Tuesday, February 15, 2011

Silver Bullion COMEX Stocks at 4-Year Low as Backwardation Deepens

From Goldcore:

Gold and silver are higher after last week’s 1% and 3.5% gains in dollars. Silver is particularly strong again this morning and the euro has come under pressure as bonds in Ireland, Spain, Portugal and Greece continue to rise. While Asian equity markets were higher, European indices have given up early gains.

Silver’s backwardation has deepened with spot silver at $30.16/oz, March 2011 contract at $30.13/oz and April’s at $30.00/oz. While spot silver has risen nearly 1% so far today, the July 2012 futures contract was down 0.187% to $29.81/oz.

The gradual drain of COMEX silver inventories seen in recent months continues and COMEX silver inventories are at 4 year lows. Total dealer inventory is now 42.16 million ounces and total customer inventory is now at 60.68 million ounces, giving a combined total of 102.847 million ounces.

The small size of the physical silver market is seen in the fact that at $30 per ounce, the COMEX silver inventories are only worth some $3 billion. The US government is now paying some $4 billion a day merely on the interest charges for the national debt. It is also the same value as Twitter’s new venture round of financing or Ford’s debt pay down in the first quarter.

Comex Silver Inventory Data GoldCore
Comex Silver Inventory Data

Talk of a default on the COMEX is premature but the scale of current investment demand and industrial demand, especially from China, is such that it is important to monitor COMEX warehouse stocks.

The Hunt Brothers were one of a few dozen billionaires in the world in 1979 when they attempted to corner the market. Today there are thousands of billionaires in the world, any number of whom could again corner the silver market. Also, today unlike in the 1970s, there are sovereign wealth funds and hundreds of hedge funds with access to billions in capital.

The possibility of an attempted cornering of the silver market through buying and taking delivery of physical bullion remains real and would likely lead to a massive short squeeze which could see silver surge as it did in the 1970s.

Note: The COMEX referred to in this article is a division of the New York Mercantile Exchange (NYMEX).

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