Big Brother of Silver

Gold, is widely known as the big brother of silver. When gold price moves, silver price follows. If you look at the long term gold chart and long term silver chart, the price and percentage of movement might not be exactly the same, the direction is however identical. Generally, silver price movement is more volatile than gold price.

long-term

If you want to know what is going to happen to silver, look at gold.

223.519 metric tons of gold was imported into mainland China for the month of March. Compare that to the 51.3 metric tons and 97 metric tons imported in January and February 2013. The last time China importing gold on this scale was November 2011, when 102.6 metric tons was imported after the crash in prices from the short-term peak of $1,922 per ounce troy.

Gold Demand in China

From January 2013 to date, China has bought as much gold as whole year of 2011. Let ‘s be reminded that now is only early May 2013. If such trend continues, the demand for gold would be growing exponentially. When people are shorting the paper gold price (selling paper gold), there are people who take advantage of the low gold price to buy up physical gold.

China is buying the dips, they keep buying physical gold whenever there is significant drop in paper gold price. As evidenced by gold and silver American Eagle sales from the US Mint, the 2.841 metric tons of gold coin re-exported from Hong Kong into the U.S.

To summarize the situation, here is the analogy:

The powerful financial institutions and individuals who trades in paper gold are doing their work to bring down gold price. When gold price came down, the Chinese are aggressively buying physical gold into China (from the U.S). Later, the Chinese sell back the gold to U.S… What?!

China vs US currency war

During the price drop in April 2013, gold coin sales has been higher. January sales is usually much higher than the other months, because January is when the new design being released. Due to price drop, the numbers from US Mint showed the sales for April 2013 is even higher than January. While the paper gold price is smashed down, many investors simply recognize this is a fantastic opportunity to buy physical gold.

us-mint-gold

Gold is the big brother of silver, both gold and silver are precious metal. However, silver has an additional demand as industrial metal. Silver is a metal highly consumed in manufacturing including car, electronic (TV, smartphone, refrigerator, RFID chips, etc), car, clothing, water purification, solar panel and much, much more. In fact, silver has more than 10,000 known applications.

There are approximately 3-5 billion oz of physical gold available for investment in the market, but there is only about 1 billion oz of physical silver available. If gold is a great buy, silver is even greater.

During the recent price drop, silver sales has gone much higher than the previous 2 months:

us-mint-silver

In the first 4 months of 2013, the US Mint sold MORE THAN 18 million American Silver Eagle bullion coins. That’s the first time ever the Mint has sold this many coins so early in the year, setting a record in the 27-year history of the series.

In that same period of time, the world’s silver ETFs actually added 20 million ounces to their vaults. That’s nearly $600 million of worth of silver being bought within just 3-4 months, all while silver prices were steadily declining.

Again, when there are people busy shorting (selling) the paper silver. Many investors understand the physical silver is the real tangible asset, and took advantage to buy silver at such low price.

During silver price drop last month, the world has literally facing a shortage of silver. This did not only happens to Malaysia silver market, but also globally. Click here to find out what happened in April 2013 during silver price crashed.

Now, look at it this way, you now have 2 choices:

  • Keep holding on to the paper money that central government can print as much as they can, while seeing them use the paper money to crash precious metal price, OR
  • Take advantage of current low paper price, exchange your paper money with tangible physical precious metal that has limited supply on earth.

Silver Malaysia eBookTo find out more about silver investment in Malaysia, take a look at eBook: Practical Guide For Investing Silver In Malaysia. You will find out why silver is a better investment compared to gold and learn how to buy your 1st silver coins.

The Truth

Have you watch the video? Please watch. “The Truth” is a highly awakening video everyone should watch. Really.

If you are now in certain form of debt (including credit card debt, personal loan, car loan, Ah Long debt, or any other creative debts), this did not happen by chance. The global monetary system is designed to get you into debt. The more debt you have, the more powerful “they” have over your life such as indirectly forcing you to cling to your job. When it comes to money, nothing happened by chance. The truth is, EVERYTHING is there for a reason and the reason is usually NOT benefiting you. Monetary system could simple if you understand how it works; but if you don’t, I recommend you take your time to look at these FREE educational videos I have compiled over long period of time.

