After total world silver investment put a huge squeeze on global mine supply last year, the same trend continues during the first quarter of 2021. Investment demand for both physical and ETF silver remains just as strong as it was last year. This is putting a huge squeeze on the silver market as investors begin to demand “Physical” over “Paper Synthetic” silver.
John Adams in Australia is doing a wonderful job putting a spotlight on the big problems for individuals who have invested in “Unallocated” silver investment at the Perth Mint and now Kitco.com. I’d imagine the number of institutions providing “unallocated silver investment vehicles” will continue to get into trouble as more investors ask for physical demand. There just doesn’t seem to be enough silver backing these unallocated accounts.
I believe this Silver Shortsqueeze will get even worse this year due to the ongoing Supply-Demand fundamentals in the silver market. For example, my estimated total silver investment for the first quarter of 2021 is 142 Moz. This data comes from a Metal Focus LBMA Silver Investment Report discussed by Roman Manly at BullionStar. In the report, the Metals Focus Consultancy estimates that as of March 2021, global silver ETFs have seen their inventories grow by 77 million oz (Moz). I estimate that 65 Moz of physical silver investment for the first quarter based on 240 Moz sold last year. Thus, 77 Moz + 65 Moz = 142 Moz. It could be a bit less or a bit more.
My estimation for global silver mine supply is 200 Moz for the first quarter. While the Metals Focus Report for the Silver Institute estimated global silver mine supply recovery to 830-850 Moz in 2021, Peru is still suffering from reduced production due to ongoing issues with Covid-19. So, I believe 200 Moz is a pretty accurate figure.
So, if we compare the total estimated world silver investment (physical and ETF) for Q1 2021, versus the estimated global mine supply, this is the result below.
We can see that the full-year 2020 total world silver investment of 569 Moz accounted for 73% of the total mine supply (780 Moz). If my data is correct for the first quarter of 2021, the total world silver investment demand is 71% of the global mine supply. With the total world silver investment versus global mine supply averaging 31% from 2010-2019, it has more than doubled in 2020 and in the first quarter of 2021.
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As the lousy fundamentals of the physical economy finally catch up to the MASSIVE STOCK MARKET BUBBLE, I believe we will see silver investment demand as we have never before in history. What we are witnessing now, is just a WARM-UP for the fireworks ahead.
Global Silver ETF Demand Putting Pressure On The Entire Silver Market
Before I get into this, let me make a few statements on Global Silver ETFs
- Most Silver ETFs don’t allow investors to exchange shares for physical metal
- Silver ETF inventories may be manipulated or oversubscribed by more than one party
- It doesn’t matter if all the Silver is at these ETFs; what matters is the Demand on the entire market
- Sprott PSLV is the superior ETF and has added the most silver to its inventories in 2021
I will not explain the four bullet points above, but to say, I DON’T CARE IF ALL THE SILVER is at these ETFs. It’s likely NOT. But, that is not the important thing to focus on. Because JP Morgan provides a daily Silver Bar List, it would be IMPOSSIBLE to manipulate more bars than the market participants know that’s in existence. So, if we get a doubling of Silver ETF investment, JP Morgan is going to have to add a bunch more silver. If JP Morgan CAN’T get the silver, as it has mentioned in an update to its iShares SLV ETF Prospectus, then we are going to see a huge premium of its SLV ETF share price versus the silver price.
Why? If there is a lot more demand-trading-share volume on the SLV ETF, JP Morgan has to add more silver to add more Shares to keep the SLV ETF share price parallel to the silver market price. If it can’t get the silver to add to its inventories, then more investors moving into the SLV ETF will push the share premium up considerably. This will be another shockwave to the silver market as investors realize the Wholesale silver bar market is now in a critical tightness.
While I recommend investors to acquire physical silver rather than Silver ETFs, the typical Retail Trader doesn’t realize the difference yet. So, if the retail investor is going to put a lot of pressure on the Global Silver ETF market by rising in and buying up shares… THAT’S FRICKEN WONDERFUL. That just helps the overall situation in the silver market.
