SHANGHAI vs COMEX: Opposite Moves In Silver Inventories

Ever since July, there has been some interesting changes in the COMEX and Shanghai Futures Exchange silver inventories.  The increase in physical silver investment demand that surged in July, had a direct impact on COMEX silver inventories.

As we can see from the chart below, total COMEX silver inventories peaked in the beginning of July at 184.5 million oz (Moz) and then continued to decline, reaching a low of 159.9 Moz presently.  The majority of the declines came from the Registered category (the category that represents inventory that is available for delivery into the market).

COMEX-SILVER-STOCKS-NOV-2015-new

Now, while COMEX silver inventories continued to decline, the opposite took place at the Shanghai Futures Exchange (SHFE).  SHFE silver inventories bottomed on August 18th at 233 metric tons (mt), then continued to grow over the past three months to the present 528 mt.

Shanghai-Exchange-Silver-Stocks-2015-new

Thus, silver inventories at the SHFE more than doubled since Aug 20th, while the COMEX inventories continued to decline.  Why is one exchange building silver inventories while the other is falling?

As I stated in earlier articles, I believed Industrial silver demand was falling, especially in the second quarter of 2015.  This seemed to have picked up speed in the third quarter and is falling to a higher degree towards the end of the year.  According to the recently released Silver Institute 2015 Interim Report:

total industrial demand is forecast to fall by 4% to 570.7 Moz, and to account for 54% of physical demand in 2015.

I have been a broken record disputing the notion of growing Industrial silver demand.  While most analysts have published reports showing increased growth in the Industrial sector, I stated it will do the opposite by extending declines going forward.

Here are the figures for Industrial Silver Consumption (Silver Institute):

2013 = 601.7 Moz

2014 = 595.2 Moz

2015 = 570.7 Moz

Industrial silver consumption will continue to fall in the future.  Sure, we could see a brief pop in consumption for a year or so, but the overall trend will be lower.  So, all the investors or analysts who are forecasting the future silver price based on industrial demand… WAKE UP.  Forget industrial demand and focus on physical investment demand.  That will be the key going forward.

I have read several independent reports showing how Global Industrial Silver demand would increase over the past several years.  For example, here is a chart from a CRU Consulting Report for the Silver Institute on the growth of Industrial Silver Demand.  It was published Dec 2014:

CRU-Indistiral-Silver-Demand

The industrial silver demand figures in CRU’s chart show a bottoming in 2013, then reversing higher all the way until 2018.  Well, according to Thomson Reuters GFMS, industrial silver demand fell in 2014 and is forecasted to fall another 4% in 2015.  So, the data in this chart is off by a wide margin… and will continue to be wrong in the future.

A lot of time and money went into the research and publication of reports such as these.  I would imagine companies probably paid a nice chunk of change to acquire this data.  Unfortunately, these reports are useless and the companies that bought them basically flushed money down the toilet.

Rising Shanghai Silver Stocks, Falling COMEX… What Does It Mean?

So, what does the rising SHFE silver inventories and falling COMEX stocks mean?  I believe the decline of industrial silver demand is impacting China more to a larger degree than it is the United States.  Furthermore, there is more physical silver investment demand in the United States than in China.  The Chinese and many other Asian countries (except India), rather buy physical gold investment than silver.

That being said, the surge in retail silver investment demand that started in June seemed to run out of steam during the first-second week of October.  I spoke to several dealers who confirmed this change in buying.  This reduction in physical silver buying occurred as investors began to realize the Great Market Collapse or Black Swan event would not take place at the end of the year as predicted by many analysts.

However, to see the COMEX silver inventories continue to decline since the middle of October is quite strange.  If demand for physical silver investment has subsided since the middle of October as well as industrial demand, you would think we would start to see a build of silver inventories at the COMEX.

Regardless, the situation in the financial markets becomes weaker every day.  According to Charles Hugh Smith’s article, Is This How The Next Global Financial Meltdown Will Unfold?:

I have long maintained that the structural imbalances of debt and risk that triggered the Global Financial Meltdown of 2008-2009 have effectively been transferred to the foreign exchange (FX) markets.

