SLV Is Gobbling Silver
The latest figures are out from Barclays’ silver ETF, SLV, and it now holds just shy of 221 million ounces of silver, up 70 million ounces for the year and up almost 20 million ounces since early August. This is a lot of silver buying, not to mention bargain hunting, and speaks to the fundamental demand that continues to exist despite the commodity selloff and the silver price collapse that resulted from the selling of paper silver.
Speaking of which, open interest?in COMEX silver futures has now declined under?105,000 contracts as the short covering continues. The open interest is now approaching the lowest levels we have seen since this bull market started in 2003. In other words, most of the speculative money?has now been squeezed out. More to the point, the increase in SLV holdings (as well as the holdings of other silver ETFs, not to mention the recent placement announced by Central Fund of Canada) of physical silver is a stark contrast to the decrease in the COMEX paper silver positions. Should this trend continue, it could represent the bleeding edge of?a major positive fundamental shift in the silver market: out with the paper, in with the physical.
Meanwhile, open interest in COMEX gold futures seems to be stabilizing around 375,000 contracts, which is still 100,000 contracts above the open interest level from earlier in the bull market (2003-2005).?To the extent this represents a?”discrepancy” requiring resolution,?one possible outcome would be?a decline in the gold-silver ratio from the current level near 70 back toward 50. This could occur with the silver price rising (or not falling as fast),?the gold price falling (or not rising as fast), or some combination thereof.
With not much paper silver left to sell and physical buying continuing to be robust, there?appears to be less price resistance to the upside than the downside, but some risks to silver still remain. For one, the recent advance appears to have been spearheaded by short covering, and a period of consolidation may be required to digest the gains. I am currently?looking for some technical targets that could serve as support levels to be tested ($12.50 might be one, but it is too obvious to be of much value). Second, market sentiment can easily shift back and forth over the next few days and weeks as the $700 billion bailout package is thrown around Washington like a hot potato. Wild market swings?can?be expected and there is even a possibility that the anti-commodity sentiment could return (temporarily, I would think) if the politicians are able to pull off a magic trick that fools the populace until the next crisis brings them back to their senses. Third, the dominant short-term trend is still down in commodities even with the impressive rally by crude oil, copper and a few others. Even if silver were to otherwise stay strong, it probably would not go on an upward tear?if/while the commodity sector resumes?the sinking habit it picked up in late July.
The bottom line is that I believe accumulation of silver and related investments?is still appropriate at this point with reasonable risk-reward potential across most investment time horizons. Until some key fundamental factor?argues against it, I?am planning to?maintain my?August 8 shift to being positive (change from yellow to green flag)?on the short term prospects for silver?(for the first time since October 2007).?I made this shift?right as?silver?was closing for the?week near $15,?but the very next week an investor would have purchased silver anywhere between $12-14 (call it $13 on average). As I write this, silver is again trading around $13, having come full circle. So, according to my somewhat tortured logic, I’m about breakeven on my August 8 flag change.
I only state the above?for the record because lately I’ve gotten a few nasty e-mails saying how I had totally blown any shred of credibility by being an unrepentant silver bull all the way down from $21 to $10. I’d beg to differ given that I’m one of a few big mouths in the silver market who actually makes calls like this (instead of the typical wishy-washy stuff that can be interpreted 1,001 ways to Sunday). Not only that, I’ve been more accurate while also being more precise and?I’ve done it for free (up until now, but not much longer), disproving the old adage, “you get what you pay for”. Yes, some of you have pointed out that Jon Nadler, Mark Hulbert and some others were correct in the strict sense while just about everybody else including me was wrong, but?their kind of “right” isn’t typically?far off from the?”broken clock” kind.
SilverX, question. Where the hell is all the silver bullion coming from to back the ETF’s. I mean come on that can’t even mine it that fast. Also is there any limitations on the amount of silver SLV can hold. Thank you for your time and silver information.
Rumour from Lemetropole.
Here is a rumor to track down if anybody can. From Mark O?Byrne of Gold and Silver Investments Limited in Dublin, Ireland:
Just came across this.
In New York, “No one’s letting go of their gold,” confirmed a senior figure in Comex precious metals to BullionVault on Tuesday.
