Is A Physical Silver Shortage Spike Imminent?

Tyler Durden's picture

That imbalances in the supply and demand of precious metals, particularly silver, could lead to a shortage of physical product in the future should not come as a surprise to many - it is a topic covered extensively here in the past. Nonetheless, as a useful reminder of the big picture in the silver market, Future Money Trends has released another update video, reminding viewers that if traded purely on fundamentals, there is a high likelihood of increases in the price of silver, and other precious metals. As the authors put it, " There simply isn't enough physical silver to deal with the demand of a fiat currency crisis. As the paper silver market pushes prices down, all hell will break loose in the physical market." While that conclusion may or may not be applicable just yet, when coupled with recent revelations of potential double counting of precious metals at the warehouse level (see HSBC-MF Global story), the situation will certainly get only more exacerbated. Furthermore, should silver miners take Eric Sprott's advice to heart and decide to convert some or all of their product into physical, the market will suddenly recall that in addition to liquidity, prices are also determined by something called fundamentals. And fundamentals, especially in combination with a market risk spike, confirm a price jump may be imminent.

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williambanzai7's picture

We are in the age of quadruple counting.

Ancona's picture

I thought I was the only one who counted his silver multiple times. I'm a closet silver counter.

Ahmeexnal's picture

Off to the coinshop early tomorrow.


Mr Lennon Hendrix's picture
JW n FL's picture



I LOVE Monster Boxes!! they also can be used at foot stools... that is what I have in my office.. take 3 monster boxes.. stack them one on top of another and put them in from of the chairs in your office.. people come in.. who dont know you.. and ask what are those teal boxes.. and you then get to tell them how stupid they are for not knowing!

Got Silver?

Got Lead?

good! follow these instructions! 

gmrpeabody's picture

Got an idea where there's some silver to steal?

;- )

JW n FL's picture



if ay of my fellow ZeroHedge Brothers are sooooo bad off in the days to come and would be in need I would be happy to share some.. no need to steal from someone who would happily give it to ya!

MillionDollarBonus_'s picture


Do you think you could spare some silver to help me out? Over the last couple of months I’ve had some pretty devastating margin calls, and although I’m holding my head high I can’t help feeling a little sorry for myself. My equity portfolio is strictly long-only, which is a reflection of my belief the greatness of America. I know that I will be rewarded eventually for my faith in our leaders since history shows that politicians are accountable to the people. However, some extra margin would really help me through this difficult period. 


XitSam's picture

MDB, I don't know whether to take it on its face and downmod you, or upmod you for funny satire.

traderjoe's picture

That's MDB_. See the last underscore.

BrocilyBeef's picture

That underscore means results!

Mr Lennon Hendrix's picture

did mdb just get rehyopthecated?

akak's picture

Good one!

But honestly, where the FUCK did this crazy word "rehypothecated" come from in the first place?  I NEVER heard nor read that word before maybe two weeks ago.  And if "rehypothecated" is a word, then what exactly does "hypothecated" mean?

chumbawamba's picture

Hypothecate - to pledge property as security or collateral for debt.  Generally, there is no physical transfer of the pledged property to the lender; nor is the lender given title to the property; though he has the right to sell the pledged property upon default.

Black's Law Dictionary, 5th Edition


chumbawamba's picture

So to rehypothecate would be to hypothecate it again :)  Picking this apart and examining the bits, it seems that the balance in trading accounts at MF Global were held as collateral for the margin in the account, or in other words they were hypothecated.  So it looks like MFG rehypothecated or re-pledged the accounts as collateral to whomever got the funds (JPM?) who then promptly stole them.  I'm not following the story that closely (to me it simply functions as a textbook example of "I told you so" since I've been telling "physical only in your possession" for years now) but that basically sounds like what's happened.

I am Chumbawamba.

Sokhmate's picture

rehypothecate (v.): short for recursively hypothecate. It's usage in a sentence does not indicate the recursive multiplier. it could mean once. It could mean Googolplex times. The limit of recursiveness will not be mathematically known until the Big Rip event.

Abitdodgie's picture

They work it in progradually. 

MillionDollarBonus_'s picture

I have always had an underscore - search the site for yourself. You may be surprised by my modesty but I'm not afraid to proclaim my support for AMERICA, even if it means admitting losses on core US stocks.

akak's picture

.... but I'm not afraid to proclaim my support for AMERICA's sociopathic and criminal power elite and their collapsing house-of-cards financial and monetary systems, even if it means admitting the loss of core US values.

Corrected that for ya.  Asswipe.

Are you sure that you are not RobotRetard's long-lost twin brother?  Or maybe even his conjoined twin?  You do both seem to share the same nonfunctional eyes, microcephalic brain and vigorously flapping sphincter.

JW n FL's picture


ave I told you lately that you are a sexy mofo?

