In Ted Butler's Archive


It’s hard to be cheerful with silver prices at 4 year lows, particularly considering that the price has been manipulated lower. So strong has the COMEX been at dictating silver prices that the only force that can overcome it is the physical market itself.

The good news is that enough signals are emerging from the physical silver market to believe that change may be at hand. In addition, the market structure on the COMEX is now configured bullishly and highly supportive of higher prices. It’s easy to be optimistic about where prices go from here.

Most important is the turnover or movement of 1,000 ounces bars of silver into and out of the COMEX-approved warehouses. Last week, 9.1 million ounces of silver were moved into or taken out from the COMEX silver warehouses, the highest weekly turnover yet. It seems to be intensifying. The 9.1 million ounces was more than 56% of all the silver mined in the world for a week (16 million ounces). This physical turnover is unprecedented in any other commodity. Is it unreasonable to wonder why it exists only in silver?

There also seem to be fuller truckload lots of 600,000 ounces being moved in and out. This suggests the turnover is intensifying. If this isn’t indicative of a tightening physical silver market, then I am at a loss to give a plausible explanation.

Another signal has been the unusual and unexpected large deposits into the big silver ETF, SLV. This week close to 6.5 million ounces of silver were deposited and over the past four weeks nearly 14 million ounces have been deposited. I don’t recall a previous occasion of extended price weakness with significant metal inflows into the SLV. Clearly, there have been no net inflows into the big gold ETF, GLD, further highlighting the deposits into SLV. So why are such big physical silver deposits coming into SLV on pronounced price weakness? The close-out of short positions offers a partial explanation, as the short position in SLV has been steadily reduced over the past couple of months to 14.3 million shares. That’s still sizable and contrary to the Fund’s prospectus.

However, there has been more silver deposited than is accounted for by short position reduction. The most plausible explanation is that metal has been deposited to satisfy net new buying. The real question is who is behind the net new buying of SLV shares? We know it’s not technical trend-following or price-momentum traders because these traders never buy on extended price declines. By default, the new net buyers of shares of SLV must be value-type traders, attracted by silver’s low and undervalued price. Quite possibly hedge funds or other big buyers are sniffing at silver.

I’m also watching the substantial buying of COMEX silver futures contracts on price weakness which started last year. The buyers are in the managed money category. They probably believe that silver is undervalued and a great prospective investment. That’s certainly an opinion they share with me and I hope you see this great opportunity just as clearly.

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