Gold Futures contracts are being settled in cash only, he said, rather than with physical metal, leaving would-be buyers without the metal they want.
Surely Austrian economics will eventually prevail after the comming currency crisis. Death of fiat currencies. Silver and Gold to prevail again !
Tom,
I do remember you issuing a downside price target of $11 Silver and $500 gold at higher prices some time back. I don’t see how that can be interpreted as cheerleading.
and how can SLV buy all that silver at the price it’s trading? Is someone really selling SLV that much silver for 13/oz?
Regarding the bullion additions to the SLV ETF: Nobody seems to have noticed or commented on the amount of 20Mio ounces checked into the COMEX warehouses and a few days later out again at the beginning/mid of August pushing the stored silver in the COMEX stores temporarily beyond 180Mio ounces. Could it be that silver that ended up in SLV? Any comments?
just walked into my office and see on reuters taht CFTC to open an investigation into the silver market and allegations of manipulation
http://online.wsj.com/article/SB122231175151874367.html?mod=googlenews_wsj
lol. The will say there is no manipulation, same as the SEC said it, until everyone realized they were full of it. The CTFC is a big part of the problem, the entire staff needs to be fired, several should be prosecuted.
I’ve been buying silver coins, blanks, and junk since 1999. All at prices that ranged from $5/oz to $10/oz. I haven’t bought any in the past year.
Everytime I bought silver I asked the dealer ColoradoGold.com - Don Stott if he was having trouble getting silver. His answer - until recently - was a definite NO. During all of this period, I read countless articles from Butler and other about a silver conspiracy. There main view was this was some sort of government conspiracy to rig the markets and keep silver cheap. The “WHY” and the “HOW” of such a move has never been explained to me. Also, in the midst of such a conspiracy why was it possible for little ol me to buy bags of silver coins for $5/oz? Why was it possible to buy Canadian maple leaves with $5 dollars stamped on them for $5 dollars????
Bottom LINE: a few years ago there was no silver shortage.
NOW:
coloradogold.com phone line is jammed!! I used to be able to have a 1/2 conversation with Don Stott. Now, I can’t even reach him.
He has no silver bags, no silver rounds and it takes weeks to get a silver mint box from AMark. Retail silver is tight! and has been tight for several weeks now.
BOTTOM LINE: the average retail silver investor CAN NO LONGER BUY PHYSICAL silver without paying huge premiums. In the not too distance future, the average retail investor will NOT be able to buy silver at reasonable price. Ted Butler’s “don’t be one day late” will be the new reality in the silver market.
The next development will be the SILVER ETF will announce that physical silver is NOT available and that NO new units can be purchased. This will send a shock wave through the silver market.
At this point, the retail silver investor will NOT be able to buy silver and be able to make a big windfall profit.
Following the closing of the SILVER ETF, the comex will experience delays, problems and defaults. At this point, paper silver will begin a historic rise.
This day may be only weeks away!! OR it may still be a few years off.
BOTTOM LINE: If you want to have physical silver for the long haul (20 years or more) to hedge against inflation, you had better start buying NOW! It is almost too late to start. The smart money has already bought it, and they are not going to let it go until the inflation rate subsides.
Eddy Sharpe, good insights re: next phase for the Silver ETF. Thanks.
Tom, very well put about most other au/ag commentators making wishy-washy calls. Your earlier commentary about the basis warning you gave on gold and silver a day before their sharp rise last week should help launch your paid service, I would think. The proof is in the results. Prof. Fekete is right, and you are bringing his theories to life, transmuting them into gold - pun intended.
As a famous philosopher once said, thought creates wealth - and the better and more original the thinking, the bigger the pile of gold that results.
