What's behind the unexpectedly high physical silver demand recently?

[wrcmad]

Arbitrage ensures otherwise.....

Except that the real world is limited by physical reality and the futures markets are not


You just have to look at the oil price chart over the last 10 years to see that

Did the real world have such a massive physical shortage of oil in 2007/2008 that the price went from $50 to $140 ?
And did the real world suddenly start producing massive amounts of oil in June 2008 that sent the price back to $40 in 6 months ?

There was probably very little change in real world supply and demand all through 2007 and 2008 - just a whole lot of futures BS

Probably is not actually.
Of course these price swings were due to supply/demand.
Even the most wreckless permabulls around realise and can explain this....

Source: zerohedge

 

[tolly_67]

In reality the statement "The futures market, however, is not necessarily a true reflection of the supply and demand in the real world" is applicable to every market, not just the futures market.
How about the price of Volkswagens with the split front windows? If you want to see a bubble, look no further.
Every market is in continual flux such that the 'real' price of anything is impossible to determine because it is never fixed.
Of course silver has a demand and yes, the futures market is larger than the physical but arbitrage is one of the controls that prevent a disconnect.
There are always 2 sides to a trade and each is capable of profiting from arbitrage but such a profit would be at the loss of one side of the trade and nobody trades to lose money.

 

[Miloman]

That's a throw away line saying nothing more than there's a price for everything.

It does not refute the point...
The futures market, however, is not necessarily a true reflection of the supply and demand in the real world

Which is accurate and saying it ain't so, doesn't mean you are right. Markets have, can and do fail.

Arbitrage in this instance only works if you can actually acquire the metal. ......

It isn't a throw away line... arbitrage is the leveller that permabulls love to ignore, and despise being reminded of.
It refutes the point so well that there is no sensible retort, except to ostensibly dismiss it as a throw-away line.
It is more right than 'not necessarily', and more right than 'probably'....

There is no problem getting the metal. There is no supply problem.
As numerous posts have already explained, the metal is there to be had.... the mints just can't stuff it through their premium-producing machines fast enough ATM.

Way to misrepresent what I said. You also edited my post and selectively quoted it.

Here's what I actually said in full, in context.

That's a throw away line saying nothing more than there's a price for everything.

It does not refute the point...
The futures market, however, is not necessarily a true reflection of the supply and demand in the real world

Which is accurate and saying it ain't so, doesn't mean you are right. Markets have, can and do fail.

Arbitrage in this instance only works if you can actually acquire the metal. Selling physical metal in the hope that a futures contract will deliver in a looming environment where financial settlement vs actual delivery seems likely.

This has long been a contentious issue. I'm not saying it will happen though. But it has in the past and will continue.

This story is as old as markets themselves, John Law is a perfect illustrative example.

The only one being obstinate is you!

EDIT:
Read my comments. Then re-read them in case you missed what i said because you certainly did the first time.

 

[monopolize]

Guys there'll always be people who are bullish and people who are bearish, it's what makes markets. People can look at the same data and come to different conclusions, it's pointless trying to argue who's right cause people are stubborn and believe what they want to believe, myself included.

SP has asked a great question and the thread has been derailed.

It's interesting to find huge demand in Australia when silver is not at aud lows. Perhaps the dealers can enlighten us on who's doing the buying here.

It's perhaps the spike in premiums that are driving the panic buying. And fear that there'll be no more food platter coming out of the kitchen.

 

[wrcmad]

Way to misrepresent what I said. You also edited my post and selectively quoted it.

Here's what I actually said in full, in context.

That's a throw away line saying nothing more than there's a price for everything.

It does not refute the point...
The futures market, however, is not necessarily a true reflection of the supply and demand in the real world

Which is accurate and saying it ain't so, doesn't mean you are right. Markets have, can and do fail.

Arbitrage in this instance only works if you can actually acquire the metal. Selling physical metal in the hope that a futures contract will deliver in a looming environment where financial settlement vs actual delivery seems likely.

This has long been a contentious issue. I'm not saying it will happen though. But it has in the past and will continue.

This story is as old as markets themselves, John Law is a perfect illustrative example.

The only one being obstinate is you!

