GoldCore Comments On Silver Shortages And A Possible Price "Tipping Point"

Tyler Durden's picture

Our friends at GoldCore have summarized recent shortages in the silver market and provide some observations on what this could mean for future silver prices. Curiously, the lack of inventory has happened even as the spot price of silver has consistently declined over the past week (if nominally the decline has been very modest). Just as curiously after the US Mint reported a massive surge in buying, the number of January sales has been fixed flat at 3,407,000, where it was a week ago, and indicates that either buying interest has ceased overnight (unlikely), that the mint is not updating its numbers (likely), or, worse, that the Mint has now stopped selling any form of silver for reasons unknown. Although at the end of the day the only question worth asking is whether JPM feels lucky (again): as we posted last week, the firm has received "grandfathering" protection from position limits, arguably the biggest reason for the recent drop in the precious metal price.

From GoldCore:

Silver Bar Shortages to Lead to Price “Tipping Point”?

Gold is mixed while silver is higher in all currencies today, especially in the weaker US dollar. European sovereign bond yields are higher and the UK 10-year has risen to 3.66% and is close to breaking out after inflation figures surprised the majority of analysts who remain complacent about inflation.

Gold is currently trading at $1,370.75/oz, €1,022.11/oz and £856.57/oz.

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Equities in Asia were higher as are those in Europe so far today. US equity index futures are mixed with Apple leading to weakness in the Nasdaq; the S&P 500 is flat.


Silver is currently trading $28.81/oz, €21.48/oz and £18.01/oz.

Reports of shortages of silver bullion continue to grow. While there are no widespread shortages in this area and dealers with extensive supplier networks (mints and large refiners) are not experiencing difficulties sourcing bullion inventory, it would be wise to keep an eye on this.

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Silver in USD – 35 Years – (Weekly). Click for full size

Reuters reported shortages of 1 kilo gold bars in Asia last week. Sprott Asset Management reported that it was experiencing difficulty sourcing 1,000 oz silver bars. Sprott said they were concerned about the “illiquidity in the physical silver market" and said delays in being able to source physical silver highlights the “disconnect that exists between the paper and physical markets for silver."

Zero Hedge reported that Bullion Vault, the digital gold provider, had run out physical silver inventories in Germany (and possibly elsewhere) and was advising clients to buy silver from other sources.

Zero Hedge also reported yesterday that some smaller bullion dealers in the UK were having difficulty sourcing all silver bars and had delayed delivery of silver bars (including 1 kilo silver bars) until February.

This comes at a time when the US Mint has reported huge demand in the first two weeks of January for their very popular US Silver Eagle 1 oz bullion coins.

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At about $33, €25 or £20 a coin, collectors and those seeking financial insurance have been buying silver in very significant quantities. The 2011 minted coins were first issued on January 3 and in just the first two weeks, 3.5 million coins were sold, according to numismatic web site Coin News.

In January 2009, the silver coins first topped the 3 million sales mark, with record sales totaling 3.59 million for the entire month.

If sales continue at these levels, that record should be surpassed this week. The all time monthly record of 4.26 million silver coins, which was set last November, is clearly in sight.

A recent report by analyst Adrian Douglas of GATA warns of forthcoming shortages of gold and silver bullion coins and bars, and that a “tipping point” will soon be reached that could lead to a COMEX default and a short squeeze which leads to much higher prices. Douglas himself has shown in Le Metropole Café how Comex silver inventories are shrinking and are not far from ten year lows.

The “bear raids” by the large concentrated shorts being investigated by the CFTC, are only leading to increased physical off-take. Indeed, the selling raids may be leading some participants on the COMEX (including large hedge funds) to take delivery or sell futures and buy bullion in allocated accounts.

None of the factors, in and of themselves, suggest that widespread shortages of silver (or gold) bullion are imminent in the immediate future. However, much circumstantial evidence suggests, especially the bona fide reports of difficulty in sourcing large silver bars, that the supply and demand balance in the silver market is very tight.

The more than 80% increase in the silver price seen in 2010 is not leading to an increased supply of silver but rather to a continuing and possibly increasing demand.

This is not surprising as silver is a byproduct of base metals and therefore its price increase will not have led to any material increase in silver mine production. This fact is known by most buyers of silver coins and bars and many of them continue to hold and add to their silver holdings in anticipation of much higher prices.

Silver at $50 per ounce and the 1980 adjusted for inflation price of $130 per ounce are conservative estimates for some silver enthusiasts. They have been proved right in recent years and the extremely delicate supply and demand equation in silver could see them proved right again in the coming months.

Since 2003, GoldCore have written research articles pointing out that the very small size of the silver bullion market would likely see its inflation adjusted high of $130/oz reached in the long term.

Interestingly, were gold to reach its adjusted for inflation 1980 price of $2,300 per ounce, and silver revert to its long term gold/silver ratio of 15:1 (geologically there are 15 parts of silver to every one part of gold in the Earth’s crust) then silver would reach over $150 per ounce.

While this seems über bullish to those who know little about the silver market, some silver enthusiasts - and there are many - believe that in time, silver will be valued at the same price as gold as huge quantities of silver have been used up in industrial applications since the Industrial Revolution of the 19th Century and throughout the 20th Century and into this millenium.

In these unprecedented financial and economic times, it is important to have a long term perspective.

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EscapeKey's picture

No everyone will be too busy buying up Netflix and Apple shares, you know, TRUE stores of value.

goldmiddelfinger's picture

Are you saying cash 4 clunkers was a one time event?

