THE BIG QUESTION: Where Is The Price Of Silver Headed In 2014?

Many precious metal investors would like to know where the price of silver is headed in 2014.  After the huge take-down of the price of gold and silver in 2013, investors want to know if silver has finally put in a bottom and is getting ready for a new move higher this year

If investors are banking on much higher silver prices in 2014, then the typical Bank & Brokerage House forecasts are not going to provide any guidance or comfort for that trend.

Here are the 2014 silver forecasts from the Top Orthodox Analysts:

Analysts' 2014 Silver Forecast

As we can see, Barclays comes in at the lowest forecast of $19.50, whereas the majority range from $20-21.  Bank of America is the only one in the group providing a more bullish forecast of $26.38 for 2014.

I have actually come across these forecasts in some of the precious metal blogs.  It seems as if investors are now becoming so frustrated by the low price of silver that they are actually accepting the forecasts put out by the MSM analysts.

There’s a very good reason to ignore anything these banks and brokerage analysts have to say.  If we take a look a what these analysts forecasted for silver in 2013… you will see what I mean:

Analysts' 2013 Silver Forecast

The majority of these analysts’ forecasts came in December 2012.  At this time, the price of silver was trading in the $32-$33 range.  CitiGroup was the only analyst that predicted a lower price for 2013, while Commerzbank & Thomson Reuters GFMS forecasted higher prices in the $40 level.

According to Kitco, the average price of silver in 2013 was $23.79.  So, all of these Banks missed their forecasts by a wide margin.  What is surprising is the forecast made by Thomson Reuters GFMS.  This is the same company that produces the World Silver Surveys.

The World Silver Surveys provide detailed supply and demand data on the global silver market.  If anyone has a good idea of where the price of silver is headed, you would certainly think Thomson Reuters GFMS would be the best qualified.

After Thomson Reuters GFMS blew their 2013 silver forecast by a whopping $17+ over the average price of $23.79, they have become a great deal more conservative in 2014 with a forecast of $20.42 for the year.

Why Typical Silver Forecasts Should Be Ignored

I stopped paying attention to the majority of silver forecasts years ago… especially those from the typical bank and brokerage houses.  The reason why I don’t believe in these worthless forecasts or technical analysis is due to the fact that we don’t have free markets.

Rob Kirby discussed this issue in an interview, Colossal Fraud: There Are No Free Markets with Greg Hunter at USAWatchdog.com.  Kirby explains that the Interest Rate Swap market has dwarfed the entire financial system:

Financial analyst Rob Kirby says, “There is colossal fraud and price control going on.  There are no free markets.”  Kirby goes on to say, “What we’ve seen over the last six months is a ramp-up in interest rate swaps to the tune of $12 trillion . . . . What the build in these interest rate swaps is achieving, it’s stemming the rise in interest rates.”

Kirby is quoting figures from the OCC – The Office of Comptroller of the Currency.  I went to the site and downloaded the Q3 2013 Derivatives Report.  Here is a table showing the banks derivatives contracts by type:

Banks Derivative Contracts by Type Q3 2013

Here we can see that the total amount of Interest Rate Swap contracts have increased in the top U.S. Banks from $184.9 trillion Q1 2013 to $195.4 trillion in Q3.  When I do the math, I get an increase of $10.6 trillion.  Maybe Kirby is including additional data to get that $12 trillion figure that I am not aware, regardless it is still a large increase in two quarters.

Furthermore, you will notice that the total notional value of the Interest Rate Swap market in the U.S. declined significantly from the end of 2010 (Q4 – $193.4 trillion) to Q4 2012 ($178.9 trillion).

However, when the Fed increased QE3 to $85 billion monthly at the beginning of 2013, the trend reversed as the total of the Interest Rate Swap market increased $16.5 trillion from $178.9 in Q4 2012 to $195.4 trillion in Q3 2013.

Kirby believes that even with the supposed $1 trillion a year of QE 3 in 2013, the banks had to ramp up its Interest Rate Swap program to keep U.S. Treasury rates from rising.  Rob Kirby and Jim Willie both believe the huge Interest Rate Swap market is the mechanism that is keeping alive the whole PAPER HOUSE OF CARDS…. I agree.

