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Institutions Mislead The Public About Silver Investment Demand

Commodities / Gold and Silver 2014 May 03, 2014 - 07:16 AM GMT

By: Steve_St_Angelo

Commodities

There's a lot of shortsighted and incorrect silver analysis out there, so it's imperative that you consider the information in this article. CPM Group just announced the release of their 2014 Silver Yearbook.  In their statement they implied that "Net Global Silver Investment" declined in 2013, while fabrication demand increased.


This sounds like a bearish statement for silver investors, but the reality is... silver investment demand actually INCREASED IN 2013, it did not decline.  I will prove why this is true in a minute, but I want to first bring up another piece of silver analysis titled, "Silver $50:  Three Years After The Shortage."

This article was written by Bullion Vault's Miguel Perez-Santalla.  In the article he states the following:

The silver market environment of 2011's run to $50 per ounce was, however, very different to that of 1980. The principal driver back then was the continued inflation in consumer prices, plus the attempt by Nelson Bunker Hunt and his partners to corner the silver market – an attempt eventually brought to an end by efforts of the Federal Reserve Bank and certain members of the Commodities Exchange.

Mr. Perez-Santalla believes the price move up in the 1970's decade was different than what took place in 2011.  Oh really?  I gather he doesn't believe consumer price inflation took place from 2002-2011.  Is this true?

Well, lets bring back two of my previous charts and let's compare them.. shall we?  The first chart shows the price movement in silver and oil from 1971-1980:

Silver vs Oil Price & Ratio 1971-1980 NEW

The price of a barrel of oil shot up from $2.24 in 1971 to $36.83 in 1980.  The price of silver increased from $1.39 in 1971 to $21.79 in 1979.  If Mr. Perez-Santalla believes the Hunts were partly responsible in pushing the price of silver to $21.79 in 1979... then who in the living hell was cornering the OIL MARKET?  And how about the GOLD MARKET?

The cost to mine gold and silver increased substantially in 1979 and 1980.  If the price of oil increased 15 times more than what it was in 1971... wouldn't that impact the cost to mine the precious metals?  Of course it would.

As I stated before, Homestake Mining made better profits in the 1973-74 period than they did in 1979-80.  You can take that to the bank because I am looking at Homestake Mining's Annual Reports right now.

I can say this... if the HUNT BROTHERS did help impact the price of silver in a positive way, the silver miners where GLAD AS HELL, because their costs where rising sky-high.

Then Mr. Perez-Santalla makes the following comment in his second part of that article HERE, about the CME putting on 5 subsequent Margin Hikes on silver in April-May 2011:

The first signs that money was departing the market however came on 25 April 2011 when the CME first raised margin requirements on contract holders. This meant you needed to have more cash on hand to hold the same position you had the day before. The next big decline registered in market participants then coincided with another increase in margin requirements on 5 May. 

 

There is nothing abnormal or suspicious here. The exchange needs to make certain that holders of leveraged positions are viable counterparties in a volatile market. So they ask for greater protection. Holders who don't have the financial means to meet the new requirements then liquidate some or all of their contracts.

Mr. Perez-Santalla sees nothing suspicious here. 

Increased Margin Hikes were basically the same STUNT the exchange pulled against the Hunt Brothers and other Silver Longs back in 1979-80.  In 2011, they raised the margins 5 times and back then.. they only took SELL ORDERS.  Either way, it ended the rise in the price of silver.

I wonder if Mr. Perez-Santalla realizes that the "PARTIES" in need of  protection were the SHORTS rather than the LONGS.  Again.. same nonsense as it was in the 1979-80 period.  The shorts were about to get the ENEMA of their Life if the price of silver continued to increase in 2011.

Of course, the Banks-Bullion houses of the FIAT MONETARY MASTERS run the card game and make the rules.  I find it simply amazing that anyone with a decent amount of analytical ability can't see the forest for the trees on this issue.

The reason Mr. Perez-Santalla's analysis is incorrect has to do with a little factor called OIL.  It was the price of oil that impacted the price of silver in the 1970's and in the 2002-2011 time period.  Here is my second chart:

Silver vs Oil Price & Ratio 2000-2013.New

Well, look at that... a real knee-slapper.  The price of oil and silver raised in tandem, until the wonderful folks at the CME Group pulled out their WILDCARD that had 5-margin hikes on it.

How can the rise in the price of silver from 2002-2011 be any different from the 1970's as Mr. Perez-Santalla states in his article... WHEN THE FRICKEN DATA RIGHT IN FRONT OF US, SAYS OTHERWISE???  Again, we can chalk that up to what I call... the failure of precious metal analysts to understand the energy markets.

The only reason the price of gold and silver fell after 1980 had to do with the world increasing oil production for another 3+ decades.  If we hit peak oil back in 1980... I doubt the (unbacked) U.S. Dollar would have survived for many years.

This is exactly why the value of GOLD & SILVER will increase tremendously in the future.  Peak Oil, the falling EROI and declining net oil exports will destroy the Global Fiat Monetary System -- the paper monetary system that Mr. Perez-Santalla uses to currently gauge the value of gold and silver.

