Silver’s Message: The Bull Is Alive and Well

Louis James, Chief Metals & Mining Investment Strategist

Dear Reader,

I'm off to kick rocks in the snow as you read this, so I'll keep it brief. Bears are goring investors left and right—even some of our most stalwart readers are beginning to have doubts about the outcome of our precious metals speculations. I could write a sort of gold-warrior's St. Crispin's Day speech to counteract this, but I believe that solid data are always a more compelling argument. And BIG GOLD's Jeff Clark has that for us this week, along with an amusing presentation.

I encourage you to give the article below a good read, even if you've grown skeptical yourself—perhaps especially if you've grown skeptical yourself.

Also, if you're in the Boston area, Naples, Florida, or Salt Lake City and are interested in joining the Casey Phyles setting up shop there, please send an email to phyle@caseyresearch.com and we'll connect you.

Sincerely,

Louis James
Senior Metals Investment Strategist
Casey Research

Rock & Stock Stats
Last
One Month Ago
One Year Ago
Gold 1,317.40 1,307.70 1,744.70
Silver 21.96 21.51 32.87
Copper 3.27 3.28 3.74
Oil 100.81 107.28 92.53
Gold Producers (GDX) 24.38 28.25 51.52
Gold Junior Stocks (GDXJ) 36.89 47.55 95.76
Silver Stocks (SIL) 12.92 15.18 24.57
TSX (Toronto Stock Exchange) 13.136.09 12,931.40 12,466.12
TSX Venture 950.97 952.79 1,312.34

Silver’s Message: The Bull Is Alive and Well

Jeff Clark, Senior Precious Metals Analyst

Some readers may want to toss a verbal rotten tomato at the second part of that headline, given stubbornly weak metals prices, but let's see if the data we've uncovered below will lower that cocked arm…

As of last Friday, silver is down 26.6% on the year, and down a whopping 55% since its $48.70 high on April 28, 2011. The bear market cycle is now two and a half years old—and no one can say with absolute certainty that the bottom is in.

Sounds like an investment to avoid.

For now, let's ignore the fundamental argument for silver—an alternative currency that, like gold, will sooner or later respond to the historic levels of currency dilution throughout much of the developed world—and consider the behavior of investors. In response to the price drubbing, have they abandoned the silver market? If that were so, it might be a warning sign that we've overstayed our welcome.

Silver on Trial

If I were on trial for claiming the bull market were alive and well, here are some of the exhibits I would present to the court…

Exhibit #1: SLV Holders Defy GLD Sellers

"Your honor, I first present the following chart. Check out the metal holdings of SLV (iShares Silver Trust) vs. GLD (SPDR Gold Trust) year-to-date."

Very curious. SLV is down 28.1% YTD, and was off as much as 39% on June 27. Normally, you'd expect to see significant outflows of metal from the fund in such a downdraft—but that didn't happen, in spite of the exodus that did occur in the major gold ETF, GLD.

To be sure, there are some ownership differences between the two funds. For example, institutional investors comprise roughly 40% of GLD, but only 14% of SLV.

However, if the bull market in precious metals were over, one would think both funds would see massive selling and outflow of metal from the crash in prices. That hasn't happened, and this lack of selling by retail and even institutional investors shows just how confident they are in the long-term prospects for the metal.

Some investors may be buying silver because they believe the economy is improving, since roughly half of silver's use is industrial. But the low fluctuation in fund holdings implies the make-up of investors hasn't shifted that much—i.e., most of the investors that bought earlier for monetary reasons remain invested. If they believed those selling their GLD shares were correct, they'd be selling their silver too. They're not.

Exhibit #2: India Defies Gold Restrictions and Loads Up on Silver

"Your honor, the data coming out of India regarding silver imports demand attention. Here's the picture since 2008."

Through August of this year, India has imported 128.6 million ounces (Moz) of silver, more than double the 61 Moz brought into the country in all of 2012. Put another way, in just eight months, Indians have already imported 16% of the 787 Moz of silver mined globally in 2012.

There are strong reasons to believe the trend will continue…

  • The Diwali festival, one of the most favorable events for purchasing precious metals jewelry and gifts, gets under way in early November
  • A strong monsoon season boosted agricultural harvests this year, increasing disposable incomes

It is thus reasonable to suggest that India will import more than 20% of last year's total worldwide silver production, and that imports will exceed 2008's record year of 161.6 Moz.

