Is Silver Price Coming Back?

Silver price has been 70% lower compared to the previous peek at about $48 in 2011.

downtrend

According to Lior Cohen from http://seekingalpha.com/ one of the main factors that keep silver investor hoping to see a major recovery is the expected changes in the production of silver in the coming years. Some analysts consider silver could make a comeback in the coming years on account of supply shortage – mostly due to cut down in production of other precious metals and base metals.

About 70% of physical comes as a byproduct of other mine productions:

  • 13% from gold
  • 38% from lead/zinc
  • 20% from copper.

Although silver production has gone up in recent years and could keep growing in the near term, it’s only a matter of time before production winds down and changes course. Some analyst expect production to fall this year.

With prices of gold and base metals falling to new low levels, miners are cutting down capital expenditure. Miners are likely to eventually reduce their output or at least not grow.

However, there are few consideration to take note:

  1. It could take years before companies will substantially cut down their productions. So far, many companies have been aiming towards conserving cash and cutting debt by reducing capital expenditure and selling assets.
  2. A drop in production doesn’t pressure prices up for a long time without s a strong demand for silver. For the past few years the growth in demand was mostly driven by investors via ETFs and bars and coins. And to a lesser extent by the higher consumption for industry usage mainly in China. Now, on both fronts demand isn’t expected to grow any faster (if at all for investment purposes). Thus, without a stronger demand for silver, a modest fall in supply in the coming years won’t be enough to drive up price of SLV. From here on end, we still have too many factors from the demand side that may offset slower growth or even fall in production. So it could take years before lower production will become an issue for the silver market to push prices to higher levels.
  3. The golden age of silver during 2008-2012 was also mainly due to gold. As of the past few years gold hasn’t gone anywhere but slowly down. So without the push from gold it will be hard for silver to make it on its own or reach new highs.

The silver market is at the cross roads. Even though production could start to slowdown in the coming years, the big issue for silver will remain what happens to its demand side – most notably will investors keep stocking up on this precious metal. The usage of silver for industrial purposes (e.g. solar panels) is an important factor that could keep the market tight. But without another panic a devaluation of the U.S. dollar, it will be hard for silver to recover. For now, the Fed remains on the fence of raising rates, which keeps SLV from resuming its descent.

Silver Malaysia eBookPractical Guide For Investing Silver In Malaysia is an eBook specifically written with a Malaysian’s context for silver investment. You will learn different strategies, practical tips and tricks for investing in silver. Click here to find out more.

American Silver Eagle Out of Stock Again?!

Last Wednesday (5th Nov 2014), the U.S. Mint announced they are temporarily out of stock for the world famous coin American Eagle. This is primarily due to low spot price for silver and tremendous demand for physical silver bullion.

american silver eagle 2014 out of stock

U.S. Mint said they will further announce when additional inventory will become available for sale, but did not provide specific details.

The similar out-of-stock incident also happened in year 2012 and 2014. (Click on the year link to the articles).

We know the price of silver has came down tremendously. But what good does it do if the producer is not selling any silver to the public? What is the point of low price if investors cannot get physical silver in their hands?

Paper silver might be an alternative for investors. However bear in mind that a big portion of silver demand came from industrial demand. Industrial means physical silver. You cannot give a stack of silver paper (contracts) to the manufacturers in China to produce iPhone 6 and solar panel!

The consecutive years of temporary out of stock from U.S. Mint basically is suggesting they are running their minting operation on a very thin level of available raw silver. They are unable to cope with a suddenly spike of demand, which happened in the last few weeks.

This is not the first time such happens. Does it mean they have not learn from the past years? Or does it means they are unable to secure larger amount of available physical silver for production?

Till date the sales for American Silver Eagle coin is as following:

sales

It feels really weird to me that silver – a limited precious metal on earth that have strong industrial application and investment demand is facing downtrend in price. Silver price movement is definitely not aligned with demand.

Again, silver is a finite resource on earth. One coin alone (American Silver Eagle) eats up average 40 million oz of silver each year in the past 4 years. When silver is used in industrial application, it is gone forever.

I’m wondering, how long more can the trend of low silver price yet strong demand continue?

Silver Malaysia eBookPractical Guide For Investing Silver In Malaysia is an eBook specifically written with a Malaysian’s context for silver investment. You will learn different strategies, practical tips and tricks for investing in silver. Click here to find out more.

New Low in Silver since 2010

Silver price hits new low since year 2010. The trend for silver price is bearish (potentially moving lower) as you can observe from this chart:

silver-short-term

According to Investopedia, this is known as descending triangle. The descending triangle is recognized primarily in downtrends and is often thought of as a bearish signal.

decending

If we zoom out and take a look at the longer term of silver price movement, the similar pattern can be observed as following:

silver-long-term

During this period, many investors took advantage of the low price to buy physical silver.

