Crashing silver prices

[jwither 16]

Today, silver broke decisively below it's prior low of $13.62 from December, 2015 at $11.83.  It's also decisively below it's price from when I started posting on this forum at around $14.  Back then, I expected it to retrace the entire advance from October, 2008 at $8.39 but later "waffled" on this opinion.  

It's crashing along with practically everything else and it looks like the greatest financial mania in the history of civilization has finally burst.  If by some miracle it hasn't, the sentiment extreme at the next peak will almost certainly be so great as to result in a deflationary collapse of the financial system.

World stock markets are crashing, including here in the USA where this market has been an outlier (just as with it's coin prices) in deep outer space since the 2007 peak.

China is again 50% off it's 2007 peak.  The recent peak in many European stock markets is below that of either 2007 or even 1999.  (France peaked in 1998 according to the chart on CNBC.com.)  Japan and Taiwan are below (and never exceeded) their 1989 bubble peaks.  Where I can find a chart, only a few seemed to have exceeded the pre-2008 peak, such as Switzerland and the UK which barely did so.  (Others have but it's in a crashing currency.  An example is South Korea which I believe is lower in USD than prior to the 1997 first Asian crisis.)

Lower rated credit is under stress while credit spreads and CDS premiums are shooting higher.  Next up?

Noticeably tighter credit conditions, falling real estate prices, economic contraction and rising unemployment.  As for (US) stocks where many look "cheap" now, look for earnings to decline (Or crash) followed by big dividend cuts which won't make them "cheap" any longer.

Be careful if trying to catch the falling knife.

[GROOVIE COINS 13]

8 hours ago, jwither said:

Today, silver broke decisively below it's prior low of $13.62 from December, 2015 at $11.83.  It's also decisively below it's price from when I started posting on this forum at around $14.  Back then, I expected it to retrace the entire advance from October, 2008 at $8.39 but later "waffled" on this opinion.  

It's crashing along with practically everything else and it looks like the greatest financial mania in the history of civilization has finally burst.  If by some miracle it hasn't, the sentiment extreme at the next peak will almost certainly be so great as to result in a deflationary collapse of the financial system.

World stock markets are crashing, including here in the USA where this market has been an outlier (just as with it's coin prices) in deep outer space since the 2007 peak.

China is again 50% off it's 2007 peak.  The recent peak in many European stock markets is below that of either 2007 or even 1999.  (France peaked in 1998 according to the chart on CNBC.com.)  Japan and Taiwan are below (and never exceeded) their 1989 bubble peaks.  Where I can find a chart, only a few seemed to have exceeded the pre-2008 peak, such as Switzerland and the UK which barely did so.  (Others have but it's in a crashing currency.  An example is South Korea which I believe is lower in USD than prior to the 1997 first Asian crisis.)

Lower rated credit is under stress while credit spreads and CDS premiums are shooting higher.  Next up?

Noticeably tighter credit conditions, falling real estate prices, economic contraction and rising unemployment.  As for (US) stocks where many look "cheap" now, look for earnings to decline (Or crash) followed by big dividend cuts which won't make them "cheap" any longer.

Be careful if trying to catch the falling knife.

These things have patterns, and just as the stock markets crash or reset as they often do, commodities follow suit.

Industry, follows the stock markets as a source of capital, but when all is settled, commodity prices will rebound when the money flows back.

There is no way, aside from our entire modern civilization being thrown back to the dark ages that industry and commodities can remain repressed as they are now. It's simply impossible to run an industry with no capital or at a loss. So at the end of the day supply and demand will prevail. 

I welcome this upset in the global markets as it gives average joes such as myself opportunities to invest in areas that would otherwise been out of my price range. 

From a collecting stand point I welcome the lower prices as well as it makes the hobby so much more affordable.  

regards Robert

[jwither 16]

At 30% off from the February 19 peak, the US stock market isn't remotely anywhere near "cheap".  Try a 70% decline to reach historical "fair value".

There are individual stocks that look "reasonable" now but that's because profits and dividends have not declined or crashed.  Even after a 30% decline, the dividend yield on the US S&P 500 is 2.34%, absolutely pathetic.  To provide some context, prior to the late 90's when the mania was initially in full force, the only time it was less than 3% was at the 1929 peak from which stocks fell 89% and then prior to the 1987 crash.  It was just under 3% both times.

As for commodities, I'm not sure what "repressed" you are talking about.  It's a bear market, plain and simple.  China's artificial credit induced boom resulted in a noticeable expansion of excess capacity and now it's time for the hangover.  With silver specifically, unlike 2008, I expect a lot of "metal bugs" to be forced to sell their stash to pay their bills before this is over.  It probably didn't happen much in 2008 because the financial duress was temporary.

