Available Silver Production for Investment (ASPI)

(Originally posted 12/15/20, updated 3/1/21)

Available Silver Production for Investment (ASPI) means (to me anyway) the silver production/supply, mining and recycling, less the amount of silver that gets “consumed” by industry and fabrication.  In the page Supply & Demand, I present that the average total silver production for the last 9 years has been about 1000 Moz. (million ounces or a billion ounces) per year and an average of 740 Moz/year is consumed in industry and fabrication.  Yes, some of that will come back as recycling, but only an average of less than 20% and the recycling will show up in production in subsequent years. That leaves only about 260Moz./year available for investment demand and that amount is what I am calling ASPI  If there is a better or more standard name for ASPI please let me know.

I doubt I am the only one who recognizes the importance of breaking out the ASPI, but I haven’t seen much talk about it by other silver commentators, at least not in specific terms.  So,75% of silver production is consumed and this leaves only 25% for investment demand- ASPI.  One example of how the investment demand for silver can affect the price happened earlier this year between mid-March and the end of July.  During those months 330 Moz. of physical silver flowed into the world’s silver Exchange Traded Funds (ETFs).  So, in 4.5 months there was an average of 73 Moz./month of silver deposited into the ETFs, which is more than 50 Moz./month over the ASPI of 22 Moz./mo.  The price of silver during that time went from $12.00/oz. to $24.60/oz.  Was it rising prices that caused the large silver deposits in ETFs or the large deposits causing prices to rise?  It seems to me that the two are intertwined, especially given the tightness of ASPI.  Carl Loeb is attributed as saying that SLV (the largest silver ETF) will be the “Death Star” of silver- gobbling up all silver in sight. 

Why is ASPI so important?   In most commodities, the commodity is produced, then sold, then consumed.  Think crops, most other metals, energy, livestock, etc. Gold is somewhat unique in that it is mostly an investment metal; very little gold is consumed.  Silver is both consumed and bought and stored for investment.  (Platinum is also dual a purpose precious metal, but I’ll let someone else speak about platinum as I don’t know the fundamentals.)  In effect, the two main reasons to purchase silver – fabrication and investment – are competing with each other.  The users of silver would probably be happier if they didn’t have to compete with investment demand, but they are NOT going to be denied- they need the silver for their products and businesses. 

Some may think, “Well if the silver price goes up because of investment demand, then the fabrication demand will go down because of the higher price and so the price will equalize”.  I don’t think that will happen, at least not to a significant degree.  Much fabrication demand is for small amounts of silver for a product. From my research I estimate that there is about .5 – 1 ounce of silver in a car.  Are car makers going to make fewer cars if silver price doubles and they have to spend an extra $12 – $24 per car?  Electronics in general – smartphones, computers, all manner of devices – use a few grams of silver per unit, so if the price of silver increases are the manufactures going to use less silver?  A typical Apple iPhone uses .34g of silver per phone.  At $25/oz. that is only 27 cents of silver per phone.  Is Apple going to make or sell fewer phones if they have to spend $1 more insilver for each phone?  Over time the silver users may come up with alternative materials or methods of using less silver, but in the short term they are going to be much more concerned with getting sufficient quantities of silver, at whatever price.  Then there is solar Photovoltaics (PV).  Solar currently uses about 100 Moz./year of silver and is anticipated to more than double over the next few years while from what I have read the amount of silver used per watt is going down.  In a recent article Ted Butler (https://www.butlerresearch.com) had a link to a very informative article on solar PV-  https://ourworldindata.org/cheap-renewables-growth.  The bottom line is the demand for silver has been constant and will probably rise in the future. 

Ed Steer (https://edsteergoldsilver.com/) presents the following chart weekly that he attributes to Nick Laird.  This chart is dated 10/8/20.  Currently, the 8 largest silver shorts in the COMEX futures market are hugely short compared to the production of silver per the chart below.  It looks like the silver production numbers used for this chart includes mining only, not recycling, but it still gives an accurate perspective on just how short these traders are.    

Below this chart are my comments. 

