What's the bear case for Silver?
percyb
Posts: 3,324 ✭✭✭✭
I'm in the bullish camp on silver and don't understand those who have grown bearish on Sliver (or gold for that matter). I see the economic crisis growing worse, not better, and hence I remain very bullish on PMs. What's the bear case?
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In addition, if the world economy has a heart attack, a trade war, a real war, or some other series of events that seriously curtails demand for manufactured goods that incorporate silver, then silver prices could back off for awhile.
If the stock and bond markets crash precipitously for any reason, there will be a drainage of liquidity from all markets, including the precious metals markets. In that event, the effect could be real enough, but if you always think in relative terms the effect won't be as severe in precious metals than it will be in the paper markets.
So, are any of these problems likely? Sure, but my assessment is that physical precious metals will be more useful in a much wider variety of likely scenarios than any other asset. My assets could drop as much as 50%, while most peoples' assets crash to pennies on the dollar. That's kinda how I see the worst case.
That's pretty bearish. But not as bearish as the alternatives I see.
I knew it would happen.
2. Chinese raise interest rates ...cooling Chinese investor demand
3. Dollar strengthens...Silver ETFs shares are dumped in favor of other equities which would rapidly decrease the spot price to $20-$24 range
in that order
Loves me some shiny!
<< <i>The only people I see bearish on silver are the ones who analyze the market from a "business as usual" point of view. I am bullish on silver because I believe with all my being that we will soon be pretty f*ing far from "business as usual." >>
I'm with you
Fred, Las Vegas, NV
Well, that's how I feel about it, anyhow.
I knew it would happen.
Sentiment. Up 70% in a year brings a lot of folks onto the bandwagon. Any market can suffer air pockets when it has gone up that much, even if the fundamentals remain rock solid and another 100% or 300% up in the cards.
Silver is a thin market. World wide demand is about a billion ounces a year, so $30 billion unleverage could theoretically buy the entire year's supply or short the entire year's supply. Use 400x leverage like option traders, or options on futures traders often do, and it is a small number to actually manipulate the market if a group was so inclined. That's one reason I don't buy the widespread stories about big money being net short. If "they" really wanted to, a fund with even a spare hundred million could drive it lower hard. A fund with a spare billion could have a huge impact using smart leverage.
I find it much more likely that "they" are spreading rumors that they are net short when they are actually heavy long. Profits are easier, especially, when there is enough smoke covering their tracks as so many relatively smart folks get fooled by the many false leads about them being net short. In my two decades of trading experience, that's the way smart money tends to work. Smart money doesn't show their cards, and small fish rarely know the real story until much, much later, if ever.
I'm not bearish silver. I'm just pointing out possible factors. I tend not to trade silver, though I do have a chunk of physical. For trading I tend to favor GLD and GDX because those options are more my speed, vs. the SLV options. I am long both GLD and GDX, though my position has been and continues to be low risk, low reward, low conviction.
Although the ETF SLV is a "paper" product, it's size makes it a major market force in the spot price of silver. Just as SLV played a major role in the rise of silver spot it will play the same role in the decline of silver prices. Always keep your eyes on SLV developments.
Major maket players have major market affect.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Earth is obliterated by a giant meteor.
Under this scenario, the price of silver would decline by at least 20% and would take as long as a week to recover.
My Adolph A. Weinman signature
1. Supply overhang
2. Historical valuation
3. Strong dollar...heh, sometimes I crack myself up.
right in the midst of the dot com, real estate, hell just about any major, multi year run of double digit returns for an asset class, it seems like it can't go down, like "this time it's different", like the run of plusses will continue forever.
the bear case could be stated as, "this time, it's NOT different" and when the hot money moves on to the next bubble, the positive return years for metals will be over for a while.
Think stocks and real estate sectors won't "be back" someday, won't outperform metals during some future years?
Liberty: Parent of Science & Industry
CFTC decides that JPM's current Comex and otc derivative's postions are acceptable, or could even be stacked further.
roadrunner
China will not continue to grow at 15% a year so growth "rates" will decline. Look at CISCO are example. Everything people said about the company and its business in 1999 was exactly correct. The interenet has completely changed the way business gets done and CSCO as a company has doubled over the last 10 years. Unfortunately the stock price is only 25% of its peak.
So are those who may argue that fundamentals are not fully reflected, it is possible that Europe or the Treasury market collapses and it has not effect on PM prices.
Silver and copper and oil prices are 7x higher than they were in 2002. Thats a great run.
Knowledge is the enemy of fear
I knew it would happen.
<< <i>cohodk, it's not about silver and copper prices or fundamentals. I respectfully submit that it is about the dollar.
I agree. It's about rushing to the best performing investment. However, the rush out could be faster than the rush in.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Prices are meaningless if the price mechanism collapses from overproduction of the pricing unit. Silver had an even better run in Zimbabwe dollars where, according to this article, inflation reached the point where prices were nearly doubling every day.
It's unlikely that the U.S. dollar will deteriorate to that extreme, but unrestrained dollar creation could reach a point where it will be more meaningful to price dollars in ounces of silver rather than the other way around.