Last week, I shared Rio Tinto’s Kennecott which contributes to US 16% annual silver production has landslided. This mine will likely shut down production. 5 million oz of annual silver supply (and 500,000 oz of annual gold supply) is vanished.

This week, I will share with you more precious metal mines are closing down due to the recent crash of silver (and gold) price. For the miners, it is simply not worth the cost to bring out new metal when the production cost is higher than the gold & silver price they can sell for.

1. Drumlummon Mine, United States

Miners drill holes on a grid pattern in the Drumlummon mine in 2010

Miners drill holes on a grid pattern in the Drumlummon mine in 2010

U.S. Silver & Gold is shutting down its historic Drumlummon mine because it costs more to produce an ounce of gold than it’s worth, the company announced on April 24, 2013.

During the first three months of 2013, the mine near Marysville produced just over 2,100 ounces of gold at a cost of nearly $2,300 per ounce. At the point of  the announcement, gold price was only $1,431. To put this into simple  layman terms, no businessman would want to continue an operation that requires RM2.30 to produce a product that can only be sold at RM1.40. Fair?

2. Pascua Lama, Chille

Pascua Lama

Pascua Lama is supposed to bring 700,000-800,000 oz of gold and 35 million oz of silver annually. Barrick (the company) is considering permanently suspending the Pascua Lama project. Barrick CEO, Jamie Sokalsky said “we are working to address the environmental and other regulatory requirements on the Chilean side of the project“. Do note that the shut down of Pascua Lama is due to environmental issue rather than silver & gold price crash. However, this would impact the global supply of physical gold and silver severely.

Knowing that for every 100 oz of paper silver being traded, there is only 1 oz of physical silver back them. For every 1 oz of physical silver that you buy at current suppressed price, you are making the silver manipulators to walk on a thinner layer of ice and helping to bring silver back to their true value.

Silver short term price movement might not be too exciting. Last week, I shared that silver price is “potentially” going to $20 within the next few weeks. Of course, do not know for sure if that would happen. But I will share with you what I observe:

Descending Triangle is one of the patterns in Technical Analysis. We draw one trend line that connects a series of support and a series of high. Once the breakdown occurs, the price is potentially going lower.

Descending TriangleHere is how silver price chart looks like:

Click on image for full resolution

Click on image for full resolution

How low would it go? I do not have the answer. However, during such suppressed price, I see it as an great opportunity to buy silver at undervalue price.

The MOST interesting part about our current situation is, regardless how low silver price, you might NOT be able to buy physical silver. Click here to see some proofs of physical silver shortage happening in both our Malaysia local silver stores and other silver stores in overseas.

Assuming that there is silver, premium (which contribute to the final purchase price) is much higher than it used to be. The premium for silver bullion is being updated 2 to 3 times in a week. The disconnection of silver spot price and physical silver is obvious and getting wider. Right now in US (a matured silver marketplace), it has been reported that some dealers are charging premium of more than 25%.

Looking at the silver chart earlier for the potential downtrend. This could be just the beginning. So, EVEN if silver price drop to $11, PHYSICAL silver might be selling at $30, $60, or even $100. In fact, I would be worried for you if you could still find silver at that time.

Silver Malaysia eBookTo find out more about silver investment, take a look at eBook: Practical Guide For Investing Silver In Malaysia. You will find out where I personally buy my silver from and my review on the dealers.