  • This chart is showing that the Top 4 Silver Short Traders are short 129 days of production and the Top 8 Silver Short Traders are short the equivalent of 164 days of silver production.
  • At the time of this chart the Top 4 silver shorts were about 301 Moz. and the 5 – 8 were short another 82 Moz.
  • So, the average Top 4 silver shorts are short 75 Moz. and the average  5 – 8 shorts are short 20.5 Moz.
  • Using Days of Production- note how the silver shorts tower over all of the other commodities.
  • But, these shorts are banks that have built this manipulative position making some money (in the past) and now find they are stuck.  They are not miners or users, they are speculators.  So, when their short positions are compared to days of ASPI (Available Silver Production for Investment) the numbers balloon.  The Top 8 silver short traders are 539 days short of ASPI- almost 1.5 years!   

The big silver shorts are definitely the elephant in the room.  Who are these big silver shorts, what are they doing and why?    Most of my information comes from Butler and if you want to know how we got here I would suggest you read him.  Over the years, Butler has laid out the workings of this precious metals (gold and silver) manipulation in detail.  The big shorts are mostly big banks; they have been using their outsized short position to keep the price of silver (and gold) lower than it would be without that position and they have used this manipulative position to make money.  According to Butler they have never collectively lost money on their positions up until about a year ago.  But, at this point they are about $10 billion in the hole on their short positions in silver and gold.  I am concentrating on silver because that is the market that I believe has the most potential.  It is a very volatile market, especially lately.  I think most of that volatility has to do with these big shorts trying to maintain control and get out of the corner they have painted themselves into.  See my Open Letter to the 8 Big Silver Shorts .  I think there will be fortunes made (and lost) in the silver futures market by those who know (or think they know) what they are doing.  It will be a wild ride.  I expect the big shorts will try every trick in the book to squirm out of their position, but I don’t see how they can and for the last few weeks they have been selling short even more.

Futures trading is supposed to be a vehicle for users and producers to hedge risks.  For many years now speculators in the COMEX future trading have been setting the price of silver. This fact is shown by the weekly Commitment of Traders (COT) report produced by the Commodity Futures Trading Commission (CFTC).  I believe it will be the tightness of physical silver- the constant demand of silver fabrication and the increasing demand of silver investment- that will cause the silver price to explode.  The big silver shorts may be the trigger and they will find that the gun is pointed at them.   

Supply is the other side of the equation.  People might assume that as the price of silver goes up so will the production- mining and recycling.  Yes, I am sure production will go up, but it will take a few years for new mines to come online.  Also, the majority of silver production comes from mines that are primarily mining for other metals- gold, copper, zinc and lead.  So, even if the price of silver is up that doesn’t mean that miners will find it profitable to mine more of their primary ore to get more silver.   Silver recycling might ratchet up some, but again it will take some time for it to come in and then be refined into usable form. 

I think the fabrication demand for silver will increase over the next few years.   When the price of silver goes up, the fabrication demand and production will stay about the same, but investment demand will hugely increase, causing the price to spiral upwards.  Remember there are ‘only” about 260 Moz./year which is 22 Moz./month of ASPI.  Fabrication demand uses 62 Moz./month of silver. That is why I think that physical demand will be the “trigger” that will end the silver manipulation.  Just the rumors of physical silver shortages could cause the silver users to want to go from their usual “just-in-time” silver inventory to stocking an extra month or more of silver supply.  So, they will want to buy (at most any price) an extra 62 Moz. (probably more) of silver which is almost 3 month’s worth of  ASPI. 

Some might say I am looking too hard at just production and demand.  What about the estimated 2000 Moz. of above ground silver bullion in 1000 oz. bars?  1500 Moz. of that “inventory” is in “visible” storage- ETFs and COMEX warehouses.  JP Morgan probably owns or controls most of the rest.  This is physical silver that has been purchased and stored as an investment.  The big question in silver will be “who is going to sell and at what price?”  We already have 8 silver traders who have sold over 380 Moz. in  “paper” silver.  How are they going to buy back those contracts and/or deliver that much silver?  And at what price?  I think that if even one of these big silver shorts tried to get out of their position there would be such a price increase that the others would be scrambling to also get out causing the silver price to skyrocket.     

