I’m a fairly new stacker as I’ve recently synched up with the view on silver being cheap. As I’ve started down this road, I’ve enjoyed reading a lot of opinions and have formed a few of my own. In sharing, I hope to spark some great conversation. I’ve made some rookie mistakes and hoping to learn from them. In my mind, that means getting a clear view into the fundamental drivers of spot and the nature of how the precious metals physical markets actually work. As I’ve been studying this, I’ve come to a few initial opinions:
- The enormous range of motivations behind stacking. While many seem highly sensible, in my personal opinion, some seem a bit more challenged when viewed in the context of historical data. I love data and facts so thought I might share some below.
- The nature of the principal/dealer model employed by the dominant market makers in the bullion space. In my view, their pricing as it relates to spot (premiums) is consistent with other principal/dealer oriented markets (OTC markets like certain segments of bond markets for example). When spot prices hit new lows, they are naturally slow to mark the prices of their inventories down in hopes of a rebound (if I were them, I’d do the same thing). However, I have seen more ‘specials’ pop up through various venues though as some will always go into a bad market with a little too much inventory and need to move it.
- How inefficient the physical bullion markets are. I’ve learned the hard way, but I’m amazed at how dealers will have wildly different pricing across different web platforms. In one sense, it’s fun to hunt down the deal so I’m not complaining, but rather amazed that the pricing disparity can be so dramatic.
All that said, some might find the below interesting (need to update it though). I see lots of technical studies on the various forums, but fewer fundamental studies. Below you can see:
-Global silver production (solid green) down from its high in 2016 but the rate of change moderating (blue panel underneath).
-Silver prices close to 8 year lows (white)
- US trade weighted dollar (orange) has rallied from 2011 low which corresponded with silver high water mark.
This is one of several looks I’ve been taking into the fundamental picture. If y’all find it interesting and have thoughts, would love to hear.
PS- I’m not an advising on this stuff but generally just curious about various markets and trying to learn!