Hi Tekushi. I've been a bit gobsmacked lately at some of the funnymentals and rubbery numbers bandied about by posters on the silver thread. I have posted some of this stuff before, but it seems people still believe some of the junk being reported in the blogosphere. So, I will provide the actual details and links where people can verify for themselves where possible.
So, lets start with Kitco's charts regarding supply and demand. Link: http://www.kitco.com/charts/CPM_silver.html
While these charts are not up to date, there is a clear message that the silver ETF's are taking up the shortfall in demand from the supply (yes shortfall of demand, not the other way around).
Annual demand for silver:
Annual silver supply:
So, have a look at the annual demand, it has fallen significantly since 2000. Since the mid 1990's the annual supply of silver has been steadily rising. OK, so why is the price rising if demand is falling and supply is rising? The answer is the ETF's.
Next chart is the physical holdings of silver by each ETF.
Ah OK, so thats where the extra demand is coming from. Have a look how dominant the SLV fund is, they are almost singlehandedly causing this bull market in silver. Incidently, the GLD fund is causing the same situation in the gold bull market, but there are a few different factors at play.
SLV IS THE KEY.
The SLV fund trades on the NYSE, and so must conform to the regulations set out by the SEC. Thankfully, they publish how much physical silver is held in trust, along with other details, such as who owns the vault where it is stored, major shareholders etc. I'm not a fan of ETF's in general, but thats another story.
All the details can be found at: http://us.ishares.com/product_info/fund/overview/SLV.htm
You can download the 'historical data' from the above webpage to see (with 1 or 2 days delay) how much silver is held in trust for the SLV fund. They currently hold a bit above 354Moz. You can also click on the 'Silver Bar List', which shows a catalogue of where the physical silver is held. Of significance here is that half the amount of the entire fund is stored in 2 vaults owned by JP Morgan.
JP Morgans positions in the silver market?
Oh dear, there has been some wild crazy statements made about the role of JP Morgan in the silver and to a lesser extent the gold markets. Also on the SLV website you can get the prospectus to read about JPM's role with the fund. Currently, they have half the SLV funds held in their own vaults (175Moz). They may not own it all, but they are one of 3 parties who set up the SLV fund, the others being BlackRock Asset Management, and The Bank of New York Mellon. According to the prospectus JPM are custodian of the fund, which gives them the role of holding all the physical, and I have confirmed the other vaults holding the rest of the silver are not explicitly JP Morgan vaults, but they are described as subcustodian, meaning they have part ownership of the other vaults where the other 175Moz silver is held.
What about the claims of JPM holding enourmous naked short positions in COMEX? These stories started from the lawsuit bought against them last October. Lets look at how The Australian newspaper reported it, (or use google to look for other unbiased reports): http://www.theaustralian.com.au/business/markets/jp-morgan-hsbc-accused-of-manipulating-silver-price/story-e6frg91o-1225944590036
The suit said JP Morgan and HSBC in August 2008 together held 85 per cent of the net short position in silver and by the first quarter 2009 held $US7.9 billion in precious metal derivatives.
So, Q1 2009 the 2 banks had 85% of the short positions in silver. Many may have been spreading positions (long paired with short), but lets look at the numbers. The following numbers are based on the data provided by the CFTC on COMEX positions in the report known as the COT report (http://www.cftc.gov/marketreports/commitmentsoftraders/index.htm).
Current (as of 26/4) total short positions is 115Moz (114985 contracts to be exact). Thats quite a lot, but there is 21724 spreading positions, so we can subtract that to get 93261 contracts total short positions from all traders = 93.2Moz. Now the COT data also shows that the largest 4 traders hold 25.7% of all shorts, so 25.7% of 93261 = 23968 contracts. This mean the 4 largest traders have 24Moz in shorts, many are potentially spreading positions, and not all of them JP Morgans.
So, the total short position is nowhere near the amount of silver held in JP Morgans vaults (175Moz direct, and 175 as subcustodian) vs 24Moz shorts held by the 4 largest traders - not counting COMEX longs.
Have a look at the chart below and tell me if the open number of shorts is out of control historically. It actually looks quite low considering the recent price spike. Buy silver to crash JP Morgan? Don't make me laugh. They are on the register of numerous gold and silver stocks here and abroad, and have huge interests on the long side.
