Silver’s outperformance over gold to be staggering long term – Butler
Tuesday , 13 Nov 2012
Long term silver enthusiast Ted Butler, although perhaps more than a little fixated on the huge silver short positions held by JP Morgan, along with a couple of others, on COMEX which he feels make the silver market hugely prone to what he rates as criminal manipulation by these organisations, is also an extremely acute analyst of the underlying market trends. Now after a good run up post the U.S. election he feels gold is getting set for a strong advance – and silver even more so.
At current gold and silver prices, the gold:silver ratio (GSR) is at around 53.4, down from a percentage point higher only a few days before. But with silver tending to outperform gold on the way up, and underperform on the way down he notes that it is the silver price movement which primarily sets the GSR trend. He thus feels that for a gold holder, a conversion into silver makes sense if you expect higher precious metals prices over time – and most gold holders do, otherwise they wouldn’t be invested in the yellow metal in the first place. Whether this is just for capital gain, or as a protection against the potential ravages of inflation, or currency value decline (surely two sides of the same coin) depends on the investment philosophy.
Butler feels that conditions in the wholesale physical silver market may even be intensifying which he attributes to tightening physical conditions. There seems to have been a particularly high turnover in COMEX over the past couple of weeks and that this points to tightness in the market with so much visible and recorded silver inventory seemingly in constant motion. He feels that deposits into the big silver ETF, SLV, are also suggestive of recent high investor demand. In little more than a week, he notes, close to 4 million ounces have come into the Trust, the world’s largest stockpile of silver. Metal holdings in the Trust have been in a fairly tight range for the past 18 months, after hitting an all time high of near 370 million ounces in April 2011 and he feels that the standout feature in SLV silver holdings is how stable they have been during some pretty big silver price moves up and down over that time and that silver fundamentals are looking particularly strong amid these signs that silver investment demand may have resumed.