Wieder ein Geschichtchen zum Silber

verfasst von JüKü, 26.12.2001, 21:41

ESSAY OF THE MONTH

November 2001

The Calm Before The Storm

The recent lackluster behavior by silver belies some explosive, behind-the-scenes developments in the market.

By Lawrence Roulston

The underlying fundamentals of the silver market are more bullish than perhaps any other commodity. Virtually every investor or analyst who has examined the silver market agrees that the silver price must rise. Yet, in spite of the widely held consensus about the bullishness of the silver market, the price continues to disappoint.

Are analysts missing something? Or, have some recent one-off events simply deferred the inevitable day of reckoning?

As you are about to see, a big move in the silver price is not only inevitable, but the time for that move is fast approaching.

The Stage Is Set

By now, most investors are familiar with the extraordinary story behind the silver market: for 12 consecutive years now, demand for the metal has outstripped mine supply...and by a wide margin. Above-ground stocks of the metal are continuously being melted down to satisfy industrial demand. With those stocks now reaching what is being described by experts as a"critical level," the stage is set the for a dramatic price boom.

However, many investors are understandably confused that, in the face of such overwhelmingly bullish fundamentals, the silver price is now at the lowest level in years.

Dumping of silver by disgruntled investors has added to sales from unexpected sources in what must surely be the final stages of a massive inventory liquidation. In fact, the further the level of above-ground stocks is depleted before the market turns, the more dramatic will be the inevitable upwards correction.

The fact is, the silver market will turn long before inventories are depleted. A mere slowdown of inventory sales will create a shortfall in the market that will send industrial users scrambling to find enough metal to keep their factories operating. This is exactly what took place in the palladium market. That time is fast approaching in the silver market.

Authorities Agree...

No less an authority than CPM Group, one of the world’s most highly respected precious metals research companies, expects the silver price will rise"perhaps sharply, soon."

That group has a well-deserved reputation for unbiased, market-neutral research and detailed analysis. The figures provided by CPM Group form the basis for the following analysis, but the statistics and conclusions from other top market analysts are similar and come to the same conclusions.

CPM’s most recent quarterly update shows the market upturn beginning in the next quarter. After reading the next few paragraphs, you will understand the reasons behind that projection.

Demand Is Rising

Silver consumed in industrial and consumer applications reached a record 846 million ounces last year, and a further 25 million ounces was fashioned into coins. The level of demand for silver remains strong, even in the face of the economic slowdown.

Silver has unique physical properties that make it a vital, even indispensable, component in many applications. Its sensitivity to light, ability to endure extreme changes in temperature, strength, ductility and high electrical and thermal conductivity make it difficult or impossible to substitute any other material for silver in many of its uses.

Demand for silver in its traditional role of jewelry and silverware declined last year. However, that decline was more than offset by strong gains in photography, electronics and other industrial applications.

The rapidly growing demand for silver in photography negates one of the greatest misperceptions with regard to the silver market. Several years ago, analysts began forecasting that the growing use of digital photography would displace traditional, silver-based photographic film and prints, the largest single use of the metal. Those forecasts, which had a big negative impact on the silver market, are based on the same sort of shallow analysis that led to the technology bubble.

The idea that digital cameras would do away with traditional photographic prints is analogous to forecasts in the 1970s that computers would do away with the need for paper. We all know that computers actually created a boom in paper consumption.

Even though digital cameras eliminate the need for film, traditional photographic prints remain the favorite way to view and store snapshots for most people. Traditional prints have far greater color resolution, clarity and durability than any other medium, and therefore remain by far the favorite, even among many digital photographers.

Digital cameras allow photographers to take snapshots for free, but creating a lasting image continues to consume silver. In fact, more silver is consumed in photographic paper than in film. Therefore, even as digital photography increases in popularity, demand for silver in photography is continuing to grow.

The figures support that view: Last year, a record 283 million ounces of silver were consumed in photography, up 6% from a year ago. The U.S., with the highest proportion of digital cameras, recorded the largest gain in the amount of silver used in photography, gaining 8.3% over the year-ago level. Over the past five years, silver used in the photographic industry has expanded by an impressive 28%.

About 65% of the silver that goes into the photographic industry is recycled, representing the majority of recycled silver, an important part of the total supply equation.

Silver is the best electrical and thermal conductor of all the metals, making it vital in many applications such as switches, contacts, conductors, fuses and electrically heated automobile windshields. Silver is also crucial in many electronic applications, and has played an important role in developing ever smaller and more powerful electronic devices such as laptop computers and mobile telephones.

The steady growth of silver in its traditional applications such as mirrors, together with an ever growing list of new applications, has led to a 45% gain in silver used in industrial applications over the past decade. The list of new uses for silver is always growing, assuring that the amount of silver consumed annually will continue to grow.