For example, take a look at the following Global Silver ETF inventory charts below:
First, you will notice that as the silver price surged from 2008 to 2011, total global silver ETF inventories reached a new high of 631 Moz in 2012. But, even when the silver price fell to a low of $15.68 in 2015, we did not see much of a reduction in the global silver ETF inventories.
Secondly, we see the same huge rise in global silver ETF inventories from 2019 to Mar 2021, along with the price rise. But, in just a bit more than two years, global silver ETF inventories surged by nearly 500 Moz from 2018 (649 Moz) to March 2021 (1,144 Moz). What happens when the silver price goes to $30-$40-$50+???
Just imagine what happens when investors who flocked into TESLA, move into Silver ETFs?? Of course, the best strategy is to buy PHYSICAL METAL, but we can’t control the entire market.
The Silver Squeeze Will Likely Happen Like This…
Here are my 2 cents on the subject matter of the Silver ShortSqueeze. We will continue to get more precious metals investors to take delivery of their unallocated paper silver, increased physical silver bullion buying, increased industrial silver purchases, and a large move of retail investors into the global silver ETFs. These factors will provide the MASSIVE SILVER SHORT SQUEEZE from four different directions. ALL WILL PLAY A PART.
Something BIG CHANGED in the silver market starting in 2019, continued during the pandemic shutdowns in 2020, and is still going strong in the first quarter of 2021. With another 77 Moz build in the global silver ETF inventories in just three months, what happens if we get another 250-300 Moz this year??
The dynamics of this Silver Squeeze will take time, but time is on the side of those who exchange Fiat Money for real silver bullion. The days are numbered for Fiat Money and the Bond Market. These are both ENERGY IOUs, that won’t function all that well during the ENERGY CLIFF.
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Sounds like a perfect storm for Silver , I am stoked . Only thing over the long run that concerns me is confiscation as they have done in the past .
I very seriously doubt they’ll confiscate our silver. If they do, they’ll need plenty of scuba gear.
When did the Gov’t confiscate silver?
Hello Petedvine ,On August 9, 1934, U.S. President Franklin D. Roosevelt implemented the seizure of all silver situated in the continental United States with Executive Order 6814 – Requiring the Delivery of All Silver to the United States for Coinage.
While that was true, there was very little Industrial demand for silver as it was mainly used for coinage. Today, the Govt would only confiscate silver to have a stockpile for military or manufacturing. However, they would likely not go after every TOM, DICK, or HARRY for silver, but go to the Exchanges where most of the silver is kept. There is plenty there for that purpose if the Govt ever decides to do that.
Very interesting Steve and thanks for reply because this question has been in the background for me but not truly concerning to me but nonetheless there .
And now it will be even less concerning !!!
Great article Steve, In your view, what is the best instrument to trade a silver shortage (besides owning physical). I don’t treat physical silver as something that I would do for a trade, more as a long term investment.
Would you play this with PSLV, SIL, SILJ, or options on the SIL and SILJ? Possibly a basket of silver stocks?
If I was just trading silver, I would probably use the SLV ETF. You can short either the SIL or SILJ, but some brokers may list those as HTB – Hard To Borrow shares to short. My brokerage account, TD Ameritrade shows both the SIL & SILJ ETFs as HTB for shorting for most investors who are not larger professional traders.. However, the SLV ETF is ETB- Easy To Borrow Shares. Also, TD Ameritrade also lists the following silver miners as, EXK (HTB), PAAS (ETB), HL (ETB), FSM (ETB), and AG (ETB).
Platinum is reportedly in more shortage. I would add platinum as well.
I am not clear why people would short slv, sil etc. if we expect silver shortage.
I listened to a video of Bix Weir where he talked about the use of silver by the Manhattan Project to built the necessary calutrons to enrich uranium. Those got torn down during the 90’s and sold to the market. The amount was approximately 86 thousand tonnes. They got it directly from the treasury and it was kept secret from the Senate.