Silver Stackers

Available Silver Production for Investment (ASPI)

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(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,

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(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

How to Invest in Silver

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As I have said several times on this website- I think silver is a great investment, see Why Invest in Silver? There are many ways to invest in silver and I am going to list and provide some information on some of the ones that I am aware of. Please provide comments on silver investing with other investments or comments on the ones that I have listed.

  • Silver– Owning physical silver under your control is probably the safest way to invest in silver. One challenge with silver is that its bulky. You can physically keep several thousand ounces of silver in a home safe, but it is heavy and bulky. One thousand (troy) ounces of silver weighs about 83 pounds (31 Kg.) So, some people pay for silver storage. I haven’t ever had the need to do this and don’t know much about it, but obviously you would want to carefully investigate storage, know how and how quickly you can get your silver if needed and know the serial numbers of your silver bars.
    • Think about buying silver, storing silver and using silver. If you need to use your silver by cashing it in or bartering to purchase goods what will be a good form to have. You want something that will be widely recognized and accepted and you want forms that will be convenient. In other words you don’t want only have a 100 oz. bar if you are going out to buy a loaf of bread. What you don’t want for your “rainy day” silver is for it to have to be assayed before someone will accept it.
    • Silver coins- Silver Eagles, Maple Leafs, Pandas, etc. are coins minted by governments or possibly a private minter. Typically they are one troy ounce of .999 silver.
      • Advantages-
        • Typically readily available & very recognizable which is good when you sell.
        • The more “collectible” a coin is then usually the higher the premium (over spot) is.
      • Disadvantages-
        • Higher premium than some other forms of silver
      • “Junk silver”- these are 90% silver coins (US) from 1964 and before that don’t have numismatic value. Dimes, Quarters, Half Dollars and maybe some Silver Dollars.
        • Advantages-
          • Currently readily available at the local coin shop or online
          • Very recognizable
          • My local coin store charges about .75 X spot price per $1 face value. So, at $17/oz. spot, 4 silver quarters would cost about $12.75 and $1 of silver coins has .715 ounces of silver. So, the premium usually not as high with junk silver, but the buyers discount when they buy it back.
        • Disadvantages-
          • Not that I can think of except the bulk and extra weight given that they are only 90% silver.
        • Silver Rounds- these are “generic” (usually) one ounce coins or small bars.
          • Advantages-
            • Typically a lower premium than Silver Eagles.
            • Fairly recognizable
          • Disadvantages-
            • Many different coins and images on the coins, may not be as recognizable as Silver Eagles and junk silver.
        • Silver bars- 5, 10, 100, 1000 oz bars- typically .999 pure silver.
          • Advantages-
            • Typically will have a lower premium than coins and typically the larger the bar the lower the premium.
            • Should be fairly recognizable, I usually look for a recognizable refiner name and/or a serial number on the bar.
            • 1000 oz. bars are what fabricators and the big silver investors use. In a physical silver shortage I imagine these will be very desirable and may even command larger premium.
          • Disadvantages-
            • None that I can think of
        • SLV- a silver ETF & PSLV- Sprott silver ETF
          • Advantages-
            • Can be traded thru most any brokerage account including most retirement accounts (you may have to sign additional notifications)
            • Has physical silver backing most shares. There has been some shorting of the stock, but that has been fairly minimal and consistent for the last few years.
            • Currently (2/26/21), there are about 1254Moz. of silver in the silver ETFs according to Butler and other reporting. I think the spike in silver prices is going to come about due to demand for physical silver and the ETFs is where the silver is at. The question will be who is going to sell silver and at what price? You should do some research before investing in an ETF. Some say that PSLV is better than SLV because of a tighter correlation between the shares and physical silver.
