 "Silver slump splits hedge funds from ingot hoarders")
Hedge funds are betting on cheaper silver for the first time since at least 2006, splitting from investors accumulating close to the biggest hoard ever and the analyst consensus for prices to rebound from a bear market.
Speculators were the most bullish in two years as recently as October and now have a net-short position of 560 futures and options, US Commodity Futures Trading Commission data show. Holdings in exchange-traded products, valued at $14.5 billion, are within 1.3 per cent of the all-time high reached mid-March, according to data compiled by Bloomberg. Silver, which entered a bear market on April 2 and plunged as much as 11 per cent yesterday, will average $31.25 an ounce in the fourth quarter, or 35 per cent more than now, based on the median of 14 analyst estimates compiled by Bloomberg.
With 53 per cent of supply going into products from solar panels to batteries, faster economic growth should be boosting prices. Instead manufacturers are relying on metal accumulated after four years of surplus mine output that drove Comex-tracked inventories to a 15-year high. China, the second-biggest buyer, has stockpiles for 18 months of industrial use, from four months in 2009, Standard Bank estimates. The quickening growth is also curbing demand for precious metals as a store of value.
Price drop
The metal dropped 24 per cent to $23.20 in London this year, compared witEh a 17 per cent decline in gold and falling more than platinum and palladium, mostly used in catalytic converters for cars. Silver reached a two-and-half-year low yesterday and is the worst performer in the Standard & Poor's GSCI gauge of 24 commodities, which retreated 5.5 per cent. Gold plunged as much as 8.6 per cent yesterday. The MSCI All-Country World Index of equities rose 6.6 per cent and a Bank of America Corp. index shows Treasuries gained 0.5 per cent. Hedge funds' net-short position in the week ended April 9 narrowed from 2,982 on April 2, when prices entered a bear market, and compares with a bullish bet of 38,618 by October 9, CFTC data show. They turned negative as prices slipped 34 per cent from a seven-month high set October 1. One futures contract is valued at $117,875. Two of the three most widely held options on Comex confer the right to sell metal at $20 before the end of November, or 14 per cent less than now, according to bourse data.
Leveraged bet
The link to gold strengthened in the past eight months as silver's ties to platinum weakened, a sign that investors aren't trading the commodity as an industrial metal. Gold yesterday tumbled to the lowest price since Febuary 2011. The 30-week correlation coefficient with gold reached 0.95 last month, the highest in at least three decades. A figure of 1 means the two move together. The correlation with platinum dropped to 0.66, from 0.89 a year earlier, data compiled by Bloomberg show.
"Silver is the leveraged bet on gold really," said Charles Morris, who oversees about $2.5 billion of assets at HSBC Global Asset Management in London. "If what's happening in the market is not good for gold, then it's not good for silver either. The market is precarious." Goldman Sachs Group Inc cut its gold price estimates April 10 and Societe Generale SA said the metal is in bubble territory on April 2. Barclays Plc, Credit Suisse Group AG, Danske Bank A/S and BNP Paribas SA are also among banks predicting lower average prices in 2014 than this year. Gold dropped as much as $205.65 an ounce, or 13 per cent, over two days to yesterday.
Global economy
The global economy will accelerate every quarter this year, according to a composite of economist estimates compiled by Bloomberg. US equity indexes rose to records this month and the dollar had its best first quarter in three years. The gains are increasing speculation among investors that some central banks will curb stimulus programs and raise record-low interest rates that helped silver more than double since the end of 2008.
Several members of the Federal Open Market Committee said the central bank should begin limiting bond buying later this year and halt it by the end of December, according to the record of their March 19-20 meeting released April 10.
There are no signs of that yet, with the Federal Reserve saying March 20 that it will continue with $85 billion in monthly bond buying. European Central Bank President Mario Draghi said April 4 that policy makers "stand ready to act" and the Bank of Japan said the same day it will double the monetary base by the end of 2014 through purchases of government bonds, its biggest-ever round of asset purchases.
ETP Holdings
That may explain why investors' holdings in ETPs backed by silver rose 3 per cent to 19,478 tonnes this year, equal to more than nine months of global mine output. The US Mint sold 14.2 million ounces of silver coins in the first quarter, 40 per cent more than a year earlier, and demand since then already exceeded the total sold in April 2012, data on its website show.
