Big Bullish Story on Silver
Hi,
The following is a very bullish story on silver.
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COMEX March silver ended up 21.8 cents at $6.243, after
seeing a new contract high at $6.250 an ounce.
Estimated total COMEX silver volume was only moderate at
around 16,000 lots, but delta hedge buying by writers of large
call option positions with strike prices around $6.00 and $6.25
an ounce are likely to support the rally, traders said.
COMEX silver stocks plunged a further 4,930,622 ounces to a
new 12-year low at 113,144,134 ounces in Monday's data, reflecting
the activities of bullion banks and hedge funds taking advantage
of the underlying shortage of deliverable silver supplies, traders
said.
And after the market closed Tuesday, COMEX reported its silver
inventories had fallen a further 1,638,656 ounces to 111,505,478
ounces.
In the bullion market, spot silver ended quoted $6.24/26,
the highest levels since January 1989, after fixing in London
earlier Tuesday at $6.03 an ounce.
At the London fix the silver forward price curve remained in
backwardation with the 12-month forward price fixed at $5.9690 an
ounce, reducing the cost of carry for hedge fundsand bullion banks
which earlier amassed large spot silver positions and sold forward,
traders said.
But implied silver lease rates eased a little to around 3.75 pct,
from a high around 7.5 pct last week, which compares to the
historical average of around 0.5 to 1.5 pct.
"Indications of tightening deliverable supplies based on the
large decline in COMEX silver inventories and a shift in some
delivery dates to a backwardation, combined with reports of an
orchestrated supply squeeze, supported the sharp rally," Salomon
Smith Barney analyst David Rinehimer said.
Market analysts such as Gold Fields Mineral Services, CRU
International, and CPM Group have all concluded that silver demand
has exceeded mine supplies for most of the 1990's, drawing down
silver inventories worldwide.
But world inventories still remain very large following eleven
years of supply/demand surpluses in between 1979 and 1990, and
silver demand is not price inelastic, Merrill Lynch analyst, Ted
Arnold, argued.
"The big worry has to be what happens to Indian consumption
next year," Arnold said.
Indian silver imports in the first nine months of 1997 totalled
3,405 tonnes, up from 3,250 tonnes in 1996, according to consultants,
CRU International.
But the Indian rupee has depreciated by about 10 pct since
October raising Indian rupee silver prices more quickly than
dollar silver prices.
"At some point prices in the West could reach such high levels
that the Indians will start to export silver again to the West,"
Arnold said.
"And next year also sees a full year of production from the
new BHP Cannington mine in Australia of 750 tonnes."
Silver prices rose faster than gold prices Tuesday, pushing
the spot gold/silver ratio down to 47.08-to-1, a new 10 year
low.
COMEX February gold ended up $2.80 at $295.50 an ounce,
after seeing its highest intraday levels in 14 days during the
session at $296.20. Estimated total COMEX gold volume was
moderate at 31,000 lots.
In the bullion market, spot gold ended quoted $293.80/30 an
ounce, compared to the London Tuesday morning fix at $292.20,
and the New York close Monday around $290.30/80. Spot gold
prices fell to an 18 year low early this month at $283.00.
Gold was receiving some support from end of year shortcovering,
good physical demand in India, and the seasonal slowdown in central
bank lending, traders said.
Dubai gold imports reached a record 66.9 tonnes in November
as buyers from the Indian subcontinent and Gulf states took
advantage of falling prices, Dubai customs data published Tuesday
showed.
Dubai gold imports in November of 66.9 tonnes compared to
55.1 tonnes in October and were up 88 pct on November 1996 levels.
NYMEX January platinum ended up 1.90 at $355.00, while NYMEX
March palladium gained $2.10 to $185.00 an ounce.
(Source: Reuters)
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