EXCHANGE WAREHOUSE SILVER STOCKS: Large Declines Across The Globe

After experiencing a small build of inventory over the past few months, silver warehouse stocks at the Shanghai Futures Exchange are now back on the decline.  Matter-a-fact, Shanghai Future Exchange (SHFE) silver stocks fell 11 metric tons today, nearly 10% in just one day.

Silver warehouse stocks at the SHFE bottomed in September at 81 metric tons (mt), and then slowly increased to a peak in November….. this can be seen in the chart below:

Shanghai Silver Stocks 2013 & 2014

By the end of October, silver warehouse inventories at the SHFE increased to 120 mt and then peaked on November 11th at 138 mt.  In just the past two weeks, 20 mt were removed from the exchange.  The chart below shows the weekly change of silver inventory at the SHFE over the past two months:

Shanghai Silver Stocks Oct & Nov 2014

(NOTE:  There is no Oct 3rd inventory figure as the Chinese markets were closed due to the week-long holiday)

On October 10th, the SHFE had 95 mt of silver on hand.  Inventories increased slowly over the next five weeks until there was a significant one-day build of 14 mt on November 11th, reaching a high of 138 mt.  Then in the past two weeks there were several small withdrawals until today.

As I mentioned before, there was a large 11 mt withdrawal today bringing the total down to 108 mt.  While this is higher than the all-time low of 81 mt in September, it seems as if the overall trend has now reversed leading to a continued decline of silver inventory at the SHFE.

If we compare the first chart showing the 2013 & 2014 Shanghai Silver Stocks to the 1 year COMEX silver inventories, there are some interesting relationships.  You will notice that silver inventories increased from the beginning of the year in 2014 on both exchanges.

2014 Comex Silver Inventory

The COMEX silver warehouse stocks increased from approximately 170 million oz in January 2014 to 183 million in March.  The SHFE experienced a build during the same time rising from 425 mt at the end of 2013 to a high of 575 mt in February 2014.

Furthermore, warehouse stocks on both exchanges declined into the summer.  The COMEX bottomed earlier in August at 175 million oz, while the SHFE continued to experience a draw-down until it hit a low of 81 mt in September.  Then both exchanges saw their silver warehouse stocks increase over the next few months.  However, the COMEX peaked in the middle of October, while the SHFE did so a month later on Nov 11th.

We must remember, the Shanghai Futures Exchange is more of a physical delivery system while the COMEX is more of a paper price setting (RIGGING) mechanism.  This is probably why the SHFE has experienced a 95% reduction of its silver inventory since its peak of 1,143 mt March 2013… RIGHT BEFORE THE HUGE TAKE-DOWN IN THE PRICE OF SILVER.

Important Implications In the Silver Market

In my prior article titled, BREAKING: Significant Drawdown Of U.K. Silver Inventories Due To Record Indian Demand, it was reported by GFMS, one of the official sources on the silver market, that massive Indian demand caused a serious decline in U.K. silver inventories:

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.

Basically, GFMS stated that the “massive” Indian silver demand caused a large draw-down of U.K. silver inventories this year forcing India to acquire silver from Russia and China.  I would imagine the decline of Shanghai silver stocks after the peak of 575 mt in February of this year was due in a large part from Indian demand.

So what does this all mean?  Huge demand for silver started after the April 2013 paper price smash resulting in a 95% reduction of warehouse stocks at the Shanghai Futures Exchange.  Also, this continued into 2014 as the U.K. (known as the global hub for physical silver delivery), experienced a draw-down of silver inventories as well.

While the COMEX has seen a decline over the past month or so, overall silver inventory is higher than it was at the beginning of 2014.  Which also proves that the COMEX is more of a paper price setting exchange than either the LBMA or SHFE.

It will be interesting to see how developments play out over the next several months and into the first quarter of 2015.  If the U.K. and SHFE silver inventories have already been draw-down significantly… where is supply going to come from if we see continued strong demand or how about a LARGE PLAYERS requesting actual delivery from the COMEX.

The continued draw-down of silver inventories in China and the U.K. may have something to do with the SET-UP in this chart.  This chart was put together by Bo Polny of Gold2020Forecast.com, who I spoke on the phone yesterday on some of the details.

I do not follow Technical Analysis as it’s become worthless in a rigged market, however professional traders still use it as a tool for setting up positions in the market.  According to Bo, the Silver Chart represents the Mother of a Descending Triangles.  Normally a descending triangle that is forming a bottom results in a huge reversal and SPIKE HIGHER.

