Delta Forces
Staying in Maximum Safety Mode with a reduced allocation to stocks gives us plenty of time to research alternatives…for when the time is right to take action. That ‘time’ is determined by valuations.
Friday, August 23rd, 2024
Laramie, Wyoming
By Dan Denning, Research Director
Greetings from Gem City! It’s getting colder in the morning here in Laramie. While I had my first cup of coffee on the porch as the sun came up, I wondered what the world is going to look like just 73 days from now (election day).
Who will be President? Does it even matter if no one is trying to defuse the ticking debt bomb? Have we underestimated AI and disruptive technology at BPR? And when, if ever, will silver start catching up with gold?
More on all that below.
But first an invitation!
It’s been months since we used the ‘Chat’ feature on Substack. We’re going to try again this weekend. That is, Investment Director Tom Dyson is going to spend several hours on Saturday and Sunday responding to comments and questions made in a new chat I’ll be inviting you to this evening.
For new readers, the Chat isn’t a traditional chatroom. There’s no video or audio. And you don’t need a password. You can join through the web or the Substack Reader App on your phone.
Look for my invitation to join Tom’s chat later today. You can post a comment or question and come back later, when it’s convenient, to see if there are any replies (you may also want to review these instructions on how to leave the chat or disable notifications about new messages in the chat…last time we tried it some readers were overwhelmed with notifications each time a new comment was posted in the chat…it’s easy to manage though).
We know these kinds of interactions aren’t for everyone. You may not have the time. Or you may not have the interest. That’s fine. But it’s something we like to make available to paid subscribers from time to time. If you’re up for it, give it a go.
Please keep in mind that neither Tom nor I can give personal investment advice. Please don’t ask. Other than that, fire away! And look for your invitation later today. And now…a chart!
Is it possible to speculate on silver, with leverage, for fun and profit? Yes, of course it is. But I'm not sure I’d recommend it. At least, not just yet.
This is a chart of the ProShares Ultra Silver ETF [AGQ]. Its ‘investment objective’ is to deliver 2x the performance of the Bloomberg Silver Sub-index. It does this through leverage using silver futures contracts. You can read all the fund facts here.
And you should ALWAYS read the fund facts for these types of leveraged investments (or for any investment). For AGQ, the fine print says that the longer you hold the position (more than one day) the more likely your return is to deviate from the underlying index. This is due, among other things, to volatility.
This is the danger with leveraged products. They can be very exciting. But also–like fireworks and roller coasters and mountain biking–very dangerous. Of course sometimes that’s the fun with speculating–you don’t know if it’s going to be a wild ride or if you’re going to blow up. Sometimes it’s both.
We’ve been having private conversations behind the scenes at BPR about whether we should devote more (or any) time to investment ideas that deliver ‘Alpha’ (excess returns compared to the benchmark indexes) and ‘Delta’ (strictly speaking, ‘delta’ in investment terms, refers to the rate of change in an option’s price..but we’re using it to describe any investment or speculation based on a disruptive change, the kind that can deliver outsize returns…but with massive risk).
Don’t worry!
The three of us are in complete agreement that there is no better place to be than in Maximum Safety Mode. Valuations remain sky high. Our major indicators–from the Doom Index to Dow/Gold Ratio–tell us we’re right where we need to be.
And in the September Monthly Strategy Report, which Tom will publish next Wednesday, we’re likely to unveil some specific ways to reduce our allocation to cash, driven by a lower US dollar.
Staying in Maximum Safety Mode gives us plenty of time to research alternatives…for when the time is right to take action. That ‘time’ is determined by valuations. And in the meantime, we can consider whether there’s anything else we SHOULD be doing to protect your capital and preserve the purchasing power of your savings (I’m tentatively calling them delta forces or delta trades).
The chart above, by the way, doesn’t make a compelling case for trying to leverage higher silver prices right now. There’s no pattern on the chat (that I can see). The ETF has just traded above near its 100-day Moving Average (the blue line). And that Moving Average is well above the 200-day Moving Average (the red line). If you’re looking for a ‘technical’ case for higher silver prices in the short-term, this chart doesn’t show it.
But then there’s this post from Kevin Bambrough, the former President of Sprott Inc. in Canada. He says a new EV battery design from Samsung could massively boost the demand for silver (this also assumes that EV demand will continue to grow, whether driven by consumer choice or public policy). Here’s the key part (emphasis added is mine):
Official numbers are still currently unavailable but estimates could be for as much as 5 grams of silver per cell in Samsung's solid-state batteries, a typical EV battery pack containing around 200 cells for a 100 kWh capacity could require about 1 kg of silver per vehicle. With global car production standing at about 80 million vehicles per year, if 20% of these vehicles (16 million EVs) were to adopt Samsung's solid-state batteries, the annual demand for silver would be around 16,000 metric tons (16 million vehicles * 1 kg of silver per vehicle). This would represent a significant portion of the current global silver production, which is approximately 25,000 metric tons annually, highlighting the substantial impact on the silver market.
There’s also this article in the Jerusalem Post about how China is building a strategic silver reserve (alongside official gold holdings) even if it means buying silver on the Shanghai Metals Exchange at prices 10% higher than on Western financial markets.
If true, this represents a huge demand for physical silver. The price action in Shanghai is qualitatively different from the price action in Western futures markets, where silver and gold futures are financial playthings for speculators or commercial operations hedging their real world risks.
I’m going to ask Alasdair Mavleod about this when I see him in London next month. For new readers, make some time this weekend to go back and watch Alasdair’s Private Briefing on China and gold markets.