The more I look at silver, the more I realise just how hyped it has become and the more hyped it becomes, the more I get gold feet about it. I have silver, quite a substantial amount of it, but recently I have been trading that silver too, I want to lower my cost base, but more so, I want to get some of that fiat back.
So upon analysing this more, or at least my own take on things and listening to the contrarian views too of course, my first thought is why silver? We all know the line that is being touted and that's the western world is coming to an all out collapse and that's obvious, this has been engineered and it indeed very scary, the thinking is of course that in a hyper inflationary environment silver and gold do wonderfully well. However is this really true? I need to look at the charts more to scertain that so I am not going to confirm or deny that, I am leaving it as an open question, so please, if you have this info I would be interested in knowing.
Okay. so if we look at the meteoric rise of silver, we can see that from 2004 it has shot up, from approximately 8 dollars to a high of 49 dollars just before May and of course we all know what happened then. However we do need to look at what happened prior to this, why this was so and why silver began rising. If we look at pre 2004, we don't need to know exactly what stocks, but we do know that investors are interested in one thing, returns, by 2004, the bubbles in the housing market were obvious to see, the effects of repealing glass steagalz very apparent. So up steps gold and silver, you have those holding the physical, but in reality, those holding aren't driving the price, the market is driving the price. That is to say the trading, so why silver? silver offered tremendous returns because of the extremely low margins, the rise in industrial demand particularly from India and China and you have reason to see why people would suggest the value of silver was about to rise.
I have been caught by this silver euphoria, I have been sold on this line that if you don't get it now, it will be too late. I let me emotions dominate my decisions and for that, this is definitely a lesson learned. We do indeed see some obvious examples of how the price can be suppressed, the leasing of metals for instance is an excellent example. However I want to focus for now on the the market, it is interesting to see how many people insist that the price of silver will be x, I hope so, I think there is a good chance that the price of silver will markedly increase, but having now understood a little bit more about how these markets work, i have to say that it's so damn difficult to say which way the markets will move. We have those who are bullish hedging, we have 10 minute trading, 5 minute trading, those trading for a few weeks, those dipping in and out dependent on the news, depending on reports. We have this constant wave of buying and selling and that is why it is so difficult to pinpoint where the price is going.
It is interesting how Turd keeps repeating this line that long term he is still very bullish silver, it leads me to suggest that he is admitting that silver could stay in this price range, or even below this for quite some time. That admission only underlines just how unpredictable this market is, or for that matter any market is. Going back to my previous point, the low margin calls have enticed this market to explode into life, whilst we rail against unscrupulous speculators, the reality is that real price discovery is speculation, the value of this metal, or for that matter anything is driven by speculation. In order for these speculators to compete either on the long or short, they have to bring to the table a certain amount in order to trade a 5000 ounce contract, approximately 8%, the fact that it's 8% now, after so many margin calls, underlines just how the margins were before the beginning of May and furthermore points to just how rampant the long speculation was.
Now of course there are those that say that what the CME did was criminal, they introduced 5 margin hikes in the space of 9 days, and point to the fact that JPM and HSBC likely drove the price into parabolic terrirtory, jeff nielson amongst others states this. What is telling about this is the fact that it's an admission that JPM plays both the short side and long side of the market. So while people decry JPM for sparking the margin hikes, they want to ignore the part such an institution played in driving price too. However that said, the question was asked why were margin hikes introduced while price was falling, but it was falling with great volatility, which would spark more margin hikes, again though the fact this shook out so many longs only goes to show just how much the longs were short.
Now on that point, stellaconcepts did a very effective job of illustrating why this notion that there is only one physical silver ounce for every paper ounce is just a falsehood. I heard something from a permabull a few months ago in which he was talking about how many contracts were traded during the last month compared to how much silver was in the inventory. This is just utterly false, again I will go back to the buying and selling, yes, lets suppose a billion contracts were traded last month, that does ot mean I can say to you, see the ratio of silver to paper silver is almost 60/1. It's a falsehood because those contracts have exchanged hands, they have been bought and sold, those that sold can't suddenly claim they want the silver, they sold it, it's not in their hands anymore. So instead if we take the current contracts, divide by the inventory then we get about 17/1. In addition to this, this 100 plus /1 is attempted to be proven by alluding to the various silver bets, but if I have bet big on silver price and someone has bet against it, it has nothing to do with the physical because there is not the expectation of delivery, it is entirely a paper bet.
So for arguments sake we settle on 17/1 as being the true picture, that is then cited as the reason why the paper market will break, after all, people will demand the physical. This is also nonsense and why? well, bearing in mind many trading accounts couldn't cope with bringing 8% of a 5000 ounce contract, so how do you suppose those remaining can afford the extra 92%? They can't, they aren't interested in receiving, they want to bet with the the possibility of low capital and big returns.
However some people are stuck on this idea that paper silver is the great evil, it is the cause of keeping the price down, but if that is true, then why is it that prior to paper silver, the price didn't explode? In fact the permabulls in the last 30 years, have lost if they kept hold of their silver. This idea that buying and selling physical silver is stupid or short sighted is absolute nonsense. If you anticipate a big fall off, then you take a risk, if you decide to stay in, then you take a risk. Only the individual can weigh up which is the more risky of the two decisions.
Which leads to these campaigns, campaigns like buy and hold physical silver and thus collapsing J P Morgan. I have always found this to be one of the more puzzling campaigns. This struck home to me when I first contacted bullionvault, when I asked the question of who supplied the silver, lo and behold the answer was JPM. When I go onto the APMEX website, I see that the transactions are facilitated through JPM. You, me, we, are aiding JPM when we take delivery of silver, directly we are. Now of course, we can cite how during times of increased demand for silver premiums charged by the dealers are rising, it's a combination of increased demand which can place a strain upon supply. However I recall exactly what happened in May, the premiums rose substantially, the price began settling, the premiums halved.
I really don't know where the price is heading, I suspect that we could well see a subdued price for quite some time, followed by more moves, both up and down. There is nothing wrong with keeping gold, or silver, whichever if you see it as a haven, a last resort in this crazy days, there is nothing wrong with buying silver, to sell silver, but there is something wrong with consciously propogating bullshit and there are some on the long side just as guilty of that as anyone else.