Silver Hoard Near Record As Hedge-Fund Bulls Recoil: Commodities
By Nicholas Larkin – Aug 14, 2012
At a time when hedge funds are the least bullish on silver in almost four years, investors’ holdings are near a record, siding with the analysts predicting a rally as central banks move to bolster growth.
Speculators cut bets on higher prices by 72 percent since the end of February, mirroring changes in their copper wagers, which turned bearish in May, U.S. Commodity Futures Trading Commission data show. Silver held in exchange-traded products climbed for three months and is now valued at $16.2 billion, according to data compiled by Bloomberg. Prices will average $33.02 an ounce in the fourth quarter, 18 percent more than now, the median of 13 analyst estimates compiled by Bloomberg show.
Hedge funds anticipate slowing growth will curb demand for silver, 53 percent of which is used in products from televisions to batteries. Photographer: Akos Stiller/Bloomberg
Hedge funds anticipate slowing growth will curb demand for silver, 53 percent of which is used in products from televisions to batteries. Investors and analysts are bullish on expectations central banks will do more to stimulate economies, expanding consumption and increasing the allure of precious metals as a store of value. Prices tripled as the Federal Reserve bought $2.3 trillion of debt in two rounds of so-called quantitative easing from December 2008 to June 2011.
“Since the beginning of the year it has reacted more like a base metal than a precious one,” said Frederique Dubrion, the Geneva-based president and chief investment officer of Blue Star Advisors SA, which manages metals and energy assets. “The main negatives are still in industry. We’re waiting for more quantitative easing, and that would be really positive.”
After tumbling 29 percent in the four months to the end of June, silver is now little changed for the year at $27.865 on the Comex bourse in New York. The LMEX index of six industrial metals from aluminum to zinc fell 5.5 percent as gold advanced 3.2 percent. The Standard & Poor’s GSCI gauge of 24 commodities rose 1.9 percent since the start of January and the MSCI (MXWD) All- Country World Index of equities gained 7.9 percent. Treasuries returned 2.1 percent, a Bank of America Corp. index shows.
Silver is the most volatile metal tracked by Bloomberg and the price swings are masking what are already historically high prices. While the metal is trading 44 percent below the 31-year high of $49.845 set in April 2011, it averaged $30.37 since the start of January, on track for the second-highest annual level after last year’s $35.27. The two-decade average is $9.97.
For Coeur d’Alene Mines Corp., which gets about 65 percent of its revenue from extracting the metal, that will mean a 35 percent jump in profit to a record in 2012, according to the mean of six analyst estimates compiled by Bloomberg.
Industrial demand for silver may strengthen as economic growth accelerates. The International Monetary Fund said July 16 it expects the global economy to expand 3.9 percent next year, from 3.5 percent in 2012. The European Central Bank and the Federal Reserve are already holding interest rates at record lows and the People’s Bank of China cut rates in June and July, the first reductions since 2008.
They may need to do more to bolster growth because U.S. factory output contracted in July for a second month, the Institute for Supply Management said Aug. 1. Manufacturing in the euro area shrank for a 12th consecutive month, a Markit Economics report showed the same day. China’s industrial-output growth was the slowest in three years in July, according to government data released Aug. 9.
Silver imports by China, the second-biggest user after the U.S., declined for three consecutive months through June, customs data show. Global fabrication demand, a measure that includes coins, jewelry and photographic film, will be little changed in 2013, Barclays Plc estimates. The bank expects supply to beat consumption for a fifth year, leaving a glut of 4,148 tons as mine production expands to a record 25,835 tons.
“Industrial demand may remain weak at least for another six months,” said Jochen Hitzfeld from UniCredit SpA in Munich, the fourth most-accurate precious metals forecaster tracked by Bloomberg in the past two years. “This makes the gap that investors have to absorb even higher,” said the analyst, who anticipates a fourth-quarter average of $28.
Investors bought 797 tons through silver-backed ETPs this year and now hold 18,093 tons, equal to more than eight months of global mine output, data compiled by Bloomberg show. They sold a net 812 tons from ETPs last year. Total assets are now 2.9 percent below the record 18,639 tons reached in April 2011. Investors probably will buy another 500 tons in 2013, Barclays and Morgan Stanley predict.
There are also signs that industrial demand is improving. Stockpiles in warehouses monitored by Comex fell 6.5 percent since July 3, reaching a four-month low on Aug. 8, bourse data show. Inventories had expanded every month since November to 147.1 million ounces (4,575 tons), the most since 1997.
Hedge funds may be getting more bullish, more than doubling their net-long position, or bet on higher prices, to 9,323 futures and options in the two weeks to Aug. 7, CFTC data show. That’s still 58 percent below the five-year average. Wagers fell to 2,888 contracts on June 26, the lowest since October 2008.
Options traders are divided. The most widely held contract confers the right to buy silver at $50 by November 2013 and the next two biggest allow holders to sell metal at $20 by the same time and November 2012, Comex data show. The five biggest gold options are all for purchases at prices higher than today.
Some investors may be deterred by silver’s price swings. The 100-day historical volatility for futures is at 30.8 percent, more than in gold, platinum, palladium and the main industrial metals traded on the London Metal Exchange, data compiled by Bloomberg show.
Coeur d’Alene will report net income of $126.6 million this year, from $93.5 million in 2011, the analyst estimates show. Shares of the Coeur d’Alene, Idaho-based company slid 18 percent to $19.80 this year. They will rally 35 percent to $26.74 in 12 months, according to the average of seven analyst forecasts.
