Gold Silver Desk

Thu, 11/29/2018 – 22:30

Even though interest in precious metals has fallen over the past few years, investment demand is still the largest growth sector in the silver market.  Yes, it may be hard to believe, but physical silver investment has grown the most since the 2008 financial crisis compared to the other sectors.  And while industrial users consume the highest amount of silver in the overall market annually, its total demand has fallen over the past decade.

Furthermore, a new study shows that global PV solar demand will decline by 40% over the next five years.  But, I will get to that later in the article.  However, I wanted to focus on physical silver investment demand because the alternative media community seems to have this idea that SILVER IS DEAD… IT’S NOT.  While it’s true that investment demand has declined significantly from the peak a few years back, it is still much higher than what it was before the 2008 financial crisis.

Interestingly, silver coin bar and coin demand seem to spike the most when prices are falling rather than when they are rising.  This was true in 2015 when total global silver coin and bar demand hit a record high of 292 million oz (Moz) as the silver price fell to a low of $15.68 versus 161 Moz in 2012 when the average price was $31.15:

Now, according to the Silver Institute’s Interim Report, total coin and bar demand will fall to 125 Moz in 2018, down from 142 Moz during the prior year.  So, even though physical silver investment demand is down more than half of what it was at its peak in 2015, it is significantly higher than what it was in 2007, before all hell broke loose in the financial system and economy.

Looking at the data from prior World Silver Surveys (found at the Silver Institute), coin and bar demand ranged from 50-60 Moz during 2000-2007.  However, things got really interesting in the silver market when the priced jumped to $20 in 2008 on the back of a disintegrating banking and housing market.  Silver coin and bar demand more than tripled in 2008 to 192 Moz.

But, in 2017 and 2018, the ongoing low prices saw global silver coin and bar demand fall to lower levels as investors focused on the more volatile broader markets, Bitcoin and the Cryptos.  Nonetheless, I believe life will return back into the precious metals in 2019 as FEAR ENTERS into the market.

As I mentioned, physical silver investment demand is the largest growth sector in the entire market if we use the 2008 financial crisis as a guideline.  Silver coin and bar demand it has increased 123% from 56 Moz in 2007 to 125 Moz forecasted this year (Thomson Reuters GFMS Team).  Now, the only other sector that has shown an overall increase in the same period is silver jewelry demand which grew 8% versus an 11% decline in Industrial usage followed by a drop of 8% in the silverware sec

Now, according to the Silver Institute’s Interim Report, total coin and bar demand will fall to 125 Moz in 2018, down from 142 Moz during the prior year.  So, even though physical silver investment demand is down more than half of what it was at its peak in 2015, it is significantly higher than what it was in 2007, before all hell broke loose in the financial system and economy.

Looking at the data from prior World Silver Surveys (found at the Silver Institute), coin and bar demand ranged from 50-60 Moz during 2000-2007.  However, things got really interesting in the silver market when the priced jumped to $20 in 2008 on the back of a disintegrating banking and housing market.  Silver coin and bar demand more than tripled in 2008 to 192 Moz.

But, in 2017 and 2018, the ongoing low prices saw global silver coin and bar demand fall to lower levels as investors focused on the more volatile broader markets, Bitcoin and the Cryptos.  Nonetheless, I believe life will return back into the precious metals in 2019 as FEAR ENTERS into the market.

As I mentioned, physical silver investment demand is the largest growth sector in the entire market if we use the 2008 financial crisis as a guideline.  Silver coin and bar demand it has increased 123% from 56 Moz in 2007 to 125 Moz forecasted this year (Thomson Reuters GFMS Team).  Now, the only other sector that has shown an overall increase in the same period is silver jewelry demand which grew 8% versus an 11% decline in Industrial usage followed by a drop of 8% in the silverware sector:

Analysts who continue to brag about rising industrial silver demand don’t seem to pay attention to the figures.  Industrial silver demand peaked in 2011 at 661 Moz and is forecasted to fall another 2% this year to 585 Moz down from 596 Moz in 2017.   I have stated over and over again, that industrial silver demand is not the primary driver of price.  Why?  In 2012, when the silver price was higher at $31 industrial silver demand was less at 600 Moz compared to 634 Moz in 2009 when the price was only $20.

