Best outlook for silver since the days of the Hunt brothers
Not since the Hunt Brothers tried to corner the silver market in the late 1970s has there been more dramatic news for silver prices than last week’s confirmation from the Commodity Futures Trading Commission enforcement division is investigating the silver market.
This column tipped silver as a strong buy for mid-summer but did not anticipate the depths to which this market would fall in a 50 per cent retracement from the March high. The suspicion among silver bugs around the world has been that market manipulation was to blame for this exaggerated price movement which came at a time when stocks of bullion and especially silver coins ran very low.
Retail investors have recently been big buyers of silver bars and coins, while something fishy has been happening in the futures market with short positions. Silver investors have written hundreds of emails to US federal regulators and the result is a fresh investigation.
‘We take the threat of manipulation in the futures and options markets very seriously and employ a number of measures to prevent, identify and prosecute it,’ says Stephen Obie, acting director of enforcement.
The argument from silver bugs is that a small number of US banks have been holding a large portion of short positions — or bets that silver prices will fall — on the New York Mercantile Exchange. And indeed data shows that two US banks increased their short positions between July and August by 450 per cent and controlled 25 per cent of the market.
This time it is the enforcement rather than oversight division of the CFTC that is tackling the investigation. The oversight division performs overall market surveillance. The enforcement division looks at activities in a specific time period.
It may be that the CFTC enforcement division investigation reveals no wrong doing over the summer. Silver has always been a volatile commodity, and price swings can also be to the upside and benefit investors. But this investigation also puts the spotlight on silver at a very interesting moment in the precious metals bull market.
The American financial crisis bail-out plan looks a highly inflationary package however it is interpreted, with a $700 billion cash injection bringing the total cost of the crisis so far to around $1.5 trillion. More money in the system means more inflation, and this will tend to be skewed into certain asset classes that protect against inflation like gold and silver with their relatively fixed supply.
The bail-out plan is also bad news for the US dollar, and a further bout of dollar devaluation will be part of this attempt to re-flate the US economy. And anybody who has followed the bull market in precious metals will know that gold and silver move in inverse relation to the US dollar, so a weak greenback will benefit precious metals.
Now it has also been a notable feature of this bull market that silver has out performed gold in terms of price increases by a factor of almost two. Hence, the move by regulators to investigate price manipulation in the silver market comes at a point when there are already two powerful drivers behind a silver price advance: the global financial crisis and the gearing of silver to the gold price.
That makes a total of three strong reasons why silver prices will rocket upwards over the next couple of months: a price fixing investigation, a renewal of the bull market for precious metals during a financial crisis and the traditional leverage of silver to the gold price.
To obtain even better performance then you can choose to leverage the silver price advance by buying the so-called ‘pure-play’ silver producers. These are large silver mining companies whose profits will rise by an even greater percentage than the price of silver as the price movements in the metal flow straight to their bottom line.
The names of these silver companies are no secret and well known to global stock market investors. In the past the like of George Soros and Bill Gates have bought into Pan American Silver as a geared play on the silver price while the other big names are groups such as: Hecla, Silver Wheaton Corporation, Silver Standard Resources, Coeur D’Alene Mines and Silver Corporation.
Investors who think the silver price is due for a major increase, and at current prices it is cheaper than it was 28 years ago – the only commodity to be in that position – should be buying these companies for maximum price leverage against the rising price of the underlying metal.
How high could silver prices go? Well, just to recover their inflation adjusted average price in 1980 silver would top $125 an ounce, and if markets overshoot then $200 is possible.
When you consider that the price at the time of writing is $13.50 that could prove to be the investment opportunity of the decade, and far more exciting than following Warren Buffet and waiting for the US financial sector to recover. Incidentally he successfully played the silver market a decade ago and doubled his money in a short period, so do not rule out his also getting in on silver again.
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Silver got knocked back after the bailout plan failed last night but it soon rallied as gold took off. Silver is leveraged to the gold price. So when gold fell last summer, silver fell even lower. Now the reverse will apply and silver is the asset to hold for highest gains from gold! The reason is that silver is a small, tight market so price movements get exaggerated.
peterjcooper
September 30, 2008 at 1:18 pm
September 27, 2006
Analysts predict soaring silver prices
Coeur d’Alene, Idaho (Platts)–25Sep2006
Whether or not the price of silver, along with gold, is being
manipulated to the downside by bullion banks and big
Wall Street traders was the subject of some disagreement at
the 4th annual Silver Summit in Idaho last week.