          • Disadvantages-
            • You don’t have the silver under your direct control.
            • There is a maintenance fee which I think is .5% for SLV
            • BlackRock, Inc. is the SLV sponsor, JPM is the SLV custodian. I’ve seen many comments and questions about JPM being the custodian and the potential for them to somehow use that position to their trading advantage. I haven’t seen any reported abuses, but something to keep an eye on.
  • Silver futures– this is where there is a lot of action. I do not have any first hand knowledge about trading future contracts. So, if you do then please feel free to comment on the Pros & Cons of silver futures trading. The price of silver seems to be determined by the futures market and that is backwards to what it should be. Physical supply and demand should determine price and the futures market should be a place where legitimate producers and users can hedge price risks. Currently (2/23/21) the 8 top silver shorts are short almost 400Moz. I think there will be some traders who make a fortune in the coming silver market, but it is going to be volatile. If you KNOW silver and you KNOW the silver futures market and you think you can make some money there, then go for it. Because if you KNOW you know that it is going to be a wild ride.
  • Silver Options- Options are a contract to be to buy or sell a futures contract before a certain date. There are Call (long) and Put (short) contracts and a Strike price and an expiration date. I have had some experience with Options, but probably without the fundamental knowledge that I should have had to invest in them. All of the option contracts that I have bought have been Calls and most of them have expired as worthless- what Butler call “kamikaze” options.
    • Advantages-
      • You can “control” a lot of silver for a relatively small price. Each silver option contract controls 5000 oz. An example of an option contract would be- say today you predict that silver will be at $35/oz. by the end of the year. You could buy a January (expiration 12/28/20) Silver Call Option with a Strike price of $35 for about $125. So, if silver didn’t make it to $35/oz by 12/28/20 your contract would be worthless. If it got close to the strike price with some time before the expiration you might be able to sell the contract and even make some money. If silver was to go over $35/oz. then you would be “in the money” and so at $36/oz. you could sell the contract for close to $5000 (+$1/oz.). So, a defined risk with potential large returns.
    • Disadvantages-
      • The time element is the big factor. If the price doesn’t move as fast as you think then your option contract is probably going to expire as worthless. I think some very sophisticated traders trade options much closer to “in the money” and so also pay a higher price for those options.
  • Proshares Ultra Silver (AGQ) – is an ETF that shoots for 2X the return of the Blloomberg Silver Subindex which seems to closely follow (percentage wise) the price of silver. So, if silver goes up 5% AGQ will go up about 10% and vice versa when the price goes down. It makes a volatile commodity even more volatile. But, does give more exposure to silver per dollar which will can pay off in a bull market. I like this investment better than silver option contracts because I don’t have to worry about them expiring.
  • Silver Mining Stock- these can give you better returns (and more volatility) than silver. Just to give what isn’t necessarily an accurate example- say the average production cost for a miner is $17/oz. and silver is selling for $20/oz. Then the minor has a profit of $3/oz. Now the price of silver goes up to $23/oz. and the miner has increased profit to $6/oz. or by 100%. Obviously, these are theoretical numbers, but it shows how increases to the price should make big increases to the miners profits. The silver and gold miners stock have not lived up to that potential during the last few months and actually that might be an opportunity to get them before they start catching up. Ed Steer of https://edsteergoldsilver.com/ has a subscription based 5 days/week newsletter that provides much very good information about the Precious Metals market. He also seems to post publicly (free) most every Saturday to Silverseek.com The following is one of the many charts that he shows on a regular basis. This shows that for YTD the silver price has risen more than the Silver7 which I just realized that I don’t know exactly what that is. I assume that it is an index or ETF that tracks 7 Silver miners. More later.

