By SD Contributor SRSrocco:
The notion that silver has been recently trading more like a base metal is more a fallacy than fact.
  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.
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 silverWhile this makes good press, the reality is much different if we look at the data below:

 

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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 much more than silver.

We can clearly see this in the next chart that shows the Silver-Copper Ratio:

Right 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 Kitco’s charts, the LME has increased is copper warehouse stocks 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 only increased 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 does 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

If you consider the data above, it’s easy to see that silver is not trading like a copper — IT’S TRADING MUCH WORSE.

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%

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%.   The price of silver falls more violently than told during a takedown.  So it is clear in my book that the price of silver is behaving more like a monetary metal than copper or a base metal.

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.

 

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    • I think he ment silver “Silver clobbered much more than copper” A mere typo`.
      I am pleased that SRS re-visited Comex inventory and set the record straight IE:
      “Well, some analysts may point to the fact that COMEX Silver warehouse stocks have increased a great deal since Sept. 2012.  Indeed they have….”

  1. Steve, it’s a good thing you raised this point before I had. You did the matter FAR more justice than I possibly could have. One little knit-pick though … a standard pound of 7000 (vs 5790) grains is 14.583 Troy ounces, so the banknote valuation ratios are tainted.

  2. Thanks for the comments.  Yeah, that is supposed to read “Copper” not silver.  The one thing that I want the reader to understand is that ENERGY runs the world and money is supposed to be the accountants.  For the past 4 decades we have been on a Fiat Monetary system that had its faith in the almighty US Dollar.
    That faith has eroded and all that is left is bug pile of Debts that cannot be repaid due to the peaking of energy as well as the decline of the EROI – energy returned on invested.
    Silver will perform as a monetary metal even though we have plenty out there who believe GOLD only holds this role.  Both gold and silver are stores of TRADEABLE ENERGY VALUE.  Again, they do not have any energy in them, but they represent a certain amount of energy value that is traded.
    I will be explaining more about this on my site in the future.

  3. Lets just say for example gold goes to $8000 and silver $500…at what point should we sell the metals…i there still priced in USD are we to sell them anyway? meaning if were gettin away from USD in the first place and into metals at what point should one sell them…while the price is high in USD then trade them for the new currency or only sell when the new system is in place?  And just say the metals are that high is say provident metals or apmex going to buyback the metals at those prices..who r u going to sell them to at that point?   Thanks

    • @Krackerjack
      Its up to you.  No one can call the top, you have to make that judgement and what to move across to yourself.  No-one can predict what will arise in terms of alternative currency but the point is that precious metals will have relative value in it if `it` ever comes about.  I would suggest that its possible to make big trades in the metal itself IE a house or three but in the interim try not to take too much notice of the volatility because your silver didn`t move.  Popcorn has its uses!

  4. Silver could be a commodity, the quicker it gets owned by the LME and out of the hands of the paper traders the better. The reason why silver prices act differently than copper prices, is that copper is a REAL commodity and is traded as such, to be used, now and in the future. Paper copper acts as it should, as a hedge against fluctuations in prices, hence why the 9% drop. The price operates on supply and demand. Not through base profiteering by unsavory American interests and base protectionism of the dollar.
     
    Of course copper holdings are going up! Demand is slowing down, you mine the stuff, where you going to put it? It will be valuable in the future, so lets keep mining it until demand picks up. Prices are controlled by the market, as it should be.
     
     
    Silver is a useless metal as a REAL commodity, if it was more abundant then it would become a truly awesome trade-able commodity, but sorry to burst everyone’s bubble, its uses are medical, electronic, and in products that require high reflectivity. In this respect the only really useful property of silver is rarity. But this then moves it outside of commodities and into the realm of fuzzy feelings. It becomes an asset because it is more rare than something equivalent, hence its a precious metal. But as soon as the feelings become fuzzy and human in nature, as opposed to required, needed, and necessary, then it can be exploited. The need can be artificially generated at will, by pure price fixing. 
     
    Is Silver a currency? Its getting that way. I love it that some of the US states are now taking silver as legal tender.
     
    You would think from my stand point that I would be anti silver. You would be wrong. It is sound money. But until the American dollar is decapitated for the fraud that it is, then I am afraid that silver will be bashed by the slugs.
     
