BREAKING: Significant Drawdown Of U.K. Silver Inventories Due To Record Indian Demand
There was a huge development reported in the silver market last week and how did the precious metal community respond? They basically ignored it. Go figure. So, I will try again to get the word out by presenting it in a different fashion.
Indian silver demand was so strong this year, that it produced a significant drawdown of U.K. silver inventories. Matter-a-fact, India had to access silver from China and Russia because available supplies from the U.K. were not sufficient.
According to GFMS Silver Interim Report released on Nov 18th:
Meanwhile demand for silver bars and coins has soared in recent weeks as bargain hunting retail investors returned to the silver market after a disappointing first half of the year. Nowhere is this more evident than in India where imports of silver are up by 14% year-on-year for the January to October period and set for an annual record. With imports in the first ten months totalling a massive 169 Moz many vaults in the UK, traditionally the largest supplier to India, have seen significant drawdowns, leading to more supply flowing from China and Russia.
As you can see from GFMS statement, they even included the word “Massive” to describe the demand coming from India. I emailed Andrew Leyland, GFMS silver analyst and author of the report, to see if he could put some figures behind the declining U.K. silver inventories. He was nice enough to respond today by stating the following:
The LBMA itself doesn’t hold any silver stocks, but its member companies do. These stocks may be unallocated or allocated (often allocated to ETF holdings) and GFMS survey these stock levels once a year ahead of the silver survey in May.
What we’ve heard so far in 2014 has been anecdotal, that there have been large drawdowns in the UK of unallocated material. This has been backed up by trade data that has seen India increasingly buying from China and Russia while the UK (as the traditional lead supplier to India) has lost market share. While we can’t quantify the drawdown or stock level at this point we thought it worth mentioning the trend. In addition, for the silver survey, we’ll be trying to survey how much material from European bullion stocks is allocated. Silver ETFs holdings have been robust, in comparison to gold, and this could effectively limit available inventory to the silver market moving forward.
Unfortunately, Mr. Leyland could not provide any actual figures, but to state that there have been “LARGE DRAWDOWNS” from U.K. silver inventories is a big issue for the silver market. As stated, U.K. was India’s “traditional lead supplier” of silver. Why the big change? Why did India need to resort to acquiring silver metal from China and Russia if the low paper price signifies a SURPLUS???
Another interesting item Mr. Leyland stated in the response was that this U.K. silver metal was from “unallocated material.” Furthermore, he commented that “Silver ETF holdings have been robust, which could effectively limit silver inventory to the silver market moving forward.”
Let’s understand what we are seeing here. Many in the precious metals community do not believe some (or all) of the data put out by official sources such as GFMS, or the CPM Group. I happen to think there is very good factual data in these reports. However, that being said…. if an official source such as GFMS comes out to say that U.K. silver inventories have experienced a LARGE DRAWDOWN… I would imagine we can take this to the bank as a very reliable silver market trend-change.
In addition, the silver that India acquired from Russia or China did not come from Government sales as shown in the GFMS chart below:
Russia, India and China have been the predominant source of net government silver sales over the past decade. But, as we can see from this chart, GFMS forecasts no silver supply from official government holdings in 2014.
Which means two things:
1) Russia & China would rather hold onto their official silver holdings, rather than sell it for peanuts
2) India purchasing silver from Russia and China signifies a lack of available inventories from the U.K. — once known as the world’s largest source of wholesale silver supply
I spoke with some people in the industry about this new market development and it may provide more insight as to why we are witnessing near record open interest in the silver market. Normally, when the price of silver falls, so does the open interest. Basically, the longs give in and the shorts cover.
So, on the way down… the open interest declines and the opposite is the case when the price increases. If look at all of this data together, it portends for a very interesting situation going forward. Why would the amount of open interest contracts remain at near record levels when the price of silver is so low?
Maybe the participants who are trading and dealing in the silver market understand that a drawdown of U.K. silver inventories may mean a REAL ACTUAL TIGHTNESS of wholesale silver (not retail) in the future.
Yes, we are speculating here as we don’t have the REAL DATA, but I believe this information is giving us a hint that physical silver demand is finally putting a large enough dent in wholesale silver supplies that is now being reported by official sources.
At some point, physical demand will overwhelm the paper markets pushing the value of silver to such levels even the most ardent precious metal investor thought unimaginable.
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I don’t know. Frank Veneroso was crying that an immiment gold squeeze was going to happen because the gold was going to run out…..
That was back in 1999.
Then, Eric Sprott became the new Venerosso and yet the game goes on and on and on…..
So, here we are. Silver barely above 16.
I really do wish there was a supply disruption though. I really do. But don’t hold your breath.
It appears there was a gold squeeze since 1999. Look at where the price is now compared to other assets.
Good point!