That being said, silver industrial demand is likely to continue contracting as oil production peaks and declines.  Even if we disregard falling oil supply and its impact on the overall market, a new study titled The Role Of Silver In The Green Revolution (for the Silver Institute), states that silver demand in the PV Solar Industry is forecasted to decline by 40% by 2024:

Not only is PV Solar silver demand to fall considerably this year compared to the nearly 90 Moz in 2017, but the CRU Report also forecasts that it will continue to decline to approximately 50 Moz by 2024.  I gather we can now dismiss all the supposed notions of massive increases of Solar PV silver consumption in China and throughout the world.  Actually, I believe Solar PV installations will begin to decline considerably as the market realizes it’s too expensive and its very low EROI – Energy Returned On Investment will not provide the Green Energy future as planned.  One more thing, the more PV Solar Plants that are added to the grid, the more balancing power that needs to be added to offset the huge drop-off at night when the sun isn’t shining.  Very few people realize the huge problems associated with adding Solar to the Electric Grid.

In my ongoing research, I have found out that supply and demand forces are not good primary indicators of the silver price.  Part of the reason that supply and demand fundamentals play less of a role with silver has to do with the 2.5+ billion oz of custodian silver metal stored in vaults across the world.  Moreover, as I stated, the highest demand for physical silver coin and bar demand of 292 Moz in 2015 was due to 50% REDUCED PRICE SALE compared to 2012.  So, there are very complicated factors driving the silver market.

My newest analysis of the Day Trading Markets has brought a new understanding of what GUIDES THE MARKET PRICE of stocks, commodities, metals, etc.  However, the COST OF PRODUCTION is the overriding factor that provides a FLOOR in the price of most things.  I am not saying this is 100%, but production costs are the leading indicators of price when all things are equal.  And by that I mean, when the market is balanced, the cost of production is the normally the floor price upon which supply and demand forces react.

Let me give you an example.  If we look at the financial statements of most companies, they are all making a small percentage of profits once we account for ALL COSTS.  So, if a company like Caterpillar is manufacturing and selling Earth Moving Machines for the market and they are making about a 5% profit (give or take), then the total cost of that machine they sell becomes the 95% of the market price.  It’s really that simple.

Now, of course, Caterpillar isn’t going to manufacture and sell ten times more machines in a given year than the market demands as that could depress prices.  Furthermore, their financial constraints (small annual profits) KEEPS them from manufacturing too many machines because they just don’t have the extra money or available low-cost credit to do so.  So, the market is kind of self-regulating when we consider supply and demand forces.

Once we understand this self-regulating market, the most significant factor that is impacting market prices… is the TOTAL COST OF PRODUCTION.  Please know that I am talking about a “Typical balanced market,” not some poor slob out in the desert who would exchange his gold watch for a gallon of water.  That is not a typical market.

According to my analysis, the main driver of the silver price, OVER A LONG PERIOD OF TIME, has been the oil price:

As we can see, the silver price has trended nicely along with the oil price since 1900.  Silver spiked higher in the 1970s versus oil because there was much higher “consumer price inflation” while the 2000s experienced a great deal more “asset price inflation” (stocks, bonds, and real estate).  Also, physical silver demand had more of an impact on silver price in the 1970s while the paper markets have been the leading driver for at least the past two decades.

Thus, when the oil price shot up from $19 in 2000 to $110 in 2011, this had a tremendous impact on the cost to produce silver.  Here is a chart that I have posted before on my estimated Pan American Silver mining production cost (one of the largest primary silver producers in the world) versus the market price:

Here we can see that for the most part, Pan American’s total mining costs were slightly below or above the market price.  Only during the highly speculative silver years of 2011 and 2012 did Pan American Silver enjoy much higher profits.  In my most recent update, Pan American Silver’s AISC – All-In Sustaining Cost in Q3 2018 was $13.73, not much lower than the current market price of $14.15.

So, with all the global supply and demand forces over the past century, I find it quite amazing that the silver price has trended up and down with the oil price.  Why?  Because the oil price is the main driver of the economy and it sets the INFLATION RATE and PRODUCTION COSTS of most things.  I don’t care if the market or individuals create the demand for silver and the miners produce the supply… they cannot determine the PRODUCTION COST… that is based on the thermodynamics of a highly complex system.

