What about the silver stocks in the Comex?

In recent days, we have read stories on various blogs about impending shortages of silver, because silver stocks in both London and New York are currently falling rapidly. According to some analysts, the current situation is unprecedented and Bullion banks everything they can to keep the silver price under control. This is to prevent stocks from falling even further and there will soon be no silver available at all. But are these claims true? Is there a threat of a shortage of silver?

The silver stock in the vaults in London has been declining almost continuously for a year and has now fallen to just over 900 million troy ounces. That's the lowest level since 2016, when the LBMA began publishing these figures. Stocks of Comex, the largest futures market for the precious metal, are also falling. According to some analysts, this is a sign of scarcity in the market, as the silver is disappearing from the vaults. This leads to the conclusion that the silver price will have to rise sooner or later.

Silver Stock LBMA

It sounds like a simple and logical reasoning, but according to CPM Group commodities analyst Jeffrey Christian, there is quite a bit wrong with this explanation. He Writes the recent decline in silver inventories to declining demand for silver in the form of silver ETFs. These are exchange-traded funds that hold a physical stash of silver, often in precious metal vaults in London that are part of the LBMA. So what we see in the numbers is mainly an outflow of silver from these funds.

Silver Stocks vs Silver Price?

According to analyst Jeff Christian, who has been following the precious metals market since the 1970s, historically there has not been a strong correlation at all between the stocks of silver in the Comex and the price of silver. He shows that the Silver price in the 1970s, without this being accompanied by a significant change in silver stocks. In the 1990s, the silver stock within the Comex fell from 350 to 100 million troy ounces in a few years. That was a drop of more than seventy percent, but the silver price remained relatively constant during this period.

Since the beginning of this century, the price of silver has risen sharply, but this has been accompanied by a sharp increase in stocks. If there is a correlation between stocks and the price of silver, it is positive rather than negative, according to the precious metals analyst. And that can be explained by the fact that when silver prices rise, there is more interest in investing in silver, for example through silver ETFs. These funds then add more silver to their stocks, making it visible in the total holdings in the vaults in London (LBMA) and New York (Comex). "Investors are therefore better off hoping for a rise rather than a decline in silver stocks", says Christian.

Silver Stocks

We see in the market that there is still a lot of demand for investment silver in the form of coins and bars, but that only represents a part of the total silver market. Much more silver is traded on international exchanges in the form of 1,000 troy ounce silver bars. When there is suddenly a lot of demand for Silver Coins And bars, as during the silver squeeze, smelters and mints need time to melt down large silver bars into smaller coins and bars for the private market. In the short term, this will result in longer waiting times and higher premiums. However, that is not the same as a shortage of physical silver.

Isn't there a shortage of silver? It just depends on how you look at the market. When mutual funds sell silver, it doesn't suddenly disappear from the market. It may no longer be readily available to traders, but it will disappear into a vault somewhere to be used for other applications. That silver has not disappeared, but can come back on the market later if the silver price is higher. Over the years, the composition of above-ground silver stocks has changed, as shown in the graph below from the CPM Silver Yearbook Show me. For example, governments and central banks have sold a lot of silver in recent decades, while the total amount of silver in the form of coins has increased sharply.

Composition of above-ground silver reserves (Source: CPM Silver Yearbook)

Is there a shortage of silver?

If there is so much demand for silver that the industry has more difficulty purchasing the precious metal, then the premiums in the physical silver market will also have to increase. If we want to know whether there really is scarcity in the silver market, it is better to look at the premiums and availability of large 1,000 troy ounce silver bars than at the stocks of silver reported by the Comex and the LBMA.

This contribution was made from Geotrendlines