In the world of precious metals, silver often stands in the shadow of its more renowned cousin, gold. However, a long term but often overlooked development in the silver market requires the attention of every silver investor. The frantic turnover of physical silver in COMEX-approved silver warehouses should raise eyebrows among market observers, suggesting the continuation of a deepening supply shortage. This intriguing concept, originating from renowned analyst Ted Butler, deserves a closer look. In this article, we don’t analyze prices nor charts, but we look at a fundamental trend in the silver market that underpins our long term bullish silver forecast, it’s a secondary data point (not a leading indicator).
Silver Warehouses: Daily Deposits and Withdrawals
At the heart of this phenomenon lies the movement of physical silver into and out of COMEX-approved silver warehouses. This week alone, a staggering 5.7 million ounces of silver were shuffled within these repositories (source). To break it down further:
- Monday: Witnessed a withdrawal of 1.09 million ounces, the only day of net outflow in the past week.
- Tuesday: Saw 1.18 million ounces deposited, effectively reversing the previous day’s trend.
- Wednesday: Registered a deposit of 0.61 million ounces, continuing the influx.
- Thursday: Recorded the largest deposit of the week, with 2.25 million ounces added.
- Friday: Concluded the week with an additional 0.58 million ounces deposited.
When we annualize these movements, they account for nearly 300 million ounces of silver. This is 1/3d, roughly, of the 2022 global silver production which stood at 1.03 billion ounces.
A Mysterious Silver Shuffle
To understand the significance of this silver shuffle, we must delve into the mechanics behind it. Trucks laden with silver bars make their way to these COMEX-approved warehouses to either deposit or withdraw physical silver. On the surface, this may seem like routine activity in the world of commodities trading. However, it’s the volume and frequency of these transactions that have raised questions.
Ted Butler which we consider the most respected precious metals analyst, in a way also our mentor for precious metals market analysis, points out the peculiar nature of this ongoing movement. The crucial question is: Why are these trucks shuttling massive quantities of physical silver in and out of warehouses at such a rapid pace?
Warehouse Shuffle Is Unique To The Silver Market
Intriguingly, this level of warehouse activity is exclusive to the silver market. While commodities often witness fluctuations in supply and demand, the intensity and frequency of these silver warehouse movements remain unparalleled. This unique phenomenon has left experts perplexed, as no other commodity experiences such a rapid, large-scale shuffle between warehouses. It raises questions not only about the silver market’s current state but also about the underlying dynamics (why exactly is this happening only in the silver market).
One thought to add, which originates from silver analyst Ted Butler: this frantic silver warehouse activity is ongoing since April 2011, when JPMorgan opened its COMEX silver warehouse and is alleged to have started to accumulate physical silver and gold. This is an observation by Ted Butler who is closely tracking, week by week, all facts of the silver markets, since 40 years.
The Silver Lining: Proof of a Supply Shortage
The hypothesis, and a rather compelling one, suggests that this frantic turnover might be symptomatic of a deeper issue – a deepening supply shortage. After all, why would trucks be constantly shuttling around such significant quantities of physical silver if there were no underlying supply constraints?
To understand this further, we can consider a few possibilities:
- Increased Industrial Demand: Growing demand for silver in various industrial applications, such as electronics and solar panels, might be driving the need for more physical silver in circulation.
- Increased Investor Demand: Growing demand for silver across various investor segments.
The fact remains that the current pace of silver movement is unusual. It warrants close monitoring.
The silver market is sending us a subtle but intriguing signal. The frantic turnover of physical silver in COMEX-approved warehouses poses questions about the state of silver supply. Whether it’s driven by increased industrial demand or investor demand, the points is that it looks like it’s becoming increasingly challenging to find physical silver.