Fiduciary Euromax Capital Markets Pvt. Ltd.

In case of doubt, go back to the fundamentals!
Silver’s exponential rise in prices has made an issue of debate among all the market participants and rising volatility has become a matter of fear. We try to unfold the future outlook in the short term and medium term.

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The surging Silver prices may motivate the medium scale producers to increase mining activities (Secondary Producers of Silver) while countries with primary silver mines will not increase their mining activities proportionately thereby keeping an upward price trajectory of Silver intact. Market Sentiments such as Silver will not increase above its historic high, lead to the downward trend of Silver. It may go to a maximum low of Rs.58000 – 63000, but it will catapult back to all time high. Looking at the present geo-political conditions, Silver will remain higher than the all time historic high in the near future. In the long term, due to new industrial applications; Silver will have upward trajectory. Conditions in Bolivia are a concern, and can be of advantage if the positions are Long. Conspiracy theory that HSBC and J P Morgan have vast short positions is very hard to believe. Due to high economic growth in India and China, Silver will remain high. Monetary policies such as a 25 bps increase will have no major medium term impact.

1 Biswajeet J. Pattnaik

and other major equities markets.S. there has been a spike due to slowdown of U. detailing the primary and secondary sources of demand and supply and outlining the limited role of the “official” sector (i. strength in fabrication demand and the low level of forward selling by mining companies.S. Central Banks) in the market. the Silver prices was all time high and lost its upward momentum due to negative sentiments among the market participants due to the announcement of the CME Group on Monday that it will raise the margin requirements for COMEX Silver futures by about 9%. Since 2002.S.e. the price of Silver increased due to a number of factors.    1 iShares ETF prospectus. On 25th April. Ltd. Exhibit 1: Market Participants of the Silver Industry1 Silver Price – Developments in 2011  Silver has a fascinating run.Fiduciary Euromax Capital Markets Pvt. Among them are the decline in the U. On 27th April. the poor performance of U. Yesterday on 28th April. Pattnaik .. effective the close of business on Tuesday. regained its upward momentum due no interest rate hike by Federal Reserve. dollar against other currencies. a surge in commodities as an asset class by financial innovation. Pg 12 2 Biswajeet J. up 84% in 2010 and more than 20% YTD so far in 2011. Review This section provides a brief description of the key market players and participants. GDP growth.

 Incredibly nearly 60% of all silver companies own a project in Mexico. Gains came from primary silver mines and as a by-product of lead/zinc mining activity. high mining costs and environmental pressure. Ltd. and real or speculative investor interest. World Silver Supply Production worldwide  Silver mine production rose by 2.5 million ounces over the previous year. this white metal is frequently just a byproduct. and some of the biggest and best primary silver mines tapping these reserves from high in the Peruvian Andes.htm 4 5 GMO NewsLetter April 2011 6 http://www. We intend to study all these factors in detail before arriving at conclusion. China will reduce silver mining. and Peru is followed by China. Mexico eclipsed Peru as the world’s largest silver producing country in 2010. geo-political uncertainties.com/2011/silvexppf. But due the byproduct nature of silver. economic concerns such as inflation and other monetary policies.  Argentina posted a 55% jump in silver output in 2009 to 15. It was quite surprising to see only about 10% of silver companies owning projects within Peru’s borders. rising extraction costs has led to surging silver prices.Fiduciary Euromax Capital Markets Pvt. With nearly 45% of the deposit's value reported as silver. Mineral Commodity Summaries 2011.mineweb. this geographically large Latin American nation is set to continue to ramp-up its output in the coming years. or gold.  Because the mineralization that contains silver often has strong concentrations of copper. strict mining laws in Peru (which has primary silver mines). Pg 147 http://www.S. Argentina's production profile for the next few years suggests that it will break into ranks of the top 10 producer nations.zealllc. China’s reserves have decreased from 120000 tons in 2004 to 43000 tons in 2010.  A look at the World Silver reserves and the top producing countries indicates that China and Poland own more than 21% of the World Silver resources3. zinc/lead.5 percent to 735. Geological Survey2011.com/mineweb/view/mineweb/en/page32?oid=105678&sn=Detail&pid=65 3 Biswajeet J. Global primary silver supply recorded a 5 percent increase to account for 30 percent of total mine production in 20102.  Since 1994. In fact. Australia and Chile. whereas silver volumes produced as a by-product of gold fell 4 percent last year. one has to dig an extra 50% of ore to get the same ton of Copper and all of this 150% effort has to be done using energy two to four times the former price 5. two-thirds of the world’s mined silver is a byproduct of mines producing higher-revenue-generating metals4. These phenomena of declining ore quality. This country is currently by far the hottest destination for silver exploration and development and for a variety of reasons deservedly so. One of the world's few remaining stable democracies that is mineral-rich but underdeveloped.9 Moz in 2010 aided by new projects in Mexico and Argentina. a 10% rise in the silver price relative to gold could make this a viable silver mine6. This is indeed quite odd considering Peru’s 34% production growth from 2002 (when it took over the silver title from Mexico) to 2009 (production was down in 2010) due to strict mining laws. 2 3 World Silver Survey 2011 U. Pattnaik . Future production  Peru produces 17% of the global mined silver supply and it is estimated that Peru holds 30% of the world’s silver reserves. Silver price movements are influenced by Supply and Demand. An unheralded player among the world's silver producers.