Another new use for silver is emerging that could further increase demand for this versatile metal: Superconducting electric power cables are being installed in an inner-city section of the power grid in Detroit, Michigan. The conductors in the three superconducting cables being installed weigh only 900 pounds, yet carry more electricity than the 25,000 pounds of copper in nine cables that they are replacing.

The superconducting material at the core of these cables is a complex ceramic material, but it requires a sheath of silver, which makes up 50% of the overall weight of the conductor. These superconducting cables must be cooled with liquid nitrogen, yet are seen as having important applications where there is a need to increase capacity and reliability. Within a decade, as the use of this material becomes more widespread, this application is projected to consume 50 million ounces of silver or more per year.

In virtually all of its industrial applications, silver represents an almost inconsequential portion of the finished product cost, meaning that increases in the price of the metal will have little impact on the production levels of the products. Furthermore, other than photography, only a minimal amount of silver is recovered, meaning that most of the silver that goes into industrial and consumer products is forever removed from above-ground stocks.

New Supplies Are Dwindling

The low silver price over the past few years has provided little incentive for mining companies to explore and develop new deposits. Mine supply is actually expected to fall this year as the rate of depletion surpasses new capacity.

The surge of new silver supplies that came on after the price spike in 1980 outpaced growth in demand for the metal in the first half of the 1980s. In 1990, demand overtook supplies, and ever since that time, above-ground stocks of silver have been used up to satisfy demand for the metal.

Last year, mines supplied 492 million ounces of silver, representing only 56% of the silver that was consumed. The balance of the silver supply was derived from:

Government disposals: 20 million ounces;

Scrap (mainly
photography) and other: 221 million ounces;

Inventory draw downs: 138 million ounces.

There are few large primary-silver mines. Even among those that are generally perceived as being silver companies, most producers derive the majority of their revenues from base metals.

In fact, three-quarters of new silver is supplied as a by-product of mining other metals. In most cases, silver represents a small part of the overall operation, providing little incentive to expand the scale of the operation, regardless of the price of silver.

And finally, there are few large primary silver deposits at an advanced stage, meaning that even a sharp rise in the price of the metal will not result in a large increase in the amount of new silver coming on to the market.

Inventories Are Falling

"The amount of above-ground silver inventories, meanwhile, have declined sharply over the past 10 years, and are estimated to be rapidly approaching critically low levels." That is the blunt assessment from CPM group in their July 2000 Special Report on the silver market.

In 1990, silver bullion stocks totaled 1.9 billion ounces. Already, 83% of that metal has been melted down and distributed to consumers. CPM estimates that bullion inventories total approximately 300 million ounces at present. That amount represents the inventories of the banks, dealers and commodity exchanges around the world, plus an estimate of the bullion held outside of the formal markets.

That level is generally seen as at, or at least very near, the minimum level required to operate the silver markets. With annual consumption approaching 900 million ounces, the current inventory levels provide little cushion, especially when one considers that those stocks also include the positions of long-term holders of the metal.

The issue that divides the silver bulls from the silver bears is the estimated 425 million ounces of silver held in the form of coins. The bears see those coins overhanging the market, as they are constantly trickling out of investors hands and into the market.

The question is: At what price level will the flow of those coins to industrial users turn into a flood? Ironically, a rise in the price should actually stem the flow. Disenchanted investors have been liquidating silver coin holdings for years as they lost hope that the price would ever recover. That flow could be quickly extinguished and even reversed by a more-bullish outlook on the silver market.

Governments are now largely out of the silver market. For example, the U.S. government held 2.1 billion ounces of silver in 1959 but, after four decades of steady sales, has now almost completely eliminated its holdings. Much of the silver disposed of by the U.S. government was used in the various U.S. Mint coin programs, including the U.S. Eagle silver coins. In fact, the government will soon have to enter the market to acquire silver to maintain the coin program.

The Chinese government is widely rumored to be a large seller of silver, but this is another of the misperceptions in the market. The Chinese government sold only 11 million ounces last year, an amount in line with prior years. For many years, the Chinese government acted as a clearing house for the metal mined and processed in the country, purchasing metal from producers and disposing of the metal onto world markets. The Chinese government may continue to hold stocks, but net sales from China are a small portion of the total market.

It was the Indian government that surprised the silver market last year with its decision to begin to liquidate its silver holdings of about 80 million ounces. In large part, that decision was motivated by a desire to satisfy demand for silver in the country in a way that would reduce the outflow of capital.

The reduced demand for imported silver in India has contributed to the price weakness over the past few months. However, India is the third largest consumer of silver, meaning that the total government stock will satisfy demand in the country for only about eight months.

A History Of Volatility

Quoting again from the CPM Special Report on silver prepared last year:

"The history of silver prices is that they stay down until almost everyone has given up on them, and then they rise rapidly. It has happened time after time, and probably will happen again....It happened in 1967, in 1973-1974, 1979-1980, 1982-1983, 1987, and again in 1993. It should be expected to happen again.

