WHO IS THE BIG SILVER BUYER?
People have asked me if silver is such a great potential investment, then why hasn’t somebody big come in to buy it? In the past, the Hunt brothers in 1980 and Warren Buffett in 1998 bought large quantities of silver. More recently JPMorgan has acquired a massive 850 million ounces over the past 8 years. Still the question persists – why hasn’t anyone else bought it? Well recently the data suggests someone big has bought silver – in addition to JPMorgan. Recent concentration data in the Commitments of Traders (COT) reports indicate a dramatic increase in the concentrated net long position of the 4 largest traders in COMEX silver futures, between May 28 until June 25. The position increased by 18,000 contracts to 67,328 contracts (336.6 million ounces). Since then, this big concentrated long position has decreased by nearly 8000 contracts to 59,661 contracts (as of July 16). The average position held by each of the 4 largest traders was 16,832 contracts.
What caused the concentrated long position to expand (to the largest level in history) through June 25 and then to decrease over the past three reporting weeks? The increase was caused by new buying, primarily in the managed money category (large hedge funds). At the same time more than 50 million physical ounces have been deposited over the past month in the silver exchange-traded funds (ETFs). I think there may be a connection between the 8,000-contract (40 million ounces) reduction in the concentrated long position and the inflow of 50 million ounces into the world’s silver ETFs. I think the decrease in the concentrated long position was a conversion of COMEX silver futures into physical silver.
The ideal way to buy nearly $2 billion of physical silver (125 million ounces @ $15) is to first buy 25,000 COMEX futures contracts. Trying to buy 125 million physical ounces from a dealer or a silver ETF would send the price of silver soaring before completing the purchase. The only chance of buying 125 million ounce of silver without moving the price would be to buy COMEX silver futures first. Then, when the price is locked in, the conversion to physical silver could be slowly and easily transacted. Establishing the position first in futures is the key because you can lock in the price more easily with paper than going straight for the physical.
As to who is behind this large position, let’s just call him Mr. X. (No, not Mr. Xi from China). Since all the data point to the big buyer being a managed money trader of some type, I’m inclined to believe the buyer is a large hedge fund managing money for outside investors. Do I know this for a fact? No, but I am relying on hard public data as the basis for my speculation. I will not be shocked should it become public that some large hedge fund has acquired 100 to 125 million ounces of physical silver.
The revelation that a big buyer has emerged in silver could have a profound impact. It could lead other big buyers to buy silver and might serve as the catalyst for higher prices, thus providing JPMorgan with the cover story to allow prices to truly rip to the upside. There can be no doubt that when the Hunt brothers and Warren Buffett purchased silver it moved the market. They didn’t try to keep it a secret as has JPMorgan. If there is a big new purchaser of silver, as I strongly suspect, I can see no reason why the buyer would remain anonymous for long – particularly if the purchase was on behalf of investors.
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