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View Full Version : Insider article on why Silver is so cheap!



valerb
11th November 2008, 07:46
This article goes against what most everyone believes, including myself, but it explains why the prices are where they are. The article is written by Ross Hansen, owner of North West Territorial Mint and he tells it like it is or as he believes it to be. He first kicks you right between your beliefs and then goes on to explain why there is so little retail silver. His words not mine, but it does make sense.

The Growing Interest in Silver
by Ross Hansen
The one question that seems to be on the lips of every silver investor today is this: If so little retail silver is available, why hasn’t the price moved upwards instead of falling 50% off the recent highs?
Many pundits – who unfortunately have access to the high-tech megaphone known as the Internet but possess little or no understanding of the silver market — will tell you that the price fall is all a result of government conspiracies, conjuring up evil backroom dealings between shady banks and unnamed sinister government agencies looking to rip off the American investor.
The reality is that for many years investment demand for silver had been waning. Most western nations stopped using it for coinage in the second half of the 20th century. Governments and central banks sold off their reserves. After being led to believe that silver was no longer money, the general public came to see it primarily as an industrial metal, good mostly for making earrings and film. Equities were king makers (remember the dotcoms?)
With so little interest in silver products as investments, the silver price continued to fall. Major companies such as Johnson Matthey and Engelhard stopped making investment silver products entirely, leaving manufacture to independent companies like Northwest Territorial Mint to pick up the slack.
However, the recent financial crisis has created a commodities boom. As the financial flummery of the U.S. economy has come to the fore, investors concerned about preserving their wealth are once again flocking to the safe haven of precious metals. Each economic impropriety — the dotcom bust, growing inflation, the subprime crisis, the housing bubble, skyrocketing oil prices, unemployment — only accelerated interest among those previously disinclined to consider hard assets.
Silver is very much in demand now. The U.S. Mint has sold 54% more 1-oz. silver American Eagle coins so far in 2008 than it did in all of 2007, according to its own web site.
And although premiums on silver transactions have risen, the spot price hasn’t, because the demand for silver as an investment remains a very small portion of the overall demand for refined silver. Even accounting for growth, the retail silver market — which, at 38 million ounces, accounted for an estimated 4% of total demand in 2007 — is still too small to influence the total market. Those of you who read the World Silver Survey produced by GFMS already know this. (Check out the data yourself at the Silver Institute's web site.)
Overall silver production is up. The World Silver Survey says that the annual production of silver has grown substantially since 1998 — 24 percent more silver was mined in 2007 than in 1998.
http://www.SpeSend.net/NWTMINT.Don/C081110230000/bio/silvermineproduction.gif

Source: World Silver Survey 2008
Mine production, in general, is up. The growing economy and the need for industrial metals like copper, zinc, and lead have helped boost silver production, because silver is often a byproduct of efforts to mine these base metals.
Industrial demand for silver has also been increasing. GFMS shows a 44% growth in industrial silver demand from 1998 to 2007 (the last full year of figures).
But, during that same period, photographic use is down nearly 100 million ounces per year, and silverware use is down an additional 55 million ounces. Reduced demand at that scale does mean reduced price.
The reality is that a surplus of 13.5 million ounces of silver is not going where it used to and not yet finding its way to the investment market.
And so, the problem rests on investment silver production. Something similar has happened in the automobile industry. When gasoline prices zoomed upward recently, consumers in the U.S. sought more fuel-efficient vehicles. The resulting shortage of hybrids created waitlists. Plenty of vehicles are still for sale (ask GM and Ford), but the super-sized SUVs on the showroom floors aren’t what consumers want now.
Silver is experiencing a similar situation. The silver available now on the open market just isn’t in the form that investors want. Mints and refiners can get plenty of silver, but a lot of it requires additional manufacturing to size it properly for investment users. As with GM and Ford, production increases are necessary for the products that silver investors want.
And that is already happening.
Even if you don’t remember it, surely you’ve learned about World War II. Upon entering the war, the U.S. had a fraction of the armed forces and weaponry it needed to fight to victory. According to the U.S. Centennial of Flight Commission, only 2,000 military aircraft per year were produced prior to the war. At peak wartime production, 4,000 military aircraft were produced every month.
Responding to the basic law of supply and demand, the retail silver business will inevitably — if more slowly than individual investors would like — make the same type of production capacity improvements. Mines will continue to ramp up production. Mints and refineries will work longer hours or add extra shifts to convert the silver already above ground into the products that investors want to own. And silver will once again regain its lustrous position as a trusted unit of account, a store of value, and a medium of exchange — in short, as money.
http://www.SpeSend.net/NWTMINT.Don/C081110230000/bio/rosshansensm.jpg
Ross B. Hansen
CEO, Northwest Territorial Mint

GraysonDave
11th November 2008, 08:32
That being the case, current buyers (including myself here) may regret paying the current premiums once it all settles down in a few months.