Why not us?

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(updated 3/1/21)

The mainly big banks have been playing a no lose (so far) game for years.  They have maintained a concentrated short position in gold and silver- selling more when the price is going up to cap the rally and then buying back as they manipulate the price lower. See my article on how they have done this.  As of 2/24/21 the top 8 silver shorts per the CFTC weekly COT report are almost 80000 contracts short silver.  That is the equivalent (at 5000 oz./contract) of almost 400 Moz. of silver.  They seem to be having trouble at this point trying to get out of that position as they have been short this much and more for the last 6 months at least. I have no doubt they will do everything they can to get out of this position without losing their shirts or maybe their companies.  See my Open Letter to the 8 Big Silver Shorts.

I know that Ted Butler has made an estimate on what the entry price of these silver short contracts was, but I can’t find that info right now. But, I am sure it was well under $20/oz. probably around $16 – 17/oz. and they seem very adverse to buying those back at a loss. The top 8 shorts may not be the same for both silver and gold, but they are currently (2/26/21) about $10 billion dollars in the hole- combining realized and unrealized losses.

Woes the big banks- right? I say this is the little guys chance to stick it to the “big boys” for once. We can keep their feet to the fire. The more silver we buy, the more people understand the situation, the higher the price goes, the more they lose, the more we gain. At some point (soon I think) one of them is going to flinch and buy back their short contracts, causing the price to jump up, causing the rest of the big silver shorts to fall like dominoes. How can they buy back a 4 month’s supply? Or the way I look at 350 moz. is over 15 month’s of Available Silver Production for Investment (ASPI) after average silver use, so ASPI is the amount available for investment.

For a long time now the futures market has dictated the price.  That is not the way future markets are supposed to work.  The supply and demand of the physical commodity is supposed determine the price and the futures market is supposed to give producers and users a chance to lay-off some of the risks.  It is upside down in the PM markets and is completely out of hand in the silver market.  For decades Butler has advocated for position limits in the futures market that would prevent these concentrated positions from controlling the price.

You may have heard the expression “silver is the poor man’s gold” and I think the current situation will prove that point. There are millions of people who could buy one ounce of silver per month, but not near that many that could afford an ounce of gold per month. I think gold will do fine in the coming market (see Gold), but I believe that silver will do much better.

LINKS

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Following are a list of Links that I have found useful for silver info:

Ted Butler– the best precious metals commentary that I have found. He does talk about both gold and silver, but has a keen awareness of the uniqueness of the silver market.  Subscribers  typically get 2 articles per week for $34.95/month.  He also has a Free Archive of articles that he has released to the public over the last 11 years.
https://www.butlerresearch.com/

Ed Steer’s Gold and Silver Digest– great information on the PM market. Subscriber get charts, much trading info, commentary and links to other interesting articles, 5 days per week for $100 per year. Steer also seems to usually publicly post his Saturday article to SilverSeek.com- the next link listed.

Homepage

SilverSeek.com has good commentary about the silver market. The articles that Ted Butler makes public are often put on this site.
http://silverseek.com/

Kitco is a good place to go for both live and historical gold and silver prices. Following is a link to the Live Silver Price.
http://www.kitco.com/charts/livesilver.html

Another site that has information about silver and gold.
https://www.silverdoctors.com/

The Silver Institute publishes much info about silver including the Supply and Demand info that I have used often on this site.
The latest Silver Institute survey is at:

SILVER SUPPLY & DEMAND

The following is a great graphic/visualization of different markets- silver is the smallest listed:
https://www.visualcapitalist.com/all-of-the-worlds-money-and-markets-in-one-visualization-2020

Silver Manipulation

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Again, I think Butler has done a great job of reporting on the silver price manipulation. Following is my attempt to distill how this manipulation has been working, but this explanation is based mainly on Butler’s articles and if you want to dig deeper that is where you should go.

There are 2 groups of traders that do a large portion of the silver trading- the Commercial traders (large banks) and the Managed Money Traders (MMT) (consisting largely of Technical Traders). The Commercials for years have had a large silver futures short position. Typically, the top 4 and top 8 short positions are Commercial traders. The Technical traders buy and sell based on price signals. They are heavily influenced by the 50 and 200 day moving averages (MA). They buy when the price moves above the MAs and they sell when the price moves below the MAs. The Commercials are able to manipulate the price by using High Frequency Trading, spoofing and other tricks, so they can move the MMTs in and out of trades to the advantage of the Commercials. Butler states that the Commercials have never taken a loss on these trades in the last many years until lately. This would defy logic in an un-manipulated market.

I see much commentary out there where people are arguing about exactly who controls this manipulation or why it is happening. The same can be said about Butler’s claim that JPM acquired 1000 Moz. (a billion) of silver over the last 9 years. I think it would be nice to know exactly who is doing what and why, but I don’t think we are going to get that certainty at this point. The main focus needs to be ending the manipulation and then what follows from that will tell us much as to the “who & why”.

