A Lot To Worry About: Retail Investors Want SilverThursday July 09, 2015 08:42
Greece has received a reprieve until Sunday, which is now a sidebar to the primary factor influencing the metals. The China story is now front and center with a slowing economy and serious issues with the frenzied selling in their equity markets due to highly levered individual margin trading. Margin calls create selling, which creates downward pressure, which creates more margin calls etc. The slowing of the economy is the primary catalyst for the drop in industrial metals. The strong US$ contributes to the weakness, as commodities are price in $’s and the US$ has become the safe-haven play. Margin calls have also contributed to weakness in the metals, as investors raise cash to meet the calls on their equity positions. With U.S. yields still north of 2% on the 10-year and the equity market, at least somewhat stable, capital flows are moving to U.S. treasuries, which increases US$ demand and increases the value of the US$. Once, if, the EU gives some clarity on what exactly is going to happen with Greece, this may stem the dollar’s rise. The market will look at the Fed FOMC meeting minutes from June today at 2 p.m. but they are in my opinion, useless. The Chinese market was not in an all-out sell mode nor was a Greek default in the cards. No matter what the minutes suggest, I can’t believe the Fed moves until some semblance of order is returned to the global financial markets.
On the physical side, primary producers of bullion silver products, the US Mint – with its silver eagles – and to a lesser extent the Royal Canadian Mint – with its silver maple – were caught flat footed yesterday, as the breech of the $15 handle on the precious metal, wiped out the US Mint supply of 2015 silver eagles. Deliveries are expected to resume in two weeks, but if silver continues weaker, the back-log will take time to balance out. Premiums for the silver eagle have already posted a 50% increase and pressure for further premium adjustments is expected. Physical demand for all silver products has soared over the past two days.
By Peter Hug
Global Trading Director
Kitco Metals Inc.