Frank,
This is a lifestyle. It all NEVER stops. Get it? We’re talking about governments and money and the management of society. It goes on and on and on…..
Those new to the metals (me) and money and government and how the world really works expect some kind of resolution like the ending of a Disney movie; all cheerful and tidy.
But this world just keeps throwing punches. Even when gold and silver make their next turn TPTB will introduce a new money that we will all have to swallow.
There will always be a Venoroso and Sprott et al. Forever.
The oods for a problem with gold is much much higher than in 1999 (it happened in fact but was solved with gordown Brown, BIS and so on) but this time there will be much less ammo remaining !
Hi Steve….the problem I have with the report is that there is zero data to back up his claims about a shortage of UK silver stocks….there is too much anecdotal evidence in the metals sphere….and none of it has an impact on price as can be seen…silver has great fundamentals regardless of the hype from so called precious metals analysts…
At the COMEX , just 3 days left in this PM delivery period to roll or call for delivery.
At present there are 5 ounces of silver contracted for each one ounce of inventory.
The situation in gold is even worse with 20 ounces of gold contracted for each ounce of inventory.
GOFO rates are even worse.
Now, think what a failure to deliver would do to the derivatives!
Bill Holter has an excellent article up at blog.milesfranklin.com/is-comex-being-cornered
Your comment taught me. I had been led to believe it was 100 plus ounces of gold promised for every 1 oz. that exists.
He’s not talking about a wider scope of market but simply the possible sale of Comex ounces compared to the purported number of ounces in Comex vaults.
The open interest for december will decrease dramatically the last day as usual.
No deliveries will happen (even if wished, they are not really permitted in the comex pit).
On this human ride of devolution we go
While governmental and financial systems ebb and flow
There is one truth we all should know
S_ _ t happens, but it is water soluble
Me and my American friend walked into Zaveri Bazar in Mumbai, India to purshase 7 Kg silver, a week ago. We put the cash down and in 5 minutes we got our silver. The dealer showed me a bag of 35 bars of 1 KG sold to a buyer two days ago but the shop keeper complained that he has not come to pick up his silver. The shop keeper offered to buy it back for RS 100 less over KG of marker price at any time.
The shop keeper said that he makes his purchase from a source in London and it takes 2 weeks for delivery. He said he keeps 5 metric ton of stock and every night he places an order based on how much is sold that day. If he cannot get his silver for two days in a row from London he will stop selling his reserve stock of 5 tons.
The prices in mumbai are cheaper than delhi or any where else in India. I can get it 15% cheaper in Mumbai than anywhere else. I avoid paying any making charges on bars, etc. I could not find much silver in Thailand, Vietnam or Cambodia.
Ukrainian gold gone. Germany, France and the Netherlands reallocate their gold. Swiss referendum. It’s not only the bugs that’s after the precious…. When gold regains it’s position, silver will follow. It’s a tough fight against the paperpushers, but in the end, fundamentals will prevale, again.
Do you hear that sound? No? Then sell and buy stocks. And stop whining.
You wrote:
Which means two things:
1) Russia & China would rather hold onto their official silver holdings, rather than sell it for peanuts
So, why did they sell it?
Somebody’s putting out some disinformation. What might be large or massive to some observers may be insignificant to others. Too often, just because data is published by reputable agencies, the data is quite wrong, and intentionally misleading.
joe,
They didn’t sell any official holdings. It was Russian and Chinese private silver supplies either from domestic mine supply or from imports.
steve
Steve,
What would be the point in not selling “official” holdings for “peanuts”, but to sell holdings from other sources for the same “peanuts”? If they’re importing tons of metals as we’re being told, what’s the point of exporting any?
Joe,
One is from the “OFFICIAL GOVT” Stockpiles, while the other is from the PRIVATE INDUSTRY. Russia and China, just like all the other private gold and silver dealers in the world buy and sell the precious metals.
steve
I kind of get tired of the same old claim that there’s a “shortage” of silver. I just bought silver last week, because I like the stuff and I own silver mining stocks, etc., but I had no trouble getting the physical. I could have bought as much silver as I wanted to. If there is a severe shortage of silver, how can I do that? I’m not saying that the market is flooded but there is still enough people willing to sell at $16.60 or so to feed guys like me who are buying. Some time in the future, maybe, there will be a shortage. I hope so. But, not yet. Otherwise, the physical couldn’t be gotten for so cheap. So, please stop price pumping, and let me continue to buy my cheap silver please. Thank you.
John there was a draw down last year of almost 100 million ounces and this year there will be even more as I don’t care what reports say as they are not the miners!
Last year they said there would be a build and I knew well in advance that it was impossible just like this year!
What is going to happen is the price is going to rise and there will be no product to sell and you will not be able to buy any!
So buy while you can:)