The presentations of the CPM group regarding Precious Metal market trends. Among which:
Silver Investors and Prices by Jeffrey Christian, who was recently interviewed by TheStreet. See the video of interview: What's in Store for Platinum.
CPM Yearbook of Silver 2007
CPM Yearbook of Gold 2007
CPM The Future of PM Market presented at IPMI June 2007.
I especially recommend you to read the Silver Investors and Prices, and the Silver Yearbook 2007. Jeffrey made an observation of facts that most people, including me, have NOT thought about, i.e., supply surplus actually signals investment buying, squeezing out demand, therefore emerging and expanding surplus actually correlates to raising price and is very bullish. See page 9 of the yearbook. Jeffrey emphasis that
Surpluses and deficits are misunderstood in the silver market. Intuitive thoughts of silver investors is that a supply surplus probably means bearish for the market. It's actually the opposite! Silver analysts Ted Butler recently expressed the same opinion.
After some thoughts I agree. Investment buying and hoarding drives up price. We all know that. But what's little thought about, but which is also true, is investment buying drives OUT the consuming demand. It is basic physics! You have limited supply, so after investors buying and taking away a big chunk of the supply stockpile, whatever is left, is all you have to left for industry consumption. The more investors buy away, the less is left for the silver consumers to consume, and the bigger a surplus you have when you subtract what's left for physical demand from what's available from the total supply. And statistical data also support such a notion which defies intuitive logic on first thought, but is perfectly logical when you further thought about it.
But isn't it true in all precious metals where there is significant investment demand, not just in silver?! It is especially true in the palladium market, where the supply is tight and limited, and any significant investment demand will drive up price as well as squeeze away industry demand.
(Click on the chart to enlarge. Click here to see the original chart)
Look at the above chart, see the open interest at the bottom. When the open interest, signaling investment buying, really kicks in starting in the middle of 2003, the metal price also started raising up. Johnson Matthey has been claiming a massive palladium supply surplus for 6 years in a row and painting a very bearish picture of the palladium price trend. But the market totally disagree with them. The supposedly massive surplus is all soaked up by investment demand, and is actually caused by investment demand. So that is very bullish for palladium and SWC.
Examples of investment buying of physical palladium includes the London ETF Security and the ZKB Palladium ETF of Zürcher Kantonalbank in Switzerland. According to a recent presentation by CPM Group, as of the end of May, 2007, these two ETFs already hold a total of 162K ounces of palladium and 50.4K ounces of platinum. That's barely a few weeks after the initial inception of these two ETFs. The ZKB Palladium ETF planned to reach 200K ounces within one year. But it reached 133K ounces within the first two weeks!!! Of course, one should not forget that Novartis Pension Found is spending 1% of their portfolio to buy physical palladium! For comparison the whole world produces about 7M ounces of platinum and palladium each per year.
Note on July 5th: Previous London ETF palladium holding stood at 29K ounces as of July 1st. I looked today and its now 33K ounces. I wish I could find a web link to getupdated holding information of the ZKB Pallatium ETF. Note on July 22nd: Now London ETF has 39K ounces palladium, an increase of 10K in just 3 weeks.