Pan American Silver Corp. (PAAS), based in Vancouver, will make $302.5 million next year, from $234.8 million in 2012, the mean of six analyst estimates shows. Shares of the company, which got 51 percent of its revenue from silver in 2011, fell 28 percent to $15.64 in New York trading since the start of January. They will rise 45 percent to $22.63 in the next 12 months, the average of 14 forecasts compiled by Bloomberg shows.
Fed policy makers pledged to do more if needed on Aug. 1 and ECB President Mario Draghi said July 26 he would do whatever it takes to preserve the 17-nation euro. Lower interest rates increase the allure of precious metals because they generally earn investors returns only through price gains.
“People like me who have tremendous confidence in silver and are invested in the market see it rising once the easing begins,” said Jeffrey Sica, the Morristown, New Jersey-based president of SICA Wealth Management, who helps oversee about $1 billion of assets. “I expect an acceleration in the fear trade. Most of the hedge funds who sold will be back once the market gathers momentum.”
Statistics: Posted by yoda — Tue Aug 14, 2012 6:51 am
View full post on opinions.caduceusx.com
Bulls and bears in gold and silver price confrontation
Gold and silver bears are in the ascendant, while bulls are licking their wounds as gold falls back around 20% – but where to from here?
December 16, 2011
Back in August everything seemed to be going so well for the gold price bulls. Gold was riding high at new records at a time of the year when traditionally precious metals prices are weak, with the main "buying seasons" ahead. Everything seemed set fair for a run up to the $2,000 level, or higher, in the historically strong winter months then to come. Yet what has happened? Instead of reaching new heights, gold fell back and stalled around the $1,700 level and now has seen another big drop into the $1,500s. The bears are currently crowing (if bears can be said to crow) – few more so than Nouriel Roubini who, among a number of others, once got lucky with a prediction and has capitalized on it ever since, and who has used twitter to express his disdain for the gold bulls, as noted by Geoff Candy in his recent commentary here – Battle lines drawn in gold price direction predictions.
The mega gold bulls have been predicting big things for gold throughout – and undoubtedly will see the latest downturn as a major buying opportunity. But to be fair even some of those who have been bullish on gold right through did warn of possible retracing of the price by 20% or more back in the summer, although they see this as a natural correction in an ongoing bull market. Indeed gold has fallen back around 20% from its peak, although is still up on the year, and the bulls will maintain the gold bull market remains intact. The question is whether the price will hold firm at or around current levels, pick up, or fall still farther.
While the media reports technical factors and year-end fund sell-offs as being key in the latest downturn – one gets the impression that these are just the excuses wheeled out by the mainstream media to try and make sense of gold price movement which is little understood even by some of the so-called experts. Gold is worth what people are prepared to pay for it which means the price revolves around perceived sentiment among those who may have the power and the wealth to dictate prices. But in all honesty the actual daily market in gold is tiny compared with what is out there available to the market. Thus the frightening thing for the gold bulls is that if sentiment truly moves against gold then there could be a big sell-off from the ETFs in particular which could turn into a panic selling scenario. This is what the "gold in a bubble" merchants have been preaching for the past ten years!
So far though, the ETFs have seemed to be holding reasonably firm – and in the light of the global economic situation may well continue to do so. Much of the recent price fall has been a move to the U.S. dollar as the currently preferred safe haven in the light of the heavily highlighted Eurozone debt crisis – which is indeed still far from over. What has been disregarded though, much to the relief of the U.S. financial authorities, is the parlous state of U.S. debt which may well hit the headlines more as municipalities – and perhaps some states – are forced to default on their commitments.
So before writing off gold altogether, those betting against it should remember that gold tends to thrive on financial uncertainty – and there is likely to be plenty of that still ahead. If the dollar begins to slip again, as many predict, then gold will likely recover – but perhaps not as fast as the out and out gold bulls might suggest.
And what about silver? Silver saw its big surge earlier in the year, and then came back very sharply, but because its price movements in general follow that of gold, but in a more volatile manner, it has now taken another serious knock along with the latest gold price downturn, just after beginning to make something of a recovery from its earlier price collapse. While gold, even after the latest big fall, is still around 13% up on the year to date, silver is roughly back where it was at the beginning of January with investor confidence in it shaken by the April/May crash, even though at the time the fall did smack of manipulation in the market.
Silver is not gold. It has far more industrial uses than its big brother and is thus more prone also to the vagaries of the economy in general. Gold is still very much a monetary metal. Silver, despite its proponents" protestations to the contrary, has not been such for some years now and seems unlikely to revert to any kind of serious monetary role in the foreseeable future. Even so, it is still likely to track gold and, should gold make a strong recovery, there could be life in the silver price yet – particularly as its industrial uses seem to be on the up and up – see Silver demand growing with old and new uses.
On balance, the fundamental factors which have been driving gold onwards and upwards for the past several years all still seem to be in place and on those grounds the current fall could well prove to be just a major, and perhaps overdue, correction with the price having overreached itself in August/September. However should the confidence of supposed long term investors in the metal waver this could yet become a rout. The next few days may well determine the short term path of the price for gold – and by association also for that of silver, platinum and palladium which all tend to follow gold"s lead to a greater or lesser extent.
Statistics: Posted by DIGGER DAN — Fri Dec 16, 2011 4:33 pm
View full post on opinions.caduceusx.com