HardAssetsInvestor

Mike Norman (Norman): Hello everybody, and welcome to HardAssetsInvestor.com. I'm Mike Norman, your host. Today my guest is Miguel Perez-Santalla. He's the vice president of marketing for Heraeus Precious Metals Management. Miguel, thanks for coming back on the show. It's been a while.

I want to start off by asking you about silver. The last time we spoke, silver was firm, but we hadn't had this huge spike up, eventually hitting the highs that we saw back in 1980, around $50 an ounce, and a very sharp pullback.

You deal with a lot of commercial customers in your business. Characterize that price run-up, what happened and what the market looks like right now.

Miguel Perez-Santalla, VP, Marketing, Heraeus Precious Metals Management (Perez-Santalla): Well, before the run-up on the price, there was a lot of talk about big fundamental growth in silver, which is true. Because, what happened in the solar panel industry, which is being funded by the governments worldwide, started to grow exponentially. Now, their consumption of silver, and their demands, specifically, are for a kind of silver called 99.99 percent silver, which is the purest form of silver, without certain elements involved with it.

And so, there was a tightness, in the beginning. So it created this demand. And people were ripping metal off the exchange. Now the rest of the markets started to perceive that as meaning that people are taking metal because they want to hold it. And there's no metal left, and the supply is not going to meet demand.

What happened was that supply, of course, eventually did meet demand, as the other metals and mining producers and refiners started delivering metal 99.99 percent for the demand. So that started meeting. But the silver market did go into backwardation, meaning the near month, because that's when you would take the metal off the exchange.

Norman: And that's a rare phenomenon.

Perez-Santalla: Yes, that's a rare thing. It doesn't happen usually. So it went into backwardation, where the near-month was higher than the future month. And the consumption was going. And so, everyone saw these fundamentals, saw that they were strong enough to drive the market. We did have a lot of investment money coming in. The margins, meanwhile, didn't go up as fast as they should have.

What happened, then, when we reached really close to $50, we broke into the $50 at that point in the futures market. Once they started raising margins, then all of a sudden, a lot of the people that were in that market, in the leverage side of the market, started bailing.

Norman: Some of the weaker-handed speculators.

Perez-Santalla: Right.

Norman: And they raised the margins, I think, three or four times, didn't they?

Perez-Santalla: That's correct. And, in fact, about three days in a row they raised the margins. And the market just started tanking.

Norman: Almost a 40 percent decline from the peak. Now we've settled in here around $36-$37 an ounce. The market's sort of quieted down, I would say, now. Where do you think we resolve? I mean, do we start heading back up again? Or maybe back down into the high $20s?

Perez-Santalla: Well Mike, as you know, you have many years' experience in this market, silver is very volatile.

Norman: One of the most, if not the most; exactly.

Perez-Santalla: Right. And so, when people get burnt, they usually get scared. And I think right now, the reason it's not following as strongly or rallying as much as gold has in the recent weeks, is because people don't want to get burnt again. And the truth be told, the prices of both gold and silver are up on investment market demand, no other reason. Not fundamentals. There are strong fundamentals in consumptions of these products, but not enough to drive the prices higher. And, of course, if QE3 comes in, then there would be more reasons for the metals to go higher.