Yes, it is true that if no one on the planet wanted silver, then common sense would dictate that its value would be ZERO.  However, if people desire goods and services, they are going to have to pay the price to cover the COST OF PRODUCTION.  It is that simple.

I will be writing more articles and publishing new videos on what is and what will be the NEW DRIVER of the silver price in the future.  I get a lot of questions from people who ask me that if I believe the oil price will fall, then how can I see much higher silver prices in the future.  WELL, THERE LIES THE TRILLION DOLLAR QUESTION.

But, to put it quite simply, the massive $247 trillion in global debt has provided a temporary illusion of high STOCK, BOND, and REAL ESTATE asset prices.  Basically, the debt has blown up these asset values.  However, GOLD & SILVER are not being propped up by debt.  When the debt implodes, most asset prices are going to deflate into the cesspool.  And with falling U.S. and global oil production, it will make a bad situation worse.  Growing global oil production has allowed the debt to increase, but this will head the other way when the oil supply turns south.

When investors watch as their assets continue to go from BAD, to WORSE to AWFUL, they will move into gold and silver to protect wealth.  This will be the time when precious metals SUPPLY & DEMAND forces finally kick in a big way.

Lastly, the next market phase we will enter into is WEALTH PRESERVATION.  So, when the investors become reacquainted with precious metals during this phase, we will no longer have to worry about whether or not SILVER IS DEAD.

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Jan 2, 2019

As 2018 drew to a close, the prices of Comex gold and silver began to move higher. This was just as expected and we wrote about these pending year-end rallies on several occasions. Before going further, perhaps you should take time to review these links.

• This from early November: https://www.sprottmoney.com/Blog/into-year-end-wit…
• This from mid-December: https://www.sprottmoney.com/Blog/gold-and-silver-p…

The rallies have proceeded almost entirely as projected and, as the new year begins, several of our short-term price goals have been achieved. In Comex gold, we anticipated that a break of the 200-day moving average would serve to accelerate price toward the psychologically-important $1300 level. This is occurring as I type and, once $1300 falls, the final short-term objective becomes $1310. 

As noted in the post linked above that was written on December 12, the key event was the bullish cross of the 50-day moving up and through the 100-day. This has led to significant Spec HFT algo buying pressure and though The Banks have responded by issuing nearly 50,000 new contracts since this this crossover occurred, price has rallied over $60 and will continue to move higher with, again, the current short-term goal being $1310. See the chart below: 

And now Comex silver is following the same pattern. In that December post, we told you that once silver moved through $15, the target would become its own 200-day and it reached that level today, January 2. Though stiff Bank resistance is to be expected at this level, silver will win the fight and begin a move toward its own short-term target of $16.40 and the 200-week moving average. Heavy resistance has been enforced at this level since mid-2016 so you must expect that out initial silver rally of 2019 will end near there. See the charts below: 

But this is just the beginning of what promises to be a very exciting year for precious metals investors. And why will 2019 bring the best performance since 2010? Because the conditions which sparked the rallies in 2010-2011 are presenting themselves again in the new year.

Back in early 2010, the US economy was perceived to be recovering from The Great Financial Crisis debacle of 2008. The mainstream media was endlessly telling us about “green shoots” of growth and The Fed’s policy of Quantitative Easing was perceived to be a one-off that would never need to be repeated. However, by mid-2010, it became clear that the U.S. economy was slowing and, in November of that year, The Fed capitulated and announced the $6ooB program dubbed “QE2”. The subsequent loss of faith in central bankers, their policies and the dollar led to this: 

Comex gold began 2010 at $1096. It was $1192 by the end of July 2010 and it finished the year at $1421 for a gain of 29.6%. It then went on to peak at $1920 in early September of 2011 following a true crisis of confidence in US solvency and the dollar in August.

Comex silver began 2010 at $16.85 and it was still at just $18.01 by the end of July of that year. However, the pending announcement of QE2 sparked a rally that carried all the way through the epic Bank short squeeze of April 2011. This rally totaled an incredible 170% over just those ten months.

So, will 2019 mirror 2010 in price gains? As stated above, the conditions are similar. To wit: 

The U.S. economy is demonstrably slowing due to higher interest rates and a nearly-inverted yield curve.

