Silver Pegged To Oil?

Just where are you hearing all these rumors?

It's true that when oil prices rise, cost of mine production goes up drastically especially when trucks burn through 4000 - 8000 liters on a daily basis.

Silver on the other hand is a byproduct of various mine production - usually gold, copper and zinc are the targeted minerals. Silver is just an extra bonus. Not common for a mine to specifically target silver - in fact I cannot think of any.

As of how silver is pegged to the price of oil - I might as well start a rumor that the price of rare earth metal is pegged to the Chinese economy.

"Keep your eye on oil. Silver will drop with oil."
That's what someone said to me today.

I don't have the data to prove this, but I am sure oil is correlated with silver, not a strong correlation but there should be some.

What they guy meant when he said watch out for oil dropping leading to lower silver, is likely a comment on deflationary forces / demand destruction in the centrally planned global economy.

If you wanted to look at the price of metals, I would check them vs the cost of oil, the dow / s&p, the US$ index, and then other precious metals.

Here is a link with some interesting charts. The link is the historical GSR (gold to silver ratio). Below that chart are the ones for stocks and oil and whatnot.

http://www.macrotrends.net/1441/gol...orical-chart

I imagine the strongest correlation is metal to metal followed by metal to the US$ index, but inversely correlated of course.

Buy Low, Sell high!

Do the opposite of what most people are doing

No such thing.... whats next, the Lego pegged to oil correlation? ?

Correlations come and go also, they do not last.

Finally, all commodities are down and are in downtrends. Those who who are bringing up these ratios are simply trying to find ways to explain why gold and silver are tumbling.

They wish to avoid the simple and true reason silver, gold, oil, corn, cotton and other commodities are down- supply and demand. Right now there is too much supply for the demand.... and at the end of the day, silver and gold are no different from any other commodity.


Simple

Finally, for the record once again- dollar cost averaging an asset such as a commodity that is declining, is a losing proposition. doesn't matter how much you buy or your time frame, you cannot expect to buy a commodity that is declining and expect it to come back and make money on it. One of the phrases I always hear tied to this is "I have a long time frame". Well guess what, that declining asset is also going to take a longggg time before it starts doing what you wish it to do.

Moon mining won't be cost effective until I tether the moon to the earth with a space elevator. Fairly low on my to do list so don't get your hopes up. . . . .


Pegged is the wrong word here, but there is some correlation for sure. I think correlation is getting a bad name here that should have been reserved solely for pegged like some foreign currency exchange rate.

Legos are most certainly correlated with the cost of oil. Probably not a strong correlation, but oil is a feedstock of plastics so there should be some correlation, likely factored down by the materials % of COGS. Natural gas is likely more correlated to plastic parts though as the ethylene feedstock of choice.

Ratios are important too. Unless the ratio of oil to gas is below the 6 to 8 range, it is more economical to crack natural gas for ethylene (and almost no propylene) vs the more expensive cracking of oil for nearly the same amount of ethylene but a bonus of some more propylene. The only reason this isn't in the exact same ratio as output of ethylene to propylene is that the cost of ethylene and propylene are determined by different demand dynamics. Sometimes the market values one molecule over the other.

Oil and gas are most certainly somewhat correlated to all plastic parts. The more the cost of the part is materials cost, the more correlated.

As such, silver is correlated to oil. Oil (derivatives) are direct input costs into mining so there must be some correlation. It is probably a fairly low correlation I would imagine though.

Now things like silver being a byproduct of other mining (much like propylene production being a byproduct of ethylene production when cracking natty gas) will lessen the correlation for sure, but it is still there.