Take the one of the most famous silver coins – American Silver Eagle, the sales for 1oz coin in 2nd half of 2014:

  • July – 1.9 million oz
  • August – 2.0 million oz
  • Sept – 4.1 million oz (breakdown as following)
    • 1st to 25th Sept : 1,700,000 oz
    • 26th Sept : 700,000 oz
    • 29th Sept : 350,000
    • 30th Sept : 1,357,000 oz
  • Oct – 2.5 million oz (at the point of writing this), where
    • 1st and 2nd of Oct : 1,650,000 oz

If we put this into perspective, from 26th Sept to 2nd Oct (5 business days) there are total of 4.1 million oz of American Silver Eagle sold. That is just for 1 coin!

2014_American_Silver_Eagle_Dual

Silver investors are buying on physical silver as there is a clear disconnection between the physical demand and spot price.

These are some of the reason why physical silver investors believe in physical silver and took advantage over the low price.

  1. Global electronics demand.
  2. Global jewelry demand, especially in Asian.
  3. Global industrial demand (it is expected to grow 5% per year through 2016 and outpace global GDP growth).
  4. The number of new industrial applications.
  5. The number of new bio-medical uses.
  6. Photovoltaic (solar) demand.
  7. Volume on the Shanghai Futures Exchange, which already surpassed the COMEX in 2013.
  8. Perth Mint sales were 41.6% higher in August than July, and September sales were the 3rd highest of the year.
  9. Domestic demand in China, which is expected for the first time in history to exceed 250 million oz in 2014.
  10. Gold/silver ratio (getting close to five-year high).
  11. The difference between price and the cost of production.

Silver Malaysia eBookPractical Guide For Investing Silver In Malaysia is an eBook specifically written with a Malaysian’s context for silver investment. You will learn different strategies, practical tips and tricks for investing in silver. Click here to find out more.

Silver Price Fixed Ends in August 2014

For the past 117 years, silver price has never been on a truly free market. The price has always been fixed by 3 players: Deutsche Bank, HSBC and Bank of Nova Scotia.

The London silver fix is currently set by three banks over the phone at noon in London. It’s used by the entire silver market, including the Canadian mint, precious metal miners, jewelers, your local silver dealers and of course investors like us.

The price fix is based on deals between their clients and obviously did not take you (a retail investor) into consideration.

However, situation will change in August 2014 because Deutsche Bank is going to withdraw from such practice. This will leave HSBC and Bank of Nova Scotia to be the remaining player to “play” with silver price.

deutschebank-silver

It takes a lot of funding to manipulate silver price. Without financial resources from Deutsche Bank, the remaining 2 banks find it unsustainable to continue fixing silver price.

Deutsche Bank started pulled the plug on its global commodities trading business since December 2013. They cut 200 jobs and it becomes the first major bank to exit the once lucrative sector due to toughening regulations and diminished profits.

Deutsche Bank did not completely stop their activity on silver in December 2013. The bank resigned in April from its gold and silver fixing seats. Their silver price fix activity will only completed stopped in 14th August 2014.

What is the impact after August 2014? Silver market is not going to collapse.  silver price will face a market-led adjustment. There will be more uncertainty. But that also means a more transparent silver price driven by demand and supply. The fundamentals of silver has become more important than before. Watch this video to learn more about the fundamentals of silver

Silver Malaysia eBookPractical Guide For Investing Silver In Malaysia is an eBook specifically written with a Malaysian’s context for silver investment. You will learn different strategies, practical tips and tricks for investing in silver. Click here to find out more.

Listen, Silver: We Need to Talk

Jeff Clark (Senior Precious Metals Analyst) wrote a letter to Silver last week in a fun way, and Silver answered back. Here is their exchanged emails:

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 Silver’s 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

Silver Malaysia eBookPractical Guide For Investing Silver In Malaysia is an eBook specifically written with a Malaysian’s context for silver investment. You will learn different strategies, practical tips and tricks for investing in silver. Click here to find out more.

Silver GST

Goods and Services Tax (GST) will be implemented with effective from 1 April 2015. GST rate is fixed at 6%. How will this affect your silver investment?

First of all, will GST be applied on silver? The answer is a clear YES, regardless whether you buy silver bar, silver coin or silver round.

Mr. Nur Hilmy Ahmad from Nubex Sdn Bhd (one of the largest gold and silver dealers in Malaysia) wrote to Jabatan Perlaksanaan GST and got a firm replied that GST will not be exempted from GST.

nubex silver gst

Is there any exception on products and services that do not need to pay GST? Yes there are…

According to NBC Group, GST is imposed on all goods and services produced in the country including imports. However, certain basic foodstuff likes rice, sugar, flour, cooking oil, vegetable, fish and meat, eggs and essential services such as health and private education, public transportation, residential property and agricultural land are not subject to GST.