I think there are short term opportunities near current levels but nothing more.

[Cold Sea 6]

That is the thing with investing in shares. It is a risky business, even long term. The correction is overdue and the US is as much to blame as China when it comes to credit induced booms and easy lending for investment purposes. Even the price of gold, which is suppose to be a safe haven, is dropping as people are moving into cash. I wonder what Warren Buffet is buying at the moment. I know that Amazon is looking at hiring 100 000 people to cope with the expected demand increase. Maybe Amazon is a call. Someone mentioned today that the Woolworths share price is less than the price of their chicken sandwiches. Now that should tempt you to buy the share instead.

Edited March 17 by Cold Sea

[GROOVIE COINS 13]

1 hour ago, jwither said:

At 30% off from the February 19 peak, the US stock market isn't remotely anywhere near "cheap".  Try a 70% decline to reach historical "fair value".

There are individual stocks that look "reasonable" now but that's because profits and dividends have not declined or crashed.  Even after a 30% decline, the dividend yield on the US S&P 500 is 2.34%, absolutely pathetic.  To provide some context, prior to the late 90's when the mania was initially in full force, the only time it was less than 3% was at the 1929 peak from which stocks fell 89% and then prior to the 1987 crash.  It was just under 3% both times.

As for commodities, I'm not sure what "repressed" you are talking about.  It's a bear market, plain and simple.  China's artificial credit induced boom resulted in a noticeable expansion of excess capacity and now it's time for the hangover.  With silver specifically, unlike 2008, I expect a lot of "metal bugs" to be forced to sell their stash to pay their bills before this is over.  It probably didn't happen much in 2008 because the financial duress was temporary.

I think there are short term opportunities near current levels but nothing more.

From a South African stand point most stocks have been underperforming due to the economic climate. Across the board from Retail to, communications to the financial sectors are constrained.

 

I'm specifically referring to silver and oil. For Saudi Arabia to flood the market with cheap oil is unsustainable and will only harm smaller producers. We've already seen the knock on effect the sell offs have had on SA's largest oil and chemicals producer, Sasol.

Yes Sasol over extended themselves with the problematic Lake Charles venture in the US, but their share price took a massive hit and is grossly undervalued. Fracking/shale companies in the US and smaller more dependant oil producing nations such Venezuela, Libya, Nigeria and Angola stand the most to lose at current prices. 

 

Even though silver at $12- $13 is result of the current market climate, the $15 - $18 range seen over the last few years is unsustainable. The only reason such low price have been sustained for such a prolonged period of time is above ground supply.

If base metals industry (of which silver is a by product) should tank or even constrict for any prolonged period of time, above ground silver will simply run up. As for miners who are primary producers such as Mexico and South America, I doubt will run at loss to keep silver prices low in the wake of supplier demand. 

I see the same thing with platinum for which there is a above ground surplus due to low diesel auto industry demand. If I can recall, I think Platinum is mined at a 5 to 1 ratio to palladium (another by product), the latter of which is carrying the industry, hence it's skyrocket in price during recent history.

The South African Reserve Bank has already made it public to make platinum a reserve metal as well as plans to promote it as bullion coin investments, after lobbying for a number of years by the industry. 

Two of the largest platinum miners in SA, have been working together on developing a platinum and palladium alloy for the auto industry. This move looks to address the uneven supply and demand between the two metals, which will eventually stabilize the price for both.

So much like silver I don't see platinum remaining in $600 to $800 range for very long once demand outstrips above ground supply, and is solely dependant on mining. 

 

As for metal bugs needing to sell off their "stash", I think the 2008 financial collapse has been the go to example for stackers. They have a philosophy of being hedged outside of the banking, debt system and are well stocked. I think they well prepared (especially in the US) for any type of instability on a large scale than anyone. Much more so than stock market investors, selling off frantically and running to paper assets to hedge themselves. 

The big question is if there is a global scale on the level of the 2008 bust, how long before precious metals sky rocket (there's no denying they will). The last time metals had a good 4 year climb after the initial smackdown before reach peak levels, after which a steady decline before leveling off.

I think this time around it won't take as long. I see gold and silver depressed as markets and industry go south, then break out as investors seek to hedge their wealth. 

 

regards Robert.

