The State Of Silver and
Other Anomalous Events
By Dr. Jeffrey Lewis
From a technical
perspective, the price of silver is obviously breaking down. The market has been
'trading heavy' for a while. Furthermore, the entire commodities complex is
trading in a downward trending channel, except for oil. The U.S. Dollar is also
stronger because of the Euro aftermath.
of silver longs are still holding their positions since open interest has
remained high despite the move down from the 32 region. Open interest will
usually fall on big declines like this, but many longs have hung on and some
believe the big shorts want to force a real washout before covering a large
portion of their positions.
The silver market
could still go down to 25 or lower before all the bulls are gone. This would
match what happened in 2008 when silver traded down from near the 20 level to
bottom at 8.40.
Hedge funds are
playing this move from the short side. As a group, they are net short silver
contracts for the first time in seven years.
Regardless of the
reality of a shaky financial system and little change in the fundamental picture
for silver, the global economy remains largely stuck in a slow growth,
non-inflationary mode. Silver tends to perform better in a decidedly
Institute recently reported surging industrial demand for silver that could take
such demand to a record high annual level of almost 500 million ounces in 2013.
In addition, the organization said that sales of American Eagle Silver Bullion
Coins in the first two months of 2013 were 43 percent higher than that seen
during the same period of 2012.
Standard Bank said in its Precious Metals Definer report that it expected silver
prices to struggle for the rest of 2013. This subdued forecast was largely due
to a significant silver inventory build-up in China that could only
realistically be taken up by a substantial increase in Chinese demand for the
Standard Bank also
pointed out that China became a net importer of silver for the first time in
2010, after having traditionally exported the metal.
The More Things
Change, the More Precious Metals Stay the Same
The problem is
that the prices of gold and silver are not going up much, nor are they going
down much. As a trading vehicle, precious metal prices seem relatively stable
and the physical metals provide no significant return on investment. The
physical metals remain locked in safes or hidden away in private stashes doing
nothing and refusing to multiply.
Yet what do change
are the values of those OTHER commodities, i.e. fiat currencies like the U.S.
Dollar and the Euro, as well as the level of desire among investors for
currencies trade against each other in pairs, and hence their exchange rates
reflect value only relative to one another. Still, since fiat currency purchases
less food and fuel than it did a year ago, it remains a devaluing asset.
From MF Global
to Cyprus, the Case Improves for Precious Metals
As MF Global and
GM bondholders might attest, expedience tends to win out over the rule of law,
morals and common decency in a financial crisis, unless of course you are in the
Now, with the
Cyprus bank debacle and capital controls appearing increasingly likely, less
confidence in the financial system will probably soon follow. As time goes on,
the un-mined supply of unencumbered assets like gold and silver is continually
dwindling, while the existing above ground supply is falling into ever stronger
based fiat currency in circulation is increasing by billions per month — soon to
be trillions — and this increasingly debased medium of exchange is not an
In this economic
environment, the smart people will be trading encumbered assets for unencumbered
ones, especially a commonly accepted asset and hard currency like silver or gold
that is increasing in rarity on a daily basis. As soon as the price of silver
becomes irrelevant for its eager buyers, that will the moment the real financial
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