Silver Losing its Shine or WSJ Losing its Mind

It was bound to happen sooner or later. And this month we got it.
The WSJ ran its hit piece on silver.
This Precious Metal Needs a Silver Bullet
http://www.wsj.com/articles/silver-hit-on-two-sides-cant-bear-up1438809601
The irony was rich. The first chart they ran with was a pristine display
of the absolute most bullish short-term indicator one could find. It is
the very same managed money short that weve been highlighting
over and over. The data comes directly from the CFTC Commitment
of Traders Report.

Yet on and on they rambled, pulling out all manner of rationalizations

for where we are now Pouring salt into the open would of
sentiment. A commentary based on the illusion created by a
completely managed price.
Alas, this is how investment demand that which must be controlled
- is managed or contained.
Ive highlighted a few ripe gems (in bold) from the hit piece and
then added a few more comments below.
Once prized as a precious metal that could be put to practical
use, silver is now getting the worst of both worlds.
Silver has rarely been prized by anyone. The vast majority have
no idea about silver. Most simply lump it in with gold, if ever at
all.
Like gold, silver has lost its shine among investors who are no
longer seeking a shield from market turmoil or a store of value
to protect against inflation. Silvers use as an industrial metal
also is on the wane as growth in world economies, particularly
China, starts to slow.
Silver is getting whacked from both sides, said Ed Meir, a
commodity analyst with brokerage INTL FCStone.
It has added up to a bad few months for all things silver.
In the past 12 months alone, the price of the benchmark silverfutures contract has declined 27% to below $15 an ounce, far
outpacing the 16% slide in most-active gold and extending a

bear market that began in November 2013. From a threedecade high of $48.599 an ounce hit in April 2011, silver has
slumped 70%.
Investors are very much active in silver. Though mainly its by
proxy - led via the managed money traders who have collectively
sold down the river of price momentum.
Share prices of some silver-mining companies have lost about
a quarter of their value this year. Yet production is rising.
Supply increases or steadies because most silver is produced
as a by product.
And many traders and analysts arent optimistic about an
upswing. Analysts at Barclays predict silver prices will fall 20%
in the coming year. Bearish wagers on the metal have jumped
fivefold since May by one measure. Investors are yanking
money out of the biggest silver-focused exchange-traded fund
at the fastest pace in four years.
First off, the terms traders and analysts says it all. A trader
is focused on price action and momentum - as a rule. The
analyst simply comments on that price action. Completely
detached from reality.
As for yanking money out of the big silver ETFthats not
entirely true at all. GLD may have been drained, but the SLV has
remained counter-intuitively well stocked over the same period.
Silvers downfall is emblematic of the challenges investors face
across commodities markets, from crude oil to copper and corn.
After piling into commodities during boom years fueled by

Chinas double-digit growth and easing by the worlds major

central banks, investors are quickly retreating. The S&P GSCI
commodity index tumbled 14% in July, reaching a 13-year low
on Monday.
Notice the terminology. Investors as opposed to traders. Not
synonymous at all. To imply they are the same is sloppy work.
Investors have never been more absent from precious metals.
Silver alone, is a mere $15 billion dollar physical market - with an
ever dwindling production. Yet there is a constant, voracious
flow of demand for the metal as commodity.
It is a far cry from the years immediately following the financial
crisis. Silver soared in 2010, amid fears that the Federal
Reserves extraordinary stimulus measures would fan runaway
inflation. At the same time, the world was coming out of a
recession, stoking demand for raw materials.
Demand for silver following 2008 was sparked by both wholesale
and retail shortages. Shortages that caught the big commercial
net short (JP Morgan Chase) completely off guard - having
recently taken over the position from the defunct Bear Sterns.
Silver can well be described as a hybrid metalhalf precious,
half industrial, said Bart Melek, head of commodity strategy at
TD Securities in Toronto. In addition to the concerns
surrounding China, investors are bracing for the Fed to raise
the short-term benchmark interest rate for the first time in nearly
a decade. That is likely to be negative for precious metals as
the opportunity cost of holding a zero-yielding asset grows, Mr.
Melek said.
Ah yes, never a complete bashing without bringing out the ole

no yield argument against precious metals. For the individual,

an asset that doesnt need a bribe (interest rate or paperdenominated yield) to be held is a rare find in todays world of
black swans.
A rebound in manufacturing activity that relies on silveror
renewed economic worries that send investors flocking to
haven assetscould prompt a recovery in silver prices.
Which is it? Your publication has been a cheerleader for the socalled recovery that isnt. Yet, at the same time, the world
presents us with a thousand black swans that a blind man could
see.
Retail investors already have gone bargain hunting. In July,
sales of silver coins by the U.S. Mint more than doubled from
year-ago levels.
Another investor class appears to confuse us. The bargain
hunting - surely contrarian - retail investor is buying from the
U.S. Mint. Of course, retail investors dont buy direct from the
Mint. Besides retail sales of silver coins have been reported as
slow across the board. And what about four years of record
sales by the US Mint. Retail investors, normally swayed by
publications such as these who are chronically would need to be
staunch contrarians to buck the trend or convince the spouse.
On Wednesday, the most-active silver contract, for September
delivery, closed roughly flat at $14.553 a troy ounce. The metal
is down 26% since first entering a bear marketdefined as a
20% fall from a recent highin 2013.
Silver is called the poor mans gold because its relatively low

