In Ted Butler's Archive


Something highly unusual is occurring in the silver market. The price of silver seems wildly out of sync with reality. The price is saying, loud and clear, that there is plenty of silver available to the market. However, there are many more signs suggesting just the opposite, that there isn’t enough silver to go around and that we may be on the verge of a physical shortage in the one form of silver – 1,000 ounce bars – that matters most to price.

Let’s first consider retail forms of silver. These coins and bars have experienced higher premiums and delayed deliveries for most of the year. Yes, I know that retail forms of silver are different from prices for 1,000 ounce bars, but it’s likely that 1,000 ounce bars are being converted into coins and bars at various mints.  The highest premiums of all are found on Silver Eagles, the flagship coin produced by the U.S. Mint. I should say a former flagship product, since the U.S. Mint has seen fit to curtail production of the world’s most popular silver bullion coin. It’s hard to comprehend why the U.S. Mint has restricted production of Silver Eagles, since other world mints, such as the Royal Canadian Mint, have had no problem producing competing coins. There is a public law requiring the U.S. Mint to produce enough Silver Eagles to meet demand and that’s not happening. Something is quite “fishy” with the U.S. Mint’s lack of Silver Eagle production.

Another sign that silver is tight is that two well-known and publicly-traded silver miners, First Majestic and Endeavor Silver, have withheld silver production rather than sell it at what they consider to be depressed prices. There are no other commodities where producers are withholding production due to low prices. The low price of silver is out of kilter with these two miners and other silver miners as well.

Then there is the formation of the grassroots movement of the $Wallstreetsilver Reddit group which came into existence earlier this year for the sole purpose of encouraging investment in silver precisely because it was too cheap. If that isn’t a sign that the price is wrong, I don’t know what is. Finally, there are clear signs of heavy investment demand for silver. Over the past year and a half, some 500 million ounces of physical silver in 1,000-ounce-bar form have been bought and deposited in the world’s silver ETFs, the most in history. This comes with no sign of investor liquidation. Most often investors buy as prices rise and sell when prices fall, but here we are seeing something else. Investors are holding strong in the face of what has been mediocre price action in silver. It’s the only asset down more than 50% from its highs of forty years ago. We are seeing widespread intuitive recognition that the price of silver is too low.

Lately, there has been an explosion of independent internet commentary pointing to the blatant COMEX silver manipulation. There are no similar allegations in other commodities or markets. Despite receiving thousands of complaints and serious accusations, the regulators at the CFTC and the CME Group have remained silent instead of addressing the matter head on.

Meanwhile, JPMorgan, the chief manipulator of silver on the COMEX, has managed to accumulate over one billion ounces of silver at prices they engineered lower. That’s half the silver in the world in 1,000-ounce-bar form. They were hit with a deferred prosecution agreement with the Department of Justice for spoofing in gold and silver trading, but that has not diminished their status as a major factor in these markets.

Finally, the low price of silver has encouraged buying in countries like India, which recently acquired 30 million ounces. Last month, a hedge fund managed by David Einhorn purchased 1½ million ounces of silver. Low prices will encourage buying until the prices are no longer low. With that comes the possibility of a price explosion that proves not much silver is available.

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