Got Gold Report - SLV Adds Silver Big Time By Gene Arensberg 21 Aug 2008 at 10:31 AM GMT-04:00
Since Monday, August 18, while the paper contract-dominated spot silver market tested the high $12s, there has been considerably more buying pressure than selling pressure in the U.S. silver ETF, Barclay's iShares Silver Trust (SLV), as evidenced by the trust having to add 241.199 tonnes of silver bars in three trading days.
HOUSTON (ResourceInvestor.com) -- The authorized market participants for SLV have to add shares to the trading float and increase the amount of silver held for SLV when buying pressure is significantly stronger than selling pressure. The reverse occurs when there is more selling pressure than buying pressure.
This is no small addition to SLV silver holdings. With just under 206 million ounces, SLV now holds an amount of silver that some popular silver analysts thought impossible just a year ago. While those conspiracy-minded analysts were dead wrong in their gross underestimation of how much physical silver was available, they are correct that the removal of 200 million ounces out of the trading market to hold for long-term investors is and will be significant for silver pricing in the future.
What is very important about this development is that as silver just went through a panic-driven sell-down of epic proportions, ... as silver just endured an anomalous panic cascade sparked by the premature unwinding of the short dollar/long commodities trade, ... as one unusually harsh sell-and-trailing-stop-triggering panic plunge fed on the heels of another one (two total), investors were buying the heck out of SLV.
There are good reasons that SLV is seeing such intense investor demand:
Spot Silver has over-corrected. The metal traded as high as $21 earlier this year. It tested the low $12 range earlier this week, a drop of over 40%. It fell too far, too fast. Previous harsh selloffs of silver caused physical silver to be dumped into the market so that premiums for physical silver remained reasonable. In this case there have been no large quantities of silver thrust into the physical market. All over the globe investors want to buy silver now and cannot find any at anything close to a reasonable premium. The paper-futures-contract-dominated cash market for silver has disconnected from the real physical silver market temporarily. The SLV ETF is taking up some of that demand as we suspected it would. Silver is very strongly undervalued relative to gold metal. The gold:silver ratio (GSR) actually moved a little over 70 late last week and early this week, having moved as low as 46 late in 2006. When the GSR is at very high, or even extreme high readings such as now, some investors sell gold and convert to silver. That is underway right now. Silver is scarce in the popular physical silver market. So scarce in fact that many dealers cannot find physical metal to answer their client's orders, not even at the injuriously high premiums which are evident in the physical market as of Wednesday. The low spot price has created bona fide shortages in the physical market.
As an interesting sidebar, SLV holds the very same large, average 1,000 ounce silver bars which the paper-futures-contract spot market is based on. This heavy demand for SLV, this lack-of-panic - heavy buying pressure for SLV is now sending a very clear signal to the futures market.
Time constraints prevent more in this email, but suffice it to say that as silver just got the proverbial tar kicked out of it, smart money appears to have been buying the tar out of it! There has been no panic by holders of SLV. To the contrary.
