There are several signs of silver shortages brewing. Investors who have interest in paper silver like (SLV) or (AGQ) need to be aware of this as their holdings could blow up in a very short time frame if they don't notice the current shortages in the physical silver market. Today we are seeing massive shortages in silver as Egon von Greyerz points out here: "We are now seeing major shortages of silver. It's much, much harder to get hold of silver than it is to get gold. As soon as people get silver inventory to sell, it's gone straightaway."
First, the most important indicator for the physical market are silver sales at the U.S. Mint. In mid December 2012, they shut down the sales of American Eagles for about 3 weeks. Then they started selling silver coins again on the 7th of January 2013. Investors started with a buying frenzy of 4 million silver coins in just one day. As of yesterday, the U.S. Mint had sold 6 million ounces of silver coins. That's already equal to the amount of silver that has been sold the entire month of January 2012. But the U.S. Mint announced several days ago that they are again suspending the sale of silver coins. That's how crowded the physical silver market is. Sales will continue on the 28th of January 2013.
|Table 1: January 2013 Silver Sales (18 January 2013)|
Second, on that first day of silver sales at the U.S. Mint, the trading volume on the Shanghai Gold Exchange's 99.99 gold physical contract shot through the roof, hitting a record of 19,504.8 kilograms, after double-counting transactions in both directions.
Third, we see that the premiums on Silver American Eagles for APMEX (American Precious Metals Exchange) are soaring to $4 for a single ounce of silver (Figure 1). This is a 4/31 = 13% premium over the spot price.
|Figure 1: APMEX 1 Oz Silver American Eagle|
To give you an idea of historic premiums: at the end of 2010, we had a silver price of around $27/ounce and the APMEX premium was $2/ounce over spot. This is a 7% premium. Mid 2011, we had a silver price of $48/ounce and the APMEX premium was $5/ounce over spot, which is a 10% premium. Today, we have a 13% premium and I think this will keep going up. Investors need to closely monitor this premium when they are holding paper silver to see if shortages are building up.
Fourth, we can see these premiums for Silver American Eagles go up on eBay, with prices going from $38/ounce to even $60/ounce, while the spot price is only $32/ounce (18 January 2013).
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|Figure 2: American Silver Eagle (EBAY) (18 January 2013)|
Fifth, we saw yesterday that Apple Inc. (AAPL) has seen delays in its new 21.5″ iMacs, which were announced on the 23th of October 2012. There are production problems occurring at this moment due to a shortage in silver in China. This silver is used extensively in these iMacs. The delay of these iMacs is already spanning a period of 3 months to date.
Sixth, on Wednesday 16 January 2013, the iShares Silver ETF has bought a huge amount of silver in the amount of 571.63 tonnes of new silver (183,378,092 ounces) in just one day. That's a 5% increase of silver holdings (Chart 1).
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|Chart 1: SLV Silver Holdings (Got Gold Report)|
Seventh, just a week ago, Swiss gold refiners (who are the world's gold hub) announced that silver's counterpart, namely gold, had major delivery issues due to large gold bullion demand. As 70% of the world's gold transits through Switzerland's refiners, this event shouldn't be ignored.
There are now countless indicators that silver demand is exploding while the silver supply should be dropping due to the low price of silver at this moment. I pointed out this supply issue due to increases in marginal cost of production (marginal cost of production currently $30/ounce for silver) in this article. If we do get a significant increase in delivery time in physical silver, the first person to go public with this would be Eric Sprott as he pointed out here: "As you know, I've always hoped we can't get that last bar (of silver) because we'll publicize it. But so far the silver has come in." So, the most prudent thing investors can do now is just buy physical silver (PSLV).
Disclosure: I am long AGQ.