In Ted Butler's Archive


The retail and wholesale markets in silver and gold are hot. Particularly in silver, the retail market is, quite literally, on fire.  The fact that premiums exist on virtually all forms of retail silver (along with delivery delays), something never seen this pronounced before, means that the creation of new 1,000-ounce bars is necessarily being restricted. As long as premiums this large persist, there exists a powerful profit arbitrage for anyone in the business to convert 1,000-ounce bars into retail silver forms. Putting this into a longer-term perspective, there’s never been a time like this before (except for very brief periods).

Over the balance of my experience in silver, spanning decades, it was always much more a case of retail forms of silver being melted into 1,000-ounce bars – not what we’re seeing today. It was always a case of the U.S. government disposing of its once massive hoard of silver through common coinage or by ill-advised sales prompted by lobbying from the Silver Users Association. Or it was a great rush by the public to dispose of silver forks and spoons and other artifacts in response to price surges. Formerly, all these types of silver were melted and found their way to conversion into 1,000-ounce bars. Now, that is completely reversed and its bullish ramifications for price are profound.

On the wholesale front, it can hardly be denied that there is a drain on COMEX silver and gold warehouse inventories, as well as a drain from the silver and gold ETFs. Much of this physical metal appears headed East, particularly to India, in the case of silver. Recent statistics for silver imports into India indicate as many as 300 million ounces could be sold to India this year – a truly staggering sum. The metal has to come from someplace, of course, and the COMEX warehouses and ETF holdings seem the most logical source, particularly in the case of silver, but also in gold. After all, nearly 1.4 billion ounces, or 70% of the world’s known inventory of 2 billion ounces of silver in 1,000-ounce bar form is held in the world’s silver ETFs and in the COMEX-approved warehouses. In my long involvement with silver, there has never been such a time as now, where so much metal is being drained from the silver ETFs and COMEX, apparently headed East. You can’t find a more bullish investment story than that of silver.

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