Silver Volume Chart Bo Polny

You will also notice in the chart the MASSIVE increase in trading volume.  At first it was assumed that all the volume (on netdania.com) was 5,000 oz contracts, but this is not the case.  The SHFE has 15 kilogram silver contracts and the SGE – Shanghai Gold Exchange has 1 kilogram silver contracts.  The SHFE is approximately 482 troy ounces and the SGE is 32 troy ounces.  So, the 1 trillion ounce silver trading volume is much less, but still OFF THE CHARTS prior to 2011.

Furthermore, trading volume on the SHFE has now surpassed the COMEX.  This part of the reason why overall trading volume has increased nearly exponentially since 2011.  As we can see from the chart, trading volume during the $49 silver price peak and decline in 2011 did not increase all that much… basically it was a flat line until the middle of 2012.

While it’s impossible to figure the actual silver trading volume in ounces (due to the different sized contracts around the world), we can plainly see PAPER TRADING has picked up substantially during the TAKE-DOWNS in early 2013 and Oct-Nov 2014.

Lastly… yeah I get it.  We are all wondering why the price of silver continues to decline if inventories are falling in the major silver delivery markets such as China and the U.K.  Unfortunately, we don’t really understand what is taking place in the silver market as the majority of trading takes place in the opaque OTC- Over-the-counter derivatives market.

That being said, at some point in time the world will wake up to the fact that the U.S. Dollar and highly inflated Stocks and Bonds are not stores of wealth, but rather a massive leveraged paper ponzi scheme.  Ironically, this public realization will probably occur right at the same time when the silver inventories at these exchanges are nearly depleted.

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38 Comments on "EXCHANGE WAREHOUSE SILVER STOCKS: Large Declines Across The Globe"

  1. The inventory data is very interesting, but the trading volume data leaves me scratching my head.

    If the size of the contracts varies from 32 ounces to 5,000 ounces then Bo really needs to be careful. We also know that most of the contracts being counted today are not at the COMEX, whereas in the past most of the contracts were the 5,000 ounce size. I think that makes the volume data Bo is providing useless unless we can put some more data with it. A little more research is needed to put some minimum and maximum values on actual ounces these contracts represent, along with some probabilities on the numbers.

    The Shanghai silver inventory is exciting and I have been following it carefully at their website. It seems to represent a very tiny fraction of world silver. If it hits zero I would imagine it can easily be replenished. I’m not sure that I understand the significance of this number getting to zero. Do people feel there might be a delivery default?

  2. “Unfortunately, we don’t really understand what is taking place in the silver market as the majority of trading takes place in the opaque OTC- Over-the-counter derivatives market.”

    This is why gambling on silver is such a bad bet. No one knows what the heck is going on in that market. I don’t believe silver will ever rally unless there is a true physical supply disruption. IF, and that is a big IF, supply was really tight that would even be more reason to keep the paper price down…..

    We know most Americans and others are not buy low sell high people. The VAST majority of all people are momo monkeys and herd/pack animals. So they CANNOT let silver go up–EVER NOW.

    It’s why the stock market HAS to keep rising—they have to keep the flow going there, or else. I think the S + P 500 is going to 3000 by 2015E. No, I am not kidding.

    Also, the paper gains are real in the stock market—and they are leaving gold and silver in the dust. The other day people were all giddy about a fake after hour spike in Gold of 11%. There are 1000s of stocks that will pop 11%, 1000s and they produce real inflation adjusted returns—while Gold and Silver are producing REAL loses, nearly everyday.

    Yeah, the markets are full of it. But they have ALWAYS been full of it.

    • Frank, agree with most of your commentary except the part of S&P going to 3000. This thinking was similar in 1929, 1987, 2008. J. P. Morgan once stated he was in the stock market until he overhear the shoeshine boy recommending a stock . Thanks for the heads up and great tip , to get out now!

    • The wild card with silver is not supply. It is investor demand. Investor demand is currently between 30% and 50%. If middle class America wants to protect wealth like they did in the 1970s, then silver will have to go MUCH higher. There is far less silver above ground than there was back then and there are vastly more people in the world that can afford silver. I absolutely expect $200 silver in a similar environment.

      • Mike, we might never see a similiar environment. Secondly, 200 pie in the sky targets are ridiculous. How many years do the PM community need to hear this non-sense?