[GROOVIE COINS 13]

13 minutes ago, Cold Sea said:

That is the thing with investing in shares. It is a risky business, even long term. The correction is overdue and the US is as much to blame as China when it comes to credit induced booms and easy lending for investment purposes. Even the price of gold, which is suppose to be a safe haven, is dropping as people are moving into cash. I wonder what Warren Buffet is buying at the moment. I know that Amazon is looking at hiring 100 000 people to cope with the expected demand increase. Maybe Amazon is a call. Someone mentioned today that the Woolworths share price is less than the price of their chicken sandwiches. Now that should tempt you to buy the share instead.

Warren Buffet has been waiting for a good while now, sitting with $200 mil in his back pocket. Waiting for a correction for good buys. The man follows a simple concept. Buy low, sell high. Something we can all take home.

Edited March 17 by GROOVIE COINS

[jwither 16]

2 hours ago, Cold Sea said:

That is the thing with investing in shares. It is a risky business, even long term. The correction is overdue and the US is as much to blame as China when it comes to credit induced booms and easy lending for investment purposes. Even the price of gold, which is suppose to be a safe haven, is dropping as people are moving into cash. I wonder what Warren Buffet is buying at the moment. I know that Amazon is looking at hiring 100 000 people to cope with the expected demand increase. Maybe Amazon is a call. Someone mentioned today that the Woolworths share price is less than the price of their chicken sandwiches. Now that should tempt you to buy the share instead.

Relatively, gold is more overpriced than at any time except late 1979/early 1980 and late 2011.  It's price has also been inflated by the credit mania.

AMZN is one of the ridiculously overpriced stocks on the planet.  From what I know, it's pursued a "scorched earth" strategy to underprice its competitors (brick and mortar) and the only reason they can do so is because the financial markets have made their cost of capital virtually free.  (They might not be cheapest on everything but they did uncut most everyone previously.)  AWS is a big money marker but the retail business makes very little.  It's a retailer, not a technology company.

[jwither 16]

From a cost of production standpoint, silver is "cheap" but then, much of the demand is for "investment".  It's not like anyone has to have it as with oil.  I am looking to buy it below $10 "all-in".

I am very confident that most "metal bugs" are not well positioned.  There is no reason to believe that hardly any of them are particularly affluent.  My prediction is that a noticeable percentage if not majority will be forced to sell their silver stash at low or lower prices when the later lose their jobs and have to sell anything they can to raise cash.  Outside the US, I believe a noticeable number of the affluent own gold but that's because it's much higher price makes it much easier to hold a lot value. 

My explanation for the record gold-silver ratio is that its not viewed as an equivalent money substitute to gold.  Central banks hold a lot of gold but no silver.  Here in the US, I can go to any number of "We Buy Gold" retail outlets.  They might buy silver in coin or bar form but I wouldn't count on it.  There are coin dealers locally and both a coin and bullion dealers throughout the US but it's not as easy to sell.

[GROOVIE COINS 13]

16 hours ago, jwither said:

From a cost of production standpoint, silver is "cheap" but then, much of the demand is for "investment".  It's not like anyone has to have it as with oil.  I am looking to buy it below $10 "all-in".

I am very confident that most "metal bugs" are not well positioned.  There is no reason to believe that hardly any of them are particularly affluent.  My prediction is that a noticeable percentage if not majority will be forced to sell their silver stash at low or lower prices when the later lose their jobs and have to sell anything they can to raise cash.  Outside the US, I believe a noticeable number of the affluent own gold but that's because it's much higher price makes it much easier to hold a lot value. 

My explanation for the record gold-silver ratio is that its not viewed as an equivalent money substitute to gold.  Central banks hold a lot of gold but no silver.  Here in the US, I can go to any number of "We Buy Gold" retail outlets.  They might buy silver in coin or bar form but I wouldn't count on it.  There are coin dealers locally and both a coin and bullion dealers throughout the US but it's not as easy to sell.

Silver is a very labour and chemical intensive metal to mine and produce. Reason for this is most primary silver deposits have already been mined, with the exception of Mexico and South America.

It's the same case with gold in South Africa. For a century the largest gold supply on Earth has been tapped, and now what remains is extremely labour intensive to mine. Miners have to go 4km deep for what a few decades ago would have been considered low grade ore. They struggle to make profit and though many would say this is due to the constant striking and unproductive workforce, but convert those salaries to dollars and you'd get a sense of why mine workers are not content.

Johannesburg is littered with large mounds of earth, waste from decades mining, that has always been regarded as reserves for when mines finally deplete. This waste has already started being processed as its now becoming a more profitable source supply.

