Thursday, August 6, 2020

$1.5 Billion Just Doesn't Buy What it Used To (A Month Ago)

This blog is not an investment advice blog and also does not claim any kind of expertise in precious metals other than just some basic common knowledge. But we do monitor the precious metals markets for several reasons. For one thing, sharp upside movement in these markets has historically been a signal that something abnormal is going on and that confidence in the present system may be wavering. So, it's important to monitor it. With that in mind, let's explore some things going on.

How wild have things gotten in the gold and silver markets lately? Let's just take a look at silver for example.  Less than a month ago, we posted a news note in this blog article about precious metals investor Eric Sprott filing paperwork allowing his silver fund to buy up to $1.5 Billion in physical silver over the next couple of years. Several news sites mentioned this news and pointed out that this would be 75 million ounces of silver if the purchases were completed (silver was about $20 an ounce at that time). Boy, those were the good old days. As of the writing of this article (less than three weeks later) $1.5 Billion will only get you about 54 million ounces of silver at the current $28 per ounce spot price (except no one anywhere will sell you any significant amount of silver below $30 per ounce). 

Please let that sink in. In less than one month $1.5 Billion of US dollars lost nearly 30% of its purchasing power in terms of its ability to buy physical silver. But many people don't think silver has peaked yet for several reasons. Everywhere you look there are reports of tight silver supply and anyone wanting to buy silver in large quantity should expect long wait times to get it. Meanwhile, gold has surged to an all time high price in US dollars attracting mainstream media coverage. All this attention means millions of people all over the world who have paid no attention at all to precious metals as any kind of investment are suddenly interested. This includes various funds and larger institutions who own no precious metals at all as a hedge. In an earlier blog article, we listed several reasons people offer as to why this is happening in the precious metals markets. Those reasons are likely to remain in place for some time into the future.  

Silver in particular has lots more room to move higher percentage wise because while gold is at an all time high, silver is still far away from its all time high near $50 per ounce. Demand for silver in a variety of "green energy" applications is expected to grow alongside its demand as an investment hedge like gold. Also, as gold gets more expensive, silver seems like a more affordable alternative.

With silver already in tight supply, here is a bullet point list of some of the further future demand that we know about now:

- Eric Sprott wants to buy up to $1.5 Billion in physical silver (millions of ounces)
- the Kinesis monetary system is starting to come online in Indonesia.  Users in that system will be buying physical gold and silver (potential to add some significant new demand)
- hedge funds, pension funds, etc. are starting to dip into precious metals as a hedge, silver is a tiny fraction of the multi trillion dollar global investment portfolio (far less than 1%)
- "green energy" has to have silver to function- solar panels, electric cars, batteries, etc. Bank of America just projected a potential future silver price of $50 or more if VP Biden is elected President due to increased demand for energy platforms that use silver
- silver has antimicrobial properties that have medical uses in a world just hit by a pandemic
- millennials that previously were mostly focused on cryptocurrencies seem to be branching out in to precious metals, especially digitized token forms backed by actual metal
- as gold goes higher, silver looks more attractive as an alternative for the average person who wants an investment hedge, but gold feels "too high"

I am not sure if Eric Sprott had all this in mind when he filed for permission for his fund to buy $1.5 Billion in silver. But it looks like if he does spend that much, he won't be able to buy nearly as much silver as people talked about the day the filing hit the news wires. $1.5 Billion Just Doesn't Buy What it Used To (a month ago).   

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