Physical silver running out because its spot price does not reflect true investment d

[Serpo]

Physical silver running out because its spot price does not reflect true investment demand



6 October, 2011 |


Several readers of ArabianMoney have written to us over the past two weeks to express their astonishment at the current price of silver because demand where they live is so high that stocks have run out.
Consider this comment: ‘I used to buy silver from a shop in Kobar in Saudi. From the last four weeks they said they ran out of silver. I cannot find anyone who sells silver in Saudi now. I asked them from where do they get their silver. They said the UAE. The problem is they only have 1kg bars…and I still cannot find any supplier.’
No stock
Well don’t bother coming to the UAE. Our information is that the 1kg bars mentioned here and featured in a video on the website last month (click here (http://www.mydubaimycity.com/en/videofull/834/How-To-Invest-in-Gold--Silver-In-Dubai)) are all sold out too. We’ve also had feedback about low or no stock in Texas and Australia from big private bullion dealers there.
Now what would normally happen when a commodity is in short supply is that the price would go up to encourage sellers to put some more into the market. That is presently not happening because the silver price is being artificially suppressed in the Comex futures market by the bullion banks acting on instructions from the Fed presumably, so why would you sell that silver cheaply if you happened to own some?
But something has to give and it is the price of physical silver rather than the Comex price of the shiniest of metals. If you can find any silver these days you will pay quite a substantial premium over the spot price. But pay it because that is probably still a bargain compared to where silver prices are going.
The truth is that silver is a rare metal, more rare than gold. Silver reserves have been estimatated at one-hundredth of gold reserves. Silver is after all consumed by industrial processes and reserves have dwindled over the years because the price has been kept so low for so long by market manipulation. Why is that?
Silver price fixing
This market manipulation dates back to the last silver boom of the late 70s and the spectacular $50 spike in the price in 1980. The central banks then saw suppression of the silver and gold price as a part of their war on inflation. They clearly lost that war but kept gold and silver prices down until this decade.
Thirty-one years later and we are still not back to those silver prices despite a seven-fold increase in the global money supply. On that reckoning silver ought to be $350 an ounce, not $30 today.
However, the snap back for silver prices now has the capacity to be sensational, and far beyond the mini-spike in the first few months of this year from $30 to almost $50 again. So those who go seeking out physical silver to buy at current prices are going to be very well rewarded and soon, not in 31 years!
ArabianMoney continues to stick with silver as our top tip for 2011 (http://www.arabianmoney.net/gold-silver/2010/12/24/why-silver-is-the-top-pick-for-2011/) and that means a big rebound in the price before the end of the year.
http://news.silverseek.com/SilverSeek/1317908668.php

[Serpo]

Silver Shorts Cover Nearly Half Their Position In One Week

As we anticipated earlier this year, commercial shorts including JPM are finally within grasping reach of covering their positions and transitioning to net long. For more than a decade, the large commercial trading banks have been trapped with an enormous short position in silver as the price has risen from its lows near $3 to its May high of nearly $50. Most analysts expected the commercial shorts to be broken in a short squeeze, likely launching silver above $100. However, this short squeeze will not occur.

In September 2010 these traders began to aggressively cover their short positions. Since then, commercial net short positions in silver have been reduced from over 65,000 contracts to 24,262 as of September 27, 2011 - and falling from 40,708 just one week earlier.



The large September take down from the $40 price level to the $30 price level has completely wiped out the small leveraged speculators, which saw their net long positions crash from 18,170 the previous week to 8,837. Meanwhile, open interest is threatening to break below the 100,000 level - indicating that speculative money has abandoned silver and sentiment is extremely low amongst investors. The combinational one-two punch of the May takedown and September takedown served to transition contracts from speculators to the commercial shorts at a much lower average price than most analysts ever expected.
http://www.istockanalyst.com/images/articles/SI20111023392small.jpg (http://www.istockanalyst.com/images/articles/SI20111023392.jpg)


The bullish trend line in silver that began in 2009 remains intact. However commercial shorts are now within a few weeks of trading their way out of an impossibly large short position to go net long. We expect the remaining positions to be covered within the $26 to $32 price range under the guise of bearish speculator sentiment.

This is extremely bullish for silver's long term trend, as the commercial banks will capture more profits from the bull market in precious metals than any other trading group. Once the commercial banks have a net long position their financial incentive will reverse from using takedowns to take-ups. This will likely coincide with the next round of monetary intervention by the Federal Reserve and the beginning of the third phase in the silver bull market - in which waves of retail investors push silver to its destined triple digit price level
if this is true then all I can say is GOODY

http://www.istockanalyst.com/images/articles/sc20111024359small.jpg (http://www.istockanalyst.com/images/articles/sc20111024359.jpg)




http://www.istockanalyst.com/finance/story/5452390/silver-shorts-cover-nearly-half-their-position-in-one-week

[mamboni]

