Back in the olden days, before the advent of digital cameras, photographers used a curious thing called film. Surely you remember having to feed a roll of the stuff into your analog camera. Then you’d take the roll to your local drug store and wait a week for it to be developed, only to discover that you had the lens cap on during the entirety of Cousin Ted’s birthday party.
Each week the CFTC publishes a Commitments of Traders Report (COT) in which “non-commercial” and “commercial” long and short futures positions are reported. Many people have expressed doubts as to the validity, accuracy and consistency of the data. However, my experience is that the data is mostly relevant, accurate, and useful in the long term, but not necessarily important each week.
There was a huge development reported in the silver market last week and how did the precious metal community respond? They basically ignored it. Go figure. So, I will try again to get the word out by presenting it in a different fashion.
Indian silver demand was so strong this year, that it produced a significant drawdown of U.K. silver inventories. Matter-a-fact, India had to access silver from China and Russia because available supplies from the U.K. were not sufficient.
“Whether the single medium is gold, silver, seashells, cattle, or tobacco is optional, depending on the context and development of a given economy. In fact, all have been employed, at various times, as media of exchange. Even in the present century, two major commodities, gold and silver, have been used as international media of exchange, with gold becoming the predominant one. Gold, having both artistic and functional uses and being relatively scarce, has significant advantages over all other media of exchange.
Since the beginning of World War I, it has been virtually the sole international standard of exchange. If all goods and services were to be paid for in gold, large payments would be difficult to execute and this would tend to limit the extent of a society's divisions of labor and specialization. Thus a logical extension of the creation of a medium of exchange is the development of a banking system and credit instruments (bank notes and deposits) which act as a substitute for, but are convertible into, gold.”
- Alan Greenspan, former Chairman of the Federal Reserve
If you recall, we had two Fridays in a row where gold and silver prices were smashed early in the overnight hours and into the morning, only to turn around violently and close very strongly for the day and the week. This action is called an "outside reversal day" which over the years has been an extremely rare event in the precious metals. It has been rare in precious metals because it was not "allowed". When I say "allowed", please remember that COMEX is a paper exchange where possessing metal is not necessary to sell gold or silver. All you have to have is "money" to post as margin and you are allowed to sell as many contracts as you have margin for. There are "limits" to how many contracts one can buy or hold, these limits do not seem to have been enforced on the sell side ...JP Morgan's short position in silver as an example.
According to GFMS, the world is expected to see a peak in silver mine supply in the next 2-3 years. This statement including this year’s supply and demand statistics were released in the GFMS 2014 Silver Market Interim Report for the Silver Institute.
COT Silver Report - November 21, 2014
Silver is down 70% from its high of $48.70 an ounce back in April of 2011. And the calls from the mainstream are for silver prices to fall farther, as the Federal Reserve has stopped printing paper money and inflation is nowhere in sight. I beg to differ.
After the huge take-down in the price of silver on October 31st, demand for Silver Eagles skyrocketed. Then on Nov. 5th after silver was knocked down another 5%, the U.S. Mint suspended sales of Silver Eagles.
According to this chart, the Fed’s favorite “inflation barometer” – the “five-year forward five-year inflation expectations index” – has fallen to its lowest level since the 2008 financial crisis; you know, when oil was $40/bbl. and no one bought anything, as a cumulative “deer in headlights” syndrome engulfed the world. Quite amazing , considering U.S. stocks – which theoretically, should be the worst performing assets during deflation – are at (nominal) all-time highs; as well as high-end real estate, rare art and other “1%” assets.