The notion that silver has been recently trading more like a base
metal is more a fallacy than fact. Some of the top technical
analysts have been stating that the reason why the price of silver has not
held up as well as gold is due to the fact that silver trades more like
copper than gold. Basically, if the "King" of the base metals
suffers... so will silver. While this makes good press, the reality
is much different if we look at the data below.
Below is a one year chart of the price of silver:
Here we can see that when the FED announced QE3 on Sept 13, the price of
silver was $33, but by May 6, 2013, the price had fallen to $24. This
was a 27% decline in 9 months. Gold fell from $1,700 to $1,450 in
the same time period (14% decline).
Now, if we take a look at how the price of copper reacted since the QE3
announcement, we see a much different story:
You will notice in the chart above, that the price of copper fell from
$3.65 in Sept 13, 2012 to $3.30 on May 6, 2013. Thus, the king of base metals
only declined a measly 9.7% during the same period that silver fell 27%. Analysts
who say that silver is performing like copper fail to comprehend that silver
is actually getting clobbered a great deal more than copper.
We can clearly see this in the next chart that shows the Silver-Copper
Ratio:
After the FED QE3 announcement, the market could purchase 9 pounds of copper
for every ounce of silver, however today the ratio has fallen to 7.28 to 1.
As the silver-copper ratio falls, copper becomes more expensive compared to
silver.
So the question remains... how is silver trading like copper if
the price of silver has declined nearly 3 times that of copper in percentage
terms in the past nine months? Well, some analysts may point to the
fact that COMEX Silver warehouse stocks have increased a great deal since
Sept. 2012.
Indeed they have...
COMEX SILVER INVENTORIES
SEPT 2012 = 138 million oz (approx)
MAY 2013 = 165 million oz
In the past nine months the COMEX has increased its Registered and
Eligible silver inventories 20% at approximately 27 million ounces.
Well, there you have it. The reason why silver has severely underperformed
copper is due to a build in COMEX silver inventories.
Or is it?
If we take a look at the next chart, you will see just how much copper
inventories have grown compared to silver:
According to the LME (shown by Kitco), its copper warehouse stocks have
increased from 220,000 tons in Sept 2012 to 610,000 tons in May 2013. Thus,
the LME added approximately 400,000 tons of copper or an increase of a 180%
during this time period, while Comex silver inventories increased only 20%. Not
only did copper beat silver in this race in adding warehouse stocks -- it did
so by nearly 10 times the rate.
Even though the LME-LBMA do not provide easy access to public data on its
silver warehouse stocks, I would imagine the percent increase would be
similar to what took place on the COMEX. If this is true, then:
1) the difference in inventory builds are not reflective in market price,
or
2) something fishy is taking place in the silver paper markets
Lastly, if we look at some of the changes in the following commodity prices,
we can see a similar disconnect:
SEPT 2012 - MAY 2013 Price Changes
WTI CRUDE = -2%
COPPER = -10%
LEAD = -12%
ZINC = -12%
GOLD = -14%
SILVER = -27%
Not only is silver underperforming copper by a wide margin, it has also
declined substantially against its two base metal cousins -- zinc & lead.
Furthermore, the price of West Texas Crude dropped from approximately $97 a
barrel on Sept 13, 2012, to $95.5 presently... a paltry 2% decrease.
Again, how can silver be trading like copper or other base metals if its
price is behaving much worse? It's quite simple. Silver like gold, also
behaves like a monetary metal. This recent takedown in the price of gold and
silver was not by accident. Gold was down 14% during this time period and
silver 27%. Normally, the price of silver falls more violently than gold
during a rapid decline. So it is clear in my book that the price of silver is
behaving more like a manipulated monetary metal than a base metal such as
copper.
Ask yourself this question? How many investors were buying up
copper, zinc and lead when the price of silver fell 18% in two days in April?
Zero. Investors were buying record amounts of gold and silver during
this past takedown because they are in fact... monetary metals.
When the public realizes the true value of the monetary metals, it will be
too late for them. Indeed this will be the greatest irony of all time --
massive demand with no available supply.
Announcement...for all of those who have been reading my
articles on GoldSeek-SilverSeek, I now have a website called the SRSrocco Report, a blog
where I will be publishing updated information on the precious metals, mining
companies, ore grades, energy, the EROI, the economy and other important
news.
In the near future, I also plan to offer a paid membership service that
will provide monthly reports as well as quarterly updates on the miners as it
pertains to ore grades, estimated break-even, financial metrics, energy
consumption, and other analysis.