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CPM Group: Lower Prices And The Potential Bull Trap

Beware of the silver bull trap

In a recent market note, CPM Group addressed the current state of the silver market, warning that seasonal strength could result in a bull trap.

In early January, silver could be found below $30. Moderate price increases seen later in the month, together with marketing hype, reignited bullish sentiment among some investors, the firm said.

Peddling concern about a supply shortage is one of the tactics that these “marketing hypesters” are using. To help lend credibility to their story, they point to the fact that the US Mint temporarily suspended the sale of the 2013 Silver Eagles after the coins sold out last month. Once sales recommenced, January ended with 7,498,000 coins sold. That all-time monthly high provides fodder for the portrayal of the marketplace as raging with demand for physical silver.

CPM Group notes that it was all simply a ripple effect. The Mint estimates annual production. Last year, fiscal cliff talks sparked a surge in demand that was especially notable in November. When December rolled around, the 2012 Silver Eagle sold out. The 2013 coin was then released into a market with pent-up demand, so it too sold out.

CPM Group points to an ample supply of good delivery bars to meet surging purchases by ETFs and COMEX-registered depositories. The firm notes that there was a 19.4-million-ounce increase in silver ETFs on January 16. Yet there were no delivery disruptions reported.

“All of this talk about a shortage of silver is irrational and not supported by readily available market data,” the report states.

Silver is produced in 242 mines located in 38 countries, the firm notes. Furthermore, the firm calculates that 27 billion ounces of silver exist above ground. 90 percent is held by individuals in forms such as jewelry, silverware and decorative items. The balance is in the form of investment products. All of this metal is theoretically available for sale to investors.

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