vrijdag 27 juli 2012

Silver off to the races

As I predicted before, silver is having a breakout these days. And the evidence is piling up. One of the evidences of a bullish scenario is the silver stock at the CME. 

As you can see on chart 1, the silver stock at the CME is declining, ever since Eric Sprott did his PSLV offering of $US 200 million on the market on 12 July 2012. I predict that registered silver will start to decline soon (blue dots).

Once the silver price breaks the $US 30/ounce level, it's off to the races.

Chart 1: Silver stock at CME
Although the CME numbers amount only to 140 million troy ounces (Chart 1) (30 million ounces held by dealers at COMEX), while the silver supply from miners is around 760 million ounces a year, the decline in silver stock at the CME can be a small secondary indicator of declining supply (or increasing demand) in the silver market.

3 opmerkingen:

  1. The decline in CME stocks might not be attributable to decling supply or any fundamental change in the silver market. Rather, CME stocks may be migrating to China, following the trend set by copper over the past few years.

    The price of silver since is more likey to driven by real interest rates, such as the yield on long dated US Treasury bonds. As the yield on T-Bills falls, so too will the silver price. When real interest rates start rising again, then the price of silver will take off.

    When interest rates remain low and declining, that is a sign that investors have expect inflation to follow the same pattern. Since silver is a hedge against inflation, the price of silver is likely to remain below $28/oz.

    1. Hello, thanks for pointing that out. Do you know why it is being migrated to China?

  2. Since China is the largest consumer of silver for industrial purposes, and since the Chinese economy is is still enjoying robust output growth, silver inventory must be growing. CME stocks maybe declining, but that does not necessarily mean world socks are going down.