Silver/Oil Correlation, Silver Refining, and Coins

Silver & crude oil pretty much move in tandem. However, in 2005 there was a divergence with oil climbing (due to Katrina?), and silver declining. As most of you know I use the weekly MACD & SlowSTO as useful indicators as well. The XOI (oil index) gave us a white bullish candle for the week as well as a positive turn in the MACD. Silver faded at week's end & failed to give us an upturn in the MACD. The SlowSTO is poised to cross, however. Maybe next week. That solid red line on the 1st chart is the silver price overlayed with the XOI to illustrate the correlation. What we've presented on the 3rd chart is the XOI/Silver Ratio which is clearly showing us that silver has been outperforming the oil stocks at least since the conclusion of the "Katrina Summer" period. Lower highs, and lower lows are what we're seeing in the Ratio. This past week's high of 92.13 did not take out the 92.30 high seen three weeks ago, so that is positive for us silver bulls. Viewing the steadily declining Ratio we can see that at the present time silver is undervalued as to the oil stocks.

One more important area that none of the silver newsletters reports on is the crucially vital refining inventories & capacities of the leading silver refiners. Some of you will remember when, I think it was 1998, that the refiners were jammed-up & backlogged with inventory for weeks on end. Knowing this & realizing its significance would have been a clear-cut indicator that silver was due for a fall. I knew this was occurring before the fall because a coin dealer told me by way of his grapevine. One hundred ounce bars were even discounted below the spot price! I don't get paid enough to assemble this reporting feature, but anyone wanting to can get a start at this refining site. Where do silver refiners stand now? What are their silver inventories? Is their silver refining capacity growing or stagnant? What are their lead times from receipt to delivery? What are they paying for 90% coin melt? Sterling?

One large coin dealer this weekend is selling 90% $1,000 face bags (715 silver ozs.) for $9,220 which is equivalent to about $12.90 per silver ounce based on the closing silver spot Friday of $13.16 - that's a very respectable premium discount of -1.98% ! Halves by the bag have all but disappeared at these low prices. Silver dollars went before them, and quarters will be next. If the past is any guide whereby shrinking premiums are an indication of silver availability then silver's price is high enough now to attract coins for melt. Recall that in Feb/March 1980 (all time high peak) the premium dropped to a minus 14-18% range. There is no assurance that the discount will again achieve those discounts we saw in 1980. From what I witnessed in sterling heirlooms going into the pot, there may not be much sterling out there either.

I have two pages up on my web site on this frantic period:

"If you don't know where you've been, how will you ever
know how you got to where you're at, or how you'll
get to where you don't know where you're going ?

Charleston Voice

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