Docstoc

Gold Coins Metal's Prices Investors Financial

Document Sample
Gold Coins Metal's Prices Investors Financial Powered By Docstoc
					                       Using Silver in an
                       Era of High Prices
Silver Users Association
Washington, D.C.
November 2007


Jeffrey M. Christian
Managing Director
CPM Group




        CPM Group
Silver Prices Are High
Monthly Average Comex, Through October 2007

$/Ounce                                             $/Ounce
40                                                       40

35                                                        35

30                                                        30

25                                                        25

20                                                        20

15                                                        15

10                                                        10
 5                                                        5

 0                                                        0
     75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07


 CPM Group
Silver Prices Are High
Weekly Through 2 November 2007
 $/Ounce                                                        $/Ounce
15.00                                                             15.00
14.00                                                             14.00
13.00                                                             13.00
12.00                                                             12.00
11.00                                                             11.00
10.00                                                             10.00
 9.00                                                             9.00
 8.00                                                             8.00
 7.00                                                             7.00
 6.00                                                             6.00
 5.00                                                             5.00
 4.00                                                             4.00
 3.00                                                             3.00
        90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07


 CPM Group
Prices Have Become More Volatile
 Percent                                                Percent
 90%                                                       90%
 80%                                                        80%
 70%                                                        70%
 60%                                                        60%
 50%                                                        50%
 40%                                                        40%
 30%                                                        30%
 20%                                                        20%
 10%                                                        10%
  0%                                                        0%
       75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07


 CPM Group
Why Prices Have Risen
• Silver prices have risen primarily because investors have
  been buying large amounts of silver.
• Investors have been buying silver primarily because the
  political environment they face is frightening them.
   – Economic and financial concerns have contributed to investor
     interest in silver.
   – Bullish views of silver market fundamentals have contributed to
     investor interest in silver as well.
• Silver’s fundamentals meanwhile have been mixed to
  negative for prices.
   – Declining fabrication demand and rising supplies should be
     pushing prices lower.
   – Declining world stocks are offsetting these negative factors ever so
     slightly.


CPM Group
Investor Buying Has Driven Prices Higher
 Million Ounces                                                      $/Ounce
 250                                                                    25.00
 200
                       Surplus
 150                                                                       20.00
 100
  50                                                                       15.00
   0
 -50                                                                       10.00
-100
            Deficit
-150                                                                       5.00
                                 Price
-200
-250                                                                       0.00
       60   64    68   72   76   80      84   88   92   96   00   04 07p



  CPM Group
Prices May Stay High
CPM Group Main Scenario Price Outlook
$/Ounce                                                                $/Ounce
65                                                                          65
60                                                                          60
        Basis Price = 2006
55                                                                          55
                               Real                      Actual Projections
50                                                                          50
45                                                                          45
40                                                                          40
35                                                                          35
30                                                                          30
25                                                                          25
20                                                                          20
15                                                                          15
10                                                                          10
 5                                                                          5
                                    Nominal
 0                                                                          0
     1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010p2015p



 CPM Group
Prices May Stay High
CPM Group Five Silver Market Scenarios, Real Price Projections
$/Ounce                                                                $/Ounce
65                                                                           65
60                                                                           60
        Basis Price = 2006                            Actual    Projections
55                                                                           55
50                                                                           50
45                                                                           45
40                                                                           40
35                                                                           35
                                                                         3
30                                                                           30
25                                                                           25
                                                                           2
20                                                                           20
15                                                                           15
                                                                          1
10                                                                           10
                                                                        5 4
 5                                                                           5
 0                                                                           0
     1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010p2015p


 CPM Group
Prices May Stay High
CPM Group Five Silver Market Scenarios, Nominal Price Projections
$/Ounce                                                               $/Ounce
50                                                                             50
                                                       Actual   Projections
45                                                                             45

40                                                                             40
                                                                       3
35                                                                             35

30                                                                             30
                                                                           2
25                                                                             25
20                                                                             20
                                                                       1
15                                                                             15
                                                                           4
10                                                                             10
                                                                           5
 5                                                                             5
 0                                                                         0
     1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010p2015p



 CPM Group
Why Prices May Stay High
• It would take a major reduction in world political,
  economic, and financial risks to cause investors to back
  away from silver on a sustained basis. That may not
  happen for years. Conditions actually could worsen.
• Fabrication demand may rise sharply over the coming
  decade, and could outpace the rise expected in total supply.




