Outlook For Silver In 2013

David Morgan presented his outlook for the silver price in 2013, starting off with two long term silver price charts, both adjusted for inflation. The first of the two charts is using the CPI as measured by the US government. The chart shows the peak price of silver in 1980 (adjusted for today’s inflation) which is $ 125.  The upside potential for silver is clear.

Still, these prices are rather irrelevant, as the price of precious metals reflects the value of currencies. In the extreme scenario where an infinite amount of money would be printed, the price of the metals could go to infinity (obviously a theoretical example). It makes more sense to look at the long term trend, which is clearly up. David Morgan used several charts in that respect:

• The long term silver price is rising and keeps on accelerating in its move up.
• The gold to silver ratio is in a long term downtrend (which is in favor of silver). Silver has been outperforming gold over the past decade.
• Expectations remain that silver will continue to outperform gold. The current gold to silver ratio of 50 to 1 is expected to turn to 16 to 1, which is the historic average of the monetary ratio. Here it gets interesting. It makes sense to look at the ratio from the perspective of metals in the ground. By doing so, the ratio becomes 7 to 1. David Morgan doesn’t rule out that a ratio close to that will be possible at the peak.
• Silver is appreciating in ALL currencies, no matter if there are temporarily large increases or decreases in given currencies.

Now it’s often mentioned that silver touched $ 50 in 2011, speculating that it has passed its peak in the current bull market. The matter of the fact is that it was a one day event and it happened only in the futures market. In the physical market for instance, there was a “bid back” situation, which means the buy / sell spread was very large (dealers were buying physical silver at $ 35 an ounce and selling at $ 50). Moreover, the fact that it took only one day doesn’t make the market.


When looking at the same chart taking the SGS inflation into account, we see a totally different picture. That’s a measurement that is used by Shadowstats.com and is using the CPI with the same calculatation methodology as in 1980 (which was obviously than today’s calculation). By doing so, the picture becomes more extreme. David Morgan explains that a move from today’s $ 33 to $ 100 would indeed be a threefold move up, but still significantly low compared to the historic peak.

 

The long term trend of the silver price in all major currencies was shown in the following graph. Mark O’Byrne shows two concrete examples that prove the idea that silver is a store of wealth:

• In 2008, while the financial crisis was raging, the Sterling was under bigger pressure than the other currencies. You see on the graph that silver lost value in all currencies, except in Sterling.
• Likewise in 2011, the Indian Rupee came under high pressure. While the silver price had declined against all currencies, it did not in terms of Indian Rupees.

Yesterday In Gold And Silver

The gold price didn't do much of anything during Far East and most of the London trading day on Thursday, as it sort of wandered around aimlessly within a ten dollar trading range below Wednesday's New York close.

Gold finished the Thursday session at $1,700.00 spot right on the button...up $5.70 from Wednesday.  Net volume was pretty decent...around 140,000 contracts.

However, a rally of some substance began to materialize about 8:40 a.m. Eastern time...about twenty minutes after the Comex open.  The fun ended at the London close at 4:00 p.m. GMT...11:00 a.m. Eastern time.  From there it more or less traded sideways into the close of electronic trading.

Gold's low and high ticks, which are obvious on the chart below, were $1,684.90 and $1,704.40 spot.

The subsequent rally lasted until the same 11:00 a.m. Eastern time...$33.38 spot...and that proved to be silver's high tick of the day.  Then it got sold off until noon, before trading sideways into the close.

The silver price traded down about a percent by mid-afternoon in Hong Kong...before rallying back to almost unchanged by 11:00 a.m. in London.  From there it got sold off once again, with the low price tick [$32.46 spot] coming at the same as time as the low tick in gold...8:40 a.m. in New York.

Silver closed at $33.03 spot...up a whole 12 cents.  Volume was pretty decent...around 41,500 contracts.

The dollar index closed on Wednesday at 79.82...and then traded a hair lower up until 8:00 a.m. in New York.  The subsequent rally took the index back up to around the 80.30 mark...and it hung around that number for the rest of the Thursday session...closing at 80.25.

There was little co-relation between the precious metal prices and the dollar index at all yesterday...especially considering the fact that gold and silver rallied together with the dollar index during the New York morning session.  I'm sure that had something to do with bad new on the euro front.

The silver stocks were mixed...and Nick Laird's Silver Sentiment Index closed down a smallish 0.34%.

The gold stocks opened flat, but soon rallied to their 11:00 a.m. high...in lock-step with a rising gold price.  Once that high tick was in, the stocks got sold down to just above the unchanged mark...and proceeded to trade sideways from there until the equity markets closed at 4:00 p.m. Eastern time.  The HUI finished up 0.40%.

There were no reported changes in GLD yesterday...but a rather chunky 1,258,182 troy ounces of silver were deposited in SLV by an authorized participant.

The U.S. Mint had its third sales report in a row yesterday.  They sold 4,500 ounces of gold eagles...1,000 one-ounce 24K gold buffaloes...and 25,000 silver eagles.

Over at the Comex-approved depositories on Tuesday, they reported receiving 614,504 ounces of silver...and shipped 452,643 ounces of the stuff out the door.  The link to that activity is here.

Here are a couple of very interesting charts that Nick Laird sent my way yesterday evening...and they're definitely worth sharing.  Neither needs any further embellishment from me.  All comments regarding these charts should be directed at Nick...not me.

I have a decent number of stories for you today...and I hope you can find the time to read the ones that interest you the most.