Silver Bears Pounce as Manufacturing Sputters

Updated April 2, 2013, 8:10 p.m. ET

Silver Bears Pounce as Manufacturing Sputters

By TATYANA SHUMSKY

MI-BV112_SILVER_NS_20130402194507

Silver prices plunged deeper into bear-market territory, as weak manufacturing data from the world’s major economies stoked investor fears that the metal’s gradual decline this year is turning into a rout.

Silver has shed over 20% of its value since October and its losses this year surpass most other commodities, including gold. Bets that silver will decline are on the verge of outnumbering bullish positions for the first time since September 2007, according to the U.S. Commodity Futures Trading Commission. On Tuesday, silver ended 2.5% lower at $27.217 a troy ounce on the New York Mercantile Exchange.

JMATMany investors have abandoned silver in pursuit of better returns in the stock market as major U.S. indexes have hit record highs. Other investors see less of a need to hold the metal as a hedge against inflation, which remains under control in most countries.

Now, mounting evidence that the rebound in global manufacturing is stalling has investors worried that industrial demand, one of silver’s last remaining pillars of support, is crumbling as well. Silver is used in many high-tech industries, including solar panels and electronics.

Concern about the economy is one reason silver prices have fallen more than gold this year. Investors buy both metals as protection against inflation, but only silver has significant industrial demand. Silver is down nearly 10% in 2013 while gold prices are off 6% for the year.

“Less iPhones, less silver demand,” says Sean McGillivray, head of asset allocation at Great Pacific Wealth Management, with $10 million under management. He opened a fresh bet on falling prices Tuesday.

Industrial demand for silver, used in solar panels, may be crumbling.

Bets on falling silver prices started to pile up in futures markets about six weeks ago even though the price of the metal has been declining for six months. This disparity indicates investors are positioning for an even steeper drop, analysts say.

Bets on rising silver prices outnumbered short positions by 1,075 contracts last week, compared with a gap of over 30,000 at the start of February, according to the CFTC. Each contract is for delivery of 5,000 troy ounces. of silver.

Fain Shaffer, president of commodity brokerage Infinity Trading Corp. in Medford, Ore., started buying silver futures last summer, but is looking to exit his bets the next time prices rise. “Our strategy now is to short it on any kind of rally,” he said.

Even after three bear markets since 2011, silver prices are still at historically high levels. There are signs of turmoil, including the bailout of Cypriot banks, which could drive investors toward precious metals as a haven. Central banks continue to print money as part of their economic stimulus, keeping inflation fears alive.

“We’re surprised that with all of the risks arising from the banking problems in Cyprus and the Federal Reserve’s continued quantitative easing, demand for silver isn’t higher,” said Jerry Slusiewicz, president of Pacific Financial Planners in Laguna Hills, Calif., which manages $90 million in assets for high-net-worth and institutional investors.

However, he last owned silver in April 2011, when it was at an all-time high.

When silver first rose sharply in 2010, it was largely because investors believed central-bank stimulus would spur both inflation and higher industrial demand for the metal. Now, some investors see silver as entering a worst-case scenario—an economy weak enough to curb industrial demand, but too strong to spark fresh expansion of central-bank easing.

“If the economy improves, you get more demand for silver, but less of a tailwind from the Federal Reserve. And if the economy doesn’t improve, you don’t get the industrial demand,” said Andy Rosenberger, portfolio manager with Brinker Capital, with $13 billion under management. “It became a donkey of an investment.”

He said his fund sold its holdings of the silver-backed exchange-traded fund iShares Silver Trust SLV -2.73% in December as inflation concerns eased.

Prices also could come under pressure if a surplus of silver forms, said Bart Melek, senior commodities strategist with TD Securities. A surplus becomes more likely if industrial demand for silver from Europe and China fails to meet expectations.

To be sure, demand remains strong among investors who prefer to hold physical silver, and often take a longer-term view of the market. Sales of silver coins by the U.S. Mint hit a record 7.5 million troy ounces in January, and are up 40.3% in the first quarter from a year earlier.

Nick Halley, 70 years old, a retired brigadier general living in Upland, Calif., has been buying silver coins in recent years. He said he sees the metal’s recent slump as a buying opportunity. He owns silver and other precious metals because he worries about inflation, and thinks the government’s fiscal policy will weaken the dollar.

“I’m actually looking for these price drops,” he said. “I’ve steeled myself to not get nervous if the market drops 20% because I’m not planning to sell it for five or 10 years.”

Silver Vaults Stuffed Mean Prices Rising 29% in ’13: Commodities

December 20, 2012

Silver Bullion Pte, one of Singapore’s largest suppliers of coins and bars to retail investors, says sales tripled since October, part of a global surge in demand that drove holdings to a record.

“Our clients are worried that a major currency crisis or mass bankruptcies would occur,” said Gregor Gregersen, the 36- year-old founder of Silver Bullion, whose sales now average about S$6 million ($4.9 million) a month. “It all has to do with falling confidence in the heavily indebted Western governments and financial institutions.”

Global investment through silver-backed exchange-traded products reached a record 18,854 metric tons in November, or more than nine months of mine output, data compiled by Bloomberg show. Holdings are now valued at about $19.2 billion. Prices will rise as much as 29 percent to $40.25 an ounce next year, based on the median of 49 analyst, trader and investor estimates compiled by Bloomberg.

Silver almost tripled since the end of 2008, lagging behind only platinum in gains for precious metals this year as policy makers from the U.S. to China to Europe pledged more action to boost economies. That’s attracting investors betting that stimulus will stoke inflation and debase currencies. It’s also luring those wagering growth will strengthen industrial demand for silver, 53 percent of which is used in everything from televisions to batteries.