        Most PM bulls would be thrilled just to see 20 an ounce for silver again. And given the way it “trades’ that could take decades.

        Don’t waste 25 years of your life like Ted Butler.

        • Frank,

          While the $100-$200 figures for silver sound crazy now, I can tell you that these high numbers may not seem that insane within the next 4-5 years. Ted Bulter does not factor ENERGY into his forecasts. If this was 1980 all over again, I would not recommend the precious metals due to the fact the world still had 20-30 years worth of increased oil production.

          M. K. Hubbert forecasted the peak of U.S. oil production in 1953 to arrive in 1970 and it did. He went on to predict global peak in 2000. He was off by 5 years in conventional oil production which did peak in 2005. Not a bad prediction almost 50 years ago at the time. So, we had an idea that Global Oil production (conventional) would peak sometime after 2000. Now, we are just waiting for unconventional to peak.

          However, we are now in the Plateau of Global Oil Production and I believe we will see a peak within the next few years. It could actually be sooner and much worse if the Global Financial system melts down… but I am not counting on that.

          The PEAK AND DECLINE OF GLOBAL OIL PRODUCTION will destroy the valuations of most paper assets forcing investors to move into HARD ASSETS such as gold and silver to protect wealth. At that point the $100-$200 or corresponding value will not seem crazy anymore as the world wakes up to 40+ years of FIAT MONETARY AMNESIA.

          steve

          • Steve,

            I hope you are right about everything–not due to financial reason. Due to the fact that this world has gone beyond insane—by every and all measures I’m thinking seriously of spending every dollar and asset I have on off grid property, plant, and equipment. I don’t have huge means, and it would drain my current resources—but I think spending 150 thousand on it might just be the best investment I can make in this insane world.

            I know you believe that peak production is here…..so you are the best person to ask this question: What do you make that given your premise of cheap oil long gone that the Price of crude is crashing? It is down like 7% today?

            And…….if this really is an attack on Russia (do you think it is?) do you think they could counter finally with an upward attack on Gold and Silver to flog the dollar? I

            Thanks, Frank

          • Frank,

            The two reasons for the $5 sell-off in WTI-Crude oil today:

            1) The Saudis decided NOT TO CUT PRODUCTION.
            2) This gem was released by the CME GROUP yesterday:
            IMPORTANT NOTICE – Effective 4pmCentral Time, after the close of the US markets on November 26th, we will be margining all clients at 100% of exchange required margins for Crude Oil, RBOB, and Heating Oil related trading. This is in response to the impending OPEC meeting, with results to be released at 9am CT tomorrow November 27th.
            ———-
            So, the CME is asking for traders to back their futures contracts 100%. Many are liquidating instead of throwing in more bad money after good.

            The drop in the price of oil over the past 2 months has to do to record supply (large part due to U.S. Shale oil) and a drop in demand stemming from the slowdown in European GDP growth from Russian sanctions. The market was already weak, this just dropped another hammer on the situation.

            Current sustained cheap oil prices will destroy UNCONVENTIONAL OIL production from Tar Sands and Shale. As I have stated several times, without the FED and Central Banks propping up the world’s economies with printing and massive debt, the world would not be able to afford TAR SANDS AND SHALE OIL.

            Which means PEAK CHEAP OIL has already occurred.

            Things will get very UGLY as times goes by. There is no PLAN B when the world finally peaks in EXPENSIVE OIL.

            steve

        • For silver to go to $200 in 25 years is not a “wasted life”. When people say stuff like that all I can assume is that they are very poor with math. If it works out the way you are suggesting then my purchasing power was likely well preserved.

          • What hasn’t been discussed is the derivatives market and the gigantic bubble they are in. There are in all flavors from options, CDS and interest rate, etc. and THAT is what brought the world to near collapse in 2008. They are what the FED uses to create demand for their bonds and because the whole world is now financialised where people don’t need to work and save and invest we all just sit back and play with numbers on a computer screen. THAT is what will come to an end and when the inverted pyramid theory comes into play IMHO the race for collateral will be frantic and insane. Down the slope the world will go through the levered corporate sovereign bonds through the levered FX to levered fiat cash and then finally to gold and silver. Price will normalize these things and when that happens the world will settle down once again but this time to a real asset backed transactional currency. Of course the price is relative. $200 silver in a world with $20-$30 gas for instance. IMHO.

