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SLV Rocket Launch Fails, But Demand Is Still Overwhelming Supply

Summary

  • Over the last several days, the daily fund flows into SLV have spiked.
  • I think the vast majority of buying activity was from traditional gold and silver investors.
  • I've been long SLV in anticipation of renewed interest in silver as an inflation hedge and deep value play.
  • This idea was discussed in more depth with members of my private investing community, The Gold Edge. Get started today »

In an article that I posted last October on the iShares Silver Trust ETF (NYSEARCA:SLV) titled SLV: An Incredible Buying Opportunity, I discussed how investors need to find assets that will generate real returns over the coming years, given that we are in an environment where the financial system is being continuously flooded with trillions and trillions of dollars of newly printed fiat, and the Fed is begging for inflation. Physical gold and silver are logical choices as they are proven inflation protectors that can generate real returns.

As I stated about silver:

What will continue to drive the price of silver will be investment demand. Subtle shifts in investors' appetites for the metal can have a profound impact on price, and I expect surging demand for silver by investors....As investors flock to silver over the coming months and years, this will create greater supply/demand imbalances in the market as investment demand will overwhelm the minute supply.

We are now seeing this "profound impact on price" in action as a deluge of investment demand overwhelms the available annual supply.

Over the last several days, the daily fund flows into SLV have spiked. More than $800 million flooded into SLV last Friday, another ~$500 million at the start of this week, and then $1.7 billion yesterday (on a big down day in silver). Yes, that's a pittance in a world where companies have $1+ trillion market caps, and the fact that the crypto universe is worth ~$1 trillion as well (more on this in a bit). For SLV and physical silver in general, though, this is a meaningful influx.

(Source: ETF.com)

But let's back up...

The Silver Institute's most recent estimates for physical silver's supply/demand fundamentals show a market that had a significant supply deficit last year thanks to surging net

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This article was written by

SomaBull profile picture
10.74K Followers

I’m a private investor with a strong track record of outperformance, and also currently work as a research consultant for high-net-worth clients who invest in the precious metals sector.

My focus was mostly on Tech/Internet when I started investing, but almost 20 years ago I became extremely interested in the gold and silver sector as I anticipated a major bull run.

I’ve been doing in-depth research on gold and silver miners since then. I'm familiar with their stories, their stock patterns, their highs and lows, their operations/projects, their successes and failures, their management teams and turnover at the top, and all other facets of these precious metal companies.

This sector is my singular focus as I expect a massive bull market will unfold. These mining stocks are the cheapest they have been in over a decade, some in fact, are near multi-decade lows as they are oversold and significantly undervalued. I expect strong appreciation in these mining stocks as the bull market in gold and silver recommences.

I believe in buying value, and not chasing the next hot stock. I use several basic investing principles, the main one being buying the balance sheet. I wait for opportunities to present themselves and then establish positions. I believe in doing your homework, and I have a very research intensive focus.

*Disclaimer* I am not a Certified Financial Advisor. My research and articles should not be interpreted as a recommendation to purchase, sell, or hold any security at any time. The accuracy, completeness, or timeliness of the information posted in my articles is not guaranteed. Do not rely on any statement that I make in my articles. All readers and subscribers should always conduct their own research and should consult a professional financial advisor when it comes to making investment decisions.

Analyst’s Disclosure: I am/we are long SLV, GATO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (36)

c
I'd much rather hold PSLV than SLV (I actually own CEF). Right now we are seeing a historic disconnect with paper price and actual cost to acquire a ounce.
e

@clrodrick I own both PSLV and SLV for about 6 months. SLV performs better so far.

c

@eilea - good luck

R
silver shorts did their job massive volume kept price down and I mean massive volume.
W
@Rjbauch_00 yes u mention the paper silver market, this is a very different thing! All follows the futures....this is papers. Also first all the funds you can buy is just plain papers. The physical market, and i mean the visible price for a person to buy real silver is totally different thing! First u need someone willing to sell his silver close to that papers price! Then u need wait delivery up to 1 month waiting line! Then often u pay an insane premium which still persist , even the price of silver is now down again!....