Butler’s contention has been that JPM has manipulated the silver market to make a profit. Another “reason” thrown out by some is that JPM has tried to manipulate PM prices to keep the USD strong. I think the profit motive is the stronger case, but the USD motive might be the reason the USG doesn’t try to stop this manipulation.

To me the CFTC’s* COT* report shows the silver manipulation. Butler and others report on the COT each week and it seems that there are more and more commentators talking about the precious metals market and silver in particular. I find it interesting how often I see articles raving about the upside potential of gold and then in their final paragraph they will say “and silver should do even better”.

Remember that both the Commercials and Managed Money Traders (MMTs) are speculators- very little if any legitimate hedging involved. Compared to the annual production of silver the top 8 silver shorts are currently (2/22/21) short about 4.8 months of world silver production. Even more egregious, they are over 18 months short compared to Available Silver Production for Investment (I’m calling this ASPI- see ASPI). This is no more than a high stakes gambling game and the commercials have always fleeced the MMTs up until about a year ago. For the last year the big 8 short traders seem to be “stuck” in their short position and haven’t been able or willing to buy their way out.

Supply & Demand

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The following table shows the average silver supply and demand (use) averaged for the last 9 years according to the Silver Institute 2020 Supply & Demand report.

Silver Institute 2020 Averages 2011 -2019 Moz.
Mine Production 845
Net Government Sales 2
Recycling 184
Total Supply 1030
Demand
Jewelry 188
Photovoltaics 74
Photography 43
Silverware 52
Other Industrial 410
Total Demand 767
Surplus 263

Why Invest in Silver?

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I am a recreational poker player and in poker there is a term- “pot odds”. The term is somewhat intuitive and basically means that the amount you will win if you make your hand gives you odds to call (sometimes raise) the current bet. There is also the term “implied pot odds” which refers to the total amount that you assume the pot will be by the end of the hand. While I think silver presents great pot odds, I also think it has tremendous implied pot odds. In other words I think silver is currently a good investment, but if silver does what it could and should, it will be a tremendous investment. Is there a guarantee on either scenario? No, but I cannot think of another investment that has the pot odds of silver.

The big question is when? If it is going to be another 10 years before silver lives up to its potential then obviously nobody would get too excited. But I believe the key to silver taking off in price is simply awareness of the Silver Story. But, how people become aware of the silver’s status is much more complicated. I have frequently emailed most every politician and media outlet that I can think of stating the following: silver is being manipulated, it is a crime in progress, the government’s own COT report confirms the manipulation and recommend reading Ted Butler. An average investigative reporter (or ambitious intern) could glean enough information in a couple of hours to convince themselves that they could write a very interesting and important article about the silver market.

Currently the silver market setup is extremely bullish. I have explained this in the post Available Silver Production for Investment (ASPI) and other places on this site. The main point is that silver is a small market, both in supply and dollars. Any investment is a gamble and all we can do is our best to compare risk to reward. I believe that public awareness of this manipulation is growing and the silver manipulation (to the downside) must come to an end sooner rather than later. Even holding cash or putting money in a guaranteed account, has risk- mainly inflation. This makes silver a great investment. Given the current state of silver I feel there is nothing wrong with trying to logically speculate on the outcome. Following is what I think is most likely to occur with the silver market.

There are many triggers that could set silver off and up. Typically, precious metals prices go up with uncertainty as investors look to use gold and silver as a “store of wealth”. It seems to me that uncertainty is about as high as it has ever been in my lifetime- maybe with the exception of the Cuban missile crises. In my opinion is we might not even need a trigger with the big banks shorting silver by over 350 Mozs. There are plenty of other triggers that could start the silver price on an upward trajectory. I think any of the following events are more possible than “normal” and could be triggers.