Retail investors probably account for about 60 per cent of silver ETP purchases in the U.S., according to Nik Bienkowski, a co-founder of London-based product provider Boost ETP LLP.
The additional buying in ETPs and coins is being eclipsed by the production glut from mines. Supply outpaced demand by a combined 15,247 tonnes in the past four years, with another 5,512- ton surplus seen in 2013, Barclays estimates. Inventories monitored by Comex reached 5,143.5 tonnes on April 2, the highest since August 1997, bourse data show.
China's Stockpiles
China's stockpiles are expanding after the nation almost tripled mine production since 2000, to about 4,212 tonnes in 2012, according to CPM Group Inc., a New York-based research company. The country imported 28 per cent less metal in February, the fifth decline in six months, customs data show. China's economy will grow 8.1 per cent this year, the second-slowest pace in the past decade, economist estimates compiled by Bloomberg show.
Industrial demand for the metal will gain 1.7 per cent to a three-year high of 14,625 tonnes in 2013, and rise another 2.8 per cent in 2014, according to Barclays. A car contains as much as 30 grams and a mobile phone as much as 0.25 gram, the Washington-based Silver Institute estimates.
Silver is mostly produced as a byproduct of gold, copper, lead and zinc mining, according to the U.S. Geological Survey. Mine output will climb 1.2 per cent to a record 25,240 tonnes this year, London-based Barclays predicts.
Shares of Mexico City-based Fresnillo Plc, the largest primary silver producer, slid 42 per cent in London this year. Coeur d'Alene Mines Corp., which gets about 61 per cent of its revenue from silver, fell 32 per cent in New York trading.
Investors may be dissuaded by the metal's price swings, with the 100-day historical volatility about 60 per cent more than for gold. Silver's 53 per cent slump from the record $49.8044 reached in April 2011 compares with gold's 27 per cent drop from its peak that year. The bear market entered this month was the 11th since April 2004, data compiled by Bloomberg show.
"The big overriding force is the risk premium and it has come out of both gold and silver as U.S. is showing some signs of growth," said James Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management, which oversees $325 billion of assets. "Industrial demand for silver is buoyant but whether that will be able to offset the drop in prices because of waning safe-haven value is the big question."
Speculators were the most bullish in two years as recently as October and now have a net-short position of 560 futures and options, US Commodity Futures Trading Commission data show. Holdings in exchange-traded products, valued at $14.5 billion, are within 1.3 per cent of the all-time high reached mid-March, according to data compiled by Bloomberg. Silver, which entered a bear market on April 2 and plunged as much as 11 per cent yesterday, will average $31.25 an ounce in the fourth quarter, or 35 per cent more than now, based on the median of 14 analyst estimates compiled by Bloomberg.
With 53 per cent of supply going into products from solar panels to batteries, faster economic growth should be boosting prices. Instead manufacturers are relying on metal accumulated after four years of surplus mine output that drove Comex-tracked inventories to a 15-year high. China, the second-biggest buyer, has stockpiles for 18 months of industrial use, from four months in 2009, Standard Bank estimates. The quickening growth is also curbing demand for precious metals as a store of value.
More From This Section
"Silver is going to catch a few panic bids but that will be limited since people are realizing that the world is not coming to an end," said Stanley Crouch, who helps oversee $2 billion of assets as chief investment officer at New York-based Aegis Capital Corp. "Some analysts believe in the growth story and money being pumped will boost growth. There is still a slack in demand compared to the supply situation."
Price drop
The metal dropped 24 per cent to $23.20 in London this year, compared witEh a 17 per cent decline in gold and falling more than platinum and palladium, mostly used in catalytic converters for cars. Silver reached a two-and-half-year low yesterday and is the worst performer in the Standard & Poor's GSCI gauge of 24 commodities, which retreated 5.5 per cent. Gold plunged as much as 8.6 per cent yesterday. The MSCI All-Country World Index of equities rose 6.6 per cent and a Bank of America Corp. index shows Treasuries gained 0.5 per cent. Hedge funds' net-short position in the week ended April 9 narrowed from 2,982 on April 2, when prices entered a bear market, and compares with a bullish bet of 38,618 by October 9, CFTC data show. They turned negative as prices slipped 34 per cent from a seven-month high set October 1. One futures contract is valued at $117,875. Two of the three most widely held options on Comex confer the right to sell metal at $20 before the end of November, or 14 per cent less than now, according to bourse data.