Not to mention only the very expensive coins with numismatic value not for preserve wealth but for coin collectors are left at collectors rarity prices.
Doc 224899 profile picture
@Wallstreet_wolf 

Investors in rare coins by numismatic values are a shrinking population. 

Coin collecting was a baby boomers' hobby, and made sense when precious metals were cheap and coin rarity was a persuasive incentive.

In the last 70 years, the value of silver and gold bullion in many collector coins has over-taken the numismatic value of those coins.  

So many coins that previously had a premium over the bullion value due to rarity are now being traded for their bullion value alone.

If you go to a coin shop today, you'll find that almost all of the transactions are entirely made on the basis of bullion spot prices, usually on the basis of APMEX or KITCO live quotes, plus or minus a premium. 

Either way, the coin shop, now a bullion dealer, makes a profit.

Curiously, contrary to the concept of buying low and selling high, demand for bullion coins increases as the bullion prices rise, even though the only people making any sort of a profit would be those who bought low when demand was also low.

Silver bullion is hard to find today, except when the price per ounce is an embarrassing and frankly astonishing premium over spot.

The safe bet in bullion is US gold and silver eagles.

The safer bet is ETFs.

Few people pay close enough attention to make the big money in miners' stocks, where the changes in share prices trade at a significant leverage over changes in bullion prices.
v
@Doc 224899 SLV is not required to physically hold silver. PSLV is.

The US Mint has always charged outrageous premiums.
W
Yes i agree on all 3 reasons for the spike. That spikes ALLWAYS shortlived should be clear to every investor....this for technical reasons..as people like to take fast wins and rebuy it cheaper.

Another technical reason is the 42-45°C angle of the possible rise.....if this angle is too high...it isnt sustainable. Especially for such big markets.

It was an wakeup call! Focus is: historically silver is cheap! Without Silver there is no "clean" energy (Solar panels, silver-paste), there is no hydrogen power plants without PLATINUM either! There is multiple electric applications in EV cars with silver. Silver miners arent really profitable at such low prices.

Platinum miners, at the edge of survive with platinum prices so low, if they wouldnt be able to get an mix earnings with other metals like Rhodium!

AND i was clean a bit out on of our online coin dealers here....LOL Luckily there isnt many doing the same last sunday!
w
We are constantly reminded of the big banks maintaining huge short positions. This has been going on for years. Why is this so? As naive as I am I might think open positions would be bets on market direction and change over time.
W
@williamabrauer also producers hedge their metals with shorts. Reason: so if prices fall too deep...they can still keep mining! They can offset their loss in mining too if prices rise too far! But the whole squeeze was done in india....a lot of retailers have been short there also. A reason the big up gap! They got completely offguard....on weekend!
JustinConsults profile picture
Thanks for another reassuring update @somabull. From what I've read, we have plenty of reasons not to trust the vault for SLV nor SIVR. One reason, JPM is the custodian for both. JPM was fined $920,000,000 for manipulating the silver market in September, they admitted it. I'm no expert, Soma do you think SLV is the best silver ETF for a long-term investor if we want to expose the lack of silver supply?

I think all of the silver ETFs are flawed, and I understand SLV has advantages for people who actively trade. For investors here are 2 alternatives:

SIVR, has a lower expense ratio 0.3% vs 0.5% on SLV

PSLV, is a closed-end fund and charges 0.47% in fees.

For people that hold PSLV in a taxable account that can be taxed at long-term capital gains rates instead of as a collectible. SLV and SIVR are taxed as a collectible, so 28% for Americans.

At the moment, I own a lot of miners, but I don't own any silver etf. I like the way PSLV operates more than the other 2 ETF's, and Sprott can be trusted as a custodian more than JPM. Taking physical possession of the silver is important, and so buying physical silver is smart too if you can find it.
bver88 profile picture
does ANYONE on this site,

@JustinConsults

other than 'shills' , i.e. paid to say so-

'trust' the custodians?

neither SLV or the Sprott funds have an exchange for physical for the average punter:

SLV has 20 'participants' (hint they're not u and me) whilst SPrott's 100000 share minimum excludes us as well.