Apocalypse Revisited: Silver Market Update

by Joshua Enomoto, Founder of ContangoDown.com and FutureMoneyTrends.com contributor

With spot-silver down below the all-important $30 mark again, many market participants are understandably frustrated: if the fundamentals are so bullish, like so many experts and gurus emphasize, then why the %&$# are the precious metals taking a beating!? Usually, the answer proposed by the alternative investment community is “manipulation by the Rothschild cabal” or “irrational market behavior.” While I am neither a conspiracy theorist nor a psychologist, I will offer three points:

  1. There are irregularities in the silver sector
  2. Similar irregularities have occurred in the past
  3. The long-term market (+8 months) is more bullish than bearish

First, let’s acknowledge the irregularities in silver by examining its derivative market, popularly known as the “options chain” of iShares Silver Trust, or SLV. Options are contracts that give the owner the right, but not the obligation, to purchase (call option) or to sell (put option) an underlying market entity at a specific price within a specified period of time (Murphy, John J ; author of Technical Analysis of the Financial Markets). Options in and of themselves have no intrinsic value but rather derive value from an underlying asset, hence the name “derivative.” In most cases, the options fluctuate in value according to the market action of the underlying asset, but options are traded within its own market sector. Both fundamental and technical analysts examine the put/call ratio (which is a ratio of put volume divided by call volume) to determine market sentiment. A high put/call ratio suggests bearish sentiment, as volume is more heavily focused on the trading of puts (where the owner of the put makes profits from an underlying asset moving downwards in price). However, an excessively high put/call ratio can often be used as a contrarian indicator, where market sentiment has gone too bearish and that a bullish reversal is likely.

For the chart below, I have plotted the put/call ratio for SLV options with expiration dates in March through January (2014). Within the same chart, a similar ratio was plotted for open interest, or options that are not closed or delivered within a particular trading session.

As expected, March options are indicating bearish sentiment, as the put/call ratio is 1.3, meaning there are 1.3x as many puts traded as there are calls. In the near-term, it is very possible to see silver challenge horizontal support at $28 and even $26. However, we also have to keep in mind that overall, the put/call ratio is about 0.5 or less, meaning that call volume is usually twice as much as put volume in future contract months.

The one glaring exception is options that expire in October 2013. Here, the put/call ratio is 2.42, dwarfing the ratios registered in other contract months. This is a major irregularity in the silver market as bearish open interest does not rise in accordance with the volume. Specifically, what is causing the ratio rise is put options with a strike price of $26 (which equates to roughly $27 in the spot-market), where volume is 3,019, over 5 times higher than the next most dense put. In fact, the volume exceeds open interest by over 270%, suggesting massive activity. As it is highly unusual for volume to exceed open interest, especially by such a large margin, an investor can reasonably speculate that the October options activity is a contrarian indicator.

For a look at how a “normal” options market operates, let’s consider Carnival Cruise Line, or ticker symbol CCL:

To no one’s surprise given the recent black-eye that Carnival gave to the cruise line industry, bearish activity increased for March options. This is evidenced by both a high put-to-call ratio, as well as a high open interest for puts relative to calls. However, both the volume and the open interest ratios decline the further out the contract months are spread, confirming the normalcy bias of stock market psychology: over time, stocks tend to increase in value. Also, despite the current bearishness, CCL is in a comparatively healthy industry. It is very difficult to beat the “fun per dollar” basis that the cruise industry offers, and therefore, the above chart is indicative of short-term setbacks but long-term growth.

Unlike CCL, silver bullion’s price actions at times betray its fundamentals and this discrepancy is most noticeable when analyzing palladium. As an element, palladium is imbued with unique properties that make it indispensable for operating our sophisticated society. In fact, developments in advanced sectors such as fuel cell technology would be impossible without this element. This makes it similar to silver in that many of our technologies that we take for granted would not come to fruition were it not for precious metals. The key difference, though, is palladium’s usage is centered on industrial or commercial demand, with a majority share allocated towards the automotive sector as a critical component of catalytic converters. Investment demand, while not unheard of, is currently nowhere near the popularity of gold and silver bullion.

