Silver Demand - Money Versus Commodity
The silver market often seems to be like burning both ends of a candle at the same time. Basically, somewhere in the middle the two flames are bound to meet and cause an explosion in price.
Many long term precious metal investors have wondered whether silver is just another commodity component of the CCI, or if it will eventually reassert itself as money?
In many ways, silver still behaves like any other commodity market that trades largely based on technical indicators, signals and chart patterns. In large part, this appearance is maintained by the market makers, who are the big bullion banks dominated by J.P. Morgan Chase.
At the Mercy of the CFTC, CME and the CCI
Currently holding above support noted at $31.50, the COT structure remains bearish for silver. Although Open Interest fell somewhat during the recent downside correction, a lot of speculative longs remain in the Chicago silver futures market.
Meanwhile, less and less physical metal is available to investors to purchase as it gets buried underneath a huge mountain of paper derivatives. The silver mining sector remains weak and is also at the mercy of the big commercial banks upon which miners depend heavily for their financing.
On the other hand, the macro economy remains fragile in the United States. Despite the looming U.S. elections, the major issue involves the country’s ability to continue servicing existing and ongoing fiscal and sovereign debt, which can only be maintained with more currency debasement.
The half-life for the impact of this impending currency and debt crisis is becoming less and less, witness Japan very recently, as well as the Brazil and China’s record reverse bond purchase agreement.
Silver’s Crisis Value Underestimated
Although the physical silver markets remain strong, they seem nowhere near the point where fear drives demand from a monetary standpoint. Even within the Gold Bug community, silver continues to be shrugged off and often ridiculed when considered as an alternative wealth reserve asset to gold.
Interestingly, central banks are net buyers of gold once again. Of course, they could not be net buyers of silver, simply because there is nowhere close to enough physical silver left at anything less than a four digit price.
With all of this happening in the background, the only thing close to matching this type of demand from an industrial standpoint is a user panic, which is a very real and also overlooked possibility that is rarely factored into a silver price analysis.
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