Leveraged bet
The link to gold strengthened in the past eight months as silver's ties to platinum weakened, a sign that investors aren't trading the commodity as an industrial metal. Gold yesterday tumbled to the lowest price since Febuary 2011. The 30-week correlation coefficient with gold reached 0.95 last month, the highest in at least three decades. A figure of 1 means the two move together. The correlation with platinum dropped to 0.66, from 0.89 a year earlier, data compiled by Bloomberg show.
"Silver is the leveraged bet on gold really," said Charles Morris, who oversees about $2.5 billion of assets at HSBC Global Asset Management in London. "If what's happening in the market is not good for gold, then it's not good for silver either. The market is precarious." Goldman Sachs Group Inc cut its gold price estimates April 10 and Societe Generale SA said the metal is in bubble territory on April 2. Barclays Plc, Credit Suisse Group AG, Danske Bank A/S and BNP Paribas SA are also among banks predicting lower average prices in 2014 than this year. Gold dropped as much as $205.65 an ounce, or 13 per cent, over two days to yesterday.
Global economy
The global economy will accelerate every quarter this year, according to a composite of economist estimates compiled by Bloomberg. US equity indexes rose to records this month and the dollar had its best first quarter in three years. The gains are increasing speculation among investors that some central banks will curb stimulus programs and raise record-low interest rates that helped silver more than double since the end of 2008.
Several members of the Federal Open Market Committee said the central bank should begin limiting bond buying later this year and halt it by the end of December, according to the record of their March 19-20 meeting released April 10.
There are no signs of that yet, with the Federal Reserve saying March 20 that it will continue with $85 billion in monthly bond buying. European Central Bank President Mario Draghi said April 4 that policy makers "stand ready to act" and the Bank of Japan said the same day it will double the monetary base by the end of 2014 through purchases of government bonds, its biggest-ever round of asset purchases.
ETP Holdings
That may explain why investors' holdings in ETPs backed by silver rose 3 per cent to 19,478 tonnes this year, equal to more than nine months of global mine output. The US Mint sold 14.2 million ounces of silver coins in the first quarter, 40 per cent more than a year earlier, and demand since then already exceeded the total sold in April 2012, data on its website show.
Retail investors probably account for about 60 per cent of silver ETP purchases in the U.S., according to Nik Bienkowski, a co-founder of London-based product provider Boost ETP LLP.
The additional buying in ETPs and coins is being eclipsed by the production glut from mines. Supply outpaced demand by a combined 15,247 tonnes in the past four years, with another 5,512- ton surplus seen in 2013, Barclays estimates. Inventories monitored by Comex reached 5,143.5 tonnes on April 2, the highest since August 1997, bourse data show.
China's Stockpiles
China's stockpiles are expanding after the nation almost tripled mine production since 2000, to about 4,212 tonnes in 2012, according to CPM Group Inc., a New York-based research company. The country imported 28 per cent less metal in February, the fifth decline in six months, customs data show. China's economy will grow 8.1 per cent this year, the second-slowest pace in the past decade, economist estimates compiled by Bloomberg show.
Industrial demand for the metal will gain 1.7 per cent to a three-year high of 14,625 tonnes in 2013, and rise another 2.8 per cent in 2014, according to Barclays. A car contains as much as 30 grams and a mobile phone as much as 0.25 gram, the Washington-based Silver Institute estimates.
Silver is mostly produced as a byproduct of gold, copper, lead and zinc mining, according to the U.S. Geological Survey. Mine output will climb 1.2 per cent to a record 25,240 tonnes this year, London-based Barclays predicts.
Shares of Mexico City-based Fresnillo Plc, the largest primary silver producer, slid 42 per cent in London this year. Coeur d'Alene Mines Corp., which gets about 61 per cent of its revenue from silver, fell 32 per cent in New York trading.
Investors may be dissuaded by the metal's price swings, with the 100-day historical volatility about 60 per cent more than for gold. Silver's 53 per cent slump from the record $49.8044 reached in April 2011 compares with gold's 27 per cent drop from its peak that year. The bear market entered this month was the 11th since April 2004, data compiled by Bloomberg show.
"The big overriding force is the risk premium and it has come out of both gold and silver as U.S. is showing some signs of growth," said James Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management, which oversees $325 billion of assets. "Industrial demand for silver is buoyant but whether that will be able to offset the drop in prices because of waning safe-haven value is the big question."