Silver: There is a limit on the amount of silver SLV can hold, but this can be increased by filing a new prospectus. The SEC would presumably not approve a prospectus, however, if the silver market were so tight that SLV buying would create major disruptions. I believe at last check SLV can buy close to 300 million ounces of silver but perhaps I should look at that again. With respect to where this silver is coming from, I get this all the time from Butler disciples who cannot possibly believe there is actually any silver out there in private stockpiles. My own industry research, which includes actually talking to people in the industry, indicates there is about 1.5 billion ounces in “good delivery” silver bars out there, of which perhaps 750 million ounces resides in London. Most of this would not see the light of day until much higher silver prices, but that doesn’t mean some of it cannot periodically come out of hiding. My personal guess is that we are pretty close to the point where a substantial increase in price–say $25 or above–would be required to draw out significant amounts of silver, but there are other factors involved as well. For example, mine production of silver has increased substantially in the past few years without a similar increase in industrial demand, which has allowed a significant amount of silver to be available to meet investment demand.
tim: I would tend to discount the LeMetropole rumor for the simple fact that it is not a delivery month for COMEX gold. There have been 871 delivery notices issued (87,100 ounces) so far this month compared to about 600 this time last year. At the same time, there are 228 contracts still open in September gold with no backwardation. Also, no unusual activity in warehouse stocks. So, in conclusion I just don’t see how this would be possible.
T Rob: Yes, someone in London is selling that much silver but keep in mind it could be part of some arbitrage play or some other strategy (for example, selling physical and buying forward). Over 100 million ounces of silver trade in London each day so even a few million ounces acquired by SLV would not be a huge issue. And silver is UP 30% from its low, so the price has clearly reacted to the buying. You will see what happened in SLV when you sign up for The Metal Augmentor and GSUL 5 as I will shortly be posting my charts that predicted the move several days ahead of time.
DiscreetSilverBug: I don’t think this has anything to do with it, SLV acquires its silver in London and it is not a small deal to ship that much silver from New York to London. Yet if this early-August COMEX in-and-out silver did end up in London, it would still have little relevance from an analysis standpoint.
eddy sharpe: Some pretty “sharp” points there!
OpenMint: Thanks, and it is important to understand that the basis approach for gold and silver is not “easy” or a “slam dunk”, which is probably why nobody has studied with an eye to bringing it to the public’s attention (until Professor Fekete). Heck, if I thought that there was still a lifetime left to use the basis under the current irredeemable currency regime, I’d probably just keep it to myself and never share it. Of course I wouldn’t be able to collaborate with the Professor in that case since he is much more generous with his knowledge than I would be in his position!
Indio 007:
“I think the problem stems from the promissory notes that were wrapped into collateralized debt obligations and asset backed securities are unenforceable. They are unenforceable because they were unlawfully assigned and negotiated. Now the banks want to dump their garbage.
If the this bailout package passes and the Treasury purchases these debts, the government will be foreclosing without court action. Since they threw into the bailout legislation that actions under the statute are unreviewable by a court, holding the original note will be irrelevant. Foreclosure will be an administrative railroad job.
It’s funny they this is supposed to solve a liquidity crisis but this money will not be of the circulating type . Meaning of course it will be book money not cash. This means inflation without new money in circulation to actually promote liquidity. nice trick huh?”
SilverX,
Thank you for the information. I disagree on the mine production numbers and industrial demand. Mine production projections and actual numbers are not one in the same. Industrial demand has been growing between 5-8% over the past few years. In any event we can agrue numbers back and forth and still come up with different numbers. Now what would happen if we reach say the 300 million ounces in the ETF holdings. If that were the max amount they could hold, and silver was still sub $15-$17. The reason I mention that is that the ETF has added over 100 million ounces since its inception, and the price is basically what it was almost three years ago with its IPO price. So its very conceiveable considering the numbers you stated of above ground and available silver. At the rate the ETF is adding silver to its inventory, 250 million ounces is not far away. Basically without the ETF globbling the physical bullion up, one could draw a rational conclusion that silver would be considerably lower. So when the fund is full, the price may drop substantial because of all the silver on the market from ramped up mining. Longer term, that is not a very bullish sell for silver.
Silver: All three major PM consultancies show mine production up in the past few years. Here is GFMS: 2000 Mine production = 591.0 MM oz., 2007 Mine production = 670.6 MM oz. 2008 could be over 700 MM oz. You are right that “industrial applications” have grown about several % per year between 2000 and 2007 (though not 5% per year), but much of this has been offset by losses in other fabrication demand. If we count photography on a net basis (my calculation of net photographic demand assumes a 70% recovery/recycling rate), total silver fabrication demand is up just slightly since 2000 (about 20 million ounces per year). That leaves a substantial mine supply available to meet investment demand.
