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Reuters attempts hatchet job on silver

Reuters, a major financial data provider, has attempted a hatchet job on silver, a piece is so bad that should be ignored, but already I’ve seen copies of the release on two major online news sources. Undoubtedly, because of Reuters’ wide acceptance as a mainstream news provider, the piece has spread around the financial world.

Unfortunately, the article will have some damaging effect on the price of silver because it will keep investors who are not familiar with the true silver story from even taking a look at the metal.

The headline alone is damaging: Spotlight falls on silver’s poor fundamentals. And, sadly, many people will read only the headline and draw the inaccurate conclusion that silver’s fundamentals are poor. How ridiculous.

CPM Group just released its annual Silver Survey, one of the two major annual reviews of the silver market (The other being produced by GFMS Ltd.) Ironically, the reviewed the CPM survey today and only Monday carried the Reuters release. Consider silver’s demand side fundamentals as viewed by CPM Group.

* Total silver fabrication demand is projected to rise modestly by 2.2% to 740.2 million ounces in 2008.

* Demand for silver use in jewelry and silverware is projected to rise 4.6% to a total of 273.5 million ounces in 2008.

* Silver use for electronics and batteries is forecast to rise to 125.8 million in 2008, up 5.3% from current levels.

* Silver used for mirrors, brazing alloys, anti-bacterial medication, solders, biocides, and superconductors and other similar applications is expected to rise around 3% to 167.7 million ounces in 2008.

Take a look at the wide array of industries that use silver. Truly, silver has become essential to today’s way of life. No longer is photography the driving force behind the demand for silver. While photographic demand is down, other fields have picked up the slack. The review did not even comment on photographic demand, which is becoming less important.

Further, Tuesday the ran an article about Hong Kong University researchers who believe that silver may hold a solution to one of China’s worst health concerns, the spread of hepatitis B, which can cause liver cancer and liver failure. With increased regularity, research is showing silver’s value in the medical field.

What does Reuters see as “poor fundamentals” for silver? “From an industrial and jewellery point of view, there has clearly been a decline in demand.” Yet CPM Group says that “demand for silver use in jewelry and silverware is projected to rise 4.6% to a total of 273.5 million ounces in 2008.” So, where does Reuters get its information? Certainly not from CPM Group.

Further, consider this bad piece of analysis by Reuters:

“Silver is often a byproduct of other metals such as lead, zinc and copper, where miners are trying to ramp up production with some success. That means more silver on the market and together with scrap recycling, supplies are set to jump this year. . .”

Hasn’t Reuters heard of the increasing likelihood of a worldwide recession? If the world’s economies slacken, that will mean less demand for lead, zinc and copper, which will mean less silver hitting the market. How can a financial news provider miss discussing the possibility of a recession when reporting of demand for base metals?

Perhaps the article was a “plant,” with the aim of putting downward pressure on the price of silver? More on this theory later, but first a look at a ploy that was used to make silver’s fundamentals appear bad.

The article accurately reported that a decline in the dollar caused silver and gold to rise in price. That’s fundamental in itself. But, in mentioning gold, the article compared the production of silver to gold in a manner that could only have been designed to make silver look like a bad investment, or at least to make gold look better.

“More than 20,000 tonnes of silver were produced globally last year compared with around 2,500 tonnes of gold.” However, glaringly missing were some basic calculations. A ton of gold (a metric ton) contains 32,151 ounces of gold, which means that 2,500 tons would be 80,377,500 ounces of gold. At $880 gold, that would be a dollar value of $70.73 billion.

Now, do the calculations for silver. Twenty-thousand tons of silver would be 643,020,000 ounces. At $16.85 silver, that would be a dollar value of only $10.84 billion.

So, while the annual production of silver (in ounces) is eight times the production of gold, the annual dollar value of newly mined gold is 6.52 times that of silver. Obviously, it takes a lot less money to move the price of silver than it does gold, but Reuters failed to note that. Perhaps for a reason. Maybe the article was a plant with the aim of still lower silver prices.

The large commercials were short silver in a big way during silver’s run-up to $21. As silver prices fell over the last few weeks, the LCs reduced their short silver positions hugely. Perhaps, though, the big boys want still a little more on the downside before they take their short positions back to economic levels. Perhaps the big boys want to go long at more favorable prices.

Even if my theory is wrong and the article did not get planted, with the resources at Reuters’ disposal they should do a better of job of analyzing the silver market. As I write this, the thought keeps coming: Why would an otherwise respected news service such as Reuters release such a report? It certainly wasn’t to inform its clients.