One of the worst performing
metal Silver is around 60% down from its 2011 life time high after particularly
emerging economies slowdown. Last Friday closing for Silver was positive which
may indicate correction in near term up to 27$.
Even though silver
investment demand has picked up recently due to the lowest prices in over two
years, this may be just the tip of the iceberg for what is to come in the
future. Currently, only a small fraction of investors understand silver's
future potential but that will change in the next few years.
Presently, the Main Stream
Media bandwagon has been quite busy putting out bearish analysis on silver
demand and price. Whether it's due to a decline of industrial demand or a lack
of silver investment by those in India, there doesn't seem to be a shortage of
this sort of commentary. However, this should not be a concern for those who
understand the true fundamentals in owning silver.
The underlying problem with
this present bearish commentary is that it is so typical coming from an
industry that provides forecasts based on superficial, outdated and manipulated
data. The world's financial system is being propped up by trillions of dollars
of worthless paper instruments that have totally distorted the market's ability
to value assets correctly. Some of these so-called assets are severely
inflated, while others such as silver, are tremendously undervalued.
Severely Inflated Supposed
Assets
According to the Investment
Company Institute's Q4 2012 report, the U.S. Retirement Market was valued at
$19.5 trillion, up from $19.3 trillion in previous quarter:
Q4 2012 Retirement Market
Break-down (in trillions)
IRA's = $5.4
DC Plans = $5.0
Private DB Plans = $2.5
State & Local Govt.
Pension = $3.2
Federal Pension Plans =
$1.6
Annuities = $1.7
TOTAL = $19.5 trillion
Now, if we compare that
data to the ownership of gold and silver, we have the following:
Here we can see just how
insignificant precious metal investment is compared to the total U.S.
Retirement market. Furthermore, the current total value of the GLD & SLV is
only worth 1% of the entire United States IRA market.
How can this be? How did
the public get hoodwinked into owning such a large degree of paper assets when
gold used to be a part of an individual's portfolio in the past? The answer to
that question is probably due to the public suffering from four decades of
amnesia since the dollar was backed by gold.
The financial system is in
a complete mess. The only thing holding the global paper facade together is the
continued monetary stimulus and bond purchasing by the world's central banks.
This sort of activity has a lifespan, whose death may be close at hand.
Silver Investment Demand
& Price
An error that many typical
analysts make today, is to produce a silver price forecast based on industrial
demand. Even though industrial demand is one of the forces that impacts the
price, investment demand has been the overwhelming factor in the past several
years.
From 2005, when the price
of silver really started to take off and until 2011 when it hit a new annual
high of $35.12, industrial demand mainly fluctuated between 450 & 500
million oz. However, total investment demand (coin-medal & implied net
investment) rose from nearly 100 million oz in 2005 to over 250 million oz by
2012. It was due to this huge increase of investment demand during this period
that pushed the price of silver to new highs.
Unfortunately for the
precious metal investors in 2011, high silver prices generated levels of
investment demand too rich for central banker's blood. So after a record of 5
margin hikes on futures contracts in May, 2011 and constant market rigging by
central banks, silver investment demand declined in 2012.
This can be spotted quite
easily if we look at official coin & medal demand (shown by the bars at the
bottom of the chart) versus the price of silver in the graph above. As official
silver coin sales increased from 40 million in 2007 to a peak of 118 million in
2011, the price of silver increased and peaked at the same time. But as demand
for official coins such as Silver Eagles and Canadian Maples declined 21% to
only 93 million oz in 2012, the price of silver fell along with it.
Furthermore, this was true
with silver bar investment. According to the data from the 2013 World Silver
Survey, silver bar investment declined from 100.6 million oz in 2011 to nearly
half in 2012 at 53 million oz. In just one year, investment demand from these
two sources declined 73 million oz (33%).
A Brief Word on Precious
Metal Manipulation
Surprisingly, there is
still a great deal of debate on the validity of precious metal manipulation in
the market place. There are some very well known precious metal analysts who
think the whole idea of market rigging is just plain silly. To them, it's just
a matter of supply and demand. However this is indeed the problem at hand.
How on earth can the
markets value a commodity properly when the majority of central banks in the
world are manipulating and controlling the value of their respective fiat
currencies via Treasury and Bond purchases? By continued manipulation of the
bond and currency markets, the central banks have forced artificial demand in
paper assets while attempting to destroy physical demand in gold and silver
Global Silver Investment
Demand: A Ticking Time Bomb
This next chart shows just
how much silver investment demand has increased in the past five years.
In 2007, total global
silver investment was valued a $500 million. However, five years later this
amount grew to nearly $8 billion in 2012. While that sounds like a great deal,
this figure seems insignificant compared to the dollar amounts being thrown
around the world today.
If we were to add up all
global silver investment from 2007 to 2012 we would end up with a total of
$26.4 billion. That's right... $26.4 billion. It is a very paltry figure when
we realize the Fed purchases $85 billion a month of U.S. Treasuries and MBS -
Mortgaged Backed Securities.
Just think about it, the Fed
bought more in MBS in the month of May than was invested in silver by the world
in the past five years. When we examine these two figures together, it puts it
into perspective just how out of whack the whole system has become.
The central banks will continue
with the insanity of using monetary stimulus to prop up the world's financial
markets until the whole system implodes. Once the Fed and central banks lose
control of over the paper game, there will be a mad rush out of paper
instruments and into physical assets.
Not many realize it, but
Silver investment demand is a ticking time bomb.
For more info please visit:www.cfb.ae
Source:Srocco Report
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