How much has the Interest Rate Swap market grown in the past 12 years?  I have provided the entire table of the banks derivatives contacts below:

Banks Derivative Contracts by Type Q3 2013 FULL TABLE

It may be hard to read (click on the image for larger view), but you can see that the Interest Rate Swap market has ballooned from $38.5 trillion in Q4 2001 to $195.4 trillion Q3 2013.

The Interest Rate Swap Market was supposedly designed to protect the borrower against higher costs if rates increased.  Unfortunately, the artificially low Fed induced interest rate policy has put severe pressure on those entities who got in bed with the banks with these Interest Rate Swap products.

According to the article, How Interest Rate Swaps Are Crushing America’s Cities:

Last week, I drove through the Lincoln Tunnel. The cash fare to travel the 1.5 miles from New Jersey into Manhattan was a whopping $13 – more than 50% more than the last time I was there.

When I jumped on the subway a few hours later, a one-way fare was $2.50, more than 60% more than when I lived in the city in 2008. And my water at the hotel? Shut off in the morning because the water authority was struggling to handle maintenance requests due to being short-handed.

These increases are not the result of the expansion of the transit system or increases in union salaries (common misconceptions).

Ultimately, the explosion in costs and slashing of budgets in New York and many other U.S. cities in recent years are happening because of a little-known type of financial contract – known as an interest rate swap.

You see, U.S. cities and their agencies have been on the wrong side of bad bets with the Big Banks. Now, these municipal agencies are struggling to cover their losses.

So, as interest rates continued to decline, these small towns, cities and municipalities had to pay the Big Banks huge payments.  The article explains how the Interest Rate Swap works:

To understand what went wrong, you need to know how interest rate swaps work.

In the case of the MTA (New York Metropolitan Transportation Authority), the transit agency pays the bank (for example, JPMorgan) a fixed rate on a bond in the form of interest. That rate is prearranged and is typically just a bit higher than the going market rate at the time of the contract as a means of “locking in” the best deal. In this case, that rate might be 4.5%.

Meanwhile, through the interest rate swap agreement, the bank returns a payment of interest on a variable rate (which floats according to the global debt markets). If the going market rate is above the 4.5%, the MTA would make money. If it is lower than 4.5%, they will end up losing money on the deal. In most cases, it is sold on the premise that both entities will break even over time.

Unfortunately, Wall Street has a funny way of being right all the time. Following the financial crisis, low interest rates have meant that the banks still pay the higher fixed rate, but low variable rates driven by the Federal Reserve’s policies have meant lower payments from the banks to the municipal borrowers of these swap agreements. So if the variable rate is 1.75%, but the fixed rate is 4.5%, the borrowers have to somehow cover the difference.

That’s where the taxpayers (or users of the agency’s services) come in. Fees they pay are being raised to pay for that difference.

Because interest rates have been kept artificially low by Fed intervention, the majority of these cities and towns are paying the banks dearly.  However, the real threat is not from these banks making money on lower interest rates, but the disaster that takes place when rates rise substantially.

As rates rise, then the banks will have to start paying the towns and cities instead of the other way around.  So, the higher interest rates go, the more losses the Big Banks will suffer.

The massive Interest Rate Swap Derivative Market has destroyed the ability for the financial system to function properly.  The U.S. Banks now hold the most Interest Rate Swap derivatives ever at $195 trillion.

So, What Does This Have To Do With Silver?

The Bank with the largest amount of derivatives in the United States is JP Morgan.  JP Morgan held $73.2 trillion in total derivatives in Q3 2013, including $83.5 billion in Gold & Precious Metal Derivatives… 81% of the top 4 bank total of $103.4 billion.

Silver Analyst, Ted Butler believes JP Morgan has been instrumental in controlling the precious metal market.  From his recent article, 2013 – The Year of JP Morgan:

From the very beginning of the year to the last two days of 2013, JPMorgan has dominated and controlled the price of silver and gold.

The price plunge through the end of June resulted in JPMorgan making more than $3 billion on their short market corners in COMEX gold and silver. So, to conclude that JPMorgan had nothing to do with the price plunge is the same as concluding that $3 billion in commodity futures trading profits is a normal and regular occurrence.