Political Risk in the US is high as the year begins with a government shutdown and a Democrat party takeover of the U.S. House of Representatives. Soon there will be about 20 new investigations of President Trump from 20, different congressional committees. All of this will foster more economic uncertainty and, for the first time since 2011, some real concern about U.S. fiscal policy and accumulated debt.

And, from a forecast of 3-4 Fed Funds rate hikes in 2019, expectations have rapidly shifted in the past two months to 0-1 rate hikes. Many economists now expect even rate cuts in 2019, as you can on the chart below.

So, as you can likely discern for yourself, conditions are eerily similar to 2010. Thus, why would we not expect precious metal prices to rally? These “markets” are already beginning to figure this out and the result is the year-end rallies discussed earlier in this post and displayed on the charts above. 

What’s next will be a continued rally. It won’t be straight up and it certainly won’t be without Bank resistance every step of the way: https://www.sprottmoney.com/Blog/the-endless-war-o… 

However, prices will rallyover the balance of the year and annual performance will resemble 2010. A similar, 30% rally in Comex gold in 2019 would take price to near $1700. If silver were to replicate 2010, we would see a move to $25+. Thus, the time is now to peer over the horizon and take steps in anticipation of these events. 

And what is your best and most prudent step in preparation? Buying physical precious metal, of course! Acquiring real, physical gold and silver is easy. It can be held at a trusted gold bullion storage company or in your own, personal safe. You can hold it in gold bullion coins or silver bullion bars. Take your pick. Just be sure you own some before confidence collapses, the dollar declines and The Fed begins its next course of rate cuts and quantitative easing.

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Lobo Tiggre – Founder and CEO of Louis James LLC

December 27, 2018

I have written before about palladium’s rapid rise in 2018. I said I was skeptical it would last. Given that palladium prices just spiked above gold prices, albeit briefly, I’m sure glad I didn’t say that could never happen.

I’ve included platinum in the chart for reference. Gold, platinum, and palladium were roughly trending down together until August, when all three turned upward. But palladium outperformed the others by far.

What’s particularly interesting about this is that the narrative that’s driving palladium prices is increased demand, primarily for use in making gasoline engines in China. But we now know that the Chinese economy was decelerating that quarter. This suggests to me that the “storyum” here is more important than the palladium itself is to Mr. Market at present.

I’m even more skeptical than I was before that this will last.

To explain why, let’s pull back to look at the bigger picture…

Several things stand out in this chart. First is that 20 years ago, platinum and palladium both spiked. An ounce of palladium sold for more than gold for almost four years. That didn’t make palladium a safe-haven asset, however—and certainly not a monetary metal. The price inversion didn’t last, and palladium underperformed both gold and platinum for the next dozen years or so.

Fast forward to today, and we have the Dieselgate scandal dragging platinum lower than gold. And now, the “China likes gas-powered cars” story has driven palladium nuts.

But I stand by my analysis. I don’t think palladium is more precious than gold. Any spikes further above gold in the near term will likely be short-lived. Then the narrative will move on and palladium will go back to being just another silvery industrial metal. The fact that palladium is expensive today doesn’t make it a safe-haven asset or a monetary metal.

Key point: the trade war is very bad for the palladium narrative.

Unless Trump and Xi make a deal soon, I think the odds favor palladium pulling back—sharply.

If the trade war ends and freer, better trade ensues, we might see palladium prices remain elevated for some time. That could last until the next time industrial metals like this get whacked, which could happen with the next round of global economic figures. Longer term, it won’t last beyond the point when all those new Chinese electric cars steal the market from gas engines. Given how quickly things happen (or are made to happen) in China, I stand by my assertion that most Western market analysts are vastly underestimating the speed at which China will go electric.

But even if I were wrong about that, I wouldn’t even consider putting savings into palladium. Neither would anyone else I know—or have even heard of. When the fear trade drives markets en masse back into gold, I don’t expect palladium to even be a contender.

Caveat emptor,

By Lobo Tiggre

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Gold futures hit their highest level in more than five months Wednesday on continued safe-haven buying after the recent freefall in equities and speculation that the Federal Reserve will slow its pace of monetary tightening.