This creates a problem for the central banks that have orchestrated the “recovery” by goosing asset bubbles in stocks, real estate and bonds: unlike these markets, the currency-FX market is too big for even the Federal Reserve to manipulate for long.

The FX market trades roughly the entire Fed balance sheet of $4.5 trillion every day or two.

….As emerging market currencies decline, the income streams needed to service all the debt denominated in U.S. dollars declines, a self-reinforcing dynamic: as income and valuations fall, capital flees, pushing the relative value of the currency down even more, which further raises the risk premium that then triggers even more capital flight.

The sums in play are so staggering (an estimated $11 trillion in emerging market debts denominated in other currencies) that even the Fed won’t be able to stop the meltdown.

What Smith is saying here is that even the Fed won’t be able to continue propping up the financial system as the emerging market currency meltdown goes FULL BLOWN.

The irony of it all is this…. The meltdown of emerging market currencies is from the collapse in price of commodities and energy.  While the United States and West have been able to live HIGH ON THE HOG because poor slobs in other countries have done the work for peanuts… this situation is no longer sustainable and is coming to an end.

Which means, the hyperinflated Stock, Bond and Real Estate Markets will finally get the GREAT ENEMA due to the rising Dollar Index.  Thus, the stronger the Dollar Index gets, the worse it is for everything PAPER (including Real Estate).  How hilarious.

The best way to protect oneself from the coming collapse of the U.S. Bond, Stock and Real Estate Markets is to own physical gold and silver.

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23 Comments on "SHANGHAI vs COMEX: Opposite Moves In Silver Inventories"

  1. As a long time silver investor (since the early 90’s) I think you are right. There is the concern that a stronger dollar works in opposition to strong metal prices though, don’t you think?

  2. Steve,

    So I take it that the Shanghai Silver stocks are increasing because the Chinese are not big on silver.

    What is totally unbelievable to me is that all the “pundits” are revising their predictions of future growth by around 10% when the Baltic Dry Index is below 500 for the first time EVER, the China Containerized index is at its lowest level EVER and the Shanghai Container Index is at a new low.

    The paper fascist are all in for a very rude awakening. The system is in a deflationary death spiral. Mines, manufacturing plants and distribution services are all the phase of “not closing because of the costs” hoping that the US economy is on a growth path and they will all be saved. After all, the FED is increasing the interest rate right?

    Now That’s Hilarious!!

    Silver will probably drop around another 10-15%, so buy it when you think it is at the best price you can get and still get delivery. After that the mines will be closing down in spite of the cost and shortly thereafter the delivery system will collapse and prices will skyrocket.

    Buy for Cash and Stash!

    SteveW

    • Excellent point. The ENERGY for mining or drilling will have also escalated by that time. I believe that prices will be accelerating in a self-destructive perpetuating loop. EROI is not just a talking point it is everything!
      It appears that EVERYONE is going to have a very bad day that will consecutively get worse.
      The only solution I can see is the nationalization of the mining and drilling sector.

  3. With all the bantering by the paper hangers and all of the less then truth by the trolls and paid shills , it is
    very satisfying to have the honest information served up by you SRS.

    There is no doubt that the huge charades created by the central bankers , uber’s , wallstreet , and our fearless government , will come back to surely haunt them soon enough.

    Steve R , your work helps to both quantify and qualify the real physical silver that there is available.

  4. Didn’t you say that there has been a significant drop off in production this year of the top four or five silver producing countries such as Mexico, Chile, Australia (also Canada) yet Chinese silver production had remained flat. If industrial silver use is down, but investment demand up wouldn’t this explain a rise of SHFE silver stockpiles in China but a tightness of supply in North America.

    Also don’t you have to take into account the ten year silver supply deficit of around 1 billion ounces to explain declining holdings at the Comex. I find it fascinating that the custodian for GLD, HSBC, has by far the largest holding of gold at the Comex and JPM, the custodian for SLV has by far the largest holding of silver at the Comex. I wonder how much double counting is going on there to hide any potential shortfalls or shortages.

  5. It would have been nice for you to include a chart of physical investment demand/purchases especially in Silver, then do a comparison of the overall consumption

  6. What do you actualy mean for gold and silver..
    Will they go higher or lower for the year and on….

    • Sunny,

      In MHO, the price of gold and silver will continue to decline 10-15% along with all other commodities including oil. Buy for the best price that you believe you can still get delivery for.