Silly analysts....

CPM Group: Silver Investment Falls But Fabrication Demand Rises In 2013

That was the title of Kitco's article on the release of CPM Group's 2014 Silver Yearbook.  If anyone deserves a PHAT "F" for writing a title that reflects the reality... that author certainly does.

Let me start off by saying, OFFICIAL COIN SALES are apart of what they term, "Fabrication Demand."  Here is a chart showing Global Official Coin Sales from 2003 to 2013 (2013 is my estimation):

These figures come from GFMS, 2013 World Silver Survey, CPM Group's competition.  CPM Group states that "Official Coin" sales were a record 136 million ounces in 2013.   My estimation was a bit low (125 mil oz)... but how in the HELL, did investment demand FALL in 2013, if official coin sales increased 30-40 million oz??

It's easy... you label the supposed surplus as NET SILVER INVESTMENT DEMAND... and poof.. you can show a decline.  Let me explain, I am gonna let you all in on a dirty little secret.

Official Coin Sales are counted as FABRICATION DEMAND... not investment...LOL.  That's right.  When GFMS and CPM Group calculate their "Implied Investment Demand" they do not count official coins such as Silver Eagles, Maples, Philharmonics, Pandas and etc as investment demand.

So all you POOR SLOBS out there who believe you are INVESTING in Silver Eagles, you're not... you're just a "Fabrication Investor."  Again, I am only making a funny here.  Truth be told, I must be a SLOB too as I am a fabrication investor as well.

Okay... here is the kicker.  The more official coin sales, the higher the fabrication demand.  Thus, the higher the fabrication demand, the lower the supposed "Net Investment Demand."  You all didn't realize by purchasing more Silver Eagles & Maples in 2013, that you were actually guilty of making a decline in net investment demand.

To get this "Net Investment Demand", they add up all supply (mine & recycle) and minus all Fabrication demand (including official coins).  CPM Group stated that net silver investment fell 42% from 180 million oz in 2012 to 105.3 million oz in 2013.

Furthermore, GFMS states (from their 2013 Nov. Silver Update) that total Silver ETF's increased 25 million ounce to 655 million oz as of Q3 2013.  So what I want to know.. how did net silver investment demand decline in 2013 if the world purchased 35-40 million oz more of official coins than in 2012, while total global Silver ETF's increased?

It didn't... it's accounting SMOKE & MIRRORS. 

Which means, Kitco's title is actually an outright lie.  If we add wholesale silver bar investment including smaller coins and bars, I would guarantee you all that "REAL SILVER INVESTMENT DEMAND" increased substantially in 2013 compared to 2012.

Mr. Perez-Santalla did state in his article that GFMS will change their term, "Implied Net Investment" to surplus.  Even though they are going to use the term "Surplus", they will still count official coin sales as "Fabrication demand" when they calculate this figure.

Also, the surplus does not figure in any silver investment that flows into ETF's, wholesale bars or standard bullion.

Furthermore, when the world was on a Gold & Silver monetary system, there wasn't any silly SURPLUS or IMPLIED NET INVESTMENT.  For some strange reason, 40+ years of fiat monetary amnesia destroyed the ability for the public and analysts to understand the value of REAL MONEY.

Lastly.. CPM Group also stated this on Cash Costs for silver:

Meanwhile, CPM Group calculated that the cash cost of primary silver production fell for the first time since 2002. The production-weighted average silver cash cost was listed at 9.68 an ounce in 2013, down 3.3% from $10.01 in 2012.

I can write a long article just on the worthless metric called CASH COST ACCOUNTING.  In a nutshell, cash costs do not determine the PROFITABILITY of a company.  All it does is show how much a silver producer can lower its cash costs while stating REAL LOSES (at current prices).

Every mining company's financial report always has a footnote below where the company calculates cash cost stating:

... Cash Costs are not GAAP - Generally Accepted Accounting Principle.

Subtracting by-product metals' revenue might show a low cash cost, but I guarantee you, it has nothing to do with the profitability of the company.  Cash Costs are used to mislead the investing public as to the REAL COSTS of mining silver.

Hecla stated a cash cost of around $7 for 2013, while recording a net loss for the year.  And this was at a realized price in the $23-24 area.  What would their losses be at $7??

Folks, Peak Oil, the falling EROI and declining Net Oil Exports will wreak havoc on the highly leveraged Fiat Monetary System.  Analysts who gauge the value of gold and silver by a Fiat Monetary System have no idea of their true value of the precious metals when the systems comes down.

When the world realizes it has invested most of its hard-earned fiat currency into Paper Assets that will have no future, Silver Surpluses and Implied Net Investment will be a good joke to tell your grand kids.

Please check back at the SRSrocco Report as I will be providing a new REPORTS PAGE including my first paid report, THE U.S. & GLOBAL COLLAPSE REPORT.  You can also follow us at Twitter at the link below:

SRSroccoReport Twitter Button2014 Copyright Steve St .Angelo - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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