  3. Very interesting indeed! In September when SHFE showed 81mt people like Bill Holter and Harvey Organ were surmising we would be running out of silver by now . Much discussion in the PM blog world pointed to this prognosis along with the huge Open Interest in the December Futures Contracts on the Comex exchange . Meanwhile instead of going alarmingly lower the stock of silver gets replenished on ” just in time ” basis . December OI on Comex exchange in silver started the week in excess of 61m standing for delivery only to decline to 32m plus yesterday and with two days remaining before first notice day we could well see roll-over or “cashing out” of December contracts with very little standing for delivery. My point simply is this: We have been led to believe that physical silver will someday overwhelm paper silver and that the law of supply and demand should dictate price. The truth is so far paper supply of silver is winning and just in time physical supplies are showing up at depressed prices. PAPER vs ROCK. PAPER wins!

    • I understand your points, however, the just in time silver may easily be coming from “unknown” sources, as in—borrowing from the past. I wouldn’t count on it mostly coming from scrap or new production. If its old silver, it can’t act as a supply patch indefinitely.

  4. When you buy physical PM’s you take access of those funds away from the politicians, banks and the welfare state. The dollar is debased on a daily basis due to creation of currency with no backing not to our benefit but, to those parties I just mentioned. Now the taxpayers have to foot a bigger bill for the illegals. I’m looking 10 years out and a black swan event will occur before that in my opinion and I believe everyone should have some PM’s in their possession.

  5. Personally,I’d like to know theories about the huge uptick and instant crash-back in gold.Could it be a real purchase followed by a panic cover-up?

  6. I’am interested in knowing how much material in future will be delivered from the Basic miners.They make 70% from the cake.So how are the cyles of this miners.How long can they deliver silver.What about the grades?Is there an expanding of this companys?

    • silverfreaky,

      PEAK SILVER will first occur in the Base Metal Mining Industry. This will have less to do with falling ore grades or profitability and more to do with demand. When the world peaks in global oil production (next 2-3 years), Global GDP will decline… and it could decline even sooner if we get a BLACK SWAN.

      Thus, a fall in Global GDP will mean a decline in demand for copper, lead and zinc. I believe this will occur even as the price of gold and silver resets higher due to their STORE OF WEALTH capabilities compared to most paper assets.

      The PRIMARY SILVER MINERS will prosper at this point in time because it takes a fraction of the energy to produce an ounce of silver compared to the base metal mining industry… especially by-produce silver from copper.

      steve

  7. A fact of life — PAPER BURNS and ROCKS will be around forever as will Silver and Gold . When the Fire finally starts to burn and the economic windstorm intensifies, the world will witness the Greatest Bonfire in the History of Mankind. Those with their paper fortresses feeding the blaze will not find any water (G & S) in time as their ashes litter the streets while they panic hopelessly trying.
    I pray that as many Good People as possible build their house of Fireproof Rocks before it is to late.

    TB

  8. Did you see the Volumina today?It’s crazy.Who in gods name sells to whom?

    • silverfreaky,

      Have you seen the price of oil? WTIC is down $5 to $68…LOL.

      steve

      • So much for peak oïl in the mid term…

        • RD,

          It looks like the BAKKEN & EAGLE FORD will peak within the next year or two. From some recent data, it looks like the Bakken might be showing signs of peaking already. So, I don’t see a peak in global oil production to take 5-10 years. That’s LONG TERM for me.

          Mid-term is 2-3 years. We actually might see a peak in 2015. Depends on whether or not the Central Banks can continue printing and pumping up the markets. If the Central Banks lose control over the situation, then it would destroy a great deal of EXPENSIVE OIL PRODUCTION.. much sooner than later.

          steve

          • Agreed and we might well have low oïl for a few years.

            Western central banks have never failed in the 20th century, never and the japanese lab tells us that debt levels can be sustained with a printing press at much level than the west currently have (usa & europe).

            I wrote even several times before, but if brics do not take real actions for a new Financial and monetary systems, western central banks will prevent any bout of stress with just more monetization.

            Up to now, apart dedollarization, they are doing nearly nothing in the open (maybe they hide their real moves) and if they continue like that, they will fall before the west as western Financial markets are the most powerful weapon in the world, they can destroy any army !

            Lastly, if western people finally weakens about monetization (still nothing in japan despite 25 years) which I put a probability below 1%, and finally put some fiat into monetary metals, there will not find much but the paper prices will be still here and probably lower than now.