Pax Awalup
11th November 2008, 09:52
With so little interest in silver products as investments, the silver price continued to fall....

And although premiums on silver transactions have risen, the spot price hasn’t, because the demand for silver as an investment remains a very small portion of the overall demand for refined silver.


I don't mean to set up a strawman, but first he blames the decline in silver prices on lack of interest in silver investment products and then goes on to say that the silver investment products is too small a portion to effect the price.


If the silver retail market isn't big enough to make the price of silver go up, it sure hasn't been big enough to make the price go down in a long long time. He denies manipulation is at the heart of the recent plunge in the price and implies that it is the result of long term trend...

Makes no sense at all to me...

main1event
11th November 2008, 10:03
His article is full of truths and half truths. Like where did he get retail investor demand was only 35 million ounces? Where did he get his surplus of 13.5 million ounces?

From many articles that I've read retail demand was well in excess of 65 million ounces this year.

Why do these guys just throw out the photographic bull crap. Photography is so pass'e, its not even worth consideration any longer.

main1event
11th November 2008, 10:05
The question remains how is 1 or 2 banks allowed to control 25% of worlwide production?

Conspiracy theories?, how about reality.

silver_surfer
11th November 2008, 11:16
sounds like to me there running out of silver....and there back orders are way to far backed up. they wanna sell when it goes back up. its possible to lower here soon and they don't wanna sell cause its goin s,yrocket and take a huge loss.

Kelly
11th November 2008, 11:25
The question remains how is 1 or 2 banks allowed to control 25% of worlwide production?
Conspiracy theories?, how about reality.

The reality is they have conspired against the people.

SkinnerVic
11th November 2008, 11:27
The question remains how is 1 or 2 banks allowed to control 25% of worlwide production?

Conspiracy theories?, how about reality.

I appreciate a different viewpoint now and then, but your question is the real one he needs to answer. As much as I chuckle at Ted Butler and the permabull crowd sometimes, not a SINGLE person has explained how they are able to do that. Until they can, their "analysis" ain't worth dirt, because it has that much of a depressive effect.

As a Tom Basso stated, put the graph of 2008 Silver on a wall and stand back - it doesn't take a rocket scientist or a "CEO" at NW Mint to tell me somethings jacked up.

main1event
11th November 2008, 11:44
All these articles including Jon Nadler, the CFTC and everyone that try to explain it away never answer the hard question. We should all just focus on that 1 question. How in the world can anyone control 25% of world production that is somewhere in the future. As we speak mines are shutting down future production. So in essence they could be controlling 50% of the market with such large amounts of contracts.

Do me a favor before posting anymore of these idiots articles, show me one that provides an explanation to ted butlers thesis.

Kelly
11th November 2008, 12:14
As much as I chuckle at Ted Butler and the permabull crowd sometimes, not a SINGLE person has explained how they are able to do that. Until they can, their "analysis" ain't worth dirt, because it has that much of a depressive effect.

I am by no means an expert in this, but I do know that trading futures is very similar to trading options, and I did trade options for a while and took a couple of courses in how to do it.

I suspect that how the Commercial hedge funds do it is fairly simple and we have seen the evidence for it in most of the COT reports over the last several months. Historically, when you look at the COT you'll see that the Commercial investors have almost always bought twice as many short positions as they have long positions.

We often see small downward motions in the price of silver during normal trading and much of this is very likely the commercials shorting the market and trying to do so in a not very obvious way. Then soon we'll see a huge spike up and this represents the commercials buying thousands of long contracts at a time. However, that huge spike is almost immediately followed by a similar spike downward and the charts will show a sort of "mountain" figure. (I don't know what the TA term for it is.) This is the commercials buying (or borrowing to be more exact) another short position. In effect at this point the commercials have a covered spread; one short and one long contract, and an extra short contract. When you see the spike down, which means that a commercial hedge fund has "gone short" thousands of contracts, they are actually hoping to create momentum, i.e. a downward trend in the market created by the fear factor experienced by the small and large "speculators" we see listed in the COT report. If the commercials can create enough fear in the speculators, the speculators are going to sell their long contracts, and that creates profit for the large commercials who generally always buy one long to two short contracts.

