What’s Next For Silver Prices?

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August 12, 2013 12:00pm NYSE:AGQ NYSE:SLV

silver-etfTony Daltorio: Silver prices today continue to wander aimlessly around the $20-an-ounce level as the white metal is buffeted by many of the same factors restraining the gold price. This drifting comes after a dramatic drop of 35% in the first half 2013.


As with gold, much of the drop is due to fears that the U.S. Federal Reserve will begin “tapering” purchases of bonds from its current $85 billion-a-month level. If this comes to pass, the financial markets currently believe this will reduce excess liquidity and therefore any possible inflationary fires.

Here’s what investors watching today’s silver price have to understand…

There are other factors at play in the silver market, of course, besides the Fed. In fact, most of these factors point to an upswing in silver prices going forward.

Here are a few reasons to bet on higher silver prices in 2013.

Silver Prices and Physical Demand

As with gold, there’s strong global demand for the physical metal itself.

Just look at the sales of the U.S. Mint’s 1 oz. American Silver Eagle coins. The Mint reported that, during the first half of this year, it sold 25 million Eagle coins, an increase of nearly 44% from 2012. In the first half of last year, the Mint sold about 17.3 million of the 1 oz. coins.

The trend continued in July with the Mint reporting sales of 4,406,500 ounces of Silver Eagle coins. That is up from June’s 3,275,000 ounces and May’s 2,278,000 ounces.

It looks as if the Mint is well on its way to a record year for sales of the Silver Eagles.

JPMorgan’s Bet on Silver Prices

Next we turn to JPMorgan Chase (NYSE:JPM), the custodian of the iShares Silver Trust(NYSEARCA:SLV), the largest silver exchange-traded fund.

The Wall Street bank is infamous among silver investors for the huge amount of shorts it has had in the marketplace for years. The bank was even sued with a lawsuit claiming it was manipulating the silver market. But the lawsuit failed.

Nevertheless, it is always interesting to see what JPM is up to in the silver market…

Early settlements in the July silver futures contract were eye-opening. It was reported that JPMorgan took delivery of approximately 7.4 million ounces of physical silver in COMEX warehouses for its own benefit.

And the pattern has continued with the August silver futures contract.

According to an article appearing on the TheStreet.com, JPMorgan had virtually no silver in its warehouse in May 2011. But now, the bank has accumulated about 37.7 million ounces of silver…

Again, I want to emphasize that the silver is for the firm’s benefit, not clients or the SLV ETF.

A related note is the sharp drop in short positions on silver futures by commercial traders, otherwise known as Wall Street banks.

Short positions stood at nearly 260 million ounces of silver in February of this year. Now, according to Sprott, short positions have fallen to less than 20 million ounces. This is the lowest short position by commercial traders in more than 10 years.

How to Profit from Higher Silver Prices

For investors looking to join JPMorgan and hoard physical silver, as discussed earlier, silver coins are a great choice.

Another option is to own exchange-traded vehicles directly backed by silver bullion in vaults not controlled by JPM.

These funds can be bought on the stock exchange like a stock and include the ETFS Silver Trust (NYSEARCA:SIVR) and the Sprott Physical Silver Trust (NYSEARCA:PSLV).

Money MorningWritten By Tony Daltorio From Money Morning

Your Guide to Financial Freedom. We’re in the midst of the greatest investing boom in almost 60 years. And rest assured – this boom is not about to end anytime soon. You see, the “flattening of the world” continues to spawn new markets worth trillions of dollars; new customers that measure in the billions; an insatiable global demand for basic resources that’s growing exponentially; and a technological revolution even in the most distant markets on the planet. And Money Morning is here to help investors profit handsomely on this seismic shift in the global economy. In fact, we believe this is where the only real fortunes will be made in the months and years to come.


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