+1 for telling the truth!

Henry Hub's picture

There is some people on ZH who should Google the word "irony" before commenting on MDB_

akak's picture

Actually, they should not.

The point is that once a consistent message is propagated often enough, with no corresponding message conveying the supposed "irony" of the other, then it can be presumed that the poster does indeed believe the consistent message which he is sending.

If you told your wife, day after day, month after month, that she was fat and ugly, intending it as a joke but never telling her otherwise, do you REALLY think that it would still be a joke a year later?

nmewn's picture

I understand and concur.

But it is an MDB hamy wanger whats his face. Fuckin boiler room sock a call center.

Aylo, dis is

We really need to go back to test questions before log on.

Calmyourself's picture

Darn it, stay in character everyone who has been here a while remembers wanger and knows your a td creation now go back to troll mode or we will unplug you..

hunglow's picture

No red monsters for chairs?

gavroche76's picture

I've been looking to buy physical siver for the first time for a few months. But there's a thing i'm not sure about... The rise in the industrial demand always comes on top of the arguments to buy physical silver, so the shortage in physical availability also. I always been considering PM as a kind of insurance policy to protect my assets value in case the armagedon scenario happens. And in that case, i guess the industrial production would totally collapse. After all, who would need a PC or a cell phone when u r fighting to feed and protect your family ? Please tell me what i'm missing... And sorry for english mistakes. 

El Gordo's picture

If you are not sure, just buy a little.  If you are sure, buy a lot.  If you have a little extra money, buy a little extra silver.  A good, regimented buying plan may pay off down the road, and if it doesn't, they make neat paving bricks, Christmas tree ornaments, and all sorts of neat stuff.

Janice's picture

Silver is a win-win. If all this economic doom & gloom is BS, eventually there will be an increase in industrial demand and the sale of products created with silver should increase, thus demand for silver increases. If the economic doom & gloom is real and the economy collapses further, people will use silver to exchange for goods because gold would be too expensive. Potential silver shortages increase the value of silver in both senarios, whether used industrially or monetarily.

XitSam's picture

The Mint should start making quarter and tenth ounce silver eagles. Even a 20th ounce coin, alloy it with some nickel so it's not tiny like the silver 3 cent coin.

RockyRacoon's picture

No need to do such a thing.  With all the 1964 and earlier junk silver around, and easily recognizable as a U. S. coin, there's not a use for minting new fractional silver coins.  It's already available.

XitSam's picture

I realize that. But after the Y2K non-event, a huge amount of the junk silver was melted down, there isn't that much of it around anymore and no more is being made. Besides, a silver quarter is only going to be accepted at a business for 0.25 FRN.  I want the government to produce a new currency that competes with FRNs. Wouldn't you like to walk into, say Best Buy and see the price of a DVD as "0.50 AgOz/$35.00"?  Don't put a value on the coin, read up on Hugo Salinas.

Update: fix a couple typos

OliverTwist's picture

"Silver is a win-win."

I heard this win-win stuff before. I think it was 5 years ago. I think it was somewhere in California. And I think it was a real estate agent saying it to me. "House prices can only go up."

aphlaque_duck's picture

Ya except the bull market in CA real estate started 50 years ago. Silver may have a ways to go then...

Janice's picture

The difference between me and a real estate agent is that I'm not selling silver to you.....yet. I promise, I can hold my silver longer than most people can remain solvent. Plus, the value of my silver has tripled since I've owned it. I encourage you to put your money where your mouth is, trust your government, and sit on the sidelines.

OliverTwist's picture

But Mr Sprott is selling ETF's and with a healthy premium too! Do not misunderstand me! I like silver and I have some (physical) silver. I'm not trusting any government.

The only thing I wanted to put out is: be careful if you hear the words "win-win"! There is always risk in investments. Sometimes more sometimes less. But there is! If you have been buying silver in 1980 on the peak ..... you finish the sentence! It is too easy to pick two dates in history deliberately .... so be careful and do your own diligence!

vamoose1's picture

Hey Checker,  i bought silver in size at 6.50  5 years ago, wats that,  a lose


OliverTwist's picture

So you are the Checker. Not me! I congratulate you also because in 2006 silver was never at 6.50 .... at least the official price in US $.

JustObserving's picture

There are only 700 million ounces of silver available according to the video.  The video also says that the physical silver market is $35 billion (about 1100 million ounces).  Sprott says about 1000 milllion ounces of silver bullion are available in the world.

So estimating the amount of silver bullion market of $35 billion is a very reasonable estimate.

Now compare that to US debt increasing at $5.9 billion a day(per or US debt snd unfunded liabilities increasing by $23.8 billion a day.