GST will also not be imposed on piped water and first 200 units of electricity per month for domestic consumers and Transportation services such as bus, train, LRT, taxi, ferry, boat, highway tolls as well as education and health services are exempted from GST.

However, silver is NOT categorized into any of the above.

When your dealer(s) charge extra 6% on your silver purchase from 1 April 2015, they did not pocket the 6%. They are merely collecting in on behalf of the government.

So, do you buy more silver now (without GST) to avoid paying GST on silver after 1 April 2015?

That will depend where you think silver price is heading.

  1. If silver price rises much higher over the next few years, it is definitely a good idea to stock up more silver now to enjoy additional 6% profit;
  2. If silver price remains unchanged between $19/oz and $20/oz over the next few years, it is still a good idea to buy a few more ounces for 6% saving;
  3. If silver price drops more than 6% from current spot price, it will be wise to hold your purchase. A sample illustration as following: Current silver spot price is $20. If silver price drops 10% (more than 6%) next year, the effective cost for buying 1 oz of silver will be $19.08 even included GST ($20 – 10% + 6%). In other words even GST has been imposed, if silver price dropped more than 6%, you will still be paying a lower price compare to buying now without GST.

Silver Malaysia eBookPractical Guide For Investing Silver In Malaysia is an eBook specifically written with a Malaysian’s context for silver investment. You will learn different strategies, practical tips and tricks for investing in silver. Click here to find out more.

Top 3 Reasons Silver Rise in 2014

For investors who have invested in silver, surely you are aware that 2013 is one of the worst years for silver market. 2014 could be the year for silver price to rebound and here is the top 3 reasons:

1. Mining Cost

During the 3rd quarter of 2013, silver mining costs averaged $21.39/oz. In the past 2 months, silver has been fluctuating below $20.40 which is below mining cost.silver_60_day_o_usd

If it costs more to mine silver than the market is willing to pay for, eventually the producers will stop producing silver. A logical question to ask is why would someone spend RM1.00 to produce a product that can only be sold for RM0.90?

Ironically, this is what exactly happening in silver market. These are the type of situation value investors dream of because it allows them to purchase silver at a great discounted price. Such environment (below production cost) cannot last for long time because it does not make sense to produce anything to sell it for lower than production cost. Eventually silver supply will be cut, then scarcity, and eventually silver price will jump.

2. Technically oversold

The bull market of silver started at the end of 2001. From $ 4.02 to recent all-time high of $48.42 (increase of 1,104%). Several significant corrections took place. The most severe one was in 2008 when the silver price dropped by 57% then to jump 441% to a new all-time high.

silver-long-term

As shown above, silver price is in an oversold position. The situation is worse than in 2008 or in 2001. Such positions have always been followed by strong upward movements. After 2008, silver rose 441%. Some precious metals (gold and silver) shares even jumped 2,800%!

However, do not get overly excited with shares profit. Gold and silver stocks are more volatile than the real gold and silver. During uptrend, the profits soared higher; during downtrend, the losses would also be more significant. If you are new to precious metal investment, it is best to buy the metal itself than to buy the companies that owns the metals. It is hard work to select the right companies and to monitor them. You need to know the company management and understand their long term plan. That potentially makes your silver investment more complicated than necessary.

3. Asia Demand

India and China continue to be the largest buyers of gold and silver in the world.

indian-silver-trader

In 2013, India government has made several attempts to slow down demand for gold. India government increased import taxes to 10% for gold bullion and 15% for gold jewelry. That has resulted Indians to move their attention to silver. Between Jan and Sep 2013, silver imports to India totaled more than 4,000 tonnes, already more than whole year of 2012. Silver imports jumped 40% from 241 tonnes (in Sept 2013) to 338 tonnes (in Oct 2013).

photovoltaics-chinese

When China government is urbanizing 250 million citizens, that will require a lot of copper and other commodities. The government continues to source for renewable energies, which means an enormous push for photovoltaics and physical silver. Enormous demand for physical silver will be required by photovoltaics that will come from China and Japan.

Silver Malaysia eBookPractical Guide For Investing Silver In Malaysia is an eBook written with a Malaysian’s context for silver investment. You will learn different strategies, practical tips and tricks for investing in silver. Click here to find out more.

Silver Had A Terrible Year 2013

Silver had a terrible year in 2013. Silver price felt 36% in 2013. It started off with $30.11 and closed at $19.41.

year-2013

PricewaterhouseCoopers (PwC) conducted a survey on investors’ expectation on silver price for next 12 months in 2014:

  • 53% said they expect the price to increase
  • 38% expect it will remain at current levels
  • 9% predict a further decline in price.

