February and fell in March, which suggests that Chinese demand affects my price, too.

Supply Sources Are Concerning

So far, suppliers have managed to meet demand. However, there are dark clouds on the horizon…

  • Very little excess supply is expected this year, as production is projected to remain flat, and demand for me shows no signs of letting up.
  • Solar power accounted for 29% of added electricity capacity in America last year. “More solar has been installed in the US in the past 18 months than in 30 years,” says the US Solar Energy Industries Association. “Eventually solar will become so large that there will be consequences everywhere.”
  • Supply from recycling will probably be weak, because it’s not cost effective to recover every tiny bit of me from cellphones or prescription eyewear or casino chips. One report says that Americans threw away 130 million cellphones last year, containing over 46 tonnes of me.
  • Several major base-metals mines are expected to be depleted over the next several years. The problem is that two-thirds of me is a byproduct from base-metals operations—if their output falls, there will be less of me, as well.
  • The Silver Institute says that demand for industrial products made from me continues to grow.

No Regrets

As I look at your current situation from a historical perspective, I see a lot of catalysts that will catapult my price higher in the near future. It seems rather clear that as demand continues to grow, supply tightens, and my role as money grows more substantial, I will trade at much higher levels in just a few short years.

In fact, I offered to bet my cousin gold that I will outperform him before this cycle is over. He declined to take the bet.

The clock is ticking. Don’t set yourself up for regret when my price leaves $20 in the dust.

Your friend,

Silver

P.S. If you want to keep up to date on all things gold and me, including the best precious metals producers, give BIG GOLD a risk-free try. It’s a simple deal: Love it or pay nothing. You have three months to check it out and cancel for a full refund if you’re not happy. Click here to get started.



Gold and Silver HEADLINES

China Allows Gold Imports via Beijing (Reuters)

China has opened a third gold import point in Beijing, the country’s capital. Sources say it is a move that will help keep purchases by the world’s top bullion buyer discreet at a time when it might be boosting official reserves.

China doesn’t regularly report its trade data on gold, the last time being April 2009. Therefore, the only way to estimate the country’s gold imports is by export data from Hong Kong, which last year supplied $53 billion worth of gold to the mainland.

Imports via Beijing are small so far, but if China decides to increase its gold imports through the country’s direct import points, Hong Kong’s pole position could take a back seat—and that would make estimating the country’s gold holdings even more difficult.

Barclays Joins Retreat from Commodities as New Rules Bite (Reuters)

Barclays will quit most of its commodities trading businesses following a broader retreat by banks as tougher regulations have eaten into banks’ profits. Barclays announced that it would exit most of its base metals, energy, and agricultural trading. However, it will continue in precious metals and some other areas.

This exit, along with JPMorgan Chase & Co. and Deutsche Bank retreats, means that three of the top five banks in commodities have significantly reduced or shuttered their natural resource trading departments. Goldman Sachs and Morgan Stanley now remain the two largest financial participants in the natural resources sector.

About 40,000 Illegal Miners Ignore Peru’s Deadline to Formalize Status (Mining.com)

Peru, the world’s sixth-largest gold producer, has tried to cope with illegal miners by offering them a legalization process. However, about 40,000 of roughly 110,000 illegal miners ignored the Saturday deadline.

Over the past five years, unregulated mineral extraction in the country—especially gold mining—became an extremely profitable industry. Some experts calculated that it brought more money into the country than drug trafficking. Informal mining also means millions of dollars in lost fees and severely damaged environments.

Since the deadline has passed and many of the informal miners haven’t followed the formalization process, the fear of a fresh confrontation between unlawful gold producers and the government is growing.


Recent News in International Speculator and BIG GOLD—Key Updates for Subscribers

International Speculator

BIG GOLD

Apr 28, 2014
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