This was a very basic play when I took an options course, only it was done with puts and calls rather than shorts and longs.

I suspect they are doing the same play in the silver market.

offgrid
11th November 2008, 12:32
"Resourceinvestor.com says: “Exactly two U.S. banks continued to keep their thumb on the COMEX silver market as of October 7 when the silver price had already declined from $19.00 to $11.00 and change in the face of severe physical silver shortages of metal on the street. As of October 7 the two largest commercial banks still held a scandalous 23,308 net short silver contracts when the entire commercial net short position was 29,829 contracts. That’s right, two banks still dominated the small silver futures market with over 78% of all the commercial net short positioning.”"

http://arabianmoney.net/2008/11/02/is-the-silver-futures-market-about-to-crack-wide-open/

SkinnerVic
11th November 2008, 13:02
... I suspect they are doing the same play in the silver market.

Oh, I'm quite familiar with the mechanics of how it's done too - I want the "why" it's being allowed with that volume/size of position question answered. If I, Joe Investor, had an equivalent Long (or short) position like that I would get flogged like the Hunt's by a numerous host of entities. The Hunt's, even if they weren't on margin, got flogged with the sand moving under their feet (Rule changes).

mick silver
11th November 2008, 13:22
The government needs money to be stonger right now , so they drive down the prices of other things

Kelly
11th November 2008, 13:32
If I, Joe Investor, had an equivalent Long (or short) position like that I would get flogged like the Hunt's by a numerous host of entities. The Hunt's, even if they weren't on margin, got flogged with the sand moving under their feet (Rule changes).

Yes, indeed you would be flogged! But you, my dear, are not JPMorgan Chase or Goldman Sachs and you don't own a significant share of the Federal Reserve Bank, and for that matter, neither did the Hunt Bros. Unfortunately, it would appear that the SEC and the CFTC considers these goliaths "above the Law."

My God find himself another giant killer, eh?

valerb
11th November 2008, 13:53
I think the interesting point he is making is that there is no shortage of silver only a retail shortage in the form we want. That the retail market is so small that the big boys like Engelhard and JM got out of this market because it is no longer profitable. That the high premiums are due to the fact that there are not enough mints capable of converting silver into retail forms. His business is up from 6,000 ounces a day to 30,000 ounce. Not because everyone is selling that much more, it's because he is one of the few that is capable to process and re-process all kinds of silver into retail form. If I understand what he was saying, he said that most mints can only stamp rounds if someone else provides the blanks for them and that more mints will have to become more involved in the processing of Silver to meet the retail demands. That's probably why the US Mint is not keeping up with demand, even though they are running 54% ahead of last year. They have to have someone provide the blanks for them as well. We can buy all the commercial silver we want in the form of 1,000 ounce bars or jewelers special ground up silver. He does make a point that more mints will eventually expand their processing capabilities to meet the demand that is no longer being met by others and the high premiums will eventually come down. Conspiracies to manipulate the price of silver has nothing to do with the retail shortage, it's simply a lack of equipment to process the silver for us. NWTM can't do it alone, others have to invest more money in there mints as well. You can not increase your annual output of silver products by 500% if there is a shortage of silver and that is what he has done this year. I don't think it is because everyone is buying that much more, it's because he has one of the few mints capable of doing it and selling what others used to sell. How many dealers sold silver rounds under their own name that can no longer get that product to sell. They didn't mint these rounds themselves, someone else is or was doing it for them. It must take a lot of money to invest in the kind of equipment that he is talking about for the mints or they would all have done it already. It must be a scary investment, knowing that the retail market could go cold and they might not be able to justify the capital costs. Unless you think the mints are in on the manipulation as well, he makes a good argument. With a 500% increase in production, you can safely assume he is not part of any manipulation. We all have the option of buying as much silver as we can at these manipulated prices that hopefully will end some day. So buy, buy and buy some more, unless your like me and waiting for the manipulation to drive the price even lower.

ozbuyoz
12th November 2008, 01:26
"However, the recent financial crisis has created a commodities boom. "

I don't think so. From what I read and hear in Australia at least, It's quite the opposite.

When I read that he lost ME!