As was the case in 2013 and every year since 2008, the next year in gold and silver will be determined by JPMorgan. But considering that JPMorgan now holds a long market corner in COMEX gold for the first time in history, it is hard to see how 2014 doesn’t shape up to be the exact opposite of 2013. Throw in JPM’s sharply reduced short position in COMEX silver and the massive quantities of physical gold and silver acquired by the bank and the start of 2014 couldn’t be more different than the set up of a year ago.

I have to agree with Butler here.  Not only is JP Morgan now long gold, they have drastically reduced their net short silver positions.  Furthermore, the Fed and its member banks (JP Morgue’n & Goldman Sacked) aren’t that stupid to push the price of gold and silver below its primary cost of production for an extended period.

According to my analysis, the top 12 Primary Silver Miners estimated break-even for Q3 2013 was $21.39.  I have not done the analysis yet on the top gold miners, but from what I understand their break-even is around the $1,150-$1,200 area.

As I have stated several times, I don’t believe in Technical Analysis in a rigged market.  I am quite surprised professionals still pay attention to this meaningless metric.

Lastly, I am not quite sure of where the price of silver will go in 2014.  There are just too damn many variables.  We could see an explosion in the price if we do get the “RUMORED” Global currency reset.  We could see a sharp move higher in the first quarter with a retrenchment and then a move higher by the end of the year.

Whatever the price movement, I doubt we will see much lower prices.

That being said, I have not invested in silver for short-term gains.  I believe in holding for the longer term.  Gold and Silver will be some of the best investments to own in the future… it just takes a great deal of patience to realize the gains.

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12 Comments on "THE BIG QUESTION: Where Is The Price Of Silver Headed In 2014?"

  1. Very disappointed Steve. I would think after all this research you would know what the damn price of silver will be in 2014!

    Teasing, looking forward to your “bombshell” article you will release soon. Curious as to what the topic is…

    • Brendan,

      Actually the BOMB SHELL article is turning out to be a FULL REPORT. I finally plan on putting a PAID REPORT area on the site for those who would like to acquire more information that they won’t find on the public site.

      More about this soon.

      steve

      • STEVE – absolute dynamite and skookum reporting. Thank you, thank you, thank you not giving into the fallacy of PREDICTING a PRICE.

        All the discussions we have had point to the INEVITABILITY of the DIRECTION of PM’s being positive, NOT WHEN or HOW HIGH, which is a fools game.

        Your detective work is great and I wish I could say I have the patience for it, but like a roving hunter, I am constantly out there tracking the game you flush out with your research. Perhaps I can put some of my TRACKING MEASURES & Indexes periodically, so at least we all can “dead reckon” where we are at.

        DAMN GOOD WORK !! Best,
        DG

        http://www.denaliguidesummit.blogspot.ca/

  2. Another excellent article Steve. That was certainly the best explanation of interest rate swaps I’ve ever read. I’m really liking silver at the $20 level (I’m pretty sure we’re close to a bottom here, although I think gold still has a bit of a ways to go down yet.)

    A (probably stupid) question, though: why would public entities enter into these interest rate swap agreements in the first place? Was it a “deal” they were presented with such that they were assured they’d win more often than lose in the arrangement?

    Cheers,
    Jonathan

  3. Thanks for including a definition of the confusing interest rate swap. I never really understood this very well. So if I have this correctly, the municipality (all of us muppets) takes a fixed rate for the promise of stability and the TBTF banks take the variable rate and the catch is that the variable rate always magically defies market forces and is consistently lower than the fixed rate? Thus, payments ALWAYS flow towards the TBTF banks, never the other way around like they should once in awhile in a theoretical free market?

  4. OutLookingIn | January 6, 2014 at 2:11 pm |

    The “Big Question” everyone is seeking an answer to;
    ‘What does the financial future hold?’

    I would sum it up as, nervous uncertanty.

    The historical record is certantly one for nervous reflection. Another empire was in it’s death throws at the turn of the last century. The ‘Ottoman Empire’ which had held sway for over 450 years, from 1453 to it’s dissolution at the end of the First World War 1914 – 1918.

