Saturday, July 12, 2014

Silver is a Very Crowded Long Again $SLV

This is a chart of commitment of traders data (source). Notice that "commercial traders" (miners) are very short silver and the speculators are very long an equal and opposite number of silver futures contracts. 

I've thought of silver puts as cheap deflation insurance. The prices are unchanged since I wrote that post; implying a 6 percent chance that silver trades below cash cost of production of $10 per ounce before January 2016, about 18 months away. About a 4% annualized chance.

Note that a 4 percent annualized chance of almost anything is low, if looked at the right way. We have stock market crashes more than every 25 years.

The nice thing about cheap deflation insurance is that it would allow us to buy more stuff that is underpriced given a status quo (and of course inflationary environment) but which is vulnerable to deflation. A case in point would be something like Canadian Oil Sands.

COS dividend yield is 6%, but that could grow as they finish a major capex program they were doing over the past two years. It's price to reserves (PV-10) at 1.4x is the lowest I have been able to find. And it has no exploration risk or political risk (besides Canada).


theyenguy said...

The silver miners are in the "sweet spot" being short at today's price of 20.57.

Currently, the market price of Silver is determined by industrial demand.

And inasmuch as the world has just entered Kondratieff Winter, the price of silver will soon fall lower with the debasement of all things that takes place in the final phase of the Business Cycle.

Beginning in 2015, future price rises above 19.50, the current 200 day moving average, should be bought as such a rise would indicate an investment demand for silver.

Currently Gold should be bought and stored in a physically safe place, as it is the only safe haven investment available.

MrGotham said...

COS would also have the political risk of the Obama administration as we have seen. Economic mismanagement by Chinese apparatchiks would also be another form of political risk for them.