    I am holding way too much silver. Lets just all dream for the £100 an oz pay out.

    • Taking it as legal tender?  The only thing I find is that Utah allows it but that in practicality few people take it.  One outfit will help you, they turn your gold into a debit card you can then use to buy things… sure takes the romance out of the whole thing!

  5. Here is a weird thought. 
    What if the price supression of silver and gold is designed to disguise and cover up it’s scarcity and thus the scarcities of other vital commodities that are tied to the values of precious metals. 
    Let’s take food as a corrolary. If there was some sort of terrible food shortage looming, like Soylent Green’s thesis that the ocean’s phytoplanton was dying and to maintain food stocks even people were ground up into littel cakes  called Soylent Green, this could contine the falsity and deception that food was available, even if it’s form was Soylent Yellow, Orange or Green, rationed to the hungry people.   Soylent Green is people.  It’s pretty obvious that  the various governments will use any ruse to maintain the illusion of surfeits in any commodity even as they ration that very commodity.  Governments may only be good at one thing and that is the unique ability to create scarcities when they put their heavy hands on the levers of commodity production, distribution and pricing.
    If  I continue this line of reasoning and it’s seen that much of our industrialized society runs on silver related products, without which we would suffer some serious setbacks,  then disguising silver shortages could be seen in  price suppression , manipulation and a constant refrain that precious metals are in abundance.  Of course, the fact that our government won’t return gold to Germany and has refused an audit of Fort Knox is telling.  Don’t even get me started over the Dragon Family and the Phillipines gold.  If the governments produce an unlimited supply of FIAT currency, these same governments would not want us to know that the Emperor’s FIAT has not value.  Gold is one of the best and final arbiters of currency value and our governments have been hell bent on making sure gold does not show its true colors, calling out the US dollar, Euro and Yen have no value whatsoever.  In reality they probably have negative value given the Pat Field notes that all Planation Scrips have interest attached, thus indebting us to that currency for the rest of our lives.
     Gold might also be suffering the same supression due to its scarcity.  If the eastern world is buying up 200% of the entire world’s production gold and is targeting silver for its industrial, commercial and investment values, then there is some real strength to the argument that these two metals will continue their upward ard of  scarcity, but without the price increases that should occur if they were free to assume their real value against world FIAT supplies.   If mines are seeing a substantial drop in ore grades while energy used to minePMs  increases in costs, we could be at a real tipping point.  There is a real limit to the silver production world wide and without it we could see some serious set backs to silver based products.  Silver doesn’t grow on trees any more.
    Maybe this is a bit tin foil hattish but if TPTB, central banks and manipulative central governments realize the jig is up with their FIAT printing into the trillions across the globe,  see a restive and skeptical population catching on to this scam, particularly with the theft of 30 billion Euros in Cyprus,  and know that soon enough we will see REAL SHORTAGES in the private markets of precious metals, they they would do anything to prevent the gullible public from seeing the reality of this situation.
    Ergo, if silver and gold are tradable  forms of energy and Steve is seen as the bellwether of this theory/hypothesis, then energy is the real problem.  If energy and its surrogate value partners represented by silver, gold, platinum and palladium, all mission critical metals, then all this talk  and hoopla about new and old energy sources like  fracking,  natural gas and clean coal gasification are our salvation whereas in reality they  are going to be racing into shortage situations, the the consequences  could be truly epic.  The great lie will be outted for what it is.  A complete breakdown of each and every market manipulation occuring is short order while the governments scream bloody murder that there is nothing to worry about, while the world catches fire. Those who have the goods, gold and silver, will then be finally vindicated.
    From there we go to food and water, two things we can’t live without for more than a few days. Yes, this is a bit of a leap but I think it’s worth discussing.  If food, water also  represent tradeable energy, their first task in to sustain life.   I see the suppression and manipulation of gold and silver as the canary in the minefield and something which could be signalling some really tough times if these blatant suppressions continue.  Sooner or later the resources required to continue these scams will expire and that includes the trillions of debt and FIAT.
    Precious metal price suppression and maniulations beget energy supply and price manipulation which then goes to what I think could be the ultimate goal of creating a false front market involving food and water, and all this is tied back to precious metals as the litmus test for these looming problems. 
    This is the first time I’ve given though to these hypotheses so the logic may be a bit weak but maybe there is something to this.