      The world in is the death grip of a major deflationary cycle. They have already started to close down operations in spite of the costs of closure. The first to be hit will be the shale oil guys and the marginal mines. When this happens they will default on their loans. This will have a snowball effect. The rating companies start to downgrade their bonds and the bonds of those companies that provide support services and distribution. Who will then be forced to close down and default on their loans and so on and so on.

      In a deflationary cycle built on enormous debt, when one sector starts to fail the paper holders try to sell but no one is buying. Mutual Fund holders want their money out but this affects all the mutual funds, who by law cannot own “junk bond” but because they can’t sell the junk bonds they are forced to sell their higher grade bonds but everyone is doing it so the price on higher grade bonds drops and when they can no longer fill redemption orders all hell breaks loose.

      Simultaneously, when people are nervous there is a dash to cash. The stocks start to crash and people stop buying every thing except those things needed to survive, They don’t go out “on he town”, they don’t buy new appliances or cars. Then companies can’t sell their products or services and they start laying people off. Before long the Government does not have enough money coming in to pay their debts and they default. At that point their currency becomes worthless. One only need look at the Weimar Republic or, more recently, Argentina.

      It seems to be setting up that the US will be hit last as its currency is the best of the worst. Already people with money from the rest of the world are moving it to US investment, the dollar is getting stronger and the bubble is getting bigger and bigger so when it pops, and it will, it will be catastrophic world wide. The undeveloped world will be first followed by Russia, Europe, China and then the US. There will be a world wide depression.

      Gold and silver are already going up in terms of other currencies and are only cheap in the terms of the US dollar, but this too will fail.

      Silver be the shining star when fiat currencies fail as it will become real money once again and the ratio of gold to silver will move back to historical levels in the neighborhood of 16/1. Those that were not smart enough to have pms will be in long food lines and riots.

      This classic depressionary cycle has need postponed by the previous actions of central banks printing more and more money but eventually no one will trust any governmenbs paper money.

      This process has already started and when the life line thrown to the shale oil guys expires in six months we may see the more dramatic effects begin.

      Two caveats; 1. Who knows what the effect of eventual FED QE ad infinitum will be and 2. MOST IMPORTANT When things go to hell Russia has historically started a war.

      Time is coming to batton down the hatches.

      Buy for cash and stash

      SteveW

  7. Interesting article but it’s still full of “ifs.” The fact is the dollar is strong and getting stronger. The biggest
    FACT is demand does not exceed supply. It may be on the Silver Institutes charts but the “inventory”
    above ground is grossly underestimated by the silver gurus and hucksters. With the bombings in France I didn’t see any rush to own silver or gold. WHY? Because your predictions of multiple collapses is not going to happen. Regardless of what is said, the USA will get through all its debt by
    printing more money. And that may be how silver rises in price. Miners should be bankrupt by now
    according to all figures on production costs but they are not. To solve our silver problem we need DEMAND period!

    • Joe,

      You state three facts that are true;

      1. “The fact is the dollar is strong and getting stronger.”

      2. “The biggest FACT is demand does not exceed supply.” and

      3. ” It may be on the Silver Institutes charts but the “inventory”
      above ground is grossly underestimated by the silver gurus and hucksters. ”

      My response is;

      1. The dollar is getting stronger because it is the best of all of the fiat currencies in the world and those in other countries are moving their money to US dollars. causing the dollar bubble to grow.,

      2. Demand does not exceed supply because the world does not yet see silver as money, only as an industrial commodity, and

      3. I agree, in fact believe there may be as much as 20= billion ounces of silver above ground out there somewhere.

      Where I believe you go wrong is not understanding the deflationary cycle that we have entered. The time is coming when no one will trust fiat currencies, including the good old US dollar. When that time comes, and it IS coming, silver will be money again and demand will far and away exceed supply.

      See my response to Sunny above.

      I too feel your frustration.

      SteveW

      • “Where I believe you go wrong is not understanding the deflationary cycle that we have entered. The time is coming when no one will trust fiat currencies, including the good old US dollar.”

        Wouldn’t that distrust be more likely during high inflation rather than deflation?

