[Chart] long-term silver-copper correlation is intensifying

[swissaustrian]

Below is a chart showing that the long-term silver-copper correlation is intensifying while the silver-gold correlation stayed flat with less volatility. This is a sign of the industrialization of silver imho. During economic downturns (2002/03, 2008/09, [2012/13??]) the correlation to copper loosened at bit, though.
I got the chart from this presentation (slide 6):
http://www.silverinstitute.org/site...on-reuters-gfms-2011-intrim-silver-market.pdf

 

[jd1123]

Interesting chart swissaustrian. I was reading about another explanation for the intensifying correlations (cant find the article). Because there is no yield in many assets (money markets, bonds, etc), other hard assets such as gold, silver and equities all intensify in correlation as people with lots of cash on hand look to invest it. When there is a deleveraging, all assets get hit hard. Furthermore, there are more vehicles to invest in alternative assets (hedge funds, ETFs etc) causing things to rise and fall in more unison.

Just an alternative explanation for the chart, one that I found to be interesting. Thanks for the great info.

 

[ancona]

JD,
Remember the cataclysmic collapse in metals a few years ago? I sure do! I lost my ass on a project because the bottom fell out from under metals before I had a chance to dismantle a large industrial structure. Had I held on till the panicked population saw the wisdom in holding commodities over paper, I may have broken even, but I panicked right along with them.

You are absolutely right about deleveraging. There is so much leverage out there that when the shit hits the fan, the first things to get dumped are physical metals and metal futures, collapsing prices. This time however, I will be a big buyer at the bottom.

 

[swissaustrian]

In terms of leverage in metals. This is not like 2008 all over again, at least not for gold and silver. When silver dropped from $21 to $8, there was immense speculation. This time, the market has already been cleared since the top in May 2011:

The gold market looks similar:

Copper speculation/leverage is quite different from pms, levels are currently pretty high:

 

[ancona]

HELP!!!!

I'm not a TA guy, so I count on [you] SA to help me understand what I'm looking at! These are pretty charts to be sure, but they are just Chinese arithmetic to me.

 

[benjamen]

I am not an expert, but I will take a crack at it.

Blue lines are a measure of people betting against the metal.
Red lines are a measure of people betting for the metal.

Green lines are a measure of the difference between red and blue and shows the level of paper investment action going on in the market. The levels are much lower right now for gold and silver than they were in 2011, so there isn't as much risk of money flooding out the paper markets simply because there is less money in there right now.

 

[swissaustrian]

HELP!!!!

I'm not a TA guy, so I count on [you] SA to help me understand what I'm looking at! These are pretty charts to be sure, but they are just Chinese arithmetic to me.

benjamen basicly said this already.
These charts show the outstanding amout of futures and options on silver, gold an copper, so called open interest (http://www.pmbug.com/forum/f13/open-interest-futures-options-watch-gold-silver-679/ ), in the non-commercial category (i.e. speculation, as opposed to hedging).
Silver and gold speculation is at very low levels, especially compared to 2008 when the bottom fell out of the metals when financial markets in general crashed big time. Therefore I don't expect a forced selloff due to deleveraging like in 2008 if we get another 2008 type collapse.
The situation is totally different for copper, however: Copper speculators are pretty active, i.e. there is plenty of leverage in the copper market right now.

 

[swissaustrian]

Given the weakness of the copper market and the correlation between copper and silver, more trouble might be ahead for silver. We might see a diversion between gold and silver like in 2008. This would only last for a short period of time, however, as silver is already trading below production cost.