Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

The Calm Before The Precious Metal Silver Storm

Published 04/09/2017, 03:34 AM
Updated 07/09/2023, 06:31 AM

There is an eerie calm in the precious metals market as investors continue to pile into the broader stock indexes. Precious metals sentiment that was flying high last year when the Dow Jones Index fell 2,000 points, is now at an all-time low. Investors who are highly fickle, have no idea that they will lose a great deal of their “supposed” paper wealth.

The word out on the street, as it pertains the precious metals retail sales market, is that investors are no longer waiting on the price of silver to fall to start buying, rather they are now waiting to see what happens to the broader markets. Speculation, is that if Trump is able to get the corporate tax cuts passed, then the Dow Jones will head up towards 25,000 or higher.

While this is a possibility, investors should realize the market is already seriously overextended. Sure, it could continue to move up, but the correct way to invest in precious metals is not to make a perfectly timed purchase when the rest of the market is crashing, rather it should be done on an ongoing basis. Investors should be purchasing metals over a period of time, not one large amount due to the timing of a market collapse.

If we look at the Dow Jones Index versus the Silver Price, we can see a very interesting trend that took place when the Fed announced QE3 back at the end of 2012:

INDU Monthly Chart

At the end of 2012, the price of silver really started to decline as the Dow Jones Index continued higher and higher. Some precious metals investors are worried that the next time the stock market crashes, so with the price of silver, as it did in 2008. However, this time will be different because the silver price fell by more than 70% from its high in 2011, whereas the Dow Jones Index has surged toward the heavens.

As I mentioned in my interview on Crush The Street, there was a near record GOLD ETF Inflow (364 metric tons) when the Dow Jones Index fell 2,000 points during the first quarter of 2016. The only other large Gold ETF (NYSE:GLD) inflow surge (450 metric tons) was during the first quarter of 2009, when the Dow Jones Index was crashing into the toilet to a low of 6,700 points.

What is going to happen when investors really get spooked as the Dow Jones corrects 5,000 points or more??

Well, I can tell you that we will see record flows in the Gold and Silver ETFs. However, I don’t believe it is wise to go from one paper asset into another. And, I am not the only one to believe this. If we look at silver investment demand in physical bar and coin compared to ETF’s since 2007, this is the result:

Physical Silver Investment Vs ETF Inventory Build

From 2007 to 2011, total physical silver bar and coin demand was 687 million oz (Moz) versus 419 Moz for the net silver ETF (and similar products) inventory builds. But, look what happened from 2012 to 2016. Physical silver bar and coin demand nearly doubled to 1,152 Moz, while the net build in silver ETF inventories only increased 112 Moz.

Which means, investors put ten times the amount of money in physical silver than into paper silver ETFs. Of course, when the markets finally crack, mainstream investors will move into the silver ETFs because they don’t know any better. However, it will be the precious metals investors who will be buying physical silver hand over fist.

Unfortunately, trying to time the market crash and purchase silver when the situation gets really ugly will likely not work out as many expect. Rather, I see a silver market that is totally overwhelmed with very little available physical silver.

It is impossible to forecast when the broader markets will finally correct and likely crash. But, I would not try to time this market to get into physical silver. I am not giving out advice, but instead stating what is sound logical reasoning.

Lastly, it is not a matter of “IF”, but a matter of “WHEN” the stock and bond markets are going to crack. Yes, the Fed and Central Banks have defied gravity for nearly a decade by propping a market that died in 2008, but time is not on their side.

Mark my words.

Original post

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.