Silver (probably) now the best asset in the world



Thunder Road Report writer, Paul Mylchreest, predicts a sharp rise in the silver price within the next six months based on historic cyclical data.

One of the slightly irregular economic publications I look forward to receiving is Paul Mylchreest’s Thunder Road Report, which for the past two issues has been published under the Seymour Pierce banner, but now presumably will continue under that of Cantor Fitzgerald given the demise, last week, of the former broker.  One worries that compliance regulations are preventing Paul being as controversial in his writing as when he was publishing his material independently, but even so he still finds interesting subjects about which to write.  On this occasion though he has restricted his comments to silver and the report is much shorter, and definitely less detailed than in the past.

The latest TRR is no exception in terms of picking up interesting data as he’s seized on little publicised, and perhaps forgotten, historical analysis which shows that the silver price moves on a 5.58 year cycle, which suggests gold’s less costly sibling should be, if the cycle repeats again, one of, if not the, best investments around at the moment given it could be due to rise sharply again. Mylchreest notes that there is also a less statistically significant 31 year cycle and, combining the two, has given a close correlation with silver prices since 1901. 

He reckons that looking back, this analysis picked out the peak in the silver price in 1974, the all-time high ($50/oz.) in 1980 and the recent high ($49.50/oz) in 2011.  If it continues to play out, he observes, there should be a new cyclical high in July-August 2013, implying a new all-time high in the silver price above $50/oz.  (The 2011 peak was forecast on the basis of the 31 year trend, while the prediction for a new high in the next 6 months on the stronger 5.58 year cycle).

All is not plain sailing with this analysis though as, looking back silver has actually shown a total reversal of the 5.58 year cyclical trend over the past four cycles which Mylchreest puts down to ‘trend inversion’, a phenomenon statisticians note can happen 12-15% of the time while maintaining the integrity of the overall trend. 

But Mylchreest feels that silver is due for a strong upwards move anyway.  He points to the price being in a lengthy bottoming out phase since its 2011 upwards spike.

But more than this he postulates a strong investment case for silver and related silver equities anyway.  Silver is unique in being both a monetary and industrial metal and in comparison with gold he sees the above ground silver inventory as only being between one sixth and one third of the comparable figure for gold.

He also looks at the gold:silver ratio as a pointer to potential price rises for the latter.  While the long term gold:silver ratio is put at around 49 (it is currently around 53), historically it has always been much lower – Mylchreest puts it as averaging 15-16 for several thousand years.  However over most of this period silver was a true monetary metal and it is arguable whether this is in any way the case nowadays which may reduce the likelihood of the ratio moving back to the historical 15 level.  Indeed the ratio really started to rise to the current average with the progressive demonetisation of silver during the late 19th and the 20th Century culminating in China coming off the silver standard in 1935.

But in terms of metal production, current mining rates have silver production exceeding that of gold by only a little over 8x and Mylchreest thus sees further ‘reversion to the mean’ as ultimately inevitable during the coming years.

He looks at supply figures, including scrap and notes that the annual incremental supply of silver was, according to GFMS, 1,108 million ounces in 2011, while fabrication demand was 877 million ounces which leaves a balance of only 141 million ounces to satisfy investment intake – which GFMS just uses as a balancing figure, as we have pointed out here before.  In terms of total global investment markets this represents a tiny amount in dollar terms.

Thus, Mylchreest notes, going forward investment demand will increasingly compete with industrial demand for silver which, as he sees it, will provide further support for the silver price.

Mylchreest’s arguments are reasonably compelling as far as silver fundamentals are concerned, but there is the ever continuing worry that there is price manipulation in the commodity exchanges, particularly on COMEX, which can negate many of these factors, but if indeed a physical available silver shortage develops, which looks increasingly likely on current supply/demand patterns, there will come a time when a physical  shortage may overwhelm the manipulators – particularly as new commodity exchanges in the East start to have a greater impact, always assuming, of course, that the manipulators don’t try and rig these markets to the same extent too.  And this shortage situation could come about sooner rather than later and while Mylchreest’s six month prediction may prove optimistic, it does seem that silver is due for a good upwards move in the relatively near future.

Author: Lawrence Williams
Posted: Wednesday , 13 Feb 2013 



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