Why not AVOID these paper chases in favour of elemental chart metal -

taking immediate personal delivery - VOIDing their shenanigans?

blessings from nz Aotearoa, land of the long white cloud
W
@JustinConsults my PSLV holdings are only in the meantime....slowly i sell them and purchase boy by box real silver by any online dealer. I not wana make an quick buck....as this "quicky" things are also risky! I dont care if in a few weeks we see silver at 22$....in a few years....i will just smile...i not expect silver get easy down to 15$ permanent again. Yes it cost premium...but it keeps my financially independant, and its an inflation hedge...watch the debt clock.....i hope nobody beleive this debt can ever be paid back.....yes it will be paid back..the hard way.....not the FED or Government will pay this. the little guy will pay for! And will stand there without his pants someday.
JustinConsults profile picture
@bver88 I like to invest in silver, and I understand the idea of buying physical is a good one. However, I'm selling my condo, and I plan to be nomadic and live in Asia. For me investing in physical silver is not a reasonable option. So currently, my only exposure to silver is via silver mining companies. Even if I wasn't planning to travel a lot once this pandemic is over, I'd much prefer certain silver mining companies over silver ETFs at current prices. I think all of the silver ETFs have flaws, but if the risk-reward in silver gets any better than it already is, I will buy AGQ for added silver exposure on a short term trade. With the help of Soma's service, that has worked well for me.

BTW, NZ is stunning!
R
Looks like today’s, $1780 gold will hold, silver needs gold to lead or at least follow. Silver is nearing the bottom of channel (me eyeing it) on the daily chart, off the December bottom. I believe that bottom will hold and the channel.

Now slow poke gold needs some motivation! Long SLV, SLV calls, GDX, SILJ, NEM, AEM, PAAS, GOLD others.
W
@RWilliam the banks will bust your leverage and your options. The banks are able to "know" you and your holdings.....u will be knocked out!
bver88 profile picture
those miners are a smart lookin crew, but !

@RWilliam lose the DERIVATIVES before bankstah wipes y'all out-

@Wallstreet_wolf
f
The big run-up always seems to be six months down the road.
S
2022 will be the time to buy precious metals.. this year equities / bond maket will continue to recover from last year's rout.. I think we will see 10 yr treasuries back to 3

-- Good Luck
r
@Sam1978

3% yield on the 10 years in 2022?

That's only possible if the fed changes its policy
S
@robinbreak nops.. 3% on 10 yr yield in 2021...this year
r
@Sam1978

fed fund rate at 0%

this is the way
BlueTower5000 profile picture
PSLV > SLV unless people trust Blackrock more than Sprott or you insist on using options. Also JPMorgan downgraded the entire silver sector Tuesday but I'm sure they're not rigging the paper market so it's cool. Time to buy another monster box of eagles this weekend. Only physical silver and gold are real money, everything else is JPMorgan.

www.marketwatch.com/...
kemosabi70 profile picture
@BlueTower5000 good luck buying that monster box at $10-13 per oz premiums
BlueTower5000 profile picture
@kemosabi70 Honestly I have enough eagles for my liking but I try to get some every year in case I want to get some graded and sell on Ebay for a 400% markup. At this point I'd probably go for the lowest common denominator going for $3-4 over spot to just stack doorstopper bars. Nobody would even know what it is if you got robbed lol.
W
@BlueTower5000 completely right....my purchases was sunday...monday..tuesday....now i cant buy..coz hard to find physical.

Sunday the premiums tiny compare to tuesday! I got squeezed by the pressure...as the physical was dwindling within hours! If Silver market will move now up....it will be impossible on the way up to get any physical!

OUCHHHH then on top u can buy physical....some will say,:" what a fool" yeah...but i can assure even the price of future silver is back down....the premium still persist and the shop is actually EMPTY!
j
I keep hearing analysts quoting $50 to $100 an ounce in the near future. I'll be happy with $30 an ounce.
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