 

But back to silver. The reason it's cheap is because it's a by product carried by the zinc and copper industries. As I mentioned, if those base metal industries constrict, then silver production follows suite.

It should also be noted that silver production leaves no "rich waste ore" such as with gold. After it's chemically extracted from base metal waste, nothing is left. 

 

If as an investment you're looking to jump in at below $10, then you might as well jump in at $12 where we're currently at. That's if one could get physical metal for spot price. I read yesterday on a social media forum, that ASEs were going for $8 premiums, even though the spot price is so low.

I'd honestly be surprised if silver were to ever go near $10 again, especially if one factors inflation. What is the inflation rate in US? Actual inflation rate in terms of purchasing power compared to 2005 when spot was last seen at $10?

Here in South Africa we have an inflation rate put forth by Stats SA of 4%, but we all know that figure means nothing when it comes to actual purchasing power of groceries, fuel, electricity etc. When you see actual food basket prices double over a 12 year period, then you realize the stats are just official numbers.

 

regards Robert

 

[jwither 16]

I brought up silver here in the "investment" context because many coin "collectors" are "metal bugs", certainly on US coin forums but almost certainly also among those who read this forum in South Africa.

High premiums on silver seem to occur every time there is a big short term drop in the spot price.  I use California Numismatic Investments (golddealer.com) as a proxy.  They are a PNG dealer (an organization similar to SAANDS in the US.)  when I checked yesterday, I recall buy-sell spread for ASE was $4.50 and for Canadian Maple Leaf $3.80.

I'm not interested in buying it near current spot and I'm not paying these premiums either.  Buying it now would result in an immediate 20% loss.  (This is the difference between current and "normal" spreads.)  That's insane.  I can't be 100% certain but I am about as certain as I can be that the spot price and the premiums will both decrease.  So I will certainly wait until at least the premiums shrink to more normal levels.

The inflation rate has nothing to do with the price of silver.  It's entirely psychological, just as it is with every other asset price.  There has been inflation every year since 2011 (when it hit around $50) and since 1980 (when it also hit around $50).  If inflation were the cause (which it isn't since only human beings are buying and selling it), then it should be much higher certainly than it was in 1980.  Instead, it is 76% LOWER even in nominal terms.

Silver is not overpriced today (relatively) but gold is so.  What I was trying to tell you is that in the financial asset crash which is almost certainly just starting (it's a process, not an event), people are going to forced to sell all kinds of things for a variety of reasons, WHETHER THEY WANT TO OR NOT.

In the last month, the larger more liquid common shares have been sold and one reason for it is that it is easy to sell.  There are many illiquid financial instruments that have not been marked down because there are either no bids or the bids are a (lot) lower than the supposed market price.  

In the last week or so, this is probably what has been happening to US Treasury debt.  This market has never had this much volatility before (at least in the lifetime of anyone alive today) and one reason for it is because of what I am telling you.  People are selling UST instead of "junk" corporate and sovereign debt.

This is the first stage of the decline.  If the mania is over, there will be a rebound (probably a strong one) but to (much) lower highs.  The next stage of selling (whenever it is) will be much worse and at least somewhat like 2008, is going to require people to sell all kinds of things for two reasons:

First, they will try to sell first before everyone else does.

Second, Many will HAVE TO sell because the economy will be much worse, they may have lost their job or had their pay cut, they will be much poorer and they will need to raise money to pay their bills.

If you are following current events, the US is going to implement a minimal form of MMT (free money for the people).  It's economic insanity of course but shows how desperate the situation is now.  However, there is no possibility that the US Government or anyone else can stop the economic contraction or asset price deflation with this policy.

Some have claimed this "printing" will cause much higher or hyper inflation and it will, eventually.  But not before the financial markets crash and while developed market sovereign yields are as low as now.  There will be no hyperinflation with 10YR UST @1%.  So, either these rates soar soon or silver is probably going to (much) lower levels.

This is a simplified explanation of the situation but I can't write a research paper in one post.

[Pierre_Henri 64]

Very informative post above – thank you.

The gold price is now where it was at the end of last year, but still way up from price levels 5 years ago – actually more than 25% up. Silver however is doing bad, being 30% lower than 5 years ago.

The one thing about silver vs. gold that I could never understand is the following:- Many people buy precious metals in uncertain political & social times – probably more so in “nervous” countries than “stable” countries.

If those people that practically lost everything in old Rhodesia (now Zimbabwe) put their money into bullion gold coins, they would not have faced the disaster they did. Some of them indeed bought Kruger Rands and are today much better off vs. those that converted into cash, the stock market, not to mention property, that was actually seized (the farms) by the state without any compensation.