EDIT:
Read my comments. Then re-read them in case you missed what i said because you certainly did the first time.

Fair enough, I have re-read.... but I don't see an issue.
I only omitted what I thought was irrelevant.
While selling phys and buying the futures is one possible scenario of many arbitrage methods, assuming one is after delivery on a contract is also only one scenario of many. I disregarded this because of it's convenient selectivity.... found it a bit obstinate.
The next line had no bearing on the context of discussion.
And then I thought WTF is John Law, so omitted that too.
Covered everything?

 

[trew]

Of course these price swings were due to supply/demand.

Really ? In the space of 18 months the price went up 3 times and then back down again.

Are you really trying to say physical supply and demand changed that drastically in that short time period ?
Oil fields don't just suddenly appear and disappear. But contracts do.


Your chart is long term and shows that prices eventually follow the real supply and demand - as you would expect
It doesn't explain the drastic change in prices in 2007 and 2008 at all.

 

[Miloman]

Guys there'll always be people who are bullish and people who are bearish, it's what makes markets. People can look at the same data and come to different conclusions, it's pointless trying to argue who's right cause people are stubborn and believe what they want to believe, myself included.

SP has asked a great question and the thread has been derailed.

It's interesting to find huge demand in Australia when silver is not at aud lows. Perhaps the dealers can enlighten us on who's doing the buying here.

It's perhaps the spike in premiums that are driving the panic buying. And fear that there'll be no more food platter coming out of the kitchen.

^^^
I'll ask.

I do know that some of the buying has been by people who are ordering bigger quantities than the little guy. Not sure the size though.

Not sure if we can get an answer either. Also the demand for silver seems to be from the US.

Another speculative though is the convalescing of a number factors... from "war talk" to the refugee crisis etc. etc. I think that has had a spill over effect to here in Australia as demand for all products increases due to shortages of other products.

David Morgan has gone on the record saying that 1 silver dealer in the US has 4 million ounces of silver on back order. After what we've heard, I think the claim appears more credible.

The psychology of crowds I guess causes more people to pile in and panic buy. This may actually precipitate wholesale shortages if sustained as has been alleged. But who knows?

 

[wrcmad]

Of course these price swings were due to supply/demand.

Really ? In the space of 18 months the price went up 300% and then back down again.

Are you really trying to say physical supply and demand changed that drastically in that short time period ?
Oil fields don't just suddenly appear and disappear. But contracts do.


Your chart is long term and shows that prices eventually follow the real supply and demand - as you would expect
It doesn't explain the drastic change in prices in 2007 and 2008 at all.

C'mon man, I know you are smarter than this.
It's not my chart, and it's in layman's terms. How much clearer explanation do you want?
Oil fields don't disappear (well they do eventually) - they just ramp production in any direction they want.
Anyone who has ever read the financial news in the last 30 years would know that OPEC just dial the tap up or down to get the price they want.

 

[monopolize]

Yup perhaps the demand in the US is just having a knock on effect here where dealers just can't replace stock that they've sold without a significant delay.

 

[tolly_67]

and when gold drops below the $1000 and silver follows.....what will be the reason for the silver demand?......
When I see a full page spread in the newspaper offering greater than spot prices, then I will believe the demand is outstripping supply.

 

[Miloman]

Way to misrepresent what I said. You also edited my post and selectively quoted it.

Here's what I actually said in full, in context.

That's a throw away line saying nothing more than there's a price for everything.

It does not refute the point...
The futures market, however, is not necessarily a true reflection of the supply and demand in the real world

Which is accurate and saying it ain't so, doesn't mean you are right. Markets have, can and do fail.

Arbitrage in this instance only works if you can actually acquire the metal. Selling physical metal in the hope that a futures contract will deliver in a looming environment where financial settlement vs actual delivery seems likely.

This has long been a contentious issue. I'm not saying it will happen though. But it has in the past and will continue.

This story is as old as markets themselves, John Law is a perfect illustrative example.

The only one being obstinate is you!

EDIT:
Read my comments. Then re-read them in case you missed what i said because you certainly did the first time.