Download the full report by PwC.

Silver is a multi-purpose metal. It acts as both a currency and an industry commodity for investors. Silver has a wide-range of applications such as jewelry and medical equipment. The price of silver dropped 36% in 2013. Starting the year around $30/oz and felt to $19/oz. Silver hit an inflation-adjusted record of just under $50 in April 2011. Oversupply of paper silver is partially to blame for the drop in silver price in 2013. Its correlation with gold as a store of value for some investors has contributed to its price depreciation in recent months.

Also, be sure to check out last week article: Top 3 Silver Investment Recap in 2013 >>> http://silverinmalaysia.com/top-3-recaps-silver-investment-2013/

In investment investors do not expect to make money right after putting in the capital. There will be up time and there will be down time. Apparently 2013 happens to be one of the bad year for silver.

If you have been holding on your purchase and wondering if this is the right time. Remember that you are getting a 36% discount compare to those who have invested 12 months ago.

In fact, if you use a longer time frame back to April 2011 when price was almost $50, you are now getting a 60% discount!

year-2011-now

Is now a good time to invest? Will price drop further? Unfortunately I do not have the crystal ball and I could not predict the future. All I could do is show you the facts and you have to make the decision.

Silver Malaysia eBookPractical Guide For Investing Silver In Malaysia is an eBook written with a Malaysian’s context for silver investment. You will learn different strategies, practical tips and tricks for investing in silver. Click here to find out more.

Top 3 Recaps Silver Investment 2013

2013 has came to the end. Silver price has not been particularly exciting this year. Here are the top 3 events worth noticing:

1. April Price Drop

On 12th April 2013, silver price broke support at $26. $26 has been a strong support in the past. When silver price broke a strong support, the support will then become a strong resistance in the future. During this drop, some investor got panic because a strong support is broken. Most investors took this opportunity to buy silver at a discounted price.

support

2. American Silver Eagle coin sales created new record high

American Silver Eagle (ASE) coin sales is a good indicator to gauge investment demand for physical silver. The coin has a beautiful design yet the premium is relatively low among the other coins. That made ASE became a highly demanded silver coin in the world.

In 2013,  American Silver Eagle coin sales has created all time high sales record. Despite bearish silver price movement in 2013, physical demand for American Silver Eagle coin remained strong.

coin

3. 2014 silver price outlook

Technically, silver market is not over by looking at the major uptrend lines. The fundamentals continue to build in a favorable way for silver. The facts remain that gold is moving to China and India at rapid rate, Germany only received a fraction of their gold back. It will take another six years before the New York Federal Reserve will finish their delivery.

2014 will be a rebuilding year for silver to regain strength but not significantly. This is due to the ongoing currency debasement and the coming economic crisis. It is usually wise to buy when the markets are quiet and when investors are pessimistic.

Silver price is expected to be traded between $19 to $26. It might take several attempts to to break $26 before hitting $30 mark. However, it is always possible that something could take place to shift market sentiment overnight.

Silver Malaysia eBookPractical Guide For Investing Silver In Malaysia is an eBook written with a Malaysian’s context for silver investment. You will learn different strategies, practical tips and tricks for investing in silver. Click here to find out more.

Did Silver Price Drop

The Federal Reserve announced last Wednesday (18th December) it would start to taper the aggressive bond-buying program from $85 billion to $75 billion a month beginning in January 2014.

In layman terms, it means Federal Reserve is suggesting they are going to slow down money printing because the economy is recovering. They are going to print less of $10 billion each month starting January 2014.

Silver price has dropped as a reaction to the announcement:

silver-price

Some investors who have been waiting for the perfect time to buy silver have decided to make a move to purchase silver. However they are surprised that silver price did not significantly dropped in their final purchase price (in Ringgit).

The reason is because when Fed announced US economy is recovering (by tapering QE), that also means USD will be strengthen. Unless Ringgit was still peg to USD, a strengthen USD basically means a weaker Ringgit.

Exchange rate went up to as high as $1 = RM3.2970 last week

usd-myr

Ideally when silver price drops, investors would be able to buy silver with lower cost. However, during this drop (driven by strengthen US economy), USD value went up and have off set the final purchase cost in Ringgit.

Compared to other investment class (such as shares in KLSE or property in Klang Valley), silver has an additional variable which is currency exchange rate. When you approach your local silver dealers, some will factor USD/MYR exchange rate into final selling price while some would not. A lower silver spot price in the international market does not always guarantee a lower silver price in Malaysia.

Silver Malaysia eBookPractical Guide For Investing Silver In Malaysia is an eBook written with a Malaysian’s context for silver investment. You will learn different strategies, practical tips and tricks for investing in silver. Click here to find out more.