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Metals Market Report Weekly Archive
 

The Mike Fuljenz Metals Market Report

October 2018 - Week 1 Edition

5 Major Reasons to Own Silver Now

Silver rose 42-cents per ounce (+3%) last week, even though gold declined $6 (-0.5%). Silver rose from a long stretch under $14.30 last Friday morning at 8:00am Eastern time, reaching $14.70 shortly after noon Friday. Ole Hansen, head of commodity strategy at Saxo Bank, said that investors seem to be taking advantage of silver’s underperformance, as it recently hit a multi-year low when compared to gold prices.  Silver then fell back to $14.55 on Monday but it is still performing better than gold over the last few days.

#1: Silver is Down more than Gold, but Silver Rises Faster than Gold. Silver is like “gold on steroids” once gold starts rising again. In the 1970s, gold rose 24-fold, from $35 to $850, but silver rose 39-fold, from $1.29 to $50. Again, from 2001 to 2011, gold rose 650% (from $255 to $1,920) while silver rose 1,100% (from $4.06 to $48.70).  Silver is a much “thinner” market than gold – representing only 0.01% of the world’s financial wealth. In rough terms, the world owns $7.5 trillion in gold but only $50 billion in silver – a 150:1 ratio – so a similar amount of demand in both metals sends silver up faster than gold.

#2: Silver is an Industrial AND Precious Metals – a “Double Play.” Gold has only marginal use as an industrial metal, but silver has massive and growing uses in industry. Silver demand from industrial use represented 60% of all demand in 2017, and that percentage is expected to grow in 2018 and 2019. The biggest percentage growth in silver applications now comes from China, in electronics, solar panels, high-capacity batteries, brazing alloys and biocides as well as the traditional photographic uses. Silver iodide is used for producing artificial rain, a valuable application in the drought-ridden parts of the planet. Silver is also essential for the photovoltaic cells which make up solar panels, a popular form of alternative energy.  

#3: There is a Silver Supply Shortage, Especially Depleted Inventories. Due to lower silver prices in recent years, new silver supplies have not been coming to market as fast. Profit margins have also shrunk substantially, reducing exploration budgets for finding new supplies. To meet current demand, companies, governments, dealers and exchanges have drastically drawn down their inventories of silver.  The only significant inventories left are those in exchange-traded funds (ETFs), which are required to hold bullion to back their funds. The cupboards are nearly empty in governments and dealer inventories. If demand were to suddenly surge, investor needs could not be met by existing supplies, so the price could rise fast.

#4: Silver is “Poor Man’s Gold,” the Affordable Precious Metal. Beginning investors can’t necessarily afford the multiple thousands of dollars necessary to buy multiple gold coins or more than one rare gold coin. Silver is the natural place to start, for as little as $20. Since silver tends to follow gold, but in greater percentage terms, if gold makes a move, silver could rise more, giving greater percentage gains to silver investors. A good place for the beginning investor to start would be the U.S. Silver American Eagle coins.

#5: Silver Comes in Wide Variety of Convenient Forms. There are various ways to purchase silver bullion. You can buy bars of one ounce and up. The bigger the bar, the less the premium you’ll pay over the spot silver price, but some dealers insist on having bigger bars assayed for purity and authenticity when you sell them. This often incurs time and added costs. A preferable means of silver accumulation is to buy legal tender bullion coins that come in 1-ounce and 5-ounce sizes that typically trade at $2 or higher over spot value.  These do not typically require assaying, but there are some counterfeits out there, so you must buy or sell with true experts. There are also one-ounce coin-sized silver bullion rounds that are typically .999 pure that trade closer to spot than coins.  Silver does require more storage space and is heavier and more expensive to ship, per dollar invested, than gold.  The most important caution is to “know your dealer” when you buy and sell any precious metals products.  The timing seems right so I urge you to call us and buy some silver now at our low prices!

5 Major Reasons to Own Gold Now

#1: The Bears Dominate Futures Trading, Leading to Inevitable Short Covering When Gold Rises.  Bearish hedge funds continue to dominate the gold market. The latest “Commitments of Traders” data from the Commodity Futures Trading Commission (CFTC) shows that bearish speculative positions were near historic highs all during September. In the week ending September 25, shorts increased by 1,823 contracts to 182,190. Gold’s net-short positions then stood at 83,677 contracts. As Barron’s wrote: “In the futures markets, speculators, who are normally long gold, are now in the rare position of being net short. Many analysts view speculative positions as a contrary indicator and the current situation as bullish.”

#2: Gold Tends to Rise on World Crises, but Those Crises are Not Being Reported! In all the hoopla over Supreme Court nominations and midterm elections, most of the American press is ignoring the entire rest of the world! That includes (for starters) a trade war with China, a threat of U.S. defection from the WTO, sanctions against Russia and Iran and perhaps North Korea again, and then the biggest financial crisis – the collapse of Italy’s major banks, with their unsustainable debt burdens. Italy is the world’s third largest issuer of sovereign bonds and those bonds are in danger of failing. All this comes on top of a crisis in the emerging markets currencies. None of this is being reported adequately, so gold has remained relatively flat recently.

#3: Gold Production Has Declined in Recent Years, Leading to Future Supply Shortages. Producers warned of “peak gold” production a few years back, and now it is a reality.  Due to the extremely sharp drop in gold prices from 2011 to 2015, when gold prices fell from $1,900 to a low of $1,050, many mines closed down and exploration budgets dried up.  Since it takes an average seven years to find and develop a new mine and 20 years to bring a major mine to peak production, a huge boom in gold prices won’t boost production quickly. Ian Telfer, chairman of Goldcorp, one of the world’s biggest gold producers, says total gold mine production has peaked. “We’re right at peak gold here,” he told a mining conference earlier this year. We’ve certainly found all the large deposits. In the 1970s, 1980s and 1990s, the mining industry found at least one 50+ million-ounce gold deposit, at least ten 30+ million-ounce deposits and countless 5- to 10-million-ounce deposits each decade. But since the year 2000, the industry has found NO 50 million-ounce deposit, not one 30-million-ounce deposit and very few 15-million-ounce deposits.

#4: Gold is Down, based on a Rising Dollar, but the Dollar Will Decline Again, Pushing Gold Up. The rising dollar is a temporary phenomenon based on the weakness of competing currencies. The dollar is “the least dirty shirt in the closet,” but gold is the only strong currency over the long-term. The dollar will eventually revert to its long-term decline in terms of many other currencies when the euro or yen start to strengthen, or the Federal Reserve stops raising rates or inflation returns with a vengeance.

#5: Germany’s Commerzbank (and some other European Banks) Still See $1,300 Gold by Year’s End. Germany’s Commerzbank looks for a strong move back to $1,300 gold by year end. “We see no real fundamental reason why the gold price should be having a hard time, given the numerous risks to the economy and financial markets,” said the bank, in a research note on October 1. “The possibility of a disorderly ‘Brexit,’ a further escalation of the already acrimonious trade dispute between the U.S. and China, and the problems in the euro zone should really increase demand for gold as a safe haven.”

The timing seems right so I urge you to call us and buy some gold now at our low prices!

 

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