Wednesday, February 2, 2011

Silver: Supply, Demand and China

This evenings post will be a mixed bag, I have a few things to share and discuss.

As I have reported a couple of times in recent blogs (Perth Mint struggling to keep up with demand & 3rd phase of bull market) we have seen an increasing number of reported shortages and unavailability of some retail sized Silver (100 ounce products and below).

This hasn't really been news to readers of KWN where discussions about such shortages have been circulating for a few days already:
Today King World News interviewed one of the top gold and silver dealers in the United States about tightness in the silver market.  Bill Haynes is President and owner of CMI Gold & Silver for and when asked about a shortage in  silver he stated, “All of the major suppliers of 100 ounce silver bars are either weeks or months out, some will not even take orders.  I had some conversations with a number of people who buy from them, had to dig through the information and some of them revealed that they thought the refineries were having trouble and the manufacturers were having trouble getting the physical product which falls right into the silver shortage.
It’s starting to show up in the 100 ounce silver bar market which is a primary investment vehicle for individuals who want to buy silver for investment purposes.  It does surprise me because we did not see the buying that we saw in 2008, 2009 when our safes were absolutely emptied of 100 ounce silver bars, and that’s the type of buying I thought we would have to see in order for there to be a shortage of 100 ounce silver bars.
I was able to get 100 ounce silver bars (recently) and then all of the sudden these guys I call them and say ok, we are talking 100 ounce silver bars, they’ll say well, it’s a month out on any order you place today.  And then I have people telling me they will not take any orders on 100 ounce silver bars until May.
There’s a couple of things that are going to happen that is going to shut a lot of people out of this market.  All of the 100 ounce bars are going to be gone in a matter of days, not weeks, days.  Then people are going to have to put up their money and they are going to have to wait weeks or months before they get their bars.  They are also going to have to pay higher premiums for that product because the marketplace will put a higher premium on the bars on a price drop that depletes all of the vaults around the country.
Hopefully the recent examples I have shared have been of interest.

Here is another taken from the Silver Stackers forum, an example supplied by user rbaggio on his recent talks with a dealer:
I went in to a large bullion dealer here today (to sort out something), and we got talking about inventory.  The dealer will remain anonymous.

I can tell you that he is experiencing a massive shortage of physical, and he seemed very worried about it.

Got the tour through his safe, saw what was there (1kg bars, 15kg bars), also saw that what was there was already spoken for (invoices with the bars, numbers written on to them etc).

He said that if I walked off the street and ordered $60,000 worth of silver today, it would not be delivered until August.

In terms of bars, the only stock >1-2 bars that he had for immediate delivery, was Perth Mint 100oz bars.   And he said that this was because 6 weeks ago, he called up Perth Mint and asked what they had in stock.  They had 1.5 tons, so he said he took the lot.

In terms of coins, there was a non-trivial amount of Perth Mint product there, which I guess is something.
KJC, another Australian dealer sent out an email to subscribers:
As we have previously mentioned there is an extreme worldwide shortage and availability in the silver market - especially in 1kg & 100oz bar silvers two of the most popular sizes offered worldwide.

We would like to advise we currently have available from fresh deliveries a small yet healthy supply of silver bars & coins available for immediate delivery, we are probably one of the only major dealers Australia wide with silver available for immediate delivery as we are well aware many dealers are quoting late February / early march earliest for fresh orders and that's not even guaranteed.
A recent comment on the official Perth Mint Blog also mentions the shortage of the 100oz products (see last comment on 27th Jan):
Regarding supply of 100os Silver bars….. these bars are just suffering a temporary shortage due to demand and general production pressures. Our online store has some available today but restocking probably wont occur until March.  I can confirm, however that Perth Mint Depository does have stocks of 100oz silver bars. These are not available for sale to online customers as they are kept in reserve by Depository to ensure it can meet its legal obligation to satisfy client collection requests.

Once again, production  is the difficulty here, not supply of silver. Silver is in strong demand from the “popular numismatic market of the Mints”, but that doesn’t affect our ability to supply it in a particular form – 100oz bars.
Further to the above news of shortages, today we received an update on the production level of American Silver Eagles from the US Mint for January. I speculated in a previous blog around 2 weeks ago that if sales trends continued that we would see over 6 million ASEs sold and that's exactly what happened:

As a comparison to US mine production of Silver the months tally is equal to around 16% of their annual output... Incredible!

On a final note I saw an article today discussing recent comments out of China in relation to precious metals:
China is taking several initiatives to raise the country’s reserves in gold and silver in an attempt to globalize the Yuan. The main strategy is to buy gold and silver reserves when prices of these precious metals fall.

According to a report published by the Economic Information Daily, the Chinese central bank, the People’s Bank of China, is chalking out plans to buy gold and silver reserves these days considerably as their prices are currently down.

Gold prices have come down by nearly $100 in the last few days. Silver prices that have been also following gold prices in the last one year have fallen thanks to the rise in US dollar value.

Commodity Online
I bolded the comment that leaped off the page at me.

I have heard comments out of China (and other countries) about increasing Gold reserves, but never Silver!

In my opinion this is a very exciting development.

Those of you who have been reading the KWN blog will have read comments about Asian sources buying the Silver dip, articles such as this one:
The contact out of London has updated King World News on the massive Asian buyers which have been accumulating both gold and silver.  The London source stated, “Last week Asian buyers let the price come in to them.  They were buying all day long, hitting all of the offers and they were not sending the price higher.  As much as the orchestrators were hitting the bids, there were some smart buyers hitting the offers.  The thinking was, I can pick up tonnage here, literally I can pick up tonnage here.”
I will be honest, when reading articles from mysterious unamed sources I am always suspect about how seriously to take their comments, but it seems in this case the source may have been on the money. For all we know China is already adding to Silver reserves, could they be the country to set the trend? What pressure will this add to the already tightening physical Silver market?

Got Silver?


Disclosure: Positions held in Silver. Not investment advice. Do your own research.

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