This has the advantage of making palladium’s market action easier to predict: as the automotive industry goes, so goes palladium. Most of the time, there is a strong correlation between spot-palladium and the Dow Jones Transportation Average; therefore, with the transportation index hitting all-time highs, it’s no wonder that palladium is the least affected in the recent downturn of the precious metals sector. However, silver also plays an important part in the automotive sector, with 36 million ounces appropriated for this industry. While that only represents 4 ~ 5% of annual mining production, your car simply wouldn’t function without silver. Also, with investment demand heavily leaning towards bullishness, as evidenced by the SLV options chain, spot-silver should be moving up, or at the very least, sideways.

So what gives? To provide a possible answer, let’s consider the 3-year daily chart of the Dow Jones Transportation Average interposed with the price action of spot-palladium and spot-silver:

While the connection is rarely (if ever) made, there is a recognizable measure of correlation amongst silver, palladium, and the Dow Transportation index. The two precious metals are even more tightly correlated, with one notable exception: there are times when palladium rose and shared an inverse relationship towards silver, as occurred in April 2010 and January 2011. Both times, silver dramatically increased and it remains to be seen whether it will do so again. Palladium is currently trading at $754/oz, roughly 5% above its one-year high. Silver is trading at $29.80, 20% below its one-year high.

Personally, I believe that silver will rise from its current price point but that it is unlikely that we will see a new nominal record being set within the first half of this year. In the immediate time frame, we have to acknowledge the rise of bearish volume in the options market and that could create some “funny business” for the next few weeks. However, whether we are looking at derivatives or the real deal, the overriding sentiment is bullish; therefore, I don’t think this is the time to dump the metals.

Also, I would not want to initiate puts and hope for prices to fall to $19/oz as the derivatives market is not bearish enough for an investor to feel confident that his” hopes in reverse” will pan out favorably. While the Commitment of Traders report suggest that commercial shorts are steadily increasing, so are commercial and non-commercial long positions, and quite dramatically at that.

Clearly, smart money and the insiders are moving into the silver market, and not all of that volume is on the short-side. Therefore, consider the current dynamics in context before making rash decisions in the precious metals sector.

Highest Silver Sales in History

American Silver Eagle coin has just made a new history for the monthly sales. The total sales so far (30 Jan 2012) has reached 7.42 million oz in a single month! It has broken the previous highest monthly sales record of 6.4 million oz in January 2011.

American Silver Eagle 2013

In case you don’t know what happened to American Silver Eagle (ASE), here’s a quick summary:

  1. On 17th December 2012, US Mint informed authorized purchasers that ASE 2012 had sold out and no additional ASE 2012 would be struck. The new coin ASE 2013 is only available for order on 7th January 2013 onward.
  2. On 7th January 2013, US Mint announced 3.937 million Silver Eagles were sold in a single day. This is the highest sale in the single day history!
  3. On 8th January 2013, US Mint sold another 300,000 oz of physical Silver Eagle coins. It is expected January 2013 would hit the highest sale per month in the history.
  4. On 17 January 2013, United States Mint is sold out for 2013 American Eagle Silver coins. As a result, sales are suspended until they can build up their silver inventory.  Sales will resume on or about the week of 28th January 2013.
  5. The week of 28th January 2013, all the authorized dealers are queuing for another massive round of Silver Eagle coin order. By 29th, another 1.5 million oz were sold.
  6. On 30th January 2013, US Mint sold total of 7.42 million oz, breaking the all time high monthly sales of 6.4 million oz in January 2011. It is expected total sales for January 2013 be MORE than 8 million oz!

Not only all silver investors / collector around the world love American Silver Eagle, this coin is also one of the best choices for silver investors in Malaysia due to its relatively low premium (compared to other coins) and high liquidity in Malaysia silver market. Liquidity here refers to easy to sell and buy in local silver market. Also not to mention the design of this coin is very beautiful and the details are very fine. Find out more about the review I wrote about American Silver Eagle here specifically for Malaysia silver market.

Mining production data shows that for every 1 oz of gold is mined, there are only another 10 oz silver being mined. However during this period, US Mint has reported that silver sales (demand) is 53 times more compared to gold sales.

If silver continue being bought up at this rate, don’t be surprised that one day you might NOT be able to buy anymore physical silver coin. So the question is, what are you waiting for?