Arius's picture

that depends on Stve Jobs' health i would think...

watchingdogma's picture

So you're saying that back in 1800 - when the G/S ratio was about 15/1 - silver's primary commercial application was photography?  Brilliant - I hadn't thought about that...

goldmiddelfinger's picture

In 1800 silver was used for financial transactions, unlike now. Did you think of that? Maybe you paid your mom's electric bill in pieces of eight?

watchingdogma's picture

Nope - I was just responding to your dumb ass comment:

"BTW, the 15/1 Gold/Silver ratio was prevelant during the days of non-digital photography- back then silver's primary commercial application"

Which is hardly true on many levels - but we don't expect dumb-asses to actually research anything these days - everyone passes - no child left behind!


goldmiddelfinger's picture

You can't see how ridiculous you look trying to out wit my argument.

watchingdogma's picture

I can see how rediculous your arguement was, but there was very little wit involved.  Mostly just ignorance.  I don't think you were trying at all - but I may be mistaken and you may truely be just another dumb-ass.  But why are you still at it?  I thought you sold all of your PM's - or are you feeling a little insecure about your decision?

goldmiddelfinger's picture

I want to save your soul from the perdition of hard currency

Beam Me Up Scotty's picture

I'll trade you all of my post 1964 coins, for all of your pre 1965 coins face value for face value.  After all, a quarter is just a quarter right?


Chappaquiddick's picture

I think you're part of Comp Sci undergraduate research program which is to build a computer entity called a cyber troll that incites people on ZH on issues of real substance with inflamatory remarks refuting self evident truths.

The result is the xtranormal staccato style type dialog displayed by butt fuck (GMF) and some jolly useful research results to aide in the next generation of troll funfesting.

Hey MIT - go fuck yourselves!

merehuman's picture

dont stop now....Fuck you NSA < FBI IRS And the rest of you yahoos.

I say we all create our own government!!! What we got now is just robbers.

gaoptimize's picture

May I suggest that the specifics of the applications (or not) are irrelevant to the annual supply, demand, and inventory above ground.  Everyone will make up there own minds at any given price.  We heard the growling bears when silver was less than $12, even louder at $20, and they have mostly gone quiet around $30, when they should be much louder.  A physical shortage is becoming worse, and something will step in to fill the role of discredited fiats when that time comes.  Silver is my hedge against bad policy, monetary and fiscal.  It could therefore never be high, thick, and prickly enough.

Temporalist's picture

It is amazing how altruistic PM bears claim to be.  Thank you so much for continuing to participate in the stock and fiat ponzi bubble!  It is exactly people like you that provide continued bullishness for PMs.'s picture

You can't see how ridiculous you look trying to out wit my argument.

So you're continuing to insist on the widespread use of silver for photographic purposes before cameras were invented? Where's your documentation?

goldmiddelfinger's picture

When did I say that? Meanwhile before cameras it was used as currency. A medium of exchange, Something it is not used for today.

Polarny's picture

What about medium of exchange over time? 

tmosley's picture

It is not used as a medium of exchange today, therefore it will never be used as a medium of exchange.

Normalcy bias.

lawrence1's picture

My friend, we must ignore the stupid, ignorant.. by responding at all we encourage them to believe that they are taken seriously. Ignore them, dont even junk them... they dont deserve even that energy.

faustian bargain's picture

silver was used for financial transactions, unlike now

you may be one of the shrinking number of people not waiting for that particular shoe to drop.

goldmiddelfinger's picture

That's usually a sign that the shoe that falls is a giant one and it falls on the crowd.

cosmictrainwreck's picture

??? whatchu talkin' 'bout Willis?

oddjob's picture

Call options on ZSL provide more than adequate protection.

goldmiddelfinger's picture

Hedging what you're afraid of will never make you rich grasshopper. Meanwhile get behind the wheel minion. I need to go rob a fort.

oddjob's picture

I am tired of carrying your fucking golf clubs!

goldmiddelfinger's picture

But I must have my clubs carried by a man in a suit and tie!

oddjob's picture

Dont junk Auric...he's working on GrandSlam.

homersimpson's picture

Whatever. You look like a panicked short trying to make up for the past couple years.

goldmiddelfinger's picture

Sold all PM Dec 7, 2010. Ring the bell at the top sometime. It's not just fun, it's profitable.

watchingdogma's picture

So when PM's climb - we'll expect a change of avatar and userid.  Billiant!

goldmiddelfinger's picture

Should I be true to you and NEVER buy it back?  Hah.  Dogma is your name not mine. Lower my son, lower.

quasimodo's picture

Well good on you, and a move you are sure to regret in the not too distant future

goldmiddelfinger's picture

That's exactly what my real estate told me in 2005 when I sold 3 homes.

watchingdogma's picture

So sold your RE 2 years early - and now you've sold your PMs 10 years early - I don't think you should be bragging about your market timing.  I think a capital preservations arguement could be made - but not market timing.

goldmiddelfinger's picture

Hit the absloute tip top in East Fla and LA, CA real estate. Within weeks.

JonNadler's picture

me too, i sold 50 houses in  LA in 2006. They're just jealous of us G

goldmiddelfinger's picture

I just have one ex wife. You must be a pig

Blano's picture

For the record, that was the year Buffett sold his vacation home as well.

Wasn't Bernard Baruch quoted as saying, how he made his money in the market, that he "sold too early?" 

Just sayin'.

JohnG's picture

Sure you did.  Riiiiiiiiiight.  Sure.

Show me the closing documents liar.

Bendromeda Strain's picture

when I sold 3 homes

Oh yeah, I saw those. Brown units - named Refrigerator, Washer and Dryer...

Cognitive Dissonance's picture

So you sold your paper PM on that day? Then you never owned PMs, just an IOU.

goldmiddelfinger's picture

Sold Coins and bullion. I still tinker w micro cap miners.

oddjob's picture

Name micro?...smaller than Rochester Resources?...10 million cap.