    Gold and silver bullion is now increasingly hard to find (globally) in quantity, at these present low prices. They are going into hiding, being held in strong hands as fear of paper assets escalates.

    http://www.youtube.com/watch?v=YbKEwAXuiYM

    No one really knows what will transpire in the future. At the very best, using all the knowledge one collects and making a best guesstimate, is all one can hope for. As James H. Kunstler has done in this mornings issue of his blog; “Burning Down the House.”

    http://www.kunstler.com/clusterfuck-nation/forecast-2014-burning-down-the-house/

    “Those who make peaceful revolution impossible, will make violent revolution inevitable.”
    – John F. Kennedy

  5. “According to my analysis, the top 12 Primary Silver Miners estimated break-even for Q3 2013 was $21.39”.

    At some point the weight of ever-increasing debt, derivatives, and all manner of financial games, BS, and manipulation won’t float our current system. We will have in my opinion major “upheavals” come home to roost between now and 2017. When that happens silver with its’ essential industrial uses and certain higher cost in dollars will make holders glad for every bit in their possession.

    I don’t know of a better investment for the future five years that silver at these prices. So what if they knock off another dollar before the final bottom is in. Better squirrel away a little bit regularly from this point on. Or a lot for those in the position to do so.

  6. Take a gander at who’s bought all that new Treasury supply…not just the Fed, it’s foreigners who love our liberty and low yielding bonds…(based on TIC reports) and are supporting the DOLLAR.

    Global “foreign” holdings of US Treasury….Fed……total outstanding public debt

    Dec ’00 – ………….$1 T ……………….$200B*…………………………..$3.3 T

    Dec ’07 – …………$2.35 T ……………..$400B*…………………………$5.1 T

    Oct ’13 – …………$5.65 T ……………..$2.3 T**…………………………$12 T

    * mostly short end bills

    ** almost entirely long end bonds

    Now look @ individual country increases, Jan ’07 to ’13???:

    China $400 B —> $1.3 T (15% of GDP)

    Japan $600 B —> $1.2 T (18% of GDP)

    UK $100 B —> $158 B (5% of GDP)

    Brazil $54 B —> $246 B (10% of GDP)

    Taiwan $38 B —> $185 B (40% of GDP)

    Russia $9 B —> $150 B (5% of GDP)

    Ireland $19 B —> $111 B (55% of GDP)

    Belgium $13 B —> $180 B (40% of GDP)

    “carribean banking centers” $68 B —> $291 B

    “oil exporters” $112 B —> $237 B

    Luxembourg $60 B —> $133 B (220% of GDP)

    Norway $20 B —> $78 B (15% of GDP)

    France $10 B —> $60 B

    Singapore $30 B —> $86 B (35% of GDP)

    Switzerland $34 B —> $174 B (35% of GDP)

    India $15 B —> $60 B (3% of GDP)

    Thailand $16 B —> $45 B

    Canada $28 B —> $58 B

    Minor movers…???

    Germany $50 B —> $60 B (2% of GDP)

    Italy $14 B —> $29 B (1% of GDP)

    Netherlands $15 B —> $30 B

    Turkey $25 B —> $50 B

    None appear to be leaving the treasury table…not sure if they are given money via swaps or promised “something” (gold???) to keep buying or if they are simply so weak they’ll do anything to prop up the system. But nothing data wise sez this is bout to come unhinged.

    Point is all these nations and many more are actively supporting the dollar system (regardless their yapping) and seems in all their interest to maintain dollar and help keep a lid on rates, lid on PM’s, lid on commodities, and print ad nauseum. Not surprising gold is going nowhere when every country has it in their best interest to smack it down.

    Probably also notable that the PIIGS have been so busy running their own LTRO that they are full to the gills of their own nations debt and do not appear on the list (except the curious exception of Ireland??? wonder where they got all those $’s while also going through their own bailouts???)…

    BTW – trend of Foreigner purchases of Treasury debt since ’08…

    Jan ’08 $2.4 T

    ’09 $3 T

    ’10 $3.7 T

    ’11 $4.4 T

    ’12 $5.1 T

    ’13 $5.6 T

    Oct ’13 $5.65 T

    seems main reason for slowdown in ’13 was debt ceiling freeze (only issued $650 B in ’13) while QE was buying up $540 B…but since debt ceiling raised, Treasury has issued over $600 B since Oct 17 to catch up. Don’t really see any trend changes or anybody selling off.

    Then again, the Treasury TIC data could be completely fraudulent as all the Treasury’s are held in US financial institutions and “assigned” to the foreign entities – could be they are bought via the Fed or ESF or straight up digital counterfeiting / accounting fraud. I have heard of one or two other .gov reports not exactly adding up…would make as much sense as “foreigners” buying all this ridiculous paper.

