Silver slides 8%; Analyzing the ascent and decent

Standard Bank SA metals analysts feel that platinum’s net speculative length (as a percentage of open interest) is “particularly high” at a level of 65.5% (as last year’s average was nearer to 59%) and that it may signal “a market vulnerable to a sudden change in sentiment). The same type of findings does not apply to the palladium market at this juncture; its net length is at 52.5% as against an average last year of the same (59%) as platinum’s.

PGM niche market players will be on alert for the release of US car sales figures for April and will parse them for significant trend changes, if any do emerge. Some Japanese automakers will not be able to resume full output until November, at best. U.S. and European car manufacturers might see a market share bump in their U.S. sales while the situation persists. High gasoline prices may also have played into whatever the final April U.S. sales figures will turn out to be.

The most recent findings by statistics and analytical firm CPM Group New York note that almost all of the resolution of the high May contract open interest in silver, going into April, has been through traders and speculators rolling their positions forward. Very little of the positions have been held into the May delivery period, which began Friday 29 April, and basically no metal has been delivered into Comex depositories to meet the delivery requirements.

Market developments such as these, and others, have prompted CPM to warn small retail investors that “this suggests that silver prices have been in a bubble-like spike over the past few weeks, and are extremely vulnerable to a sharp decline. Gold also could fall back sharply. How far could silver decline? Silver could fall $12 or more, to around $37 or lower, very quickly. Such a sharp retracement seems more likely than not at this point. No asset in history has risen so sharply so rapidly and retained most of its price appreciation. Silver has no immunity to the laws of the markets.”

More importantly, CPM’s latest Market Alert also noted that “there was no group of silver conspirators trying to ‘bankrupt’ the silver market; it was just business as usual on the Comex. Open interest across all Comex futures con-tracts surged from around 700 million ounces to 743.2 million ounces on the 14th April, reflecting the wave of shorter-term investors pouring into silver, following the price higher and driving it higher with their own actions. These trends do not suggest a massive rush into silver by long-term investors, and they show no evidence that the silver conspiracy crowd has had any success in mounting an assault on Comex inventories.”

At the end of the day, one of the corroborating pieces of evidence to such a conclusion having been drawn by CPM’s analysts is the fact that during this wild and headline-making period of silver’s price explosion, investors also have not been “particularly voracious buyers” of in the ETF space. In fact, silver held via ETFs rose from 601.6 million ounces on 1 April to 612.7 million ounces on the 25th April, but fell sharply thereafter to 604.4 million ounces by the 29th of April, showing a loss of some 258 tonnes.

The chief silver ETF, the iShares Silver Trust, showed a gain in balances from 358.1 million ounces on the 1st of April to 366.2 million ounces on the 25th April. As silver prices rose sharply last week, the SLV holdings actually dropped back to 354.3 million ounces as of the 29th of April. As of the beginning of the week, and counting Monday’s eight tonnes of silver outflow, the SLV has lost 376 tonnes of the metal from balances. Those patterns are not exactly indicative of a “moon shot” for the white metal at this juncture.

And now, back to a quick review of the fundamentals-related picture in silver. Yes, such metrics do matter in gold and silver and other commodities, irrespective of the latest declarations from mining firm CEO’s that they no longer do. The estimates and findings that follow are courtesy of London-based GFMS, the only other specialty firm that tracks the important components of supply and demand in metals, aside from the aforementioned CPM Group.

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