But this is what I cannot understand … if you should buy precious metal coins (bullion) because times are uncertain, why would you buy silver if you can buy gold?

For R2 400 000 you can buy 100 Krugerrands that would weigh only 3.4 kilograms.

Paying that amount for silver, you will have to buy 390 kilogram of silver.   

How are you going to take that huge weight of silver with you when you should flee in times of disaster – say in the case of Rhodesia mentioned above?  It would take 10 people to help you carry it!

With gold a child can carry 3.4 kilograms.  

That is why I think gold is outperforming silver (at least one of the reasons) – silver is just too bulky & heavy compared to its price to stockpile and be “moved” to be sold “elsewhere” in times of emergency and uncertain political times.

[jwither 16]

In the example you gave, I would never buy silver instead of gold for precisely the reason you used.  It's also one reason why I believe the actually rich don't own much silver.  Sure you can store in a repository somewhere but it still has higher storage fees.  It's also a much less liquid market because the much lower price doesn't make it possible to accommodate large inflows without disproportionately influencing the price.  The market size is trivial.

The primary reason I can see why the gold-silver ratio has been increasing since 1980 is the one I previously gave.  Silver is no longer viewed as an equivalent money substitute worldwide.  Silver's price is based more now upon its use as an industrial commodity.

In 1980 at the peak of the all-time high (adjusted for purchasing power) the ratio was 17-1 ($850 vs $50), not far from its "historical" ratio (one that didn't fully exist but that's beside the point here) of about 16-1.

At the 2011 peak, the ratio was slightly over 38-1, $1921 (or near it) to about $50.

As I write this post (literally), it is about 122-1, $1472 vs. $12.

After both crashed in 1980, it wasn't long before the ratio soared far above 17.  Since I have followed it, I don't ever recall it below 60, other than in the run up to 2011. 

I also believe before the bear market in both end, it will be higher than it is now.  This will make it very unappealing to buy because a (much) lower price will result in a large buy-sell spread.  At $15, I think it has been about $1 or $1.50.  If it falls back to or below $8 (the low was $8.39 in October, 2008), I doubt the spread will be that much lower.  Even if it's 50c, we're still talking as much as 10%, depending upon spot.  That may be "low" for SA but it isn't here.

I'll still buy it anyway at some point.  Back in 2005 (or near it), I remember when palladium was selling for $140.  I didn't buy it because only 1oz bars were available and I didn't want to pay a premium of $30.  Stupid move, as it recently was at about $2500.

There isn't hardly anyone commenting here but there is no doubt to me that of those who read this, many or most don't think it can fall as low as I write here.  These are probably the same people who never thought it would be selling for its current price and didn't think Union or ZAR would crash either.  Well, if the asset mania is over as I believe, the deflationary crash has just started and silver is already down to $12.  The upcoming depression (yes, you read me correctly) hasn't started either.  I don't think there will be one now but expect one before the end of this decade.  The credibility of developed country central banks and central governments is going to evaporate.  You'll know it is approaching when sovereign debt yields move noticeably higher and one currency starts declining or crashing versus the others.

[jwither 16]

Silver spread is even worse than I remember.  California Numismatics Investment is no rip off outlet.  There prices are fair.

Per the link below, they are offering:

2020 ASE at $14.19 bid and $22.19 ask

2020 Canadian Maple Leaf at $13.19 bid and $19.69 ask

These spreads make physical silver a horrible buy right now.

https://www.golddealer.com/product-category/products-2/bullion/silver-bullion-coins-bars/

Note:  These prices change throughout the day which means anyone looking later may see different prices than my above quotes.

Edited March 20 by jwither

[Pierre_Henri 64]

Seems South Africans are blocked from that website 

Access Denied - Sucuri Website Firewall

If you are the site owner (or you manage this site), please whitelist your IP or if you think this block is an error please open a support ticket and make sure to include the block details (displayed in the box below), so we can assist you in troubleshooting the issue.

[jwither 16]

After some difficulty, here is what I was able to extract form the CNI website.  The first price is "buy" and the second price is "sell".  Both differ from what I showed in my last post.

• American Silver Eagle 1 oz 2020

  Rated 5.00 out of 5
  $16.61 $22.61

• 

• Canadian Silver Maple Leaf 1 oz 2020

  $14.06 $20.11
• 

  South African Silver Krugerrand 1 oz

  Rated 5.00 out of 5
  $14.06 $20.11

 

 

 

 

 

 

 

 

 

 

 

Edited March 21 by jwither