However, analysts told Platts they were unanimous on one
point: the silver price is headed seriously upward, fueled both
by fundamentals and near-historic levels of investor and
speculator interests.
“I am rabidly bullish on silver, and as we digest the first stage
of this bull market, we are poised to reach new real-time price
highs,” said Sprott Asset Management’s John Embry, adding that
he expected silver to be more volatile than gold but, in the end,
to outperform the yellow metal.
Embry continued: “As we slide down the slippery slope of credit
expansion, we will see further erosion of faith in fiat money.
The Federal Reserve will be faced with a monetary policy either of
deflation or hyperinflation as debt piles up. Hyperinflation will be
the more likely policy, and far from being a relic, silver will
re-assert itself as money.”
Embry referred to a Sprott-issued report in 2004
entitled “Not Free, Not Fair” in which he suggested that
in leasing gold banks and other major traders had conspired
to suppress the gold price. At the Silver Summit he declared
there was similar “obvious price fixing” in the silver markets.
“The silence of the silver-mining companies in the wake of
these manipulations must end,” he said.
CPM Group’s Managing Director Jeffrey M. Christian said
he could find no evidence of silver price manipulation, but said
market forces would drive the white metal’s prices much higher
than current levels in the near term, should investor or speculator
interest top 150 million oz.
“The silver market is shifting from 16 years of persistent net
sales from inventories to net purchases for addition to inventories,”
said Christian. “Investors are buying silver. The iShares silver ETF is
only a sideline, a consequence, of the surge of investor interest in silver.”
According to Christian, the Indian government sold 35-mil oz
of silver in 2005, but sales could decline to 32.5-mil oz in 2006.
“Silver was legally re-exported from India in March and April 2006
after stocks of unsold new imports built up there,” said Christian.
“The silver went mostly to dealer holdings in London, where the
metal will be available for delivery into the silver ETF.”
Christian likened current market conditions to those of 1979,
when silver shot up to nearly $50/oz and the silver-gold ratio
dipped below 10:1. “This represents investors buying more silver,”
he said. Total silver bullion inventories, meanwhile, have fallen from
more than 2-billion oz in 1986 to nearly zero now, he noted.
peterjcooper
September 30, 2008 at 10:15 am
You did not go into, the after market,unregulated OTCs, which was also used, by both the (illegal)Naked Short Sellers,ie” Banks,ect,where investors lost huge amounts of money,to the Banks,or who ever was partkeing in these well organized,tarketed,attact on Gold & Silver,to Manipulate the market price of both metals,then reap Billions in Profits,at the expence of those that where not privledged to the insider information,between those who acted with illegal intent.That would make you wonder what the Banks in question & the Fed knew? Also what would stop it from happing again? The huge paper & physical price difference,plus refinery supply problems have shown us that surpressing the prices,has hurt the supply side,plus it has also created a Security issue,because the industrial use of Silver is vital to our Military & Medical complexes,also the real chance of Default,in the paper market & the Physical(Comex)Market! The Elites behind the curtian that runs the Fed,are pulling all strings, while sucking the wealth out of our(un-free)Markets,by doing so,they have exposed them self,and now it we will see if our Enforce Side,will do it’s job, which they have not in the past?! If more where to get this in the MSM’s Head Lines,& in the Courts of Public appeal,more would be done,because the Congress are trying to get re-elected!
mickey smith
September 28, 2008 at 8:43 pm
You are of course most likely absolutely right! This might well fall within the scope of the investigation too.
peterjcooper
September 28, 2008 at 4:41 pm
question, did the one or two banks involved in the large shorting of silver know before time that the ‘feds’ were going to raise and support the dollar?? is it possible they work in unison for ‘their’ gains?? ha ha ha ha, it really is not funny, but, that is the big question, and it looks obvious that ‘they’ did.
john verderber
September 28, 2008 at 4:19 am