Physical silver running out because its spot price does not reflect true investment demand
Posted on 06 October 2011 with 19 comments from readers
Several readers of ArabianMoney have written to us over the past two weeks to express their astonishment at the current price of silver because demand where they live is so high that stocks have run out.
Consider this comment: ‘I used to buy silver from a shop in Kobar in Saudi. From the last four weeks they said they ran out of silver. I cannot find anyone who sells silver in Saudi now. I asked them from where do they get their silver. They said the UAE. The problem is they only have 1kg bars…and I still cannot find any supplier.’
No stock
Well don’t bother coming to the UAE. Our information is that the 1kg bars mentioned here and featured in a video on the website last month (click here) are all sold out too. We’ve also had feedback about low or no stock in Texas and Australia from big private bullion dealers there.
Now what would normally happen when a commodity is in short supply is that the price would go up to encourage sellers to put some more into the market. That is presently not happening because the silver price is being artificially suppressed in the Comex futures market by the bullion banks acting on instructions from the Fed presumably, so why would you sell that silver cheaply if you happened to own some?
But something has to give and it is the price of physical silver rather than the Comex price of the shiniest of metals. If you can find any silver these days you will pay quite a substantial premium over the spot price. But pay it because that is probably still a bargain compared to where silver prices are going.
The truth is that silver is a rare metal, more rare than gold. Silver reserves have been estimatated at one-hundredth of gold reserves. Silver is after all consumed by industrial processes and reserves have dwindled over the years because the price has been kept so low for so long by market manipulation. Why is that?
Silver price fixing
This market manipulation dates back to the last silver boom of the late 70s and the spectacular $50 spike in the price in 1980. The central banks then saw suppression of the silver and gold price as a part of their war on inflation. They clearly lost that war but kept gold and silver prices down until this decade.
Thirty-one years later and we are still not back to those silver prices despite a seven-fold increase in the global money supply. On that reckoning silver ought to be $350 an ounce, not $30 today.
However, the snap back for silver prices now has the capacity to be sensational, and far beyond the mini-spike in the first few months of this year from $30 to almost $50 again. So those who go seeking out physical silver to buy at current prices are going to be very well rewarded and soon, not in 31 years!
ArabianMoney continues to stick with silver as our top tip for 2011 (click here) and that means a big rebound in the price before the end of the year.
19 Comments posted by readers:
Next month or by the end of the year, the Pan Asia Global Exchange will be in business as an alternative to the present system where paper gold is, what, 100 times the volume of physical gold.
The Pan Asia Global Exchange will not allow paper bullion or ETFs, I understand, and the spot price will simply reflect supply and demand. Maybe this will be the trigger to send silver prices sky high?
Report from the Bullion trenches in Sydney (ABC Bullion):
Brisk trading again today with clients queued before we opened and queues of 30+ mins to get in the front door at lunch time and early afternoon. A mix of gold and silver buyers. Very few sellers, in silver we only bought back 2kg of silver over the counter.
As expected last week we have sold out 1kg silver bars for immediate sale, and the wait list for 1kg bars from the PAMP refinery has blown out from 4 to 6 weeks.
The only silver bars we have to sell over the counter to take now is some beaten up 50 & 100 oz Harrington bars from the 70’s that we bought back several weeks ago when prices were much higher (we are selling them at loss!) and sub 1kg bars, such as 100 & 500gram, but the 10oz bars have sold out.
1oz & 1kg silver coins are still available.
Gold bars and coins are still readily available but we are getting warnings of supply issues in the pipeline from our suppliers which is not a good sign going into the Indian gold buying festival of Diwali on the 26th.
Greg Hudson!!..good to meet you..great intelligence complete w/ numbers..of far more value than heresay..you shame investigative journalism
That is all true about silver. But mechanics at Platinum are even more dramatic. But nowhere mentioned. Interesting.
The silver shortage in Texas is not true in my area. There is plenty of silver, from dimes to 100 oz bars.
I don’t want to sound cynical, but those with silver stock, including shops, are known to pretend they have run out as they are un-willing to part with it as these temporarily declined prices. If they have recently paid $1,200 a kilo, they are not going to sell that stock until it get’s near that again. Think about it. This happens every time there is a big correction.
There is no price discovery mechanism working in the silver market where price is afunction of supply and demand.
Jp morgan is a ftont for the federal reserve. Between JP Morgan and HSBC they hold massive naked shorts in silver . The price manipulation has been proven. The CFTC do nothing ? yet! Margin limits have been talked about but nothing has happened yet!
You don’t have to be a rocket scientist to work out its a reargaurd action to support the collpasing dollar.
just join the dots .
@Alen. Would have to agree with you on Platinum. Platinum is much rarer than gold and more difficult to refine and separate from its sister metal Palladium (most ores contain a mix of both).
