02-03-2008: March Silver: Demand Up, Production Down
After many disappointing years following the Hunt Brothers' attempt to corner the silver market, silver stopped languishing around 2003 and began a steady climb back upward. The inevitable inflation result of the Bush years would take its toll. Now we add disciplined production restraint and marketing by a consolidated group of a few large mines, global economic expansion, and a weak U.S. Dollar to the fire of inflation and silver seems destined to head for the moon.
As with all commodities, a trend once underway usually carries much farther than most think it will. If silver prices seem way too high, just remember that old adage.
March Silver:
March Silver:
Consolidation has taken place in the gold and copper industries. 75% of silver production comes from gold, copper, lead, and zinc mining. Changes in those other industries impact the price of silver. Silver is also benefitting from growing demand in Asia and the global economic expansion, as well as concerns about a falling U.S. Dollar. The Silver Institute says that world mine production totalled 646 million ounces in 2006, while fabrication demand totalled 840 million ounces. Production was up, demand was down, but an imbalance still remained favoring increasing silver prices. A recent Institute of Supply Manufacturing (ISM) report, its January manufacturing survey ose to 50.7 from 48.4 in December. This and a significant fall in recent oil prices boosted the U.S. Dollar and caused sharp profit-taking in gold and silver. Funds have been reported to cashing in precious metals of late. Some of the selling in precious metals has been described as "panic selling" and may spill over into other exchange-traded funds. In general the gold market is considered as providing leadership for the silver market, and both are subject to the varying state of the U.S. Dollar Index. Mexico last week reported a surprising decline in silver production to 167,000 kg. in November. Declining supply and rising investment interest has shifted the supply/demand equation in the favor of silver. Silver might be more vulnerable to an improved U.S. non-farm payroll reading. StoneShield Capital has acquired significant interest in Mexivada Corporation's Jefferson Gold/Silver project, 1,760 acres located 50 miles N/NW of Tonopah, Nevada. This will mean a significant increase in geologic mapping, data collection and interpretation, and geochemical sampling. A 5,000-ft. drill program is high priority there after evaluation of the data. Mexivada is a diversified Canadian mineral exploration company that controls a large portfolio of highly prospective gold and silver exploration projects in Mexico, Nevada, and the Republic of Congo. It is well-financed with no debt. The Federal Reserve's decision to cut interest rates had an impact on gold and silver as well. Lower interest rates help the economy but weaken the Dollar, encouraging investors to put funds into more stable assets like gold and silver.
18.0I T 2/ 1
I CMX - Mar-08 Silver, 5000 troy oz. $/oz. Cm.=0.01 Lim.= 0.2
I
I
I
17.0I______________________________________________X__________________________
I X
I X
I X X
I X XOX
16.0I________________XO__________________________XOX__________________________
I X XO X XO
I XO XO XO X
I XO XO XO X
I XO XO X XO X
15.0I____________XO__XO____________X_XO______XO__X____________________________
I XO XO XOXO XO X
I XO XO XOXOX XOX X
I XO XO XOXOXO XOXOX
I XO XOX X XOXOXOX XOXOX
14.0I____________XOX_XOXOXO__X_____XOXOXOXO__XO_O_____________________________
I XOXOXOXOXO X XOXOXOXO X
I XOXOXOXO O X XOXOXOXOX X
I XO OXOX O X XOXOXO OXOX
I X OXO O X XOXO OXOX
13.0I____________X__O_____O__XO____XO_____OXOX________________________________
I X O XO X X O OX
I X OX XO XOX OX
I X OXOXOX XOX OX
I X OXOXOXOXO OX
12.0I____________X________OXOXOXOX__________OX________________________________
I X OXOXOXOX OX
I X OXOXOXO O
I X OXO O
I X OX
11.0I____________X________OX__________________________________________________
I X OX
I X O
I X
I X
10.0I__________X_X____________________________________________________________
IX XOX
I O XOX
I O XOX
I O X XO
9.0I_O__X_____X______________________________________________________________
I O X X
I O X X X
I O X XOX X
I O XOXOXOX
8.0I_O__XOXOXOX______________________________________________________________
I OX XOXO OX
I OXOXOX O
I OXOXO
I OXO
7.0I_OX______________________________________________________________________
I OX
I O
I
I
6.0I----I----I----I----I----I----I----I----I----I----I----I----I----I----I---
1 1 11111 1111
44799223679214444555556779900002133466788122211
01003012002102222122332120201221202200113111222
63880813119430145234011708243465210618851204628
The above point-and-figure chart is giving a conventional buy signal.
We are headed toward a cyclical low and a seasonal up period.
Our best-performing internal program is "Pattern." It is giving a buy signal.
Results of "Pattern" for Silver (blue lines = successful trades, red, unsuccessful): (Always in the market.)
Our third system has triggered a sell signal. (Note, disregard the year date on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)
The point value is $5,000 when contract denominated in cents per ounce. Initial margin on a single contract is $3,375. Use of options is advised.
Scale trade sellers are entering the market for the long term in this price range.
In the chart below, the yellow line is the futures price, read on the right axis. All other colors are read on the left axis. Red is small speculators. Green is large speculators. Blue is commercials. Large speculators with the best track record are getting increasingly-long.
The average volatility shown below suggests that the major trend direction of up remains intact from a volatility low point.
Our option trade recommendation is to Sell the Silver July 1550 Put @ 70 or better.
Here's an intraday chart for the previous day ( 2/01 ).
Risk Versus Opportunity Report
________________________________
SIH8 March Silver
High Price: 1818
Current Price: 1687
Low Price: 1623
Risk: 0.074
Opportunity: 0.152
(O/R) Ratio = 2.047
Level Table:
| Factors | Weighted Points |
|---|---|
| Parabolic Chart | + 1 |
| Nirvana Chart | - 1 |
| News | + 1 |
| Point & Figure | + 1 |
| Cyclicals | - 1 |
| Seasonals | + 1 |
| Internal System 1 | + 1 |
| Internal System 2 | 0 |
| Third System | - 1 |
| Commitment of Traders | + 1 |
| Historic Range | - 1 |
| Range/Volatility | + 1 |
| Level Table | + 1 |
| Other Factors | + 1 |
| Total | + 5 |
Place 4 March Silver on a Buy Watch with stoploss @ -0.48 below the get-in point, when price denominated in $/oz.________________________________________________________________________________________________________G.S.