  • Widespread public awareness of the silver market manipulation.
  • A major military conflict.
  • A major or series of natural disaster(s).
  • Inflation rates increase significantly
  • Gold to silver (investment) conversion
  • A physical silver shortage
  • A stock market crash
  • An investor or group of investors (the public) buying silver
  • And/or a major pandemic

I’m sure there are many other potential triggers. Let me know what you think might be coming that could be a trigger. Once the manipulation ends does that mean that the commercials (or others) won’t try to re-establish it? No, but I think once the dam is broken it is going to be very difficult to re-establish at least until the physical supply gets back in balance. So, once the price goes to $20 or more (now) there is going to be increasing public awareness of silver. Silver has been called the “poor man’s” gold because it is more accessible (pricewise) than gold. Many more people can go to their local coin shop and buy a Silver Eagle than can buy a Gold Eagle. Available physical silver is the key to ending the manipulation. There is only about 22 Mozs. of new silver available per month for investment demand compared to the annual supply, after taking out what is used for industry and fabrication. See the Silver Institute annual survey under the LINKS.

The next leg up will be to $30+ as the public gets more excited about silver and buys more physical and EFT silver. As the price goes up and potential supply bottlenecks, the industrial users will become concerned about making sure they have silver so they can make their products. Some of these users may start looking for alternatives to silver, but that won’t happen overnight. Silver producers (miners) will look to mine more silver, but that won’t happen overnight either. Recycling/Scrap will increase but that will also take some time to get into the “pipeline”. If industrial users try to increase their inventory this could cause a sudden demand of about 50 Mozs. See my post on Physical Supply for some more details on this scenario. The combination of investment demand and potential industrial demand will cause silver to go up to $50/oz. Silver between $30 – $50/oz. will be getting a lot of attention and the public awareness will snowball. Remember when the housing market was booming and you had everybody and their cousins flipping houses?

Once the price hits and goes over $50/oz. I think the silver market will get really hot By this time MSM will be reporting on silver (and gold) and increasing numbers of people will be trying to buy into an already very tight silver market. I think it could take a year or so from the time silver breeches $20/oz. until it gets to $50/oz. It could happen slower or faster, but I think a year is a good guess. The last time silver hit a high ($48.70/oz.) it took about 7.5 months (163 trading days) to go from $20.31/oz. to the high. Once it goes over $50/oz. I think it will go up to $100/oz. fairly fast- maybe just a few weeks or months. Over $50, we are in uncharted territory. There may be investors trying to short silver to cap the price, the USG could be looking at ways to stifle demand- including confiscation, the COMEX may stop trading and/or be in disarray. Any of those things could cause a lot of price volatility. I think anyone invested in silver will need to be on their toes. I am not forecasting what WILL happen, just what I think could happen and in some instances what is likely to happen. The main point is there could be several different routes on how we get there ($50+) and there will be many different things happening, so we will need to evaluate the situation at that time. I have seen predictions of silver at $100, $200 and even 1:1 to the price of gold. Obviously, I or no one else KNOWS what the price of silver will be and we will only know the high price once it backs off.

I do think that at some point after $50 and more likely after $100/oz. that silver will get into a “bubble” situation, so trying to hang in until the absolute top could get very tricky, but depending on how wild it gets could be very profitable. From now (9/27/20) at $24.00 to $100 is a 300%+ gain. To grab a number that sounds reasonable to me I would say that silver in an un-manipulated market should be around $50/oz. (based on 2020 dollars). I think things will “get bumpy” (be volatile) once silver goes over $50, up to the top and then back down to what will become a stable price range.

The other big plus for silver is the current silver to gold (Ag:Au) ratio compared to historical averages for this ratio. Currently, it is up around 80:1 (takes 80 ozs. of silver to buy 1 oz. of gold). Historically, that ratio has been more like an average of 55:1 and lower. Typically as silver prices rise the Ag:Au ratio goes down. At the two highs of silver on 1/18/1980 ($49.45) and 4/28/2011 ($48.70) the Ag:Au ratio was 17.2 (approx.) and 31.5 respectively. So, even though the gold price is likely to increase, the silver price is likely to increase by twice as much or more. The above ground gold market is estimated to be worth $11.4 trillion at current (10/2/20) price of about $1900/oz. So, what would happen if/when silver starts going up, 1% of gold were to convert to silver. That would be $110 billion dollars and at $24/oz. that would buy over 4.5 billion ounces of silver. The only trouble is there are only 2 -2.5 billion ounces of silver above ground, at least in 1000 oz. bars. The graphics at Markets gives a very good visualization of the size of different markets.