"Consider this. In 1986 and 1987, the price of silver seemed stuck between $5.00 and $5.40. In March and April 1987, prices shot quickly to as high as $11."

As pointed out by CPM Group, there are important differences between the previous price spikes and the current situation."In 1987 there were around 1.6 billion ounces of silver in bullion inventories, waiting to come on to the market." Since that time, an estimated 1.3 billion ounces of above-ground silver has been melted down and converted into industrial and consumer products such as mirrors, electrical contacts and photographic prints. Those ounces are no longer available to the market.

The anemic performance of the silver price over the past two years has led to a sense of complacency on the part of industrial users of the metal and resignation among many individual holders of silver. In the face of a declining price, users see no need to accumulate or even hold stocks of the metal. Many investors have given up on the markets, and are dumping.

This present situation is exactly the scenario that preceded previous run-ups in the metal.

The Smart Money Is Headed For Silver

The biggest profits are earned by those who invest before the market turns, and the silver market seems poised to repeat that pattern. Several extremely successful investors and businessmen have already made big investments in the silver market.

The biggest commitment came from the most successful of all investors. Warren Buffet recognized the compelling fundamental argument that silver prices would rise sharply at some time. He committed 2% of the $30 billion Berkshire Hathaway funds to the silver market, but found that his proposed $600 million investment equated to nearly the total market capitalization of the entire U.S. silver industry. Therefore, instead of equities, he purchased 130 million ounces of silver bullion.

Bill Gates has also invested heavily in the silver industry. I’m not suggesting that Mr. Gates’ expertise extends to be commodities investment arena. However it’s a safe bet to say that the wealthiest man in the world can afford to buy expert investment advice.

In addition, George and Paul Soros and their Soros Funds, along with Lewis Bacon and his Moore Capital Management, have all made substantial investments in silver equities over the past few years.

The Silver Market Is Tiny

The total value of all the silver coins and bullion now available to the market is only about $3.5 billion. At $2.5 billion, annual production of silver is less than one-eighth the size of the gold market.

Even a flicker of investor interest can have a tremendous impact on the silver market. The volatility that this market has displayed time and again demonstrates that it doesn’t take a lot of money flowing in to have a huge impact on the silver price.

And the market for silver equities is even smaller than the bullion market. The majority of silver is produced as a by-product of base metal mines, meaning that there are actually very few primary silver companies. As we saw above, Warren Buffet’s company was unable to find enough silver equities to satisfy his investment objectives.

For investors with more modest sums to invest, equities in silver companies will provide far greater leverage to the silver market than owning the metal directly.

Investors Hold The Key

Sales of silver by discouraged investors has effectively become a self-fulfilling prophecy, as the flow of investor silver on to the market has helped to satisfy demand for the metal and keep the price low.

It is now evident that investor sentiment is about to turn in favor of silver. First, the fundamentals have become so overwhelmingly bullish that it is hard not to accept that the market has hit bottom.

Furthermore, investors are growing increasingly nervous with regard to volatile stock markets and over-valued paper currencies. Those seeking to secure a portion of their wealth in the form of hard assets are looking again at silver.

Investor sentiment toward silver can change very quickly, as we have seen many times in the past.

When, Not If…

The situation in the silver market simply can not continue much longer. For 12 consecutive years, industrial demand for silver has outstripped supplies. The result has been massive draw downs of inventories, which are now described by the leading experts as fast approaching"critical levels."

The turning point will come when individual holders of silver merely slow down the rate at which they are supplying metal to the market. The resulting shortage of silver will send manufacturers scrambling.

Silver is a vital component in many consumer products and for the most part represents an inconsequential portion of the total cost of the product. As we saw with the palladium market, users will pay whatever price it takes to secure supplies of this vital metal.

Some of the most successful investors in the world have already acted to position themselves for the inevitable rally in the silver price. The time to act is now, because the silver price can move very quickly, leaving investors in the dust of those who anticipated the move.

Quelle


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gesamter Thread:

• Wieder ein Geschichtchen zum Silber - JüKü, 26.12.2001, 21:41
  • Re: Wieder ein Geschichtchen zum Silber - Standing Bear, 26.12.2001, 22:06
    • Re: Wieder ein Geschichtchen zum Silber - JüKü, 26.12.2001, 22:29
      • Klar geht das.:-) - Standing Bear, 26.12.2001, 23:08
        • CDE droht ein Revers Split... - Tofir, 27.12.2001, 00:34
          • Re: CDE droht ein Revers Split...hier noch der Artikel - Tofir, 27.12.2001, 00:46
    • Was wäre wenn... - Tofir, 26.12.2001, 22:48