Around 9:50 a.m. EST, Comex February gold was up $5.40 to $1,277.20 an ounce and peaked at $1,280.70, the contract’s most muscular level since July 9. March Silver rose 25.5 cents to $15.075 and got as high as $15.15, its strongest level since Aug. 28.

The metals were up even though the U.S. dollar index likewise climbed, trading up 0.278 point to 96.285.

“With the overall concern about the economy, we’ve seen the safe-haven play come back into vogue,” said Phil Flynn, senior market analyst with at Price Futures Group.

Further, he cited concerns about the recent declines in the U.S. stock market.

“The criticism of the Federal Reserve makes some traders speculate the Fed won’t raise rates any time soon,” Flynn added. He was referring to harsh criticism of Fed policymakers by U.S. President Donald Trump, who has broken with protocol by lambasting the Fed repeatedly.

Lower interest rates help gold several ways. First, they undercut the U.S. dollar, and precious metals tend to move inversely to the greenback. Lower rates also reduce gold’s so-called “opportunity cost,” which is the lost income from buying a non-yielding asset like gold, which does not pay interest income.

Daniel Pavilonis, senior commodities broker with RJO Futures, cited yet another reason why Fed policymakers may become less aggressive with monetary tightening.

“We saw such a stock-market correction that maybe the Fed will hold off raising rates for a while,” he said.

And that, he continued, could mean more inflation than would otherwise occur. Gold is often bought by investors as an inflation hedge.

Pavilonis listed the area from $1,300 to $1,307 as the next key upside chart resistance for gold, commenting that the metal could accelerate to the upside if it breaks though here.

By Allen Sykora

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Shannara Johnson, RiskHedge

Unlike its big brother, gold, physical silver is coveted for both investment purposes and industrial usage.

Right now, silver prices are in a bit of a slump—in other words, it’s the perfect time to load up on this precious metal while it’s down.

#1: Silver is being used up in China’s solar boom

By far the largest application of industrial silver today is in solar panels—and Chinese demand for solar energy is skyrocketing. In its 13th Five-Year Plan, Beijing aims to triple its solar capacity by 2020 in order to combat air pollution and to comply with the Paris Climate Accord.

Amazingly, China is already investing more in clean-energy developments than the European Union. 

Last month, China revealed a newly built 250-acre solar farm shaped like a panda—the first of 100 such solar plants planned for the Asian region in the coming years. Displaying typical Chinese efficiency, the solar farm in Datong was proposed in May 2016 and became operational only 14 months later. Over the next 25 years, it will provide the same power as burning one million tons of coal.

No wonder last year was the strongest so far for solar-related silver demand. Leading analysts believe that this trend will continue a while longer—even though Tesla’s Solar City is getting ready to replace silver with the much cheaper copper in its PV panels. 

Specialist consultancy Metals Focus said it expected 2017 silver demand from the solar sector to ease only slightly compared to last year, remaining the second highest on record.

And the supply is finite. The chart below shows official global silver reserves, that is, the amount of silver that is considered to be recoverable from mines—which is only 571,000 tonnes.

#2: The US stock bubble is getting ready to burst

How many screaming superlative scan a market take before it collapses? We will probably find out soon.

It  seems that US equities are hitting new record highs every day, but the  writing is most certainly on the wall. By mid-July, the Case-Shiller P/E  Ratio hovered above 30(the 100-year median is around 16). That is  reminiscent of the height of the dot-com bubble and the weeks leading up  to the 1929 stock market crash.

One yardstick of the growing insanity is the money-burning tech companies whose shares keep going up no matter what.

Take Netflix (NFLX), for example,which casually announced in an April letter to shareholders that it expects a  negative free cash flow (FCF) of $2 billion this year, up from “only” $1.7 billion in 2016.

Last  October, the company said it would have to raise another $800 million  in debt (adding to the over $2.2 billion it already had), all in the  name of adding quality content, aka movies and TV shows, to the site.

It’s  no secret in investment circles that Netflix doesn’t really make money,  a negligible fact that hasn’t kept the stock from skyrocketing.

In its mid-July Q2 earnings report, the company proudly reported that it had added 5.2 million new subscribers in the last quarter,crushing Wall Street estimates and propelling the stock upward by more than 10%.

