What a difference a year makes. A year ago last Saturday, silver had been up more than 25% in just one month and seemed poised for a move above that key $50 per ounce level. But in just the next five trading sessions, silver was selling for only $33 per ounce.
Although last year's low price is still the highest price for silver going back decades, there doesn't seem to be all that much urgency for investors to acquire silver. Things may change, but four data points don't appear to bode well for silver in the near term.
1) Persistent contango
There's a fairly significant contango in the market, as you can see on this chart.
During the early part of 2011, contracts to deliver silver in the near term cost way more than for delivery later, a condition called backwardation. Silver certainly isn't backward now. There's now a persistent contango showing little pressure to deliver silver sooner rather than later.
2) Open interest
I took a look at open interest for silver futures, the number of contracts outstanding going out to December 2013.
Open interest is up a bit this year, but this time last year, there were about 40,000 more silver futures contracts outstanding. At 5,000 ounces per contract. that represents 200 million ounces of silver.
3) ETF fund flows
According to data from XTF.com, funds have been flowing out of the iShares Silver ETF (SLV). Here's a chart that shows the net outflow, along with a similar chart that includes both of the major gold ETFs - GLD and IAU.
Over the last year, $1.6 billion flowed out of SLV compared to $4.9 billion moving into the GLD and IAU .
4) Real silver premium down
In the retail market, the premium for owning actual silver coins (such as the American Silver Eagle) is somewhat lower than it was last year.
I don't have any actual data, but I can remember premiums of as much as $5 over the spot price about a year ago. Today you can find those silver coins with more like a $2.50 premium to the spot price.
All this data tells me that the supply of silver isn't is in as much of a deficit as many people believe. I don't own the SLV ETF anymore, but I've been buying some actual silver - a little at a time - for few years now and will probably continue to do so.
Although I doubt we'll see prices hit the $40 mark, let alone the $50 mark. for quite some time, I think silver itself is still worth acquiring. It's a relatively convenient and inexpensive way to acquire hard assets as a hedge against inflation.
And in many ways, real silver can be a better investment vehicle than an ETF. At least silver coins don't send you an account statement every month -- and I kind of like it that way.
Disclosure: I am long GLD.