Observations from a new’sh stacker

[Investack]

Hi all-

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!

 

 

[Stu]

"Stacking silver is total mDness" spike Milligan , or wait a minute was that going fishing ?

[sovereignsteve]

20 minutes ago, Stu said:

"Stacking silver is total mDness" spike Milligan , or wait a minute was that going fishing ?

Fishing is far more interesting than stacking silver!

[sixgun]

Analysis of the fundamentals tells you that silver is undervalued. JP Morgan is building up a massive stack of silver. Eventually silver will go to value. Price is heavily manipulated so analysis of charts has limited value.

It is not a question of if, it is a question of when.

There have been several well known characters who have said silver will go to the Moon at some date or other and it didn't. On that basis the view is pushed silver is either fairly price or it will never go to the Moon. Silver will go to the Moon, silver will go to value. Just keep stacking. Silver prices are not going to get any or much cheaper, so accumulate. i like to buy a bit of silver every month, even if it is only a few ounces. Unless you intend to buy a few hundred ounces, just get the silver when you see a good deal, don't wait for a price dip. These are often not reflected in physical selling prices anyway. View these manipulated prices as a gift. Take the gift.

[KDave]

This is good stuff. 

I think fundamentally the supply picture is in a bit of a fog, as we see a reported supply deficit every year, yet there is never a shortage, always enough. Reported silver supply being 80% from base metal mining operations, so is a very useful secondary or waste product so to speak, likely much of the ore supply is not reported.

Supply numbers are incomplete. hard to invest when we don't have all the fundamentals.

Demand is falling. Not to say this will continue, but if demand does rise, without the supply picture who knows what it really means. Perhaps supply is enough to support much higher demand. Perhaps not. That to me is why investing in silver is more a gamble and very different in many ways from gold. I invest in both. 

[Pete]

Agree absolutely @sixgun having bought a shed load at the worst possible time I still add to my stack to lower ever so slightly the average price per tonne. Just pressed the button to order a tube of 2018 silver Krugs for late August delivery thinking - what the heck ! Fair to good price I reckon preordering as I don't see spot falling much with only longer term upside. Good time to build up your stack before we all loose the low differential VAT.

[sixgun]

1 hour ago, KDave said:

Demand is falling. Not to say this will continue, but if demand does rise, without the supply picture who knows what it really means. Perhaps supply is enough to support much higher demand. Perhaps not. That to me is why investing in silver is more a gamble and very different in many ways from gold. I invest in both. 

Silver is the metal of the future. i do not believe any of the numbers. When price is as rigged as it is, everything will be rigged. That includes reported demand. Future technology includes silver. Silver is the safest bet on the planet. Silver is cheap. It is a one way bet. The only variable is exactly when price will come from under the cosh. When this happens i expect silver to rise multiples of the price of gold. JPM would not be stacking silver if it were a gamble.

[sixgun]

14 minutes ago, Pete said:

I still add to my stack to lower ever so slightly the average price per tonne.

Pete i thought i had a big silver stack but with you dealing in tonnes, you are in another ball park. Respect. ?

[KDave]

What technology are we talking about. The only demand aspect that has seen demand increases is photovoltaic application, of which the amount of silver used per unit has fallen with efficiency and continues to do so. 

I take your point on jpm, which is perhaps the best argument for buying silver there is. 

[sixgun]

1 hour ago, KDave said:

What technology are we talking about. The only demand aspect that has seen demand increases is photovoltaic application, of which the amount of silver used per unit has fallen with efficiency and continues to do so. 

I take your point on jpm, which is perhaps the best argument for buying silver there is. 

To be fair Dave i am mentioning sci-fi type technology. So you could dismiss that part if you want. i hear from various places - just yesterday from Jim Willie about future technology which needs silver. More than once i have heard about silver having some special properties.

[StackerNoob]

35 minutes ago, sixgun said:

To be fair Dave i am mentioning sci-fi type technology. So you could dismiss that part if you want. i hear from various places - just yesterday from Jim Willie about future technology which needs silver. More than once i have heard about silver having some special properties.

Its a fair bet that most future technologies will use silver in increasing quantities. Its the most reflective, and most electrically and thermically conductive metal known to man. Since it is an element its literally unbeatable. You could argue that graphine will be the future but it is extremely fragile and hard to manufacture, even in tiny quantities. Also, any superconductor materials need immense amounts of energy to become efficient. Silver is the obvious, no nonsense choice for most applications. By the definitions of the laws of the universe, there is no chance that any superior element will be discovered. And its extremely unlikely that any alloy better will be discovered either, otherwise we likely would have found it by now.

