Morgan’s Thoughts on Silver
It is almost amusing to see how many people are writing and extolling the virtues of silver investing now. What a contrast to the early 2000s, when almost no one wrote about silver, save Butler, Sanders, and me. Jason Hommel came on board very early as well.
People who have followed my work from the beginning know that we stated there would be a day that the physical market would take over the price-setting mechanism. That day has arrived and this is one of the factors driving the price higher. Any new physical buying is adding pressure and therefore moving the price higher.
Since silver is also used in industry and we know that four nines (0.9999) silver is being delayed, one can only ask how many silver users are now experiencing concern that their “just in time” silver inventory might be in jeopardy. It is being discussed by silver users around the world as we go to print. All this is taking place as the Silver Institute recently published a paper stating that industrial demand for silver will increase to 60% from the current 54% by the year 2015 or so. Simple fact: the industrial component of the silver market is not going to be deterred by the price. The industrial demand is projected to get stronger, not weaker!
Next we see that more than 5 million ounces of silver have moved from Scotia’s registered category (where Scotia owns the silver) to the eligible category, in which almost all cases, long-term investors are holding silver but merely storing it in Comex-approved banks. The total amount of silver held in the Comex is about 102 million ounces. Of that, almost 67 million is in the eligible category (long-term investors) and a mere 35 million ounces in the registered (dealer) category.
As most of you know my near obsession with the silver market, I often look at the Comex movements and categories. The last time the registered category got below 38 million ounces, all heck broke loose. Well, I am not saying it will happen again, but silver was up 8.2% for the week and that was a four-day week. It is too early to forecast or project too much because the market is already high and accelerating up as of the week of April 18. It could certainly have something to do with the extremely small amount of physical silver held by the dealers. The question remains, is the Comex in serious trouble of defaulting, although I have mentioned in the past that it could take place, and it could!
For those interested in the two categories, here is a link to an article I wrote in 2003 about it: http://www.financialsensearchive.com/editorials/morgan/2003/0916.html.
The “authorities” have a great deal of control provided by the contract (that all futures traders sign that they have read and understand) that provides the rules of the game, so in my view it is still unlikely at this point that we will see a commercial failure. But the commercials must be feeling the pressure and it is my contention that the commercials are very adept at getting their way when things get tough. Let’s not take mildly the ability of the Exchange to do something similar in the silver market that has already been done in the palladium market.
The coin market is on fire and especially the government minted coins, such as U.S., Canadian, Australian, and some European based coins. From our survey it seems most current investors are moving toward coins and not 100 oz. bars, which at one time were very popular.
The coin market also does not seem to be affected by the current price level, as many new silver investors are realizing that the price might be noticeably higher than a year ago, but they also understand that gold and silver are about the only investments that make sense under the current economic conditions.
The large funds are also very involved in putting price pressure on the market. If we look at the established silver funds, such as Central Fund of Canada for an example, we know they are most likely not finished purchasing precious metals. In fact, CEF put out a press release on April 6, 2011, stating that the fund has completed sale of more than 16,000,000 shares, raising gross proceeds of US$360,145,000. This will add a few more million ounces of silver to the overall holdings of Central Fund.
At the same time that established funds are adding to their silver holdings, new funds are coming onboard as well. We all know about the Sprott Physical Silver Trust, established when silver prices were around $26 per ounce. There will be others coming out over the next several months and perhaps years.
In summary, it is different from the aspect that the silver market has never been tighter. For one of the very brief times in my lifetime, the physical market (not the futures market) appears to be setting the price, and demand continues unabated in both investment demand and industrial demand.
However, if we are to be objective, we must examine the other side and prepare ourselves for what can possibly turn the market down. Most if not all of our subscribers know that I am constantly asked why the market (in silver or gold) went up or down on any given day.
However, in order for silver or gold to drop precipitously and stay down, it would require a solution to the current global monetary system. Simply stated, where else can anyone invest for capital preservation outside of the precious metals?
Now that Standard & Poor’s has downgraded the U.S. credit outlook it is obvious to anyone with any ability to think, that precious metals are a must investment! So, to repeat, where else are you going to invest under the current market conditions? This downgrade implies the S&P sees a likely chance that the U.S. credit rating will fall below AAA within the next few years.
Defaults in the municipal bond market continue and many understand that even bonds are not safe investments. This suggests that a default for many cities and counties will be inevitable. Many still state again and again that U.S. Treasuries are the SAFEST investment; I have my doubts personally, but I do think the shortest maturities—read T-Bills—are safer than any other maturity. Again, the debt of some higher-level government agencies is at serious risk.
David Morgan
Join us today: http://www.silver-investor.com/amember/signup.php
Join our free list: http://www.silver-investor.com/joinfreelist.html
I am just an amateur silver investor but have long time experience in personal investments. After losing my shirt (60% devaluation) in tech stocks ten years ago, watching the bond market explode and even my house losing value(!), I went back to purchasing small amounts of common date silver coins both online and retail. At this point, something tangible is far better than a pocket full of wishes.