Regarding the ETF, 300 million ounces is not an absolute limit, it is a level at which Barclays would have to go back to the SEC for approval of an increase (typically this is rubber stamped). So far SLV has 220 million ounces, not 100 million, and when you add the other ETFs and trusts, it is about 300 million ounces that has been added in the past few years to date. However, keep in mind that if the ETFs did not exist, there would still be some mechanism through which people would buy silver. The ETF just makes it easier and available to more people/entities. Would silver be considerably lower without the ETFs? Not sure about that, since the ETFs have primarily bought silver in London whereas without the ETFs much of that silver would have been bought nearer to the investor, and that in itself could have resulted in higher prices (think about the premiums they are now charging on retail silver bullion). Besides, investors have been buying base metals along with the PMs — and copper, zinc, lead, nickel, etc. do not have ETFs.
In conclusion, the “fund” will be “full” only when there is not enough silver left for investment demand, which itself implies that prices would be much higher at that point, so I don’t think it is valid to use this as a line of reasoning to be bearish about silver.
I don’t see how anyone can be bearish on silver considering the fact that on a relative basis, silver is dirt cheap. Besides, the gold/silver ratio is in decline and probably will hit 20-to-1 somewhere around 2015. A conservative estimate would be for gold to be $2000 and silver $100 around that time.
Additionally, finance people have no clue about industrial demand for silver. They keep parroting about “photography”. I can tell you first hand, silver use IS growing tremendously.
And for the people who think that GOLD is not used at all in industry, think again. I am actually working for a high tech company that does use gold (albeit on a small scale) to make high-grade electronic contacts. Silver would not cut is because it would corrode away. Platinum would be fine but is too expensive. So gold it is.
Oh, I forgot. We just bought a “gold furnace”. Use to grow high quality optical materials. Gold in this case is the thin shield of the furnace to reflect the heat back into the center. As you may know, gold is an excellent heat conductor…
Price of this cutie: $25,000 and it aint that big.
SilverX,
I am well aware of the PM consultancies numbers. I can tell you this as a fact, those production numbers are overstated by as much as 10-12%. Also the majority of silver is a byproduct of other base metals. The global economy has slowed sunstantial in the past 6 months. Base metal mine production will reflect this slow down, as will the 2008 mined silver projections.
Ed,
I concur you statements about industrial silver demand myself first hand. The numbers you see are not accurate at all, the usage maybe as high as 50% more then stated.
Ed: You do realize you are pulling these prices ($100 silver) straight out of your rear, don’t you? Who said I’m bearish on silver? As for “finance people” and “industrial demand” not having a clue, what exactly is your qualification? People talk about photography because on a net basis it has been a very large historical source of demand and that is now declining. As I’ve stated, it has been more than offset by new industrial demand in other areas, but it is still relevant. What is this “first hand” of which you speak were “silver use IS growing tremendously”??? Name the application, Ed, and the industry source for it! Otherwise, you are just blowing hot air. Yes, industrial use is growing but it is a steady growth, not explosive, and it is being partially offset by some other things. Finally, nice example about industrial use of gold, Ed! How much gold does your “high tech company” use, exactly, Ed? And that “gold furnace”? How much gold does it contain and how many of them are there in the world, Ed? May I suggest, Ed, that your problem is having a tiny pinhole of a look at the market from your position yet that doesn’t stop you from making wild assessments about the complete beast. Sort of like examining an elephant while blindfolded.
Silver: “As a fact”, huh? In that case, you don’t mind that I ask where exactly you are getting these “facts” from? You are free to e-mail them to me at tom(at)silveraxis(dot)com. And nice call on base metal production, too! When Apex Silver’s San Cristobal and similar operations (CDE’s San Bartolome) shut down, let’s talk about this fascinating idea you have about base metal mines instantly reacting to economic conditions. I do agree that it could happen at some point in the future, but it isn’t going to be in 2008. As for the 50% higher usage than stated, again, please explain yourself instead of just pullling numbers out of thin air. Don’t worry, I listen to facts and will even agree with them when they can be independently verified.