Hedge Funds

The metal advanced 12 percent to $31.09 this year, compared with a 6.6 percent gain for gold and 13 percent rise for platinum. The Standard & Poor’s GSCI Index of 24 commodities was little changed and the MSCI All-Country World Index of equities jumped 14 percent. Treasuries returned 1.8 percent, according to a Bank of America Corp. index.

Hedge funds and other large speculators increased bets on higher prices 12-fold since the end of June, to a net 34,862 futures and options, U.S. Commodity Futures Trading Commission data show. That’s about 50 percent higher than the average over the past five years, a period during which speculators have never been bearish.

Equity investors also bet on higher prices. Shares of Mexico City-based Fresnillo Plc (FRES), the largest primary silver producer, rose 25 percent this year. The company will report a 22 percent gain in net income to a record $927.1 million in 2013, according to the mean of seven estimates compiled by Bloomberg. Coeur d’Alene Mines Corp. in Idaho, which gets about 65 percent of its revenue from silver, fell 6.3 percent to $22.63 since the start of January and will reach $31.89 in 12 months, the average of analysts’ predictions shows.

Deposit Boxes

Silver Bullion, which started in 2009 in a rented bedroom with 18,000 ounces, now has 246,000 ounces (7.65 tons) stored in vaults for customers as well as its own inventories. The company operates from the Certis CISCO Center, home to one of Singapore’s largest providers of safety deposit boxes. It sells everything from 1- to 32-ounce coins and 10- to 100-ounce bars, as well as gold, platinum and palladium.

Investors bought 1,464 tons through ETPs this year, data compiled by Bloomberg show. They will probably add another 300 tons in 2013, Barclays Plc estimates. That’s less than the so- called implied physical surplus that the bank says will reach 6,441 tons in 2013. Its analysts expect silver to average $32.50 next year, from $31.20 in 2012.

IMF Outlook

The surplus may drag prices lower should economic growth slow because it would curb demand for consumer goods. A car contains as much as 30 grams and a mobile phone about 0.25 gram, according to the Washington-based Silver Institute. While the International Monetary Fund expects a 3.6 percent global expansion in 2013, from 3.3 percent this year, the forecast was cut twice since July.

The metal retreated 23 percent in 2008 as the global economy tumbled into a recession. Japan and the 17-nation euro zone are contracting again this year and the Congressional Budget Office says the U.S. economy faces the same risk should lawmakers fail to resolve more than $600 billion of automatic spending cuts and tax increases scheduled to start next month.

Investors may also be dissuaded by the metal’s price swings. Its 100-day historical volatility is almost twice as high as gold, meaning investors are subject to bigger losses as well as gains. Silver for immediate delivery reached a record $49.79 in April 2011 before tumbling 35 percent in less than three weeks.

Bullion Market

Comex silver futures are valued at about $22.6 billion, compared with $72.4 billion for the bourse’s gold contracts, data compiled by Bloomberg show. Members of the London Bullion Market Association handled an average of $34.7 billion of gold a day in October, and $3.26 billion of silver.

Investors own 18,760.34 tons through ETPs, less than 1 percent below the record set on Nov. 15. Morgan Stanley predicts they will add a further 500 tons in 2013. The bank said in a report Dec. 6 that silver is among its top commodity picks for next year, along with gold, corn and soybeans, because it will be boosted by investor demand and a weaker U.S. currency.

Central banks are seeking to boost growth through printing money, increasing investor concern the actions will debase currencies and spur inflation.

The Federal Reserve said Dec. 12 it would buy $45 billion of Treasury securities a month from January, adding to $40 billion a month of existing mortgage-debt purchases. Silver jumped about 53 percent during the first round of so-called quantitative easing from December 2008 through March 2010, twice the gain in gold. It advanced 24 percent in the second phase that ended in June 2011, about three times more than the other metal. The central bank bought $2.3 trillion of debt in total.

Subway Station

The scale of intervention is a sign to some investors that markets will be roiled once more by financial meltdowns. That’s reflected in Silver Bullion’s sales, which reached S$38 million in 2011, from S$700,000 in the first year of business. Orders were also boosted by the government lifting a goods and service tax on investment-grade gold, silver and platinum from Oct. 1.

While Gregersen’s first sale was made in a Singapore subway station, his company is now a member of the Singapore Bullion Market Association, with suppliers from the Perth Mint in Australia to the Mexican central bank.

“There’s going to be another big crash, we are really near it now,” said Chin Kuan Yew, a businessman and Silver Bullion customer who sold all his properties, including his condominium, to buy more metal. “You have on the one hand the U.S. printing money and the European Union is on the brink of collapse.”

To contact the reporters on this story: Chanyaporn Chanjaroen in Singapore at cchanjaroen@bloomberg.net; Nicholas Larkin in London at nlarkin1@bloomberg.net.

PUBLISHED FEBRUARY 04, 2013

S’pore’s the place: a safe haven for him and his silver hoard

BY ANDREA SOH

Wowed by Singapore: Mr Gregersen s ays he has become a huge fan of the Republic and Lee Kuan Yew.- PHOTO: ARTHUR LEE

[SINGAPORE] It took a journey halfway around the world to discover a place where he could be confident of his future. Now, Gregor Gregersen makes his living betting against what precipitated that journey in the first place: a system he says is doomed to fail with its downward spiral of ever increasing sovereign debt and taxes.

The native German had lived in the US and Europe for most of his life. Disillusioned and frustrated by the massive amount of taxes in his home country – where he was paying up to 80 per cent in total taxes – he was looking to escape the vicious cycle.

The founder of Silver Bullion then chanced upon a book by former prime minister Lee Kuan Yew. Eight months later, in early 2008, he moved to Singapore.

“And an interesting thing happened: just by me moving to Singapore, I quadrupled my salary.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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