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COMEX Silver Warehouse Stocks
By Theodore Butler

(The following essay was written by silver analyst Theodore Butler. Investment Rarities does not necessarily endorse these views, which may or may not prove to be correct.)

There’s more to the picture,

Than meets the eye,

Hey, hey. My, my.

Neil Young

My article about the recent large movements of COMEX silver inventories and the response from the regulators generated some interesting e-mail and phone conversations. I’d like to discuss what these stocks of silver are really all about. The most common question asked about my article was where the eight million ounces came from. It is impossible to know the exact source of the incoming silver since that information is not publicly disclosed. But that doesn’t mean we can’t analyze what we do know.

COMEX silver inventories are largely unchanged over the past couple of years. However, these warehouse stocks are down over 75% from their adjusted peak of about 350 million ounces eight to ten years ago. Even though the total hasn’t grown from the 100 to 110 million ounce level for the past two years, it’s possible for eight million ounces to be sent in one coordinated shipment. That’s because total world silver inventories and the COMEX inventories are two different things. COMEX inventories are a subset of world inventories.

Total world silver bullion inventories include what we can see (known) plus that we surmise exists, but can’t see (unknown). I include junk silver coins in this total (although I would think they may not be called junk in the future). The COMEX stocks are one part of the known category. They are the largest component of the known category, making up more than two-thirds of total known stocks. What makes the COMEX stocks so important, aside from them being the largest known stocks in the world, is the public daily dissemination of their changes and disposition, down to the single ounce. Today, June 9, COMEX silver stocks totaled 105,732,991 troy ounces.

I have been studying the daily report of COMEX silver inventories for more than 15 years. I know many people also follow this report. It’s only natural. In our quest for objective information, these stocks are basically the only inventory input available. I wouldn’t know what else to monitor each day. But, COMEX stocks are not total world silver stocks.

An increase in COMEX stocks is not the same as increases in total world silver inventories. What determines changes in the level of total world inventories for silver (and every other commodity) is whether we are in a surplus or deficit. If we produce more than we consume, we have silver left over that’s added to inventories. The inventories always grow in a surplus. In a deficit, we have to draw from inventories, in order to balance supply with demand. The inventories always shrink in a deficit. Always.

Unfortunately, when we see an increase in COMEX stocks, we equate that to an increase in total world stocks. Then we assume that means we have a surplus in silver, because surplus equals increasing inventories. But it’s wrong. What determines how total world inventories are changing is real world supply and demand, not changes in COMEX inventories.

Silver inventories in core NYC warehouses are basically at all-time lows. The total registered category makes up 46 million ounces. That’s the category that delivery takes place against. Never have we been so low in this category. When you consider that this registered category is the form in which investors, all over the world, go to buy and store COMEX physical silver, it is surprising that there is so little silver remaining. Every single ounce of the COMEX inventory is owned by someone. This silver is not owned by the COMEX. Although we see daily reports of this silver by the COMEX, it doesn’t mean it’s available. It belongs to many different owners.

In fact, even people who own silver stored in COMEX-licensed warehouses, the largest being HSBC, are somewhat taken back when they learn that the silver they own, is counted in the COMEX totals. And I’m not just talking about that silver acquired as a result of taking delivery of a COMEX futures contract. I’m talking about silver bought from any dealer and stored at the warehouses licensed by the COMEX. There is a very good reason for folks to store silver in a COMEX-approved warehouse. It is the safest place to store metal. So safe, that most of the known world silver inventory is stored there. That’s no accident. My point is just because this silver is visible in these few warehouses, doesn’t make it available.

That’s why I have made such a big deal out of the timing of this eight million ounce transfer in. Based upon the comments I have received, most folks did interpret that this silver transfer indicated there was more silver around than thought. This is just the way they wanted people to think. I think this transfer was designed to fool people and to make it look like there’s plenty of silver out there. Nothing could be further from the truth. That is why it’s upsetting to not get disclosure on why this silver came in when it did.

It may be microanalysing this point. I look closely at all aspects of silver. But if I’m anywhere near correct on this issue, it means that someone is going out of their way to make it look like we have plenty of silver, when all other facts point in the opposite direction. If someone is doing this, they are sending false signals about the supply of silver to hide how scarce available silver is becoming. That should make you not only question the responses from the COMEX’s Mr. Wolkoff, but rush out and buy as much real silver as possible.

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