        • David,

          Yes, it is the deflation that ultimately leads to hyperinflation. During the deflationary cycle people are not spending their money because they expect the prices to be lower in the future. This leads to companies failing because they have no cash flow because everyone is hoarding their money. The business can’t pay their employees, their suppliers or their debts so you have cascading debt default. Ultimately, the government can’t pay their debts, fund social programs or finance imports so they print more and more money. With so many business bankrupt now there is all of this funny money chasing the limited goods that are available, So in the opposite of deflation when people don’t spend their money now they are spending it as fast as they can chasing a limited supply of goods. The prices spiral out of control because no one has any trust in the value of the currency. Hyperinflation has arrived. Knowing the money is no good people switch to barter like bullets and batteries and real money – gold and silver.

          SteveW

          • David,

            As a personal example. I started buying silver when is was around $11/oz. and chased it up to $22/oz. I stopped buying then because I thought it was overpriced compared to the cost to produce it. I didn’t sell because I consider it long term insurance. .When it dropped below $18/oz. I started buying again and bought it all the way down to $14.10/oz. Now, I am pretty confident that it is going to drop to$12.?? to $13,00 and I will buy again. The point is I was real happy to buy it when it hit$14.10 now I would only be happy at around $13.00. Mostly because in spite of low oil prices I believe I am buying it at or below cost with a tremendous up side.

            Look at the car adds, employee pricing, 75 month financing, incredible rebates and the pundits are projecting next year to be a record year for car sales.

            Something just ain’t right,

            SteveW

      • SteveW: I also agree. But the dying FIAT may be 20 years in the future. These gurus

        have been pushing silver since 2010 and their predictions are failures. I’ve searched
        and searched for answers. How can any primary mine stay in business if the “reports”
        that Steve compiles are true. No mine can survive losing $10+ an ounce on silver. They
        would all be bankrupt. It seems that 99% of all silver data is hype. Reality is silver is
        $14 spot and threatening to go to $13. Am I to buy here or can I wait another 10 years
        for the demand to finally exceed supply?

  8. Will all the miners wake up. Reduce production immediately!

    • JamesHK,

      A surprising number of silver producing copper, zinc and lead mines have already been moth balled with a long list of those that are on the edge. Miners often continue mining when they are losing money on each ounce produced until this continuing loss is greater than the cost of shut down, maintenance and projected restart costs. In the next year there will be a huge rash of closings as deflation asserts itself and demand evaporates.

      This alone will not increase the price of silver or gold. It will be the the collapse of the fiat dollar ponzi scheme that leave gold and silver as the only real money.

      SteveW

      • SteveW,

        Thank you for your reply! I do know the different between break even and shut down.
        Central bank do know what is going on. Miners’ role is important in this war between
        real money and fiat dollar. If miners don’t do anything in respond to the manipulation
        of market. The result will be more horrible! No plain no gain! Reduce production is not
        the only option. But something action must take!

        JamesHK

  9. SteveW: You are right on. I bot all my silver for my grandchildren. It was the only avenue I
    thought was a “hedge.” Real estate should be but when the government needs more money
    because the dollar is in devaluation of 10 to 20% a year, they will tax property as high as they can.
    It’s a smart move. Someone will always own the property and be vulnerable to taxes. Silver
    in a “safe” is not.

    • I am right there with you Joe. Just sold a piece of real estate and as soon as it closes a chunk is going right in to silver and right into my safe,

      SteveW

  10. It seems you now acknowledge the silver demand is not so strong and there was never some physical silver shortgages.
    Gold has to be prefered because of VAT in europe and china which lead to a smaller physical demand that should have been otherwise.

  11. SteveW says…”Russia will start a war” It’s quite clear who’s trying to start a (another) war. Besides, how do you START a war when you’ve been the instigator of 90% of ALL wars in the last few decades. Basically one after another……. When weren’t we involved in slaughter in other countries which our own constitution states is illegal ?

  12. OK, Back to the subject (silver) …… Could it be fair to say whatever amount of silver demand being eroded is MORE THAN offset by actual mine production falling faster ? Especially silver being a byproduct of base metals which has and will continue to drop like a rock (in your deflation scenario).

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