Using ASPI as a framework puts silver in a much tighter market and it is a small market (this is a great visualization of just how small the silver market is) to begin with..  On one hand- silver production is 1000 Moz./year; on the other hand- we only have about 260 Moz./year that is available to be purchased for investment.  Once we (the silver investment purchasers of the world) purchase more than 260 Moz./year, then we will be competing with silver users and holders of existing silver- neither of which will sell cheap.  There was an interesting article on Silverseek https://silverseek.com/article/silver-eagle-sales-blow-pass-30-million-prepare-fireworks-investment-demand-surpasses by Steve St. Angels that states the investment demand has outpaced the fabrication demand this year.  I believe this is the direction of the silver market.  As the demand for silver investment increases so will the price causing the silver price to snowball, rolling into an avalanche.   

Open Letter to the 8 Big Silver Shorts,

(originally posted 12/12/20; updated 3/1/21)

I can’t imagine how you must be feeling or what you are thinking.  Who are the “you” in that statement?  The 8 largest silver shorts on the COMEX; those that decided to try to manipulate the silver price down  and make some money; those that made the decisions that got your mostly big banks into this position.

You seemed to do OK for 8 or 9 years. Manipulating silver and gold to the downside and making some money leading the managed money traders (mostly technical traders) around by their collective noses. As the top 8 silver shorts, you are now almost 80,000 contracts short on the COMEX. As you know, that is over 400 Moz. (million ounces). How are you going to buy back or deliver 400 Moz. of silver in this market without losing your ass?

You helped manipulate the silver price down to under $12/oz. in mid-March 2020, but you were only able to reduce you massive short position by about 40 Moz. and have been stuck at about 350 – 400 Moz. since. What was your average entry price? My guess is around $16/oz. You had a couple months until mid-May before the price went over $16/oz. when you could have tried to buy back your shorts. I assume you did try to buy back as much as you could without triggering a big price rally.

Then the price goes up. Per Ted Butler (https://www.butlerresearch.com/), the 8 Big Shorts in gold and silver futures are about $10B (yes, B for billion) in the hole between realized and mostly unrealized losses. You do read Butler, don’t you? Well, maybe not until recently because surely if you had been reading him you would have known that this would happen. I guess maybe JPM (JP Morgan) was reading Butler as they used to be the big short of the 8 Big Silver Shorts. But, they managed to whittle down their short position to flat and accumulate 700 – 1000 Moz. of physical silver to boot. I’ll bet for the right price they would sell you 400 Moz. to help you out of this fix. Or maybe they will lease the silver to you so you can’t be accused of naked shorts.

As you know gold accounts for a majority of the $11B of your losses. So, why I am talking about silver? Because I think silver has been more heavily manipulated and the fact that you couldn’t get your hands on anywhere close to 400 Moz of silver at anywhere close to current prices. I think you can probably squirm out of your gold short position, take your lumps and lose a few billion. But it will be much harder to get out of the silver position. I’m sure you know why, there is just not that much silver for sale.

From what I read there is only about 2000 Moz. of above ground silver in 1000oz. bars. Much of that has gone into the silver ETFs- a total of 1120Moz according to Butler. There is 380 Moz. in the COMEX warehouses, much of that owned by JPM. So, who is going to sell you 4000 Moz. and at what price? Out of the about 1000 Moz. of silver that is mined and recycled per year, almost 75% of it is consumed by fabrication and industry. You don’t want to compete with industry for silver. The world wants its solar panels and smartphones. This leaves only about 260 Moz. per year for investment demand and you are short 16 months what I call ASPI (Available Silver Production for Investment).

As I have said on my website –  TheSilverStory.com – if what you have been doing isn’t illegal, it should be.  You have managed to control the price of silver (and gold) for years to the detriment of producers and investors.  Now how do you get out of your huge silver short position?  It seems you will need to have some Prime Directives, such as:

Prime Directives

PD#1   Do whatever is needed to exit the big short position without losing a fortune or your company.

PD#2   Don’t get charged or convicted of doing anything illegal.

PD#3   Remember everyone is watching including the DOJ.

So, PD#1 can make you break PD#2 because of PD#3.  Maybe you should just take your losses and buy back the shorts now before the price goes higher, which it will no matter what you do.

Sincerely,

Steve McWhirter – AgMan