    • Great stuff,Chris.

      I have been trying to tell people exactly what your data says:THERE IS STILL CONFIDENCE IN FIAT PAPER,especially USTs.This is why I believe the emancipation of au/ag is still a few years away.Until this sentiment changes,metals will remain oversold and way undervalued (by the West’s provincial monetary standards since 1971,that is).The East knows better.

      2 THINGS WORKING FOR US in 2014 driving prices higher

      1) Gold cannot remain below the mining cost forever.Driving price sub-$1,000 would only exacerbate the possible ramifications of the TBTF leveraged paper positions should they ever have to deliver, to say nothing of the destruction of the mining industry as a whole.The big players shorting gold require physical metal,whether it be LBMA,Comex, or GLD..They need to move it around amongst each other to perpetuate their ruse when actual physical delivery is required.Constricting supply as demand is exploding(which it clearly is)is not in HSBCs or the Morgues best interest. 79 paper claims against EVERY registered ounce in the COMEX is a black swan event waiting to happen.THIS DOES MATTER!And with only 3% of all gold futures contracts taking delivery now,what will happen when that number goes up by just a few percentage points?

      2) Measures will have to be taken to cool off China’s Hong Kong gold conduit.The West cannot allow China to take another 2,000 tonnes in the next 2 years again.Therefore, I believe gold will go higher this year.

      • Hey Scott,

        this data is freely available and very much contradicts many peoples paradigms that the Fed is buying everything….China is dumping everything paradigm. Now, what to make of the data is very interesting debate but I just wanted folks to at least start w/ the same data and focus the discussion on what is vs. what isn’t happening.

        The Fed’s balance sheet is definitely going straight up (particularly when considering of the Fed’s $400 B in holdings in ’08 were primarily short duration Bills vs. now holding almost entirely long duration Bonds; ie, Fed could have wound down the majority of it’s positions in ’08 w/in 6 months or a year by simply not rolling them…now, the Fed likely has an average maturity of 7 to 10 years and in such quantity that they will never be able to roll-off Fed’s books…will be forced to roll these $2+ T in treasuries forever).

        Now, I’m not sure I’d agree the data shows confidence in the dollar…I might suggest the opposite. The Fed and Foreigners buying massive quantities of Treasuries while domestically there has been relatively no increase in Treasury holdings since ’00 (total held notes/bonds domestically has been $2.5 T +/- 250 B since ’00)…this is a flashing red light on the dashboard for me. Particularly as the Fed now states it will taper it’s purchases which would effectively leave the $5.65 T in foreign holdings subject to rising yields and falling prices…or otherwise a scenario where they would take significant losses. Most folks would begin liquidating positions when clear losses are inevitable.

        So, either the Fed is going to allow and enable rates to break the 34 yr trend of decreasing (the same 34 yr period in which the greatest debt load in history was built…under the guise that ever greater debt will always be serviced by ever lower interest rates upon ever higher debt) and simultaneously chase out foreigners from the bond market…and leave the only source of Treasury buyers from domestic sources who will be forced to sell the majority of their risk assets (Dow 1,000?) to buy up all the rapidly rising yields on Treasury debt…or Fed is running a very large head fake before a much larger QE?

        • Only two options I see to attract domestic sources of cash to buy the $2 T necessary in ’14 if Fed doesn’t…($1 T in new issuance…Treasury has already issued over $600 B since Oct 15 budget yr start paying back all the internally “borrowed” cash from last years debt ceiling freeze + sequester rollbacks) + at least $1 T in foreigner sell / roll off assuming falling bond prices…)

          1- rates rise significantly to make Treasury’s more attractive than high performing risk assets…and in so doing crash the interest rate sensitive economy…
          or
          2- stock market and economy crash 1st making very low yields relatively far more attractive than everything else.

          Somehow I don’t see either of those scenarios in the Fed’s planning?

          • Seems given these above seemingly silly scenarios, given record fractionalization of PM’s, given metals driven to selling at a discount to their cost of production…that this 2014 timeframe is the turning point, the pendulum swing point and the pendulum may swing quite unevenly the opposite direction shortly.

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