The absence of a true physical market needs to change..which will require a replacement CTFC. JPMorgan will continue with the pretend paper and change the rules as required along the way. The game is rigged through and through and requires revolution that seems impossible. The truth is that a physical commodity like silver will be highly sought after as fiats fail. What will that world be like if not completely disfunctional.
Ted Butler’s weekly review on Saturday…”The liquidation of the 40 million ounces from the SLV is incredibly bullish to me. There was nothing coincidental or unintentional about the sudden 30% drop in silver prices. As I have previously written, getting as much silver from the world’s largest stockpile of silver was the reason behind the price plunge. This silver was forcibly taken from SLV shareholders, whether those shareholders were aware of it or not. It was taken by those who didn’t mind violating market laws in order to get the metal. That should give you a sense of how serious was the intent to secure this silver. Many will say this shows that the silver wasn’t in demand by the investors who sold it.. I would say nothing could be further from the truth. Breaking laws to secure something indicates a motivation bordering on desperation. The bottom line is that these 40 million ounces are now held in incredibly strong hands.”
it amazes me that dash investor went on poop plava’s financial nonsense show
twice in a row to say there was no silver shortage and allowed poop to call max keiser
stupid without challenge. then the mints of canada and the usa came out and said there
was shortage, silver hit 48 and premiums have risen on most silver products.
they both put this nonsense out when silver was in the low 20’s.
ok now lets hear what they say and do the opposite.
I agree with Gonob Radio’s post above. Dash investor said the same thing when silver was $11-$14 dollars that silver will go down short term. Thank God, I didn’t listen to him. But I always listen to Jeff Christian and Dash investor on Poop show because I do the opposite to what they recommend and I have been wrong only once in the past two and a half years. Mr. Christian said gold will end $1350 end of year 2011. What a d****e. Has been wrong perennially. Time to load more gold and silver. Probably end of year 2011 gold will be $1800-$2000.
“We stated there would be a day that the physical market would take over the price-setting mechanism. That day has arrived …”
David, I am wondering if you really believe that physical is starting to drive the silver price over paper, then doesn’t that imply that it is time to get out of paper completely and into physical as soon as possible? I notice you are still doing trading on the paper silver in your commentary to subscribers.
Thought experiment: “Suppose a black swan event is coming and the paper silver market is going to diverge in price from the physical. What objective criteria would you use and when to get out of paper silver completely so that you can still buy the physical while it is still available?”
If there is indeed a physical shortage of silver as Sprott claims now and evidenced by delays on coins and high premiums on coins and such, isn’t the time now to get out of paper silver completely and just wait for any number of black swan events or institutional investors to get in driving up the price?
I have followed your suggestion and have 75% in physical and 25% in mining and paper silver (PSLV) but I think the increased volatility, the shortages increasing, the increase in price manipulation (margin increases), are the metrics indicating now is the time to dump the 25% paper silver and get 100% into physical. Also, we have just been handed a nice price to buy in at given the decrease from 49 to 33 so the price to buy into physical on this dip is almost to good to pass up.
Another comment on the coin market mentioned above that silver eagles are more popular than 100oz bars:
Every silver expert I’ve been reading says in the end it will be how many ounces of silver you hold that will be the driving force in the transfer of wealth coming (Mike Mahoney in particular). I believe the current run up on silver coins is stupid from an investment point of view and only helps the dealers rip off the average Joe.
For example, an online dealer told me they buy back silver eagles for $1 of the $4 current premium charged when buying the $38 eagle. A $4 premium on a $38 1-oz silver eagle is an 11% premium vs a 3.5% premium on 10-oz bars which get spot price when sold back to the dealer. A person would get roughly 5% more silver ounces by buying bars vs coins.
People should start buying bars instead of coins (not 100oz bars though because at $3800/bar, if the price increases 10 fold, it goes over the $10,000 1099B reporting requirement that dealers will have to fill out when
you sell back your silver).
Also, a gripe about the dealers and the state of the physical market for the little guy: The physical market is stacked against the little guy just as the paper market is. Dealers in my area have bad reviews on yelp and the online guys (even people I respect like Mike Mahoney) have large premiums over the wholesalers like gainesville coins. Also, it is very easy to buy silver but try to sell it back and see all the problems and time it takes to get a decent price. I tried getting insurance also on the coins at home but was told by state farm that they do not insurce bullion coins anymore. Be careful out there buying and do your homework.
Just my two cents …
I wonder if the grocery stores and gas stations in Utah will trade silver for food and gas? Probably……
Yes it is just since few year i am also hearing about silver investment. Before that I had just heard about gold and diamond being more precious than it. For nowadays many people are preferring to purchase silver plated bico jewelry
I find it amusing that dash investor is still a link on max keiser’s site considering what i wrote here last and this story…Scotia Mocatta Loses 60% Of Its Physical Silver In One Month To “Reclassification”, Total Comex Registered Silver Now Under 30 Million Ounces…http://www.zerohedge.com/article/scotia-mocatta-loses-60-its-physical-silver-one-month-reclassification-total-comex-registere
well if morgan is not a moron for teaming up with poop-plava (who also made the case for the fed, hint)
and admits he was wrong then fine otherwise he has no credibility left.
there is a shortage of real silver…but not fiat silver (did he mean that?)