    • @AGXIIK
       
      Then too, from the viewpoint of rational equilibration (in addition to Austrian mis-allocation theory) we might expect that many commodities (mostly soft … sugar, legumes, grains and cotton come to mind off hand) and their down-stream finished goods are tremendously over-valued in sync with banknote currency inflation. The ONLY way to correct these high and constantly increasing anomolies, is to juxtapose their rational worth against a money subject to supply-demand and fairly predictable average recovery rates (comparable to ‘harvest’ and processing). Perhaps THEN, the poor could be treated to a genuinely minimal cost of living without incessant increases and the wealthy would have to pay properly fair prices for their toys and baubles.

  6. Pat 
    Thank you these insights. 
     I hadn’t thought that far into this theme but your comments are right on.  With a global population of 7 billion,  most spend 50-80% of their budget on food.  The poor are terribly impacted by the false pricing of food, a great deal of which is grown in the west and guaged by western abilities to pay. And those abilities are noted by your comments.  
     Downstream and being at the end of the literal food chain, the poor are increasing subject to famines and food insufficiency, as much due to price as availability.  Our food costs in the US are about 7-10% of our budgets and we are now seeing food insufficiency in poor families.   Food pricing is skewed by SNAP and EBT cards that allow merchants to overprice their low quality food.  That applies to Walmart as well.  There are many other factors that impact food prices, more than I can outline here.
    With soil depletion, drought, energy costs and a misallocation of farm resources to junk food, ethanol and wastage (about 20% so i’m told, the poor everywhere are getting a rough deal.
    This maybe a huge plot to reduce the world population through policies of Agenda 21 but whatever reason we see the hungry go hungry it’s as likely  as much due to our regulations, tax policies, FIAT overproduction, debt and other factors we talk about frequently here.  Your comments hit to the heart of the matter.  The poor and hungry of the world are at the tail end of a real whirlwind of policies that hit heavily even here at home. But we do have an infinite supply of pocket lettuce so we need to change our diets to include that form of ‘food’   It goes nicely with mayo on a slice of white bread.

    • Interesting thoughts from both AG and Pat on this.  If we can extrapolate this into the future, might we not see the development of a “food cartel”, the likes and rapacity of which would make even an oil sheikh blush?  Indeed, we might.  A huge portion of the world’s wheat comes from only 5 countries:  USA, Canada, Australia, Argentina, and France.  From wheat comes bread and pasta, staple foods for much of the world’s population.  Sugar, edible oils, and a few other basic foods are similarly sourced.  Oil may be terrific but it is inedible.  While difficult, people CAN live without petroleum but they cannot live without food.  The middle and late 21st century will indeed comprise “interesting times”.
       

  7. Where’s that chart with the green bars showing the total shorts of each commodity traded on the exchange?  That chart shows silver’s little, ahem, ‘problem’.
    As I have said before, the bankers have a special genetic hatred for silver.  The war against it isn’t new, it has been going on since 1873.
    The shorting continues until they just can’t hide the shortage any more.  When?  Wish I knew.

  8. “How many investors were buying up copper when the price of Silver fell 18% in two days?”  Just out of curiosity I have been monitoring Provident metals website for a few months.  They have been sold out of copper as they are today.  Nationwide inventories have dried up at a retail level and it has taken place completely off of the radar.  Got copper pennies?  

    • I do have a few jugs of copper pennies.  Highly impractical for anything except building muscle :-D
       
      My father in law is selling the 1oz coins for $4 and finding lots of buyers.  It’s laughable the premium some will pay, but the rounds are great looking and a lot cheaper than a silver eagle.

    • “laughable”?  It’s nuts.  You double your money just by setting aside a copper penny but you take a hit when you buy one of those pretty little one ounce ingots.  That’s 64 bucks a pound and a pretty hefty markup. 

    • @Conax
       
      by definition, every long has a short (and every short has a long).  So the shorts held against each commodity must equal the longs since a long can’t be created out of thin air, they need a willing buyer on the other side.
       
      What you may be thinking of is the COT reports that show what class of traders hold what kind of positions?

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