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Sunday, December 16th, 2018 - Buy Gold - Bringing you trusted gold news and gold investing information since 2006

Silver Is on the Brink of a Breakout

The dynamics of the silver market are setting up what I think will be an explosive move to the upside in the short term (3 months). Comex warehouse inventories are depleted to what is now a 4 year low, which is just one of the several examples illustrating an extremely tight physical market. The Perth Mint in Australia has recently run out of 100oz bars, which I think speaks volumes as it is one of the more recognized bullion bank depositories in the world. We have already seen the problems with newly created silver ETFs obtaining their metal in a timely manner. The U.S mint continues to break record after record in Silver Eagle sales as well as saying they are unable to keep up with the current demand.

We are also seeing the physical constraint in the futures market as Backwaration has steepened even further, which now goes out to 2015. In other words, people are willing to pay more in the coming month’s contracts than they are in some 2015 contracts. This is saying people are willing to pay more now than in the future (a negative discount rate). The COT from the latest week is actually encouraging, although it appears bearish at first glance. The increase in the commercial net short position is due to the smaller commercial traders going short as opposed to the four largest, whose concentration levels are falling. Though the four largest remain largely unchanged spread position increased. The latest COT also ends each Tuesday, which makes me think we will see the bullish trends continue when the next report is released as silver has rebounded to over $30.50/oz as I write this.

Once again, some asset strategies:

  1. Physical Gold and Silver, or ETFs such as PSLV or PHYS, whose shares are redeemable for the physical bullion or SLV and GLD.
  2. Royalty Companies: A leveraged play in the equity arena with greatly reduced mining risk: Royal Gold (RGLD), Silver Wheaton (SLW), Franco-Nevada (FNNVF.PK) and Sandstorm Resources (SNDXF.PK).
  3. Mining Companies: El-Dorado Gold (EGO), Yamana Gold (AUY), Randgold (GOLD), Alexco (AXU) and Agnico-Eagle (AEM), among many others.

Disclosure: I am long EGO, RGLD, SLW, FNNVF.PK, AXU.

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