There is no way that US, Europe, UK and Japan can ever pay their debts.  Silver which has represented money throughout human history will continue to increase in value in relation to fiat due to the amount of fiat money being printed.  Even if industrial demand stalls, the value of silver will rise due to the sheer size of fiat.

And there are other asset bubbles which make silver look cheap.  For example, the value of land in Beijing was worth nearly $20 trillion in January 2011, making it worth 570 times all the silver bullion in this world.

Silver is very inexpensive given the amount of fiat and the crazy bubbles in other assets.


OliverTwist's picture

So you are not sure. And you are asking other people. But how can you be sure that what they will tell you is true? You can not be sure. So how you will feel after having asked the people. Not sure. One day you will realise that at the end you have to trust. Trust other people or trust yourself or trust a mixture of both.

Just a tought from me.

smore's picture
U Snuze U Luze!


Silver Stock Report by Jason Hommel, November 16th, 2011

You will often read how various experts in the financial press will say that the gold price "should be" about $2000/oz., to $3000/oz., or slightly higher.  But what they almost never say is how they arrived at their figures, and what assumptions they are making.

The reality is that the gold price, today, given today's conditions, should be about what it is right now.

But conditions are likely to change, and change dramatically, and can change very quickly.  The conditions that are mostly like to change the most quickly are people's perceptions and understanding of the reality of the dangers of theft due to inflation.

The US Federal Government is spending about $1.6 trillion more than they take in from taxes, which is $1600 billion, which is $1,600,000 million, which is $1,600,000,000,000 dollars.  The news on TV this morning said that the US national debt increased by $400 billion in the last 3 months, which confirms the numbers.  They are not able to fix this problem anytime soon.  This problem could not be fixed even if they taxed incomes at rates of 100% per year.  And they are mostly just printing this money, which creates inflation, which means that prices will go up, for everything, including, and especially, for silver and gold.

Today, very few people in the USA understand that they need silver and gold, and that is likely to change, and historically, those kinds of attitude changes happen very quickly, which result in dramatic and very sudden increases in the prices of silver and gold.

Today, in the USA, only about $3.5 billion is being spent annually on silver, (estimated at 100 million oz. x about $35/oz.) and only about $3.4 billion is being spent annually on physical gold (estimated at 2 million oz. at about $1700/oz.), for a total of only about $7 billion spent on precious metals to protect itself from inflation.

But the USA has about $18 trillion of cash, savings, and short term bonds in the banking system, which can also be expressed as $18,000 billion, $18,000,000 million, or $18,000,000,000,000 dollars.

So, mathematically the reality is that new money creation is about $1600 billion, out of $18,000 billion, which is an annual increase of nearly 9%, and yet only $7 billion out of $1600 billion of new money creation is being spent on precious metals, which is only 0.4%, or expressed another way, is only $1 out of every $229 dollars of newly created money being spent on silver and gold, and only $1 out of $2,571 of money in the banks is being spent on silver and gold, which is only 4% of 1%.

So, currently, this is next to nothing compared to the avalanche of money that is going to be spent on silver and gold.

So, we could ask ourselves the following questions: 

1.  What is likely to happen to the gold price in the event that 1% of money in the USA were to be spent on gold and silver in a year.

2.  What if 10% of the money in the USA were spent on gold and silver in a year?

3.  "What if 10% of the money in the world were spent on gold and silver in a year?"

4. "What if 100% of all paper money had were to be spent on gold and silver in a year?" 

5.  "What if 100% of US paper money had to be backed by all the official US gold?"

6.  "What if 100% of US paper money had to be backed by all the US gold that the US government is likely to have left?"

See, the gold price will be dramatically different, given the different assumptions, as follows.

First question. What if 1% of money in the USA were to be spent on gold and silver in a year?  Money in US banks is about $18 trillion.  1% is $180 billion.  This is 26 times what the USA currently spends on silver and gold, which is only $7 billion.  The entire world annual gold market production is about 75 million oz..  The USA buys only about 2 million oz. of that.  The USA spends about half on silver, and half on gold.  What if that continues?  Well, if the US spent $90 billion on gold, at $1700/oz., that would be 53 million ounces.  Clearly that kind of new demand would push up the price, probably to triple the current price, taking the gold price to $5100/oz.  For silver, $90 billion at $35/oz. would buy 2.6 billion ounces.  But here we have a major problem.  World silver production is only 0.7 billion ounces, or 700 million ounces.  Furthermore, there is no large above ground stockpile of silver, as most has been consumed by industry, and furthermore, most of the silver market is already being consumed by industry, leaving very little left over for investors to bid over, which is only about 150 million oz. left over for investors.  But let's assume that industry gets squeezed out, leaving 300 million oz. available for investors who wish to spend $90 billion on silver.  This gives us an easy calculation for the price, which is $90 billion divided by 300 million, or .3 billion.  So, 90 / .3 = $300/oz. for silver.

