Looks Like There's a Silver Shortage

Worried by the steep correction in silver? Don't worry, just reduce your leverage.

Silver has always corrected by roughly a third after its sharp ascents in the past 5 years. This is due to the extreme tightness of this market where a billion of whatever fiat currency still can do a lot of damage. At one point the short sellers will be run over by the very real freight train of exploding physical demand that has led to what looks like a worldwide shortage in bullion.

GRAPH: Silver always corrected by a third in the runups of the past 5 years. I would not rule out a similar development this time before silver will attack the $30 mark on its way to the old high at $50. Chart courtesy of Kitco.com

The US Mint has been out of the gold sale business for almost half a year now, filling orders on very few days since September. Currently only the new 2008 gold proof Eagles are on offer. All uncirculated bullion coins are not available. Platinum coins have not been available in a while too.

Now the physical delivery problems spread to silver as well. The US Mint says it will ship silver eagles again after April 9. But taking it from past experience, this schedule may be delayed again.

Jason Hommel, probably the most outspoken silver bull for a lot of reasons -but not all - I agree with, has compiled a story of real life experiences when trying to buy silver bullion.

From his report:

Three more major silver dealers are reported to be out of silver today: The U.S. Mint, Kitco, and Monex. This, on top of the major dealers yesterday, Amark, Perth Mint, CNI Numismatics, and APMEX, all reported sold out. Further, nearly all of Canada is reported to be out of silver, from Vancouver to Toronto.

Hommel concludes that the latest correction is a matter of price fixing.

This is unprecedented, and is a perfect case of market manipulation in the paper market at COMEX and other futures exchanges to see silver prices continue to drop down to below $17/oz. today. Paper promises can be created endlessly, but real silver cannot.

This is NOT a case of the dealers getting spooked, and selling out to the refiners just in time, at peak prices. This is a case of the public buying up the stock at coin shops across the world ever since gold hit $1000/oz.. That event finally sparked a little of the public's buying of silver and gold. Thus, the typical coin shop flow of silver to the refiners just stopped in the last few weeks, and especially the last two days.

This is NOT a case of the public creating a top with 'everyone' in silver, because nobody's in silver yet. In 2006, only $1 billion was spent on investment silver, which is 0.007% of the $13.5 trillion of money in the banks. As I have long reported, the silver market is so small, there is no room for new investor demand, not even 0.1% of money could be spent on silver, because that would be $13 billion, which would push silver prices to $200/oz., and we are seeing only the tiniest beginnings of that.

$13 billion would be almost enough to buy all the silver produced by the mines in one year, which would leave nothing for industry. It would essentially double demand, but supply would remain the same.

Furthermore, this is not a top because the public continues to get to the coin shops, and is now getting on waiting lists for silver. The public is not yet in, so how can the price drop?

This is a case of price fixing and manipulation, like communism. Sausage is reported to cost 1 ruble per link (editor: corrected), but there is no sausage. Silver price is quoted, but there is little to no silver.

Shortages are evidence of price fixing. Price fixing results in shortages. They are price fixing silver at a below market price over on the paper exchanges in New York and around the world.

Also check out the highly interesting comments on his story.

This blog reported last September that silver and gold bullion trade 10% to 15% higher in China.

To add my 2 cents on silver shortages I can fill in a little from the German speaking parts of Europe. ebay has offered the most liquid market for silver here, whose investment appeal is greatly diminished by 19% (Germany) and 20% (Austria) VAT and high mark ups of 16% for kilo bars from professional dealers.

1 kilo, worth €€354 at a "global" spot price of $17, would sell for €€481 including all punitive taxes, not considering shipping.

Nevertheless the 3 highest bids on ebay are €€516, €€491 and €€490 for a 1 kilo bar at the time of writing.

I also note that all multi-kilo offers from professional sellers have entirely disappeared for several weeks/months and that there are many new offering hands in this market which I consider the true silver market as these are actual exchanges of fiat money against bullion.

At the same time the new 1 oz silver Philharmonic has seen huge demand in Austria, despite even higher markups.

I also remember very well that prices on ebay stayed up when silver traded to $15 in early 2006 and then crashed to $10 in a similarly brutal move as we have experienced it this week. This correction was not entirely reflected in ebay prices then.