price attracts individual investors, who often make wagers

through shares on exchange-traded funds and other securities.
The price of gold on Wednesday was $1,085.60 an ounce for
the most-active contract.
Which individuals?
These same individuals dont see inflation but they buy the
SLV - shares for convenience - as a hedge? Why would
anyone truly concerned about inflation, first of all not see it for
what it is, and secondly choose to hold it through a derivative
denominated by the devaluing currency.
The price ratio of gold to silver, a widely watched gauge of the
relative value of the two precious metals, is currently 75-to-1,
far above the historical average of about 50-to-1 that endured
during the four previous decades. In the past, a surge in this
ratio has sparked buying, but many investors are steering clear
of silver this time around.
Once, again, the surge from 2008 until May of 2011 was driven
by physical shortage. The price ratio is a loose abstraction and
triggers bland interest, if anything at all. The two precious
metals long ago diverged on physical inventory ratios as well as
industrial uses. The only thing they share is a potential
investment demand with an ancient - perhaps DNA-encoded
legacy.
From the start of 2015 through July 31, investors yanked more
than $50 million from BlackRock Inc.s $4.8 billion iShares
Silver Trust, the biggest exchange-traded fund backed by
physical silver, according to fund tracker Morningstar. It was the
largest outflow for that period since 2011.

David Miller, chief investment officer at Catalyst Mutual Funds,

said he initiated a $1.2 million bet against silver ETFs in recent
weeks as the market fell and recently added shorts against
silver-mining stocks as well.
Shares of silver miners, including Silver Wheaton Corp., Coeur
Mining Inc. and Tahoe Resources Inc. all are down at least
25% so far this year, compared with a 2% gain for the S&P 500
stock index.
We think demand in China is definitely weakening, Mr. Miller
said. They cant keep growing the way they did historically.
China accounts for about a third of total global industrial
demand. Its industrial use of silver rose 3.6% in 2014 to 186
million ounces, but it plunged in areas such as jewelry
fabrication, according to the Silver Institute, an industry group.
The sharp decline in Chinese stocks in recent weeks and
renewed signs of a slowdown in the worlds second-largest
economy suggest Chinas silver demand could decline in
coming years, investors and traders say.
Once again, outflows of 50 million in a $15 billion dollar physical
market. In a a futures market that maintains a collective hedge
fund pile-on naked short bet to the tune of 1/3 of annual mining
supply.
Enough with China already! Silver industrial demand is based on
a constant trickle of just in time inventory delivery. All it would
take is one big user to panic order on rumors of supply
constraint to light the fire of investment demand.

World-wide, overall silver demand sank 4% last year, according

to Silver Institute data. The drop was due largely to sliding
investor demand for precious metals, whose appeal has faded
amid tepid inflation and steady improvement in the U.S.
economy.
Investors arent really expecting inflation, said Erica
Rannestad, a senior analyst at metals research and consulting
firm GFMS, a Thomson Reuters unit. Right now, its not
important.
Erica from the GFMS must not be referring the retail investors who see inflation everywhere, and especially as far as the eye
can see. Retirees making adjustments to future income based
on 0% interest rate policy some of the hardest hit.
Industrial demand for silver fell 0.5% last year due to declines in
Europe and North America. Many factors are behind the drop.
The more consumers use digital cameras, the less need there
is for film, which contains silver. The growing preference for
tablets also hits silver demand because less silver is used to
manufacture tablets than standard personal computers. Makers
of solar panels are moving away from silver as they seek to cut
costs.
Solar power? Less because its cheaper? It seems that would be
the opposite. Perhaps Mr. Berthelson was just piling on for fun
at this point?
Silver output is expanding, putting further downward pressure
on prices. Production from mines that primarily focus on
extraction of the metal rose 8% last year, bringing global

supplies to their highest level since 2010, according to Silver

Institute data.
The photography argument against silver is getting old. It simply
means less supply becomes available from scrap. But
nevertheless, more silver is now used for digital camera
electronics and soldering.
There are thousands of industrial uses for silver that add up to a
massive cumulative demand - ill understood by the likes of most
analysts.
And why not look at the mechanics of the futures look under
the hood - compare the CFTCs data. You are so willing to use
government sponsored inflation data
For more articles and commentary like this - to explore and find some piece
of mind in the space between actual price discovery and the reality of the
macro-financial state of things - visit us at http://www.Silver-CoinInvestor.com