  9. Herman the German | November 27, 2014 at 3:27 pm | Reply

    Maybe the black swan is cheap oil, because the longer prices are at these levels or even lower, the more likely it becomes that bankrupcies in the multi-billion shale oil industry will take down this whole credit based ponzi-scheme.
    Might happen very quickly when the snowflake triggers the avalanche.
    Thanks Steve for your great work!

    • I was saying the same thing as the source of a new bout of stress but just monetization (in the open or hidden) will prevent any contagion to bond or stock markets except for oïl producers.

    • Never thought about that. Very interesting observation.

  10. The main oil production comes from Saudi Arabia.I thought they work hand in hand with the Cowboys?They make profit even at Prices around 60$.

    So where should be the interest to destroy the biggest consumer USA?

    • All oil producing countries all loosing with these low prices. Even if OPEC is supposed to work together, there is a lot of friction between them. For the moment no one wants to cut down production and loose money (except for Venezuela)

      Then you have the problem with the U.S. treasuries.
      China is the biggest customer now and has a stringer currency.

    • Guess who is the world’s largest oil exporter? Hint: it’s not Saudi Arabia.

  11. “Unfortunately, we don’t really understand what is taking place in the silver market”

    ======================================

    Even though physical demand is very strong and physical supply tight, the price of Silver (and Gold) have been falling becuase the supply of Paper Silver (and Gold) hitting the market has grown exponentially over the past couple years….. so in the current price discovery system, the massive amounts of Paper Silver being dumped onto the market has the same net effect of a glut of Physical Silver in the market.

    • That’s true.But it’s in the same way it’s true, that in 2011 the Price for silver was pumped up threw the paper.

      Now we must accept that we payed to much for the silver.It’s a long way to amirllo!
      Hard for those (me includet) who loose 50%.So i have learned never hear to the Lobbyists and Analysts.

      • “Now we must accept that we payed to much for the silver”.

        Yes, that’s true when you look at this in a short term view. On the other hand it wasn’t really possible three years ago to forecast how things will turn out. We could have had another blackswan already and in this case you would have been glad to possess some Gold and/or Silver.

        I firmly believe that the manipulations and paper Silver scam cannot and will not go on indefinitely. I purchased my Silver as a hedge against paper currency risks. So once that paper pozi sceme is going to break, PMs will be overrun by the crowd and that’s when you won’t care anymore whether you paid 40 bucks or 16 bucks per ounce Silver.

        To hold physical Gold and Silver can be compared to a fire insurance for a house. You don’t cancel the insurance after three years, just because the house didn’t burned down.

  12. Loosing is not the same as not to make such a big Profit.
    The Saudis make even Profit with this Prices.

  13. A great article, and congrats to all responders, some very good commentary.

    Just repeating what has already been mentioned but it bears repeating. Mainstream media pundits and those they have convinced still say we have [I’ve heard hundreds of years of supply] plentiful oil right here in the U.S., referring to shale oil discoveries.

    Cheap oil prices….everyone that drives likes cheaper gasoline & diesel, but low prices will have a devastating effect on the U.S. shale oil industry. There may be a lag time, but the effects will become apparent to even the most obtuse in time.

  14. 18 bankers dead in less than year’s time, they were all suicides no committed crimes ? Oil is the dinosaur, dinosaur bones, it should be a clue why the price is so low. Look out below as the world slows down with your eyes wide shut all comes crashing down. Look for the clues under your nose the ones who win is silver and gold. It’s time to get up stand up stand up for your rights, don’t give up the fight, don’t give up the fight, don’t give up the fight !!!!!!!!!!!!!!!!!!!!!!!!!!!!!

  15. Looks like there was another huge silver withdrawal (-14.2% of existing inventory, or -15.447 tonnes) from the Shanghai Futures Exchange on Friday after the big commodity smackdown. Current stock level is 93.413 tonnes, not too far above the 81 tonne low reached back in mid-Sept.

  16. It appears that they are doing everything to take down the silver paper price and some analyst says based
    Purely on technicals a 5 dollar price is not out of the question. I heard this also about 2 years ago and I believe they have been planning this taken down a long long time.
    The criminality of what they have done and continue to do within these markets will put a lot of people in jail before this is over with in my humble opinion.
    I believe they figure they have nothing to lose at the moment so they seem to be going for it.
    The word from the freedom movement that it is almost over but the shouting and knashing of teeth.
    Trying to analyse these markets is just a waste of time. Just by all the way down a little at a time till it stops or they get taken out which they will . 777

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