And here some more facts about delays in silver shipments:

Kitco states on its website,

IMPORTANT: Due to the volatility of the market, we are experiencing a significant increase in the volume of shipments going out. Although Kitco and our depositories are working hard to stay on top of this, you may experience a delay in your order being processed by our vault, and sent out to you. We apologize for any inconvenience this may cause, and appreciate your patience and understanding.

If you are impatient for more silver bullion, Apmex cannot help you either, reports Boom2Bust.com:

Due to the OVERWHELMING demand for precious metals, our online ordering system has been unable to keep up with our customers’ needs. We have had to disable the APMEX ordering system to allow us ample time to upgrade our site to accommodate the increased demand. We apologize for this temporary problem. In the mean time, we will be accepting telephone orders for the following items only as we have them available:
• 1 ounce Gold American Eagles
• 1 ounce Gold Canadian Maple Leafs
• 1 Ounce Gold Krugerrands
• 100 oz Silver Bars
• Misc Generic .999 Fine Silver
• 90% Coin Silver
During this time, we will have a minimum order of $5,000. We regret we have had to make this drastic change to our ordering process and rest assured, we are working expeditiously to correct the problem.

I conclude to buy more silver. Having to overcome a premium of 36% in Austria, I am anyway in for the very long term. The inflation-adjusted record high for silver now stands at more than $135 per ounce. Meet you there.

Comments

[E.D. Hart:]

Silver Wheaton (SLW) is primed to do well in this space. I own Silver Wheaton.

2008 Mar 24 02:29 PM

[Golden Oxen:]

Sounds Good, But with all due respect I have been hearing about this silver shortage for twenty years.

2008 Mar 24 05:42 PM

[SeekingAlph...:]

Agreed. If you put 'Is there a silver shortage?' in google you get some real old articles.
www.google.com/search?...

2008 Mar 24 08:04 PM

[Canadian si...:]

On the ground in Toronto I can attest to the lack of silver at Scotia Bank the largest and most important dealer in Canada. With no silver at Scotia there is no silver at any bank. It's been evolving since last year when there were periods where you could get silver but not always the kind or size you wanted, this is the first time I can get none.

Last year the old rough bars disappeared to be replaced by the new extruded Royal Canadian Mint 100 oz bars, showing all the old silver had moved to strong hands or was taken off the market to add to the Comex stocks.

Comments at my site support there is no silver to be had at this price in Canada. Pent up demand will absorb anything todays mints can produce as show by delays at NWT mint and runs on silver eagles and maples. To have the retail market empty and the price falling makes no sense but to support the manipulation arguement.

Canadian silver Bug

2008 Mar 24 09:11 PM

[Canadian si...:]

By the way is there any reliable stats on how much silver is represented by certificates and pool accounts?
And if so who is making sure they have anything to back it up with?

If the paper liabilites against silver are anywhere near what I think they are it would be quite evident the silver market is essentialy insolvent, having far more claims on silver than can be filled.

2008 Mar 24 09:20 PM

[hiflyer:]

hi, thanks for the interesting article. A friend of mine told me yesterday that there were similar shortages of silver in the past. But the dealers always got enough afterwards to sell. So dont you think that the silver shortage we are experiencing now is just a temporarily effect which will be overcome in the next couple of weeks?

2008 Mar 25 04:17 AM

[Pete A.:]

For the real story, check out Ted Butler's commentary yesterday regarding the silver market.

www.investmentrarities.../

2008 Mar 25 09:36 AM

[pseydocyst:]

I live in LA, and recently was able to buy 2000 oz.
in 10 oz bars from CNI about month ago. There was absolutely no problems, I wired the money and got my metals almost the next day.
I was surprised to find that they are not selling silver at this time except the 90% bags. The same is true of some other big dealers around the area.

Something is very fishy here. Time to buy silver with both hands. Don't sell.