My Adolph A. Weinman signature
roadrunner
<< <i><< Silver and copper and oil prices are 7x higher than they were in 2002. Thats a great run. >>
Prices are meaningless if the price mechanism collapses from overproduction of the pricing unit. Silver had an even better run in Zimbabwe dollars where, according to this article, inflation reached the point where prices were nearly doubling every day.
It's unlikely that the U.S. dollar will deteriorate to that extreme, but unrestrained dollar creation could reach a point where it will be more meaningful to price dollars in ounces of silver rather than the other way around. >>
It's interesting to note that the $ index is actually up 6% this year. What will silver price at if and when the dollar is flat or down.
The dollar index is up against a basket of currencies that are also depreciating. Silver could go up even if the dollar index continues to rise.
My Adolph A. Weinman signature
Look at the chart of the USDX and you'll see a large "paper" bounce from Dec 2009-June 2010. But when you look at a chart of the USDX ratioed against silver or gold you'll see that "bounce" really only lasted 2 months and was fairly negligible in a strong 2 yr down trend.
USD vs. Silver 3 yr chart
Anyone fixating on just the USD chart would see it "holding" a trading range for the past 2-1/2 yrs thereby "proving" it was maintaining value. But that would be a huge mistake.
USDollar chart
roadrunner
The Euro comprises over 50% 0f it's weight. Therfore as the Euro goes so does the USDX
YTD (back of envelope calculations) of the USDX currencies
Euro vs Dollar -9% (57% weight)
Sterling vs Dollar -4% (12% weight)
Swiss Franc vs Dollar +3% (4% weight)
Canado vs Dollar +2% (9 % weight)
Swedish Krona vs Dollar +2% (4% weight)
Japenese Yen vs Dollar +11% (14% weight)
Silver vs Dollar + 66%
Aussie dollar vs US Dollar +10%
Fellas, leave the tight pants to the ladies. If I can count the coins in your pockets you better use them to call a tailor. Stay thirsty my friends......
<< <i>One has to be careful when looking at the USDX
The Euro comprises over 50% 0f it's weight. Therfore as the Euro goes so does the USDX
YTD (back of envelope calculations) of the USDX currencies
Euro vs Dollar -9% (57% weight)
Sterling vs Dollar -4% (12% weight)
Swiss Franc vs Dollar +3% (4% weight)
Canado vs Dollar +2% (9 % weight)
Swedish Krona vs Dollar +2% (4% weight)
Japenese Yen vs Dollar +11% (14% weight)
Silver vs Dollar + 66%
Aussie dollar vs US Dollar +10% >>
Good points. Despite the good showing of the dollar away from the Euro, silver and gold made terrific advances against it, which flies in the face of those who suggest that gold and silver won't advance if the dollar strengthens.
I never realized how complicated all this is. My head is spinning. I guess my next question is will silver keep it's steady climb or is this just a
temporary situation?
In my simple world I seem to see silver rising slowly over the next 6-12 months.
What you guys are saying is way over my head.
I still think $50++ an ounce is in silver's future.
But Silver went from $19 to $30 in 3 months!!
Too much in too little time.
I guess my point is, I'd hold off buying more silver now, but I would definitely recommend it when silver corrects to the $20 to $23 range.
"“Those who sacrifice liberty for security/safety deserve neither.“(Benjamin Franklin)
"I only golf on days that end in 'Y'" (DE59)
Over and above what I sold 40% to trade over to 90%, so that ought to drop the price REAL fast!
I'm pretty much out of dry powder, rebates, etc. so if Double Eagle is right, $20-23 is right around the corner...
Is anyone shorting silver hard, like substantial chunk of your portfolio? It did go up a whole lot, awwwwful fasssst. It's not in my bones to short silver, but some regrouping does seem to be in order to keep silver's whipsaw reputation intact.
I was picking up $5 to $10 lots of 90% this summer at 10 - 11 x (with rebates) on ebay, and now 6 months later, I can barely buy some halves at 20x + pay shipping on the BST LOL
<< <i>Best bear case: I JUST BOUGHT SOME
Over and above what I sold 40% to trade over to 90%, so that ought to drop the price REAL fast!
I'm pretty much out of dry powder, rebates, etc. so if Double Eagle is right, $20-23 is right around the corner...
Is anyone shorting silver hard, like substantial chunk of your portfolio? It did go up a whole lot, awwwwful fasssst. It's not in my bones to short silver, but some regrouping does seem to be in order to keep silver's whipsaw reputation intact.
I was picking up $5 to $10 lots of 90% this summer at 10 - 11 x (with rebates) on ebay, and now 6 months later, I can barely buy some halves at 20x + pay shipping on the BST LOL >>
As much as I think we're in for a correction, I would not advise shorting silver.
Too much of a gamble for me.
There's still a lot of years to go with this PM bull cycle.
"“Those who sacrifice liberty for security/safety deserve neither.“(Benjamin Franklin)
"I only golf on days that end in 'Y'" (DE59)
I knew it would happen.