In Ted Butler's Archive


The backdrop of recurring shortages of retail silver and the increasing signs of wholesale tightness, coupled with the extremely depressed price, strongly suggest we are fast approaching the physical tipping point of a wholesale physical shortage. When a physical shortage hits the wholesale silver market, there will be an immediate effect on the price of silver. There is no way to hide a retail silver shortage, and there will be no way to cover up a wholesale shortage. With retail forms of silver, the shortage is seen in rapidly escalating premiums and delivery delays. When investors and industrial users of 1,000 ounce bars experience what retail investors are experiencing the jig is up. The price will have to jump dramatically.

When the wholesale shortage hits, it will come suddenly without warning. That’s because a remarkably small amount of available silver actually exists even though there appears to be plenty. As an example, the U.S. Mint has been pumping out prodigious amounts of Silver Eagles over the course of the past 29 years, over 350 million, including more than 200 million over the past 5 years. There have to be more Silver Eagles in existence than any other form of retail silver. Yet, this is the first form that goes into shortage and whose premiums seem to lead the rise. If there are so many Silver Eagles in existence, why doesn’t that prevent a shortage from developing in this form of retail silver?

Just as there seem to be plenty of Silver Eagles, there appear to be plenty of 1,000-ounce bars. (1.3 million bars in all). The catch is that just because it exists, doesn’t mean it’s available for sale at current prices. When not enough 1,000-ounce bars are available for sale, a wholesale shortage will erupt.

There is a great force at play in silver. It’s my core belief that JPMorgan has amassed a huge amount of physical silver. This is the one thing that ties everything together. The reason silver has been down in price for the last 4.5 years is because JPMorgan wants to buy silver at the cheapest possible price. From the record purchases of Silver Eagles (and Canadian Maple Leafs) over the past 4.5 years which have led to recurring retail shortages, to the continuous frantic physical turnover in the COMEX silver warehouses, to the counterintuitive metal flows in the big silver ETF, to the recent evidence of JPM’s taking delivery on the COMEX and the very recent signs of tightness in COMEX futures, all roads lead to JPMorgan accumulating physical silver.

JPMorgan’s involvement now points to sharply higher silver prices. The higher silver prices move, the better it will be for them. In my mind that’s what makes silver an eventual sure thing.

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