Never  mind that Q2 free cash flow was minus $608 million, a year-over-year  increase in losses of$354 million. Investors gobbled up the “good news”  and sent shares soaring to new heights of over $188 in July.

We see a similar picture with social-media giants like Twitter and Snapchat, which are virtual money pits.

Of  course, there is no way that this can go on. And as stocks are being  caught out in the rain, gold and silver will get their day in the sun,  as has historically been the case.

#3: European banks are still in big trouble

The  ongoing debt crisis in the EU has recently been dwarfed by the global  outcry revolving around the much-despised Trump administration and its  draconic trade policies.However, while Europe’s woes may be forgotten  for the moment, they have been anything but resolved.

In June, the UK Telegraph commented that “Italy’s long-simmering banking crisis has erupted again. The  emergency plan to wind down two Venetian lenders at a cost of up to  €17bn is a fiasco of the first order.” This, the article continues,  could push Italian debt to 133% of GDP.

Research by Italian  investment bank Mediobanca found that 114 of Italy’s 500 banks have  “Texas Ratios” of over 100% (non-performing loans divided by tangible  book value plus reserves; a TR of over 100% is considered perilous).

24  of the endangered banks reportedly have ratios of over 200%, among them  some of Italy’s biggest banks, like Monte dei Paschi di Siena with a TR  of 269%, and Veneto Bancawith a TR of 239%.

But the problem extends to the entire European Union. According to a Reuters article,  “the total stock of non-performing loans (NPL) in the EU is estimated  at over €1 trillion, or 5.4% of total loans, a ratio three times higher  than in other major regions of the world.”

Clearly, this is a  level that is unsustainable in the long run. And if you don’t believe  that Italy’s problems could have a major impact on US investors,  remember how the US subprime mortgage crash and subsequent financial  crisis affected the entire world.

In today’s interconnected global economy, any severe financial crisis in one part of the world can cause tidal waves in another. And when that happens, gold and silver are the ultimate safe-haven assets.

#4: The risk of military conflict continues to escalate

Tensions between the US and North Korea continue to escalate as Kim Jong-Un has now threatened a nuclear strike against the United States.

This direct threat came after CIA Director Mike Pompeo said that the US needs to find a way to separate North Korea from the system: “The North Korean people I’m sure are lovely people and would love to see [Kim  Jong-Un] go.”

In response, the North Korean Foreign Ministry  stated, “Should the US dare to show us even the slightest sign of attempt to remove our supreme leadership, we will strike a merciless blow at the heart of the US with our powerful nuclear hammer, honed and hardened over time.”

By some estimates, Pyongyang could have a nuclear-capable ICBM as early as next year.

And North Korea is not the US government’s only worry. President Trump vehemently opposes the Joint Comprehensive Plan of Action (JCPOA), a treaty signed by the US, Iran, and five other countries in 2015. However, to renege on that agreement and to stop Iran from pursuing nuclear weapons, says retired Army General Paul Eaton, “would require regime change, which requires full-scale invasion, which is not tenable.”

Iran, Eaton warns, would be a much more dangerous enemy than Saddam Hussein’s Iraq. A large-scale attack on Iran would likely involve the US’s NATO allies as well as Israel… and if Russia were to come to Iran’s aid, we might have World War III on our hands.

It doesn’t have to come to war,though, for precious metals prices to rise. The threats and growing tensions are enough to drive more  investors to the safety of gold and silver—yet another reason to get  some bullion now.

#5: Silver is again becoming real money

Gold and silver are making are turn as sound money.

Article 1, Section 10, of the US Constitution demands that “No State shall…  make any Thing but gold and silver Coin a Tender in Payment of Debts.”  And more and more states are putting precious metals back on the books.

Six US states have put precious metals back onto their radar, and the  seventh just followed suit: as of August 9, Arizona will acknowledge  gold and silver as legal tender.  Four other states are on the road to accepting bullion as  currency—also, Utah and Texas plan to set up bullion depositories to  help private investors keep their gold investments secure.

Here’s a map of US states with current or pending legislation to accept precious metals as legal tender:

As a consequence of this legal change, if you live in one of the participating states and your gold and silver appreciates in price, there will be no state capital gains taxes since currency  isn’t subject  to taxation.

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