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    Market Trader Sentiment is Weak on Silver. Are They Right?

    A friend of mine recently sent over this snapshot of silver price forecasts from the Bloomberg Terminal. They give a good picture of what market traders think could happen to the silver price over the next several years, and I must admit I was quite surprised at how low some of the price predictions are.

     

     

    Looking at the terminal screenshot above, the current general sentiment will be for silver trade around $21 to $23.25 all the way out to the year 2026. I can think of a whole bunch of reasons why this consensus price forecast isn’t likely, and we will get into those in a moment. But first, a bit of clarity on what we are really looking at.

    Traders vs Silver Businesses and Investors

    The CPF function of the Bloomberg terminal is for commodity price forecasts from market traders. It can give market traders a glimpse into what traders think, but they are just forecasts and not data on current trade positioning. And they focus on the large trader side of the market – after all the derivative markets require the size to enter and are not designed for the individual trader like a stock market brokerage is.

    You cannot sign up for an eTrade account and get direct access to the Bloomberg terminal. The system is designed for professional traders. It can be used by universities and family offices, or for the well-heeled investor looking for that market edge. It does not; however, reflect the mindset or positioning of the retail market.

    Supposedly, traders use retail market data to assist in formulating their opinions. But I think that most derivative market traders live in a very short-term, highly-volatile world where they don’t always focus on the long-term, fundamental picture of commodities, for example.

    The predictions are dominated by investment banks and financial houses that trade commodities across global markets for themselves and their clients. Certainly then, a portion of the trading on COMEX, the commodities market, is for hedging and legitimate risk mitigation for producers and other businesses that work in the commodity space. And those needs are serviced by the firms making the price predictions.

    But on top of all of that are thousands of more trades that involve price arbitrage and other trading techniques that do not seek the use of physical metals. Simply, those traders are there to move high volumes of paper making a few dollars on each of thousands of open positions without ever having touched the underlying silver itself.

    The Silver Market

    I do think the analyst predictions indicate bearishness from the markets with regard to silver. Many traders are not focused on the current mine supply shortage factors I have been writing about. They are more focused on how to position their trades to make some short-term gains, using a leveraged market to rake in millions or more every year. It was shared with mainstream media that some investment banks have made billions trading the commodities markets, and those trades rarely facilitated transacting in physical precious metals.

    For example, a fellow professional analyst and friend of mine, Rafi Farber, recently tried to take physical delivery of a silver contract from the COMEX market, and we documented his progress a few months ago. The end result is that ‘delivery’ on the commodities markets really just means the transfer of the ownership of a paper position from one trader to another without transferring the physical product itself. Physical delivery is called a ‘load-out’ and is a completely separate and disconnected process from taking ‘delivery’.

    During the process by the analyst, it was discovered that very few of the bullion depositories facilitate load-out, and his did not. Therefore, to actually obtain the silver from the market, one would need to hire a completely separate firm to facilitate physical load-out with very strict requirements on transport and delivery. At the time, we were informed only two of these firms that performed a physical load-out existed. Most other firms had never heard of an actual physical load-out of metals ever occurring on the exchange.

    It can be done, but the process is reserved for the very few large entities that will actually take metals from the commodities market. Essentially, the COMEX is a paper trading exchange with an occasional physical load-out where and when the physical metal is actually required to complete the trade. But it is also where the price is determined that we all use every day, and so why we must seek to understand it. Without this knowledge, it is much more difficult to understand silver price movements with any clarity on how those prices are actually determined.

    Final Thoughts

    You may be reading fairly mild silver price forecasts for 2023, given the market trader sentiment that exists on the commodities market. That is because many more analysts will use market trader sentiment, such as the one discussed in this article, as research in making their price predictions for the coming year.

    However, it is important for us to realize that these predictions reflect a very narrow view of the market from traders that largely do not ever take delivery of or use the actual physical metal. They are making very short-term ‘bets’ on the future silver price. Many of those financial analysts do not understand the difference between the paper trading market and the underlying physical commodities trade, which are heading in different directions.

    Meaning, it is likely that a price arbitrage opportunity exists for physical silver investors for the next couple of years. We know that the physical market is in a current supply deficit of 194 million ounces. We also know and understand the depth of the economic problems across the world, which many analysts believe will result in recessions in 2023. Note how I said recessions, meaning not contained to only the United States or even the Western world. Many analysts are predicting a recession in both China and India as well as some parts of Latin America.

    Given these fundamental issues that are growing stronger over time, one may wonder why market professionals are not paying more attention to them. The reason is fairly simple if not well known – professional silver market traders simply aren’t looking that far ahead. They focus on the next contract month and the next, often in 30-90 day increments. That’s their job – taking small price differences and trading them thousands of times per day for profit.

    I think that is why it is very likely that coming silver price boom will be quite unexpected by market traders and therefore also mainstream media and financial outlets. Retail traders like us have a better grasp of market fundamentals. After all, we use this information every day when deciding whether and when to make our next purchase.

    We actually have the edge on silver prices if our thesis on shortages, coupled with potentially explosive safety demand during a recession, comes to fruition. That’s the opportunity, now let’s see how it all actually works out. It is often said that the “best-laid plans of mice and men go awry”. But whose investing plans will go awry and whose will work out? Stay tuned, as time reveals all truths.

    Disclaimer: All Market Updates are provided as a third party analysis and do not necessarily reflect the explicit views of JM Bullion Inc. and should not be construed as financial advice.

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