But those numbers are extremely unrealistic.  Only 1% spending money on silver and gold?  Really?  Not likely, it's likely to be far more.  Conditions of inflation are only likely to change when interest rates are as high as the annual increase in the silver and gold prices, which are above 20% per year.  After all, why earn 1% in bonds if you can earn 20% in gold? 

Second question.  What if 10% of money in the USA were to be spent on gold and silver in a year?  This would be $1800 billion.  Half into gold would be $900 billion. With world annual production at 75 million oz.  If the USA bought half of world production, that would be only 37.5 million oz.  $900,000 million / 37.5 million oz. is $24,000/oz. for gold.  If $900 billion were to be spent on half of world annual silver production, that would be only 350 million oz., which would lead to a price of $2,571/oz. for silver. 

Third question.  What if 10% of money in the world were to be spent on gold and silver in a year?  World money is about $60 trillion.  10% would be $6 trillion.  If half were to be spent on total world gold production, that would be $3 trillion spent on 75 million oz., which leads to a price of $40,000/oz. for gold.  If $3 trillion were spent on 700 million oz. of world annual silver production, that leads to a price of $4,286/oz. for silver.

Now, the interesting thing about rising prices, is that they tend to attract more money, because everyone wants in on it.  People today who think silver is expensive at $35, will be scrambling to buy silver as it just keeps relentlessly climbing.  For two reasons.  First, they will recognize that dollars are just used paper, like newsprint, and they will be fearful to hold them as their values just keep going down, and fast.  Second, they will want to become wealthy, and they will see that they only way to do that is through owning real wealth of silver and gold.  So, this leads us to the inevitable question, the 4th question, what happens when the entire US money supply is spent on silver and gold, over a nice, slow pace, of over an entire year.  Now, think about that again.  This is still well before hyperinflation really kicks in, well before people are spending their entire paychecks on silver and gold the instant that they get paid, and well before the government starts printing new money with several more zeroes at the end of it.

So, 4th question, what if 100% of US money is spent on silver and gold in a year?  $18 trillion, or $18,000 billion.  Half for gold is $9,000 billion, spent on, say 2/3rds of world gold production of 75 million oz., would be 50 million oz.  $9,000,000 million spent on 50 million oz. leads to a price of $180,000/oz. for gold.  And if $9,000 billion is spent on 2/3 of world annual silver production of 700 million oz., which is 467 million oz., that would be $19,272/oz. for silver. 

But let's assume that the US government tried to prevent that from happening.  Let's assume that the government would be smart enough to back all US currency with the official US gold, at a rate that would give the dollar a 100% gold backing.  (I know, kind of a crazy assumption to assume that the government would be smart, but let's assume anyway.)  The point of considering these numbers is that, in theory, the US government could stop runaway inflation with a 100% gold backing and a balanced budget, but given today's political climate, that's currently impossible.  But let's say the Tea Party wins a full sweep of both houses of congress and we get Ron Paul as president, and let's assume that instead of trying to return to the gold standard, he tries to simply prevent runaway inflation with full 100% gold backing all dollars in all US bank accounts.  It's a very simple calculation  $18 trillion divided by 261 million oz. of official US gold = $68,966/oz.  Given the previous calculations, silver could hit a 10 to 1 ratio to gold, which would be about $7,000/oz.  This is what the gold and silver prices "should" be, given the givens of honesty, and living up to the basic pledge of FDIC "government" insurance on all bank accounts.

Ah, but finally, many people reasonably expect that the US has already sold off a lot of the official gold to protect and defend the dollar at current low gold prices, which is more consistent with government reality and stupidity and rising gold prices.  In that event, the dollar is like burnt toast, and there will be no stopping the coming runaway gold price increases.

The reality is that we live in an age of deception, because the dollar is a deception.

smore's picture

And if that doesn't make you happy, how about this, MONKEYS LEARN TO USE MONEY!

Yellow Tang's picture

Tl;dr for those of us with ADD?

Dave Thomas's picture

Jason Hommel is blessed, he sleeps on a Simmons Beautyrest!

vamoose1's picture

Fair enough, there would be a collapse in industrial demand in armageddon.But armageddon in the west is not armageddon in the east, we are increasingly irrelevant.Silver is following the sun.Quietly migrating across the vast pacific. 

    And if you extend your own logic,  what is the value of a us dollar  or a Zeuro in armageddon,  they are for practical purposes worthless and abandoned as currencies, leaving the only two REAL currencies standing anywhere and would rise  from 50 to an infinite number  of current prices.  To  wit Weimar Repubublic 1921, Zambia in the present day, rendering industrial production declines irrelevant.

johnu78's picture

Please for the love of god, bring the price spike!!!



JPM Hater001's picture

I'll take the over and bet my 4000 oz.