2008 Mar 25 10:25 AM

[TMFSinchiruna:]

The longer-term argument regarding shortages in silver is distinct from the acute disconnect between paper and physical markets which emerged last week during the sell-off. This particular shortage event is very real... it may abate for now as the spot price recovers a bit more, but the shortage has been confirmed by a huge range of individual investors, bullion dealers large and small, economists, etc. Even if it is short-lived, this shortage is noteworthy for two reasons: it suggests that the correction will be less protracted than many people think, as spot price will find its way up to match the reality of the physical market until the temporary supply-demand equilibrium is reached, and second, it reminds silver investors of the very small size of the market for silver bullion. The readers above who commented on the shortage as an old story... that's because it's true... for years and years it's been a struggle for miners just to keep up with industrial demand in the low price environment which prevailed. With the addition of sizeable investor interest during this bull market, whether through the silver ETF or buying bullion directly... this renewed investor interest is tipping the balance towards a failure in the supply chain. I published an article on The Motley Fool yesterday about this issue, which can be reached from the blog page provided above. Thanks to the author of the above piece for spreading the word as well. This is an important news item. Call it what you will: a delay in procuring inventories, a supply chain disruption, or a shortage... the result is the same... inveastors looking for silver are/were having a very hard time finding it, and that is very bullish for the price of silver.

2008 Mar 25 10:56 AM

[silverdawg:]

What's to stop someone from buying a silver futures contract on the COMEX, and just taking delivery of it when the contract expires? Or even a mini contract. What is that, like 500 Oz.? You'll be gauranteed spot price then, with basically no commission. Maybe shipping charges for 30+ pounds to have it delivered to your door. Or is it not that simple?

2008 Mar 25 04:15 PM

[hotdawg:]

Let's say spot went up to $21 plus. The general public in danger of losing their homes and jobs began running to coin shops selling anything silver they had and the dealer paid them $20. Then the spot drops below $17 and climbs very little since. Do you really think the dealer is anxious to sell what he's accumulated at that price? Or would it make sense for him to just sit on it awhile until the price goes back up?

2008 Mar 29 12:45 AM

[thowze:]

In California, a number of dealers I do business with have told me they are out of silver. One said yesterday he has a shipment coming from the US Mint from New York and has no idea when it will get there. He's been out for 12 days. With shortages coming from different places in the world at the same time, I say buy as the price is going to move up.

2008 Mar 30 04:09 AM

[jonmeboy:]

the dealers may well be sitting on silver bought at $21 spot. They should be able to take orders at current prices if the refiners would deliver at these lower prices of $18 spot. The refiners are short physical as they are only smelting small weight orders at minimum volume. The rest is going to the production of larger sizes required for industrial end users. Wait 'till they start stockpiling!! There will be hundreds of "Hunt Bros." inadvertently cornering the market. Got silver?

2008 Sep 01 07:25 PM

[fuzzywzhe:]

"What's to stop someone from buying a silver futures contract on the COMEX, and just taking delivery of it when the contract expires?"

The contract is 5000 ounces for one.

For another, most brokerages won't allow you to take physical delivery.

For another, is the Patriot Act which forces you to disclose to the IRS that you've made the purchase.

2008 Sep 08 05:09 AM

[silver-bullet:]

THERE IS A PLACE WHERE YOU CAN GET LOTS OF SILVER. IT IS CALLED....

......................... C O M E X .........................

Buy a mini silver contract from COMEX (1000 oz), and TAKE DELIVERY.

Do not wait till December, when most trade is made in silver in COMEX, because there may be none left and COMEX may default.

Buy it now, and take delivery in October and November.

For those of you who wants to make a quick buck, this is the perfect arbitrage play to take advantage of the price differential between the paper and physical silver market.

2008 Oct 26 12:55 AM

[liam mateer:]

the illuminate control the paper markets and always have done, there may have been shortages for years but now we are facing a hyperinflationary recession just like modern zimbabwe and Wiemar Germany in the 1920s. all that combined its a good idea to hedge your bets. everyone in the world knows the dollar is toast including the illuminate. who when the time comes will be the worlds biggest gold and silver bugs . This new Breton woods talk can only mean a return of the gold standard and at the moment there is more gold than silver so the silver price will go up once gold is remonetised. With the shortage thing this has been great for people who want to make money even now. just wait for the fix price to drop then sell on ebay for the old price maybe more. i was on ebay today and there was only 2X1kg bars on auction, one was selling for £420 pound. wow now the spot price before tax is £240 pound. MMM real price versus paper price viva the price fix folks get your silver now, It might take another year but hey there are rumours of comex gold and silver defaults coming up in December which should be fun.

2008 Nov 01 01:29 PM

[markgorence:]

Silver is going to go through the roof!

Mar 27 03:02 AM