0 879.1 67.0 61.6 World Silver Survey 2011.4 72.1 850.0 -55.7 355.8 53.2 403.4 874.6 -65. Pattnaik . GFMS 4 Biswajeet J.2 Photography Jewelry Silverware Coins & Medals Total Fabrication Implied Investment 7 2007 665.5 --189. and Kazakhstan is silver’s byproduct nature.3 878.1 868.8 160.6 163.0 779.9 178.4 431.9 193.9 596.5 923.9 Net -- Net Government Sales 63.5 Net Producer De-Hedging -3.6 61.3 57.5 188.1 117.6 18.0 213.3 120.4 -29.5 30.5 492.1 83.5 39.3 24.3 368. The lion’s share of these countries’ silver production is via byproducts of large copper mines.9 88. Poland.2 174.8 215.9 44.3 18.5 860.4 --922.3 142.5 31.7 167.0 877.056.9 35.7 487.8 79.3 168.6 873.2 198.5 58. Chile.4 42.2 593.3 101.7 -1.2 -18.0 637.2 42.3 641.3 158.1 -1.5 2009 718.7 59. Ltd.0 196.8 -178.6 -78. The Silver Institute.3 194.7 870.7 929.0 50.6 24.2 12.8 606.2 873.0 --907.0 195.0 2008 681.2 2010 735.8 173.Fiduciary Euromax Capital Markets Pvt. Exhibit 3: World Silver Supply and Demand (in millions of ounces7) 2001 2002 2003 2004 2005 2006 Supply Mine Production Old Silver Scrap Producer Hedging Implied Disinvestment Total Supply Demand Fabrication Industrial Applications 349.7 11.6 863.8 -83. Exhibit 2: Production of Silver from different Base metals mines  One of the main reasons we don’t see much silver-centric exploration activity in top-ten producer countries China.3 881.8 166.3 106.8 454.7 --904.9 179.6 203.2 79.1 204.9 58.9 61.8 6.9 9.6 40.0 39.3 158.5 199.6 843.2 22.9 27.3 15.1 65.9 -67.7 101.6 613.3 192.4 387.2 174.9 28.5 491.7 20.