 CPM Group
Investors May Remain Net Buyers
Million Ounces                                                      Million Ounces
250                                                                            250
                                                          Actual   Projections
200                           Surplus                                            200
150                                                                              150
100                                                                              100
 50                                                                              50
  0                                                                              0
 -50                                                                             -50
-100                                                                             -100
-150                                                                             -150
-200                       Deficit                                               -200
-250                                                                             -250
       1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010p2015p


  CPM Group
Fabrication Demand May Outpace Supply
 Million Ounces                                                   Million Ounces
 1,200                                                                        1,200
                                                       Actual
 1,100                                                                        1,100
 1,000                                                                        1,000
  900                                                                         900
                                  Fabrication Demand
  800                                                                         800
  700                                                                         700
  600                                                                         600
  500                                                                         500
  400                                             Supply                      400
                                                                Projections
  300                                                                         300
  200                                                                         200
  100                                                                         100
    0                                                                      0
     1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010p2015p



   CPM Group
Living With High Silver Prices

• Grin and bear it.
• Go out of business.
• Buy some insurance.
   – Insurance comes in many forms
   – Standard insurance or catastrophic insurance.
   – Buyer beware. Bad hedging can be as terminal as no hedging at all.




CPM Group
How to Hedge Your Silver Purchases
• Two sets of hedges are shown here as examples of what
  might be done. (All priced on 1 November 2007.)
• Three hedge opportunities for December 2008.
• Two hedge opportunities for December 2009.
• All of the hedges here have no premiums paid up front.
• Silver options prices at present show that the market has a
  tremendously bullish upward bias. The market overall is
  discounting sky-rocketing prices.




 CPM Group
Hedge 1: December 2008
$16 maximum price

Sale Price
$30


$25
                                              Spot Sales

$20
           Participatory Option
$15


$10


 $5
      $5           $10            $15          $20         $25   $30
                                    Market Price
CPM Group
Hedge 2: December 2008
$17 maximum price

Sale Price
$30


$25
                                              Spot Sales

$20
           Participatory Option
$15


$10


 $5
      $5           $10            $15           $20        $25   $30
                                    Market Price
CPM Group
Hedge 3: December 2008
$18 maximum price

 Sale Price
$30


$25
                                             Spot Sales

$20
              Participatory Option
$15


$10


 $5
      $5          $10            $15           $20        $25   $30
                                   Market Price
CPM Group
Hedge 2009-1: December 2009
$17 maximum price

 Sale Price
$30


$25
                                              Spot Sales

$20
           Participatory Option
$15


$10


 $5
      $5              $10         $15           $20        $25   $30
                                    Market Price
CPM Group
Hedge 2009-2: December 2009
$18 maximum price

 Sale Price
$30


$25
                                              Spot Sales

$20
           Participatory Option
$15


$10


 $5
      $5           $10            $15           $20        $25   $30
                                    Market Price
CPM Group
Why Prices Might Decline
• If prices rose primarily because investors have been buying
  so much silver and gold out of political, economic, and
  financial market fears…
• The logical extension is that it would take a major
  reduction in the factors causing these fears for silver prices
  to fall.
• Silver supply and fabrication demand trends can contribute
  to a decline to some extent, just as they have contributed to
  the rise in prices to some extent. But they will not be the
  primary factors determining prices in the future, just as
  they have not been in the past.