I love silver and I am very bullish long term. But, I wonder if the "silver is rarer than gold" meme is not hyperbole. Below I am attached the silver supply-demand metrics for the period 2001-2010 published by the Silver Institute. Roughly speaking, industrial consumption accounts for about 50% of demand. If we assume that all industrial silver is consumed, then about 50% of silver demand which consists of jewelry, bars, coins etc. does in fact accumulate. That is, about 500 million ounces per year of silver bullion accumulates, as jewelry and investment bars and coins, some of it held by members here. So, the argument that silver is consumed versus gold is accumulted is only half true. Both metals are accumulated. Now, gold production peaked in 2001 at about 80 million ounces and has trended down since. But if we use a figure of ~80 million ounces for gold and ~500 million ounces for silver as annual production, then this suggests that at steady state, given enough years (perhaps presently), that above ground silver stocks are about six time above ground gold stocks. In conclusion, if total world cumulative gold is estimated at 5 billion ounces, this suggests that 30 billion ounces comparable silver stocks. This latter number sounds too high. But, from an ongoing supply basis for the last 20-30 years, I think 6:1 available silver:gold supply sounds about right. As to relative pricing, it's anyone's guess what silver price should be when gold sells for $1600-1650; after all, platinum is about four times rarer than gold and yet it presently is cheaper than gold - go figure!

SO, what's wrong with my analysis?
1238
http://gold-silver.us/forum/attachment.php?attachmentid=1238&d=1317936175

[chad]

I love silver and I am very bullish long term. But, I wonder if the "silver is rarer than gold" meme is not hyperbole. Below I am attached the silver supply-demand metrics for the period 2001-2010 published by the Silver Institute. Roughly speaking, industrial consumption accounts for about 50% of demand. If we assume that all industrial silver is consumed, then about 50% of silver demand which consists of jewelry, bars, coins etc. does in fact accumulate. That is, about 500 million ounces per year of silver bullion accumulates, as jewelry and investment bars and coins, some of it held by members here. So, the argument that silver is consumed versus gold is accumulted is only half true. Both metals are accumulated. Now, gold production peaked in 2001 at about 80 million ounces and has trended down since. But if we use a figure of ~80 million ounces for gold and ~500 million ounces for silver as annual production, then this suggests that at steady state, given enough years (perhaps presently), that above ground silver stocks are about six time above ground gold stocks. In conclusion, if total world cumulative gold is estimated at 5 billion ounces, this suggests that 30 billion ounces comparable silver stocks. This latter number sounds too high. But, from an ongoing supply basis for the last 20-30 years, I think 6:1 available silver:gold supply sounds about right. As to relative pricing, it's anyone's guess what silver price should be when gold sells for $1600-1650; after all, platinum is about four times rarer than gold and yet it presently is cheaper than gold - go figure!

SO, what's wrong with my analysis?
1238
http://gold-silver.us/forum/attachment.php?attachmentid=1238&d=1317936175

nothing is wrong with it :)

[Neuro]

I think your analysis is correct Mamboni. However I think far more physical gold is directly available for trading at the metal exchanges, most of the silver is held by private hands in products (silverware, jewellry, junk silver and numi coins, and small size bullion coins and bars) that needs to be melted down and poured into bars before being traded at COMEX, or another exchange. I think maybe 15-20 Billion ounces of high grade silver exist above ground and most will remain as jewellry or forks and spoons, unless price goes up a lot from these levels, before people would bother selling it to a melter. Last I saw COMEX has about 30 million ounces of silver in its warehouse, probably the entire world has a few hundred million ounces of easily traded silver in storage, but much of it is probably in quite strong hands. A lot is also in small bullion products, but I think it is rare that these are melted and poured into 1000 toz bars. I don't think silver will ever reach par value with gold, at one time a 10:1 ratio is probable, maybe even as low as 5:1 is possible, but long term ratio will be somewhere 15-25:1 IMO...

[mamboni]

I think your analysis is correct Mamboni. However I think far more physical gold is directly available for trading at the metal exchanges, most of the silver is held by private hands in products (silverware, jewellry, junk silver and numi coins, and small size bullion coins and bars) that needs to be melted down and poured into bars before being traded at COMEX, or another exchange. I think maybe 15-20 Billion ounces of high grade silver exist above ground and most will remain as jewellry or forks and spoons, unless price goes up a lot from these levels, before people would bother selling it to a melter. Last I saw COMEX has about 30 million ounces of silver in its warehouse, probably the entire world has a few hundred million ounces of easily traded silver in storage, but much of it is probably in quite strong hands. A lot is also in small bullion products, but I think it is rare that these are melted and poured into 1000 toz bars. I don't think silver will ever reach par value with gold, at one time a 10:1 ratio is probable, maybe even as low as 5:1 is possible, but long term ratio will be somewhere 15-25:1 IMO...

A corrollary to this is that silver will not run out any time soon (i.e. in the net 20 or 30 years). But, as silver reserves deplete and ore grades drop, and as the world demands more and more silver for everything from TVs to cell phones to switches to odor-free clothes and on and on, the "commodity" price will have to progressively rise to pull all the private silver coins, trickets, jewelry and bars out to the refiners for production of industrial bars. And silver's price rise must also compensate for the rsising cost of energy. So, from a Malthusian/Resource depletion standpoint, I think silver represents and excellent long term investment and will outperform gold in this regard.