It's true that some of the jump in silver demand is a result of the anti-gold steps taken by the Indian government. Their interventions have squeezed supplies and made gold more expensive and more difficult to obtain—and some citizens have naturally turned to silver as a substitute.

It's for this reason that many analysts expect India to continue on this torrid pace of silver imports over the coming years.

Exhibit #3: Bullion Buyers Defy ETF Sellers

"Last, your honor, bullion investors see ongoing concerns about the fiscal and monetary state of many developed countries and in response to weak bullion prices have stepped up their silver purchases."

Here's a chart of the annual sales of American silver Eagles from the US Mint since 2008. The data for 2013 are through October 16.

The US Mint has sold 37.7 million silver Eagles so far this year, an amount that already exceeds all of 2012 by 10%. It's just 7% below 2011's record year, so, like Indian silver imports, we'll almost certainly see a new record by year-end.

Notice also how sales increased in response to the price crash this year. Why would investors buy more metal when the price was halved? Only if they believed there were very strong reasons it would go back up.

The Royal Canadian Mint reported that "year-to-date, we've had record volume for silver Maple Leafs, the greatest we've had in the over 25 years that we've produced them." This is interesting, the spokesperson added, because "the Northern Hemisphere summer is traditionally a slow time for coin and metal sales, but that's not the case this year."

The Verdict

"Your honor, the evidence clearly suggests that the bull market in precious metals is far from over—in spite of the mainstream media ignoring the strong trends underpinning this market. If it were time to exit this industry, we wouldn't see SLV holders refusing to sell, Indians buying record amounts of silver, and retail investors hoarding silver bullion at historic levels.

"As a final piece of evidence, your honor, we even arranged for a generous discount from one of our recommended bullion dealers on silver Maple Leafs—a discount you won't find anywhere else. Just sign up for a risk-free trial subscription to BIG GOLD, and you may be able to pay for your subscription from the savings.

"The silver price has not responded to this undercurrent of activity yet, but the ongoing stampede for silver clearly signals many investors around the world believe there is strong reason to continue buying precious metals."

I look up and see the judge smile. She asks, "What's the name of that dealer, Mr. Clark?"


Gold and Silver HEADLINES

Gold Price Drop Boosts Gold and Silver Coin Sales (Mining.com)

The drop in precious metals prices has spurred coin sales of both gold and silver. A total of 22,000 American gold Eagles were sold halfway through the month of October, hitting a three-month high. Dealers bought 13,000 ounces in September and 11,500 in August. A major US coin dealer told Reuters that business boomed when gold hit a near three-month low a week ago Friday.

As Jeff's article notes, silver coins are even more popular: 1.6 Moz have been sold so far in October and 37.7 Moz since the beginning of the year.

Bullion buyers don't believe this is the time to give up on precious metals—just the opposite, in fact.

Russia's First Gold ETF Lists in Moscow (Reuters)

At a time when most gold ETFs have seen strong outflows, Russia is bringing its first gold-backed ETF to market. The fund has been launched as part of a bid to transform Moscow into an international financial center. The ETF is listed on the Irish Stock Exchange and cross-listed on the Moscow Exchange; it tracks the gold price as calculated using the London daily gold fix. Shares will be available in USD and rubles.

The ETF founders say they expect significant demand for their product, stating "there is a substantial appetite among investors for gold now and going forward."

In spite of the downtrend for gold, Russia is not alone in launching a gold ETF this year. Two new gold ETFs opened in China, and India has made an application as well, though it remains to be seen if it will be approved due to the government's fears of gold demand adding to the country's current account deficit.

But it remains clear that in spite of the precipitous drop in holdings of GLD, interest for gold-backed ETFs is high in "gold-oriented" countries.

Gold Premiums in India Touch Record $100 per Ounce; Soar 150% over the Week (Scrap Monster)

Indian bullion dealers have reported gold premiums in excess of $100 per ounce, a sharp 150% increase compared to $40 premiums charged the previous week. The severe supply shortage caused by the government's import curbs and slowdown in recycled gold have pushed gold premiums to as high as 8% above the London price.

According to local traders, "Demand is strong, but there is no gold." Premiums thus might go even higher, especially considering the Dhanteras and Diwali seasons are about to get under way.


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Oct 21, 2013
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