Fair enough, I have re-read.... but I don't see an issue.
I only omitted what I thought was irrelevant.
While selling phys and buying the futures is one possible scenario of many arbitrage methods, assuming one is after delivery on a contract is also only one scenario of many. I disregarded this because of it's convenient selectivity.... found it a bit obstinate.
The next line had no bearing on the context of discussion.
And then I thought WTF is John Law, so omitted that too.
Covered everything?

Not really.

I did say that I am "not saying this will happen" so I dislike being pegged as though I said it would happen or I was being stubborn about it.

History is important, perhaps look up and learn about John Law. I also stated that markets do cease, just look at pork bellies, they're no longer traded.

I am more than happy to question the relevancy of an exchange... here have a read...

https://books.google.com.au/books?i...nepage&q=commodities no longer listed&f=false

Markets can and do fail, my point.

Also yes currently there appears to be no issue in getting delivery of metal on the exchange but as you should know, this can change.

Exchanges are there to facilitate trade not be the actual source of the exchange, that is between participants. The exchanges openly state this.

So yes, in an environment where there is vastly reduced registered supplies of metals, you might not get delivery.

Did you know that there's only 187,000 ounces of registered gold on the exchange!!! That's worth repeating, only 187,000 ounces of registered gold. That's the lowest level in HISTORY and is a minuscule amount.

I'll leave this chart to do the talking... it's history in the making.

 

[tolly_67]

The chart means nothing. The comex is not the only place to store silver. In fact, there are some that profit handsomely from those that incorrectly use the comex levels as a gauge of world supply......As the Whammy on the short lived game show "press your luck" so succinctly put it......" I wanna take a photo of you losing your money"

 

[Miloman]

The chart means nothing. The comex is not the only place to store silver. In fact, there are some that profit handsomely from those that incorrectly use the comex levels as a gauge of world supply......As the Whammy on the short lived game show "press your luck" so succinctly put it......" I wanna take a photo of you losing your money"

What planet are you on???

Registered metal means "available for delivery". This is what we are discussing, conducting an arbitrage to get metal in the future, that means deliverable metal. I don't think anyone is arguing that point except you.

You're on another planet.

EDIT:
Also the point you are making is that the futures market is not the physical market. Which is what many have been saying all along.

 

[tolly_67]

"available for delivery" at the Comex......and what about the silver stored in London?....Just because it is not listed as "available for delivery" does not mean it is not there. It is simply not counted. The inventory ruse is what Buffet used to profit from silver many years ago.

 

[wrcmad]

The chart means nothing. The comex is not the only place to store silver. In fact, there are some that profit handsomely from those that incorrectly use the comex levels as a gauge of world supply......As the Whammy on the short lived game show "press your luck" so succinctly put it......" I wanna take a photo of you losing your money"

What planet are you on???

Registered metal means "available for delivery". This is what we are discussing, conducting an arbitrage to get metal in the future, that means deliverable metal. I don't think anyone is arguing that point except you.

You're on another planet.

EDIT:
Also the point you are making is that the futures market is not the physical market. Which is what many have been saying all along.

tolly is right. This chart means SFA.
Registered metal does not mean "available for delivery". Registered metal means it has already been delivered and is registered using a warehouse receipt. This can easily be "re-delivered", whereby the warehouse receipt merely changes owner. The owner could also take it out of registered stock, and place it back in eligible stocks.
You could surmise from this that because registered levels are at a low - no one is taking delivery, and physical demand is low. This is in fact a repeatable pattern that exists in relation to price. In general registered stocks fall as prices fall because demand falls.
Just looking at the level of warehouse stocks, it is difficult and presumptuous to extrapolate market fundamentals from the holdings of eligible or registered gold at any one time. There is still plenty of metal, and there are hundreds of millions of dollars of gold traded every day off of the Comex, for hundreds of different reasons. So this aspect of the market is only a part of a very much larger puzzle.

The real physical holdings are in eligible warehouse stocks - when acceptable bars are brought into an exchange-approved warehouse they become "eligible" for settlement of gold futures contracts traded on the exchange. So at this point, the owner of the bars may deliver them onto the exchange, and that is when warehouse receipts are created. That is when the gold bars become "registered" stocks. However, eligible gold stocks may or may not ever become registered stocks. Why? Because the warehouse is still a warehouse and the owner may simply want to vault their metal securely, before using it to meet demand elsewhere for manufacturing, or from investors in another marketplace, such as Asia. This eligible gold may belong to an investor, a refiner, a hedge fund, a bank or producer. Many times these people are holding the metal for their end customers. And it may move at any time, and is much more flexible than the warehouse receipts that are registered stocks.

