In Ted Butler's Archive


Total COMEX silver inventories rose last week by 1.5 million ounces to 183.6 million ounces, very close to previous inventory peaks seen from 2013 to 2015. Should those previous recent peaks be exceeded, one has to go back to the mid 1990’s to find higher levels of COMEX silver inventories. I continue to believe that the message sent by the level of total COMEX silver inventories is mixed at best and the much more important message of frantic inventory turnover over the past six years has been vastly overlooked.

Total COMEX silver inventories as well as all other documented inventories of silver in the form of industry standard 1,000 ounce bars should be climbing. That’s because, since 2006, the world has produced more silver than it has consumed; reversing a highly unusual deficit-consumption pattern of the preceding 65 years in which less silver existed in the world than the prior years.

The catch is that so much silver was taken from world inventories from 1940 to 2006, a cumulative total of more than 9 billion ounces, that the half-billion ounces added to existing inventories over the past 10 years is, quite literally, a drop in the bucket. In 1940, there were more than 10 billion ounces of silver in the world; today less than 1.5 billion ounces remain in the form of 1,000 ounce bars (and less than 1 billion ounces of that can be documented).

Think about the world in 1940, in terms of population and economic activity and how little investment buying power existed compared to today. Yet back then the world had ten times the amount of silver that exists today. The situation is the opposite in gold. There is three times as much gold in the world today than there was 75 years ago. The simple explanation is that silver has been voraciously consumed industrially since then, while gold has not. Amazingly, even though the amount of gold in the world has tripled since 1940, while the amount of silver has declined by nearly 90%, the silver/gold price ratio is trading today around what it traded for back then. How is this possible? My answer is price manipulation and I would love to hear alternative explanations. Silver should be much higher. The bottom line is that we are long overdue for a monster move up. The next silver rally should be the big one I’ve been expecting for years.

It is no coincidence that were one to deduct the holdings in the JPMorgan warehouse from total COMEX inventories, there would be only about 100 million ounces in total COMEX inventories, which would be much closer to historical low levels. In other words, the reason COMEX silver inventories are close to 20-year highs is due to the growth in the JPMorgan warehouse since April 2011.

Not only is the metal in the JPMorgan silver warehouse three times larger than the next largest warehouse, the amount of metal there now approximates the entire net short position that JPMorgan holds in paper contracts. In other words, JPMorgan has now, effectively, covered completely any exposure it has on the short side of silver with its actual COMEX warehouse holdings alone. This makes all the other 450 million+ ounces of actual metal the bank has acquired over the past nearly six years “gravy.” How much additional gravy in the form of actual silver JPMorgan seeks to acquire is anyone’s guess; but based upon recent developments, the bank’s appetite for physical silver has only grown stronger.

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