The silver price and the US Dollar/South African Rand exchange rate (USD/ZAR) have a very interesting relationship that goes back a long way.
In the long run, the two move in opposite directions. When the USD/ZAR rate is moving up, the silver price is moving down, and vice versa. Furthermore, when the USD/ZAR rate is making a top, then a bottom in silver is normally very close (before or after the USD/ZAR peak).
Due to the nature of this relationship, the USD/ZAR chart is often a leading indicator for a silver bottom as well as a rally in silver prices.
The reason for the interesting relationship between the two is found in the word interesting: that is the nature of their individual relationship to interest rates. Both the South African Rand and the silver price are depressed by lower interest rates. In other words, when interest rates are low, then the market is putting a low value on the South African Rand and silver. Interestingly enough, South Africa has just recently been downgraded to junk status.
Interest rates are currently close to all-time lows; therefore, silver and the South African Rand is near all-time lows (in real terms). Note that when the South African Rand is low, it means a high USD/ZAR rate.
Below is a comparison between silver prices and the USD/ZAR rate:
On the USD/ZAR chart, I have drawn two support lines (2005 to around 2011 and 2011 to 2017). Around August of 2010, the USD/ZAR rate broke below the support line (with a retest occurring soon after), from where it continued lower.
Silver started an impressive rally soon after, which led to a retest of the 1980 high, of around $50.
We now have a very similar situation, since the USD/ZAR rate broke below the support line at around the beginning of this year. It has just completed a retest of that breakdown, by touching the support line. It now appears that we are soon likely to have a massive rally in silver prices similar to the 2010/2011 one. – Hubert Moolman
Silver is and has always been one of the most essential metals on the planet, and yet it has never received the respect it deserves as does gold, writes Peter Ginelli.
If tomorrow morning we wake up and discover there is no gold on the planet, only three groups of people would miss it: banks which use it as partial reserve, private investors who use it as a hedge and the general consumers who buy it in the form of jewelry.
However, if we wake up tomorrow morning and there was no silver on the planet, in addition to investors and Jewelry buyers, the biggest group who would be devastated by its demise would be the majority of the tech industry listed on the Nasdaq whose very existence depends on silver. In fact not a single day goes by when you don’t use some sort of gadget that doesn’t have a small amount of silver in it.
Think about that for a minute.
According to the last count, there are over 7.3 billion people on the planet Earth and easily 80% of them can’t go through a single day without using something that doesn’t have silver in it. From cell phones to tablets, computers, cars, solar panels and beyond, silver is an essential ingredient as an electronic conductor without which many companies who manufacture these gadgets would literally be in deep trouble.
In fact, in the case of cell phones alone, according to data from digital analysts at GSMA Intelligence, today there are 7.15 billion active mobile devices on earth. That is almost one mobile device per man, woman and child on the planet. Now add to that all the other essential devices I mentioned above and you will get the magnitude of how important silver is in our daily lives. Truly amazing, right? But wait, there is more.
According to multiple reports, well over 90% of all above-ground silver supply has already been used in commercial applications. Used, as in gone for good! This is because it is too expensive and time consuming to extract and recycle the used silver from manufactured devices already in use.
Add to that dilemma, the cost of mining a single ounce of silver by miners and you will get the whole picture.
According to numerous reports from various mining sources, including one very thorough report published in 2013 by SRSrocco, which included the most complete and comprehensive breakdown of each cost, item by item, the all-in cost to produce one single ounce of silver, including new mine discovery and exploration, averages at around $22-24 per ounce. This means mining companies won’t make a dime in profit until silver spot price goes from its current price of $16 to at least around $23 per ounce on average. Well guess what? Silver prices have not been at $23 an ounce for over 3 years.
So the question becomes: if you make a widget for $23 and sell it at $14, 18 or even $21, how long do you stay in business? The answer: Not very long!
This should also explain why so many silver mining companies have filed for bankruptcy in the recent years as they have been making significant cutbacks in new mine explorations while their existing inventory of silver has been depleting to records lows in recent years.
This should furthermore explain why the biggest bank in the world, JP Morgan Chase, has been accumulating the largest stockpile of silver in history. According to the silver expert, Ted Butler, JP Morgan is now sitting on over 100 million ounces of physical silver in NY alone, along with nearly as much in their London vaults.
What does the JP Morgan CEO, Jamie Dimon, one of the highest paid and smartest CEO’s in the Fortune 100 companies, knows that the rest of us don’t know?
Remember folks, although like all other banks Dimon has diversified JP Morgan assets into many other assets, he is NOT quite “stockpiling” on stocks, bonds, treasuries, options, real estate, oil or even gold in a way that would make it to the headlines. Instead, he is buying every ounce of silver he can get his hands on. So much so that it made it to the headlines. Why?
In short, as I have been stating, this is a case of demand versus supply. When the demand for something is dramatically rising while the supply continues to dramatically shrink, there is no place for the price to go, but up. Simple as that!
One thing that separates smart money from dumb money, is that smart money detects opportunities long before the dumb money even has a clue. Smart money use all their resources in researching the markets, and see opportunity in sectors not as what they are valued at today, but what the future potential value will be, before they make their move.
Well, the jury seems to be out at JP Morgan and they have detected where silver prices will be headed in the not-too-distant future and they are spending a significant fortune, hand over fist to get as much silver as they possibly can, before the dumb money wakes up and sees what they have discovered.
Typically, the dumb money finally wakes up and sees the result, after smart money has already made a killing in the market and is about to get out. And as the dumb m finally start getting in during the late stages of a bull market, the smart ones are getting out with fistful of profit, running to their banks to make a large deposit.
A fairly recent example of this can be found when silver prices moved from only $4 per ounce in 2001 to over $49 per ounce in late 2011, a whopping 1220% growth. This means, had you invested $10,000 in silver in 2001, by 2011, your investment would have grown to $122,000. Numbers don’t lie, they tell the whole story.
But in the last bull market in silver, the dumb money waited and waited till silver prices had already climbed to $45 per ounce before they finally convinced themselves to get into the market, just as the smart ones were getting ready to sell.
If you were one of those who waited till it was too late, don’t sweat it. Hopefully you learned your lesson. Here is your second chance. Go make yourself proud.
I believe today we are back to 2002 all over again. Silver is in its 2nd year of a new bull market, and the potentials couldn’t be greater. Indeed I believe this new bull market in silver will be a doozy. After all, in 2002 we didn’t have a world in political turmoil with nations drowning in massive debt. Today we do.
This is truly an opportunity of a lifetime. Simply put, when was the last time you saw something as essential in everyone’s daily life as silver, selling at nearly $7 below its production cost? This means if you invest in silver at today’s price of $16, silver prices have to go up at least 44% to $23 for miners to just break even and pay their cost. In case you didn’t know, no one is in business to break even. That is not how businesses survive.
Your procrastination in taking advantage of this rare opportunity will cost you dearly. A few years from now when silver has moved into a new all time high, which I’m convinced without a doubt it will, don’t be the one looking back with regrets, reciting to your children and grandchildren how you could have changed yours and their financial life, had you invested in silver when it was below production cost. These kinds of rare opportunities truly come around only once in a lifetime, and here is yours.
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