Here is confirmation of that from Bron on July 6th 2015:

I would note that the decline in registered gold stocks and delivery rates occurred soon after gold's dramatic crash through $1550 and into the 1300s, and the stocks and rates have stayed low since then during the subsequent weak/sideways gold price phase we are currently in. A reflection of lacklustre western investor interest in gold? However, I note that eligible inventories have increased from 6 million ounces at the time of that price drop to 8.5 million ounces today, and such accumulation has usually been considered an indicator of positive western investor sentiment to gold.

http://research.perthmint.com.au/20...ex-stocks-open-interest-and-delivery-figures/

 

[RichardAL]

It seems mints may be struggling to keep up with an unplanned-for level of demand.

What's behind this unexpected surge in demand for physical? Is it just low prices? Or something more?

Good question - sorry I don't know!

I'm glad you asked, though. If demand is spiking suddenly, "what's happening with supply?" would be my initial query.

Generally speaking, my understanding is that availability is primarily a function of production capacity. There may be a perceived shortage due to an inability to manufacture enough refined product to meet short term demand.

BTW IMO that was one of the main drivers behind the oil price fluctuations - insufficient global refining capacity (production of saleable oil) resulting in the possibility of not being able to deliver sufficient quantity on time. I think the majority opinion is that global peak oil was reached, or was extremely close around then, also.

My point being that the world was not about to run out of oil and is not about to run out of silver (or oil).

Anyway, silver isn't oil and it seems to me that there's a lot more marketing and spin with silver (!)

Just my two cents' worth!

 

[Miloman]

Actually, you guys may be right I double checked, though I am not 100% certain. I do know that Eligible can be transferred to registered.
My understanding is still that "registered" means intended to meet delivery. Eligible means stored metal that meets the requirements of the exchange.

Though there are market participants may not actually be able to deliver the physical metal, on average only about 2% is called on. And we really do not know if all participant who trade actually hold metal vs. trade naked.

The comex is a venue for traders but not the source of the metal itself as I stated above.

I have a questions...
How long does it take for eligible to become registered and the warrant created?
How far in advanced does the warrant need to be created before metal can be delivered?
Further to that what if more metal stood for than warrants/registered?

 

[Jim4silver]

There is high demand here in the US from PM fans who have been waiting for prices to drop for the past few years, plus extra buying by PM bugs who have been buying all the way down from 2011.

The general public is still clueless on PM's in the US. Those types don't buy something until the price is on an upward tear and people are talking about it on TV and such, just like stock market price chasers.

If the general public ever did want in badly, you would really see wholesale silver/gold depletion. I look forward to that day, but I feel it is still a ways away.

My local coin dealers are crying the blues about wholesale supply. Let's hope price drops again the the wholesale delivery wait times extend to over 90 days +.

I visited one store on Saturday, and the display case was EMPTY of all bullion, except for high priced slabbed (graded) coins. People were still paying and placing orders and told 4 to 8 weeks wait time. This store has not been empty like that since I started going to them (mid 2000s). Even in 2008 when prices dropped to under $9 they had some inventory, albeit highly marked up generic bullion.

Just my opinion.

Jim

 

[tolly_67]

Whew....That's nice to know.
I was getting worried that I wasn't from this planet.....

 

[Miloman]

Whew....That's nice to know.
I was getting worried that I wasn't from this planet.....

^^
hahah, the questions remain.

There is a difference between registered vs. eligible. We are sorting through important parts of the mechanism of physical delivery.

I cannot claim to know the full details of outstanding claims vs. warrants. And what happens in the event of more people standing for delivery than warrants. Happy to be brought up to speed on the "irrelevancy" of the chart if those questions get answered.

EDIT:
I do think I know the answer which is why I am making this point. But if you can answer the questions and prove me incorrect then I'll accept and admit I was wrong. Though I don't think I am.