Three Thoughts on the Silver Market

| About: iShares Silver (SLV)
This article is now exclusive for PRO subscribers.
Today, I eat egg. It is easier to eat it than clean it off my face. I have not received an answer from COMEX to my question posed last Thursday. I wanted to understand if shares of SLV could be used to close out a futures contract in substitution for physical metal.
This question was central to my concern for the integrity of SLV, raised in an article published here, last Wednesday. My suspicion was encouraged after reading more than one article from what I refer to as “black helicopter” writers.
Some people are fearful and suspicious of what they do not understand. I need to be suspicious, but gain the information from reliable sources to understand the workings of markets that I do not understand. My fault was using sources that were not reliable or accurate.
I owe you more than the sloppy work done on this article. Your trading decisions, and mine, need to be based on facts. Then we interpret those facts, combining experience and our opinion on other market forces to form a trading strategy.
In the future, I hope to meet a higher standard than the article on SLV set. I have removed the article from the website, and other sites that published it. If you find it anywhere on the web, please notify me so I can have it removed.
I did have the pleasure of visiting for thirty minutes with a “Hawaii based precious metals trader”. Mr. H sent an email to me last week raising concerns about my article on the integrity of SLV. He has used SLV and GLD to hedge his trades. I felt like a student visiting with a professor.
Mr. H knows many of the market makers and the intricacies of the precious metals market, as he has been an active participant for over thirty years. Mr. H confirmed some of my thoughts on SLV vs. GLD as a trading vehicle.
Here are some of his thoughts:
  1. Silver moves more than gold because it is a thinner market.
  2. Silver is a precious and industrial metal, thus silver’s price may move based on expectations of the health of the economy.
  3. There is NO shortage of silver. We mine less than demand, but the shortfall is recovered from scrap. Last year, for example, 680.9 million ounces were mined, and 176.6 million ounces were recovered from scrap. If we recover less in scrap, the mines will deliver more.
One of the areas of confusion on my part was the term EFP (Exchange For Physical). EFPs are not used to close contracts as I thought. EFP is a term used during hedging operations by traders. I don’t want to go any further as I may make an additional error, compounding more misinformation.
The nicest thing Mr. H had to say, “I am thrilled to talk to someone that cares about the truth…” We discussed the newsletter business. My job is to look for an edge, an angle on the market for my readers to make money. The best edge I can give you is the truth, and interpretation of the facts that will lead to profits. A great website Mr. H gave me is I encourage you to visit for some additional research.
I am not very good at hyping and stretching the truth, so we will stick with making money the old-fashioned way. We will earn it.
Subscriber T.D. writes:
“It has always been my firm belief that the worst day fishing is better than the best day at the office.”
My answer:
Even when trout are not cooperating, fly-fishing is therapeutic. I woke up Sunday morning to reports of a lone Wolf howling in the valley! It just does not get any better. We were fishing in Wyoming close to a large natural gas field. I talked to a restaurant owner; her business is off 50% from last year. Some rigs are still going, but low prices have taken the boom out of this modern day “gold” rush.

Disclosure: No positions