Three weeks ago the precious metals space was closely following the fate of Sumitomo's San Cristobal mine. silver and tin mines sold off by previous governments.5 922.5 907.0 879. If indeed this news is proven true.8 Moz in 2010.056. looks for the price of silver to spike considering about 1.html http://www. 2. 6.1 99. The Silver Institute.1 868.mapsofworld. GFMS 5 Biswajeet J.599 4. 3. according to Mining Ministry data" according to The Gold Report. Total Demand 877. Bloomberg reports that "Morales will announce a decree May 1 to “dismantle the privatization model.8 percent to a 10-year high of 878.193 (London US$/oz)  Coeur’s new San Bartolomé mine in Potosi. In 2009 – its first full year of production – the mine is expected to produce approximately 9 million ounces of silver at the beginning of its expected 14 year mine life8. and we will know for sure in 2 days. 4. Bolivia. is the world’s newest and largest pure silver mine. "The government is recovering all the privatized companies”. a far more troubling report from Bolivian daily La-Razon states that Bolivia's president Evo Morales is now planning on expropriating zinc.9 41. Exhibit 4: Silver Producer Countries 201010 T Silver Producing Countries in 2010 (millions of ounces) 1.6 116.” said Nicolas Fernandez. Fears that the government will nationalize the Silver mines may have lead to an astronomical price hike in Silver. which began production in June 2008 and is expected to produce approximately 3. where a long strike had paralyzed work at the world's third largest producer of silver and sixth-largest producer of zinc. a spokesman for state mining company Corp.549 13. known as Comibol. Ltd. Last year. according to the U.5 923.7 929.674 20.33 million kilograms of silver was produced in Bolivia 2009.Fiduciary Euromax Capital Markets Pvt.S.com/article/will-silver-surge-following-nationalization-bolivias-silver-mines-president-evo-morales 10 World Silver Survey 2011. Notably San Bartolome and Sumitomo's San Cristobal "account for about 83% of the nearly 1.3 881. While the strike was eventually resolved with concession to the domestic workers.0 World’s Demand Conditions  Total fabrication demand grew by 12.658 7. Mexico Peru China Australia Chile Bolivia 128.370 4. silver’s use in industrial 8 9 http://www. Minera de Bolivia.0 41.384 14.zerohedge. this surge was led by the industrial demand category.1M tons of fine silver Bolivia produced in 2009.2 59. Pattnaik .879 6.com/minerals/world-silver-producers. Geological Survey: an amount which will likely fall off a cliff following the utter chaos that is unexpected nationalization9.989 14.2 million ounces of silver this year.8 Silver Price 4.2 1.312 11. 5.0 904.

which are used in an array of portable electronic devices and other high-tech applications such as Nanotechnology . The astronomical surging is due to increase in ETF Holdings in iShares ETF etc.7 percent to 487. the recycled quantity of Silver will decrease.” Likewise with the high correlation of Gold . Ltd. primarily due to strong GDP gains in emerging markets and the industrialized world’s improving economic picture. Silver will reduce the Gold / Silver ratio to 25 – 30. 6 Biswajeet J. applications grew by 20. as medical centers deferred conversion to digital systems.Silver movement. Moreover. nearly recovering all the recession-induced losses in 2009. Furthermore.Fiduciary Euromax Capital Markets Pvt. Unlike Gold.4 Moz. historically Gold. Silver has much higher industrial uses in the past and new uses for the future. As BCA11 put it: “A one percentage point increase in the share of gold in investors’ portfolios would be consistent with the tripling in gold prices from current levels. the first substantial rise since 2003. We disagree with the RBS report on Commodities by Nick Moore which states that Silver’s high prices means that end-use manufactures are always looking for cheaper alternatives like implementation of plans for hospitals to switch from existing silver – iodide based imaging to newer digital techniques.3 Moz from 58. and is now seeing pronounced advances in 2011. Silverware demand fell to 50.6 Moz.is experiencing explosive growth. realizing its smallest loss in nine years. Silver the poor man’s Gold will serve as the reserve of Money in case of Inflation. waste water from Photographic is one of the important supplies of recycled silver. essentially due to lower demand in India. if its use in Photography reduces. the price of Silver may increase to 150% if the ETF holdings increase by 20%.2 Moz in 2009. Almost two-thirds of the Silver production has industrial uses.          Exhibit 5: World Silver Demand 11 “The Outlook for Gold Prices” The Bank Credit Analyst (July 2010).1 percent. Though. A number of key 21st century applications such as solar panels and flat screen television panels are forecast to contribute strongly to heightened demand. Silver had not been a hedge for Inflation but seeing the sustaining uses in Industry. Photography fell by 6. the marketplace for semiconductors (microchips) . thereby increasing its price even more. Pattnaik . The implementation has high barriers to entry such as Cost and efficiency. Jewelry posted a gain of 5.

Trading Strategy Looking at volatility of Silver. Positional trading is risky. higher ETF holdings and growth in Emerging Markets.Fiduciary Euromax Capital Markets Pvt. Ltd. due to U. Pattnaik . Investment Strategy Take Long positions in Silver for the next 8 – 12 months. Day trading and Scalp trading will help riding the wave safely. slowdown. 7 Biswajeet J.S.

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