 CPM Group
“There Is A Lot Of Silver Out There”
Million Ounces                                     Million Ounces
45,000                                                      45,000   Estimated Disposition
                                                                     (Million Troy Ounces)
           Year End 2006 Total =
40,000                                                     40,000
              43,011 Million
               Troy Ounces                                           Silver Bullion and Coins
35,000                                                     35,000    Bullion:                461
                                                                     Coins:                  559
30,000                                                     30,000    Subtotal:             1,020

25,000                                                     25,000
                                                                     Jewelry, Decorative,
20,000                                                     20,000    and Religious:       20,199

15,000                                                     15,000
                                                                     Industrial Use,
                                                                     Undetermined
10,000                                                     10,000
                                                                     or Lost:            21,528
 5,000                  Cumulative World                   5,000
                        Silver Production
                                                                     Total:              43,011
    0                                                      0
    1500         1600    1700      1800     1900       2000



 CPM Group
“There Is A Lot Of Silver Out There”
• There are 43 billion ounces of silver that have been mined
  through the years. Roughly half of this is unaccounted for,
  and most of the rest is in jewelry, decorative objects, and
  religious items.
• While one might try to take comfort in the fact that there
  are 43 billion ounces of historical mine production that
  could ride to the rescue, consider this. There were 32
  billion ounces of cumulative silver mine production as of
  1980, and it did not stop prices from going to $50 per
  ounce. You can say that it caused prices to fall, although
  many people would credit the metals committee of the
  Comex for that. You can say that it contributed to the 20+
  years of lower silver prices after that, and you probably
  would be right.

 CPM Group
The “Indian Inventories to the Rescue” Theory
 • There are 4 billion ounces or more of silver held in jewelry and
   decorative objects form in India. Indians have not shown much interest
   in selling these objects to date. In fact, they keep buying more.
 • Indian silver exports are prohibited, which inhibits sales by risking a
   build up of sold silver in the Indian market.
 • The Indian government has been thinking of relaxing silver export
   restrictions, for years. Maybe someday it will.
 • This would not be expected to unleash major sales by Indians, but it
   could lead to increased sales of some of these metal stocks in the event
   of sharply higher prices in the future.
 • Do you want to bet your company’s future on the potential for sales by
   Indian investors, many who are peasant farmers?




  CPM Group
Summary
• CPM Group began predicting in the middle of the 1990s that silver
  prices would have to adjust to around $7 - $10 at some point for supply
  to rise to meet long-term fabrication demand requirements.
• We also stated that prices could over-shoot this level, but then come
  back toward $7 - $8 on a sustained basis.
• In late 2000 we moved to a more bullish projected outlook for gold
  and silver.
• We now think that prices may stay above such levels for an extended
  period of time.
• Prices are heavily influenced by investment demand, and not just
  supply and fabrication demand.
• Think about why investors have been buying so much silver, as well as
  gold and other commodities… Think whether you can construct a
  reasonably credible scenario in which these factors are reduced to a
  level where investors back off from buying so much silver.
• With silver, it also is supply and fabrication demand… fabrication
  demand may rise sharply over the coming decade.
 CPM Group
CPM Group – Commodity Research
Among CPM Group’s research products are its monthly reports on precious metals, base metals, and
energy. These provide analysis on market developments for these commodities over the past month
and an eight quarters forward monthly price outlook .




     CPM Group
                                                 21
CPM Group - Precious Metals Yearbooks
CPM Group’s annual yearbooks on gold, silver and the platinum group metals provide detailed
statistics and analysis of what has transpired in the markets for these metals over the past year and a
half. They present a realistic and well researched set of projections for supply and demand trends in
each metal's markets for the upcoming year.




      CPM Group
                                                    22
CPM Group
CPM Group produces research and provides consulting services on a
  wide array of commodities, including precious metals, base metals,
  energy commodities, agricultural commodities, and commodities in
  general.

CPM Group provides:
      Research
      Consulting
      Investment banking
      Commodities management
      Asset management services

30 Broad Street, 37th Floor             Telephone: (212) 785-8320
New York, N.Y. 10004                    Telefax: (212) 785-8325
www.cpmgroup.com                        E-mail: info@cpmgroup.com


   CPM Group

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:2
posted:11/10/2010
language:English
pages:27
Description: Gold Coins Metal's Prices Investors Financial document sample