 

Im bullish ?

[KDave]

Silver has excellent properties but it also tarnishes. 

Electronics is a good example, silver alloyed with platinum or palladium to get the best of all world's plus heat resistance. Gold is best, it's just too expensive hence why silver is alloyed and used in many applications, today and likely tomorrow.

That isn't to say it will be though, as you say about graphine. I think in this regard, buying silver is equivalent to buying a lottery ticket based on the hopes of future technology. 

Interestingly, palladium annually sees ever increasing demand as a proportion of total supply for electronic application. Which is the better lottery ticket I wonder. 

[HawkHybrid]

9 hours ago, Investack said:

-Silver prices close to 8 year lows (white)

 

this is misleading. when analysts talk about multi year

lows they are referring to accounts going into the red

and buyers/sellers rethinking their positions. close is

an approximation and fixing to a fact such as 8 year

low is misleading.

 

5 hours ago, sixgun said:

JP Morgan is building up a massive stack of silver.

 

yet to be confirmed. jp morgan has a massive amount of

silver on their books. it's still unclear who owns it. eg byb

makes a big group buy from goldsilver.be, doesn't mean

byb owns all the pms that were bought in that transaction.

 

1 hour ago, StackerNoob said:

Its a fair bet that most future technologies will use silver in increasing quantities. Its the most reflective, and most electrically and thermically conductive metal known to man.

 

economics is not about performance but about what fits

best. copper is used in wiring despite being electrically

inferior because it costs a lot less and the application is

not performance critical.

 

HH

[StackerNoob]

2 minutes ago, HawkHybrid said:

economics is not about performance but about what fits

best. copper is used in wiring despite being electrically

inferior because it costs a lot less and the application is

not performance critical.

 

HH

You are exaclty right, which is why we use copper wires and not silver wires to move electricity around.

But my point is more that if you need your device to be cutting edge, you might want to think about using the best materials out there for the job. Silver is the best option in many cases. Its a balance between economics and performance. Sometimes performance trumps economics, and when is does, silver comes knocking.

[sixgun]

1 minute ago, HawkHybrid said:

yet to be confirmed. jp morgan has a massive amount of silver on their books. it's still unclear who owns it.

HH

Agreed - i have said elsewhere on the forum that JPM deny they own a big stash of silver but i would not expect JPM to be honest about this, they never are about anything else.. i have seen this silver at least initially was in American Silver Eagles. i have theorised whether this is US Treasury silver or Chinese silver.

Whether it is JPM in their own right or some other entity, a very large holding is held and is still being built up. Logically this can only be for profit. Holding such a stash will be costly. There are vaulting costs and insurance - there is also the cost of the cash under to buy the silver and the lost opportunity costs for that cash. Someone knows something. i do not believe it is a wild punt on the price of silver.

[HawkHybrid]

 

the train bit tries to explain analysis based on fundamentals.

 

HH

[sixgun]

This man at no time talks about fundamental analysis. At no time does he talk about physical gold and silver. I suspect he has little to no knowledge of the physical markets.

i expect he knows what fundamental analysis is but he doesn't appear to from what he says. This is the typical US centric slicked back hair and silk tie position - they know nothing outside of the COMEX.

He suggests that if there is a break of the support we could see a prolonged bear market. This is based on previous price action. This at first glance sounds logical. BUT what he does not factor in is there is a voracious appetite for gold and silver. The physical market is being sucked dry. The cartel is restricting sales of physical. Actual sales in volume are at $100's higher than these paper prices. Leverage of paper to actual physical held is over 150:1. We see refusal to return gold in unallocated accounts (because it never existed in the first place). We see the Exchange of Physical getting booted over from the COMEX into London in volumes that are multiples of yearly mining supply. He factors NONE of these fundamentals into his thinking.

The cartel will suppress price, they will paint the charts, they will spin the propaganda, they will fake the data, they will obfuscate and deceive. They are working flat out to support the USD which is their life blood. Then one long weekend there will be a reset and gold will jump 4 fold and silver will just go stupid.

[HawkHybrid]

31 minutes ago, sixgun said:

BUT what he does not factor in is there is a voracious appetite for gold and silver.

