Source: Michael J. Ballanger for Streetwise Reports 06/07/2018
Precious metals expert Michael Ballanger discusses silver’s mercurial aspects.
When I was a young lad, there was a classmate (let’s call him “Frankie”) in the very early years of my education whose behavior was quite often deemed as “peculiar” and while I found him immensely entertaining, the teaching staff and my fellow students did not entirely agree. Frankie was the kind of kid who would bang on our doorknocker on a frigid winter morning just before sunrise, fully clad in hockey skates, gloves and stick, and ask if he could skate on our frozen backyard hockey rink. The fact that it was a school day made it not exactly the brightest of decisions but my Dad would invariably say “Alright. You two boys have got 20 minutes then back in your houses to get ready for school.” It was never an outright rejection on the grounds of unsuitable behavior; it was more so an accommodation for the simple reason that 20 minutes of hockey at 6:35 a.m. in advance of school was a “noble enterprise” and certainly beat watching Captain Kangaroo over a bowl of Fruit Loops.
Nevertheless, Frankie was indeed a maverick soul. He once had to have the local Malton Fire Department take a blow torch to the schoolyard swings so that Frankie’s frozen tongue could be removed from one of the steel legs. He once stole a pack of cigarettes from the teachers’ staff room and began selling them in the schoolyard. As the years rolled along, his behavior got more and more outrageous and he got into more and more trouble, but the funny thing was that he never, ever committed any prank or action that hurt anyone. He never got into fights; he never tried to tease other kids; he was always polite; and he never used bad language.
One time when Frankie and I were sent to the “office” for putting glue on the chalk and when we finally were called on the carpet, the principal handed me a dictionary where the word “conundrum” had been highlighted in yellow after which he forced me to read it 25 times out loud. After that, he told me to turn to another page where he had highlighted the word “deviant” and told me to repeat the drill. I went through the next 10 years thinking of Frankie as a “deviant conundrum,” which was particularly taxing as the puberty years arrived creating an entirely different set of connotations for me to ponder. Other peccadillos like mood swings and unpredictability were common. One day he was an ebullient, infectious jokester; the next he would be a sullen, unapproachable recluse. He could be wildly funny in the morning and be tragically unhappy after lunch but when he was on his game, his company was nothing short of mercurial and that is why I valued his friendship and celebrate the memories of our companionship. As difficult as he was to figure out or predict, the mere specter of being present for one of his “up days” was the reason I hung around and, you know, it was kind of like owning SILVER.
Since the peak in 2011 at around $50 per ounce, silver has been the financial equivalent of “Frankie.” It has always been the one metal that has earned the title as “disruptor,” ever able to attract the attention and the dollars of the monied classes with an equal dollop of animated debate. Whether it is water cooler discussions about its role as “money” or its subservient role to gold, silver is truly a “deviant conundrum” and never more so than to a so-called “expert” than me. Every time I think I have the next move in the silver market nailed, it winds up getting its tongue stuck to a frozen swing pole. Every time that the technical set-up, whether from the COT data or the chart configurations, appears bullish, it winds up getting caught hiding inside the training room clothes dryer after a 20-minute “tumble dry” runs its course. It has been at once the most baffling AND the most costly of all commodities to a great many investors, which most certainly includes this humble scribe.
And why is that? What makes silver so difficult to assess, either fundamentally or technically? While I don’t believe that anyone has been able to figure it out, solving the silver pricing puzzle is like asking why colloidal silver is alleged to be such an incredible antibacterial agent. There is a term in behavioral finance called “recency bias” where investors are taking results over a relatively short period of history and assuming (incorrectly) that such results are going to be reproduced by modelling a portfolio in the same manner as the one that “recently” yielded satisfactory results.
In the case of silver, I believe that the algorithms that are backed by billions of dollars of AUM capital were code-written TOTALLY with a recency bias that right this very day does not include data sets from prior to five years ago. In other words, the only data upon which they are able to draw is that which has been provided post-2013. IF, by contrast, these algobots were not totally infected with the same cognitive bias (i.e., compromised data) and were including all movements in silver in both real and relative terms dating back to 1975, they would not be able to short silver with such ferocity because the spikes in 1980 and 2011 would prohibit it on the basis of “event risk.”
The second reason we silver bulls are constantly avoiding and evading the snapping jaws of the silver bears is that the major base metal mining companies are sitting on massive byproduct silver “slag heap” reserves that can be mobilized quickly (at least in a “hedging sense”) in order to buttress the earnings profile of a copper/zinc mining operation. Again, …read more
From:: The Gold Report