Overlooked Bullish News for Silver
The sideways action in silver continued for another week, as the market drags its feet along the bottom in search of momentum for a higher move. While patience is needed with silver, and, as mentioned last week, a slightly new, lower low is possible with this metal, there are a lot of signs pointing to higher silver prices. The fact that these signs are being ignored by the market is just one more example that people do not buy bottoms - and they also only pay attention to potentially good news for an asset when its price is rising, not falling.
This week, the Silver Institute confirmed what many of us suspected last year - namely, that sales of physical silver (as opposed to ETFS or options) made a new all-time record, while supply from scrap collapsed to such an extent that it could not be made up from mine supply increases. This resulted in a silver deficit, or the first decline in above ground inventories of silver bullion in several years. For reasons that are a bit confusing to me, the Silver Institute went on to claim that silver prices will continue to drop because of economic strength, but we have to remember that, like most bank projections, a lot of professional price forecasts project current trends out into the future indefinitely (meaning that they get progressively more bearish at bottoms and progressively more bullish at tops.) As an investor or speculator, you would do well to focus on the bullish data in the Silver Institute's report and steer clear from its bearish price forecasts based on, among all things, a booming economy. I thought that first quarter GDP was zero, while inflation is moving on at a 2% pace. Stagflation anyone? I think the Silver Institute, like most Wall Street banks, is conflating the bubble on Wall Street and in high end housing with a real economic recovery.
And as many had also forecast, Federal Reserve tapering is in fact tightening and therefore not great news for the conventional stock market, although calling an exact top in these markets is hazardous to one's wealth. In addition to the news about stagflation cited above (although just based on one quarter's worth of data) we also have news out of India that the BJP party has won recent elections there. Many have speculated that this will end draconian restrictions on the Indian gold market and possibly reignite speculator interest in the sector. While silver may not be an immediate beneficiary of easing gold restrictions - in fact it may hurt Indian silver demand in the short term - with time what is good for the gold price globally can certainly influence speculators to take a look at gold's cheaper cousin.
At the moment no one is paying attention to the silver market - it looks to me as though capitulation has finally set in. If you are someone who has enjoyed big gains in other asset classes (like stocks), now would be a great time to diversify into a beaten down, cheap asset that, by definition, can't be printed at will and has been money for thousands of years.