 

I'm not convinced that there is currently a big demand for

silver. the silver institute figures for last years silver supply

is mostly similar to the year before. silver's price was also

mostly flat. if the institute has left out some silver

demand and that the trade in silver was higher, then

there was more supply to compensate for for the

increase in demand. if demand exceeds supply then

the spot price should rise. if spot stays flat then

physical bullion premiums should be up versus paper

trades. as far as I can tell non of these things has

happened last year. how many are waiting for their

silver based electronics/products that failed to

deliver last year due to silver supply shortages?

it's not about what's right, but what can we realistically

expect.

 

HH

[sixgun]

3 minutes ago, HawkHybrid said:

If demand exceeds supply then the spot price should rise.

HH

i spent several weeks a couple of years ago attempting to calculate what the supply and demand price of silver should be. i determined it was not possible, for me at any rate. When a market is heavily managed, supply and demand do not operate.

The guy went to his German bank and demanded 500kg of his 5 tonnes of gold. They could not meet that demand. We have seen several of these 'defaults'. Last year Maguire went out into the market for 200 tonnes of gold. He could not fill the order - the offers to buy were refused. The LBMA would not do business. He just could not get the gold. There are 1000's tonnes of COMEX longs standing for delivery. The metal doesn't exist. They are being booted over to the London OTC market. This market is completely opaque so i do not know what happens - perhaps most a settled for cash at a large premium to get rid of the buyer.

On a supply and demand basis the gold price should be multiples of the current price. It isn't because the market is utterly rigged.

Small time buyers will get fcuked off for cash. The day is approaching when the sovereigns - the Chinese - Russians will get seriously defaulted on and then the sparks will fly.

[HawkHybrid]

those buyers of paper gold who settled in cash could

either go elsewhere to get physical or were not really

that interested in obtaining physical.

 

I believe there is currently genuine demand for gold,

hence the price rise last year. I don't think the same

is true for silver. if you can profit from rigging the silver

market and the gold market, then why not rig both?

 

HH

 

 

HH

[KDave]

It's interesting that gold can not be found at current prices and that a form of fractional reserve is being operated by banks in regard to gold, but I'm not surprised. People are being refused at today's comex paper prices, but I think as hh says the gold is available at the right price, example being the gold price rise 2016. Perhaps it's only a rigged price to a certain extent, not system breaking. 

Based on the 2016 price spike as the recent example, I don't think the price necessarily needs to be as high as people desire for 'enough' of the enormous above ground gold reserves to be mobilised from currently tight hands and meet demand. I think it would need a signigicant black swan event, ie war, to draw the kind of demand and dry up supply to rocket prices higher. Most appear content with 150 to 1 at the comex, it's no secret after all. 

It's still fundamentally bullish, but how long have we been saying that. 

[sixgun]

It is fundamentally bullish but for none of the reasons given by the COMEX chartists.

[RacerCool]

I honestly don't really know what to believe concerning the future value of silver.  I've heard all the arguments, but the only one that really has any sticking power in my thinking is the fact (is it, really, or is it more fake news?) that JP Morgan is hoarding it.  If true, that's significant.  Nothing else really matters to me, argument-wise, since you'll hear opinions (backed by data and common sense) all over the spectrum.

Regardless, for the near future I'll continue to keep the bulk of my cash out of the system, and instead, into PMs.

[Investack]

I worked for a large competitor investment bank to JPM for many years (no longer).   While I have no specific knowledge of their situation, I strongly suspect there is more to the ‘JPM hoarding story’ than what I’ve read online.   I’m not saying it isn’t true, but there are a number of highly plausible (even more likely) explanations that are a function of the modern institutional investment/custodial eco system than the hoarding explanation that seems to have taken on a life of its own on the internet.   My two cents.

[capescale]

@Investack I agree. JPM is custodian for SLV, the largest silver i-share. Their factsheet says they own 326 million ounces of Silver, which is about half of the rumoured JPM hoard (as JPM are custodian). Also while SLV can't lend out the physical silver in the trust to offset annual fees (some precious etfs do), it would be very easy for JPM as custodian to borrow SLV units themselves and support their (widely reported, but not proven) long-term short in the market. If the silver futures buyer wants physical delivery, JPM can just redeem the units for physical. It just about makes sense to short silver given the shape of the forward, but not a home-run, which means it has to be done in size.

Oddly enough, to me this shows 2 things:

• There is a lot of demand for silver in the form of ETFs, which is good news.
• If JPM are actually as short as rumours say, then a fast $20-$40 rise brought on by some geo-political event (or other source of curve shape change), followed by support should carry them out pretty fast.

Just my 2 cents.