Our shop has run out of Platinum 1oz PAMP bars , no stock available until November, (still have 1/2 oz but the premium is higher) since the massive price drop. Although we do have 500gm and 1kg bars. I saw a 1kg bar go out today with a price tag of US$49,800 vs. some gold 1kg bars sold at US$53,750. Not since the 2008 crash has Platinum been priced significantly below gold.
As a side note for the last several years our Platinum buyers, particularly of the large bars have been Japanese (local and in Japan) – not sure why though.
I have had a few posts on my blog mentioning Platinum but some are quiet dated now: http://ausbullion.blogspot.com/search?q=platinum
@Jason.
Yes is not uncommon for small bullion dealers, and particularly coin dealers to halt trading in silver bars and bullion coins if the price suddenly swings down. Understandably so as such dealers buy on a weekly or monthly basis and on low margins they can’t afford to suddenly sell most of their stock at a loss.
Different for the large dealers such as ourselves as we re-buy everything we sell each day on the market each night. To minimize our price exposure during the day we have live pricing, that means we get the metal price and AUD:USD exchange feeds every five mins and update the prices on our website every time a new feed comes in. For every customer that walks through the door we print a price sheet just for them with that minute’s prices. The next person served will have a later price sheet printed which may have lower or higher prices.
So to answer you question we don’t hold back metal, we sell over 2,000kg of silver a week, if we stockpiled it we would never get in the door
First Majestic Silver Mines in Vancouver have lots of stock and will ship you beautiful 10 ounce bars at the normal prices. The bars are their own silver from their own mine
Check out their web site
totally agree with jason,,, they might have it in stock and do not want to sell it at these prices
Whilst confiscation of gold and silver, privately owned, is impossible in the US and unlikely in other countries, what they might do is to suddenly restrict the amount of gold and silver any one individual person can purchase from a set date.
This means that we need to get on with purchasing our bullion and not delay. Besides the prices are at about the lowest they will ever be. Even if silver drops to, say, $15 per ounce, the difference between that and its present price is trivial compared to the upside price of, say, $500 per ounce.
The comments posted by Stephanie on October 6Th,. and Rand , October 8Th., to me are the only two that appear to wander in the realm of reality.
During the month of April, when silver went above $47.00, several silver mine owners appeared on television. They were delighted. According to one of them, it cost between $4.50 and $7.00 to mine and refine an ounce of silver, depending on the location of the mine.
How can a metal be precious when it can be produced for an average price of $5.75?
Today’s dollar has all the purchasing power of eleven cents in 1957, so $5.75 today, equals sixty four cents in 1957 …… by a “strange coincidence”, 64 cents was the cost of mining and refining an ounce of silver back then.
A country’s wealth does not lie in the amount of silver of gold it has, but rather in its ability to manufacture. When any nation strips and ships its industrial base out of the country and becomes a “service” nation instead, it’s money will automatically become worthless and that nation will die.
Look at once Great Britain as an example, it is now simply a banana republic with a high priced queen and a large parasitical ‘royal family’.
The United States has followed suit, it went from being the World’s largest lender to now standing with a beggar’s bowl mooching China’s spare change.
China is now America’s manufacturer; it has all of America’s industry…… and money. When was the last time anyone has seen a ‘Made in the U.S,A.’ tag or label ?… China, Japan and Korea is where America’s “real” wealth went.
Yet the talking head “geniuses” in Washington and on television continue to be puzzled as to why the unemployment figures are so high.
Ascot: I am with you about exporting.
“No Export = No Recovery”… Ponce
Here in Australia the same has been haapening for a period of time Government has been attacking business of all types in particular manufacturing, so where do we now get most of our product, no surprise China. The only reason Australia economy is so robust is we are Chinas backyard for mining iron ore, copper, mineral sands, gold , silver and the list goes on. If it wasnt for our raw materials Australia would be an Extra nothing on the world stage.
Read a lot on here about silver, it will rise, the signs and symptoms of a sick economy and hyperinflation are so easy to see. As I write this US almost owes 15 trillion dollars and the rest of the world is heading down the road of chaos. Buy physical silver and lots of it and God have mercy on our souls.
Comment posted by Ascot, I think you will find price discovery is a function of supply versus demand rather than the cost of extraction. The stockpile of silver for sale in the world’s warehouses has reduced from 2 billion ounces in 1990 to 31 million ounces in 2011. This means that the supply has been in deficit to demand.
Dan, JPM iS not a front for the FedRes…it is a shareholder with the other banks who OWN the FedRes. This makes TheFed a front for JPM!
The Perth Mint has plenty of silver but like most mints do not have the capacity and infrastructure to cope with such high demand.
Look I own silver, but it doesn’t sit right with me when people claim silver is somehow rarer than gold.
It is not.
There is around six times as much above ground silver as gold. Silver is much cheaper to mine and refine too. Yes there is less silver *bullion* than gold bullion, but that is because such a high proportion of gold is in this form.
Peace