So, silver is the golden child, so to speak. What could go wrong? As I have said I think the run up of the silver price could be very volatile, but I also think the pot odds are very good. See the section of Risk & Disadvantages to get an idea of some of the risks as I see them. Please comment with ideas of either the advantages or risks of silver investing.

Physical Silver Supply

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The key to price with any commodity is normally supply vs demand. The more supply compared to demand means the price goes down. If demand is stronger than supply then prices go up. Those rules break down in the manipulated silver market. But, basically by manipulating the price down the manipulators have kept investment demand down. The industrial demand for silver has remained fairly consistent for the last few years- about 750 million ounces. You can look at the last Silver Institute survey.

Silver Institute Survey

You’ll see that both the supply and demand have averaged pretty consistently (within 10%) between 2011 – 2019. Between the industrial usage and the silver used for jewelry and silverware there are only 263 million ounces (9 year average) left for investment demand. This is only 22Moz. ounces per month. Think about most manufactures these days. They typically operate on a “just in time” supply system. They want to have as little inventory as possible. Ted Butler wrote a good article on this years ago.

http://www.investmentrarities.com/ted_butler_comentary03-05-02.shtml

So for many if not most industrial silver users, silver is a small part of the total product. I have heard that there is about an ounce of silver in a car. The car manufacturer is much more concerned that the assembly line remains running than what the price of silver is. I don’t know what amount of silver manufacturers keep on hand, but to make it easy let’s say it is one month’s worth. Now say there is a physical silver shortages. Deliveries are delayed. The natural actions of the purchasing agents would be to build up silver inventories. The manufacturer would want to at least double their lead times and probably more. So, currently the manufacturers use over 60Mozs./per month. Then, due to a shortage they want another 60Moz. to build their silver inventory and they want it now. There is only an average “extra” 22Mozs. “new” silver available per month that is currently being bought with investment demand. So, just an extra 60M oz. demand would put a strain on the current supply and demand causing prices to jump, causing more investment demand, causing more strain on physical silver inventory. I think there are many “triggers” that could cause silver prices to start moving up, but at some point I think that price rise will go into high gear once silver supply is constrained given the way people will react to supply shortages and higher prices.

Butler has reported that since 2011 JPM has been building a physical silver inventory. He claims that currently they own about 1000 Moz. of silver. This silver hoard definitely is a wild card in trying to predict the when and how of ending the silver manipulation. JPM has accumulated this silver inventory over the last 9 years or about 100 Mozs. per year. So, if investment demand added 100 Moz. per year that would take up the slack if JPM backs off its accumulation. Butler has also said that he believes JPM was buying Silver Eagle and Maple Leaf 1 oz. coins and probably melting them into 1000 oz. bars. From 2011 – 2016 the average US Mint Silver Eagle sales were 41.2 Moz. per year. JPM apparently backed off in 2017 and the sales were only 23.1 Moz. last year.

I have seen estimates that there is an estimated 25 Boz. of above ground silver. That seems reasonable to me. But, 1000 oz. bars are what is used for most large silver users and for investment demand. There is only 2 – 2.5 Boz. of “viable” 1000 oz. bars. At the right price silver will get recycled and melted into bars. My local coin dealer told me after the 2011 price high that he was surprise how much scrap silver came in during that period. His point was he didn’t think near as much will come in on the next price rise. In other words if people didn’t want to bring their silver items in to be recycled in 2011, then at what price would they sell now?

Please post answers to these questions if you know the answers:

  1. How long does it take from the time that silver items are recycled to when they can be turned into 1000 oz. bars?
  2. Since Silver Eagles are already .999 silver, Is it quicker to turn 1000 silver eagles into a 1000 oz. bar than 90% silver?