Silver Market: King World News Mysterious London Source Could be Telling the Truth

Posted by ironstock on Feb 18, 2011

Silver has broken out to new multi-decades high, passing through the Jan. 3 intraday high of $31.21 with relative ease on Thursday, closing at $31.51 per ounce on the Comex.

Are prices now set to soar? Those closest to and most expert in the silver market say, there’s a good chance of it—one expert is well-known, the other anonymous.

Comments by a periodically-quoted anonymous London source to King World News, made most recently on Feb. 15, has the silver market hopping in anticipation of a massive short squeeze potential in silver–which, incidentally, Ted Butler of Investment Rarities estimates a total of as high as between two and three billion ounces worth of shorts (including bank certificates and pool accounts) need unwinding.

“We have serious backwardation, a supply shortage, short interest growing on SLV and now we have the Chinese waking up to the fact that there is metal in SLV and saying, ‘let’s go get it,’” the anonymous London source told King world News. “Let’s not forget the paltry inventories on the Comex.  Any short would have to be frightened by that data,” he added.

Speculation that the iShares Silver Trust ETF (SLV) doesn’t have an adequate supply on hand to affect delivery to the Chinese could topple the first domino to an eventual threat of a force majeure in the ETF—or a “suspended” delivery in the event of an “emergency as a result of which delivery, disposal or evaluation of silver is not reasonably practicable,” according to provisions in SLV documents.

There are only two possibilities to resolve the tightness in the silver market, precious metals guru, James Turk, told King World News.

“One . . . the silver price has to rise in order to dislodge physical metal from the strong hands that now own it,” he said. “Two, the shorts declare force majeure and use government force to let them escape from their untenable position.”

In agreement with the anonymous source, Turk interprets backwardation in the silver market as super bullish.  “Look for a short squeeze in silver already underway as evidenced by the backwardation to intensify as we move toward silver option expiry at the end of this month, and silver delivery on March futures contracts in early March,” he stated in the Feb. 10 interview.

The intensifying backwardation Turk mentioned has indeed increased markedly, from 13 cents on the 2015 contract on the day of his interview of Feb. 10, to more than 70 cents below spot on Thursday, Feb. 17.

A counter argument to the Turk case could be made that silver producers want to lock in what they may perceive as attractive delivery prices for the next five years—especially during a period of exceptionally low financing costs.

If the counter case is a reasonable one, why aren’t all metals (or at least a majority) in backwardation? Copper is in backwardation, but the other base metals are in contango.

Other than silver, the other precious metals, such as gold, platinum and palladium are not in backwardation. In fact, the king of precious metals, gold, is showing a contango in the June 2015 contract of nearly $200.

So what’s so special about copper and silver?

King World News’ anonymous source may be correct in pointing out China’s gorilla-size finger in the silver market. The only other significant metal other than silver in backwardation is copper, which is a well-known strategic metal voraciously imported and consumed by the Chinese economy.

Silver, interestingly enough, appears to be another metal that China cannot satisfy its own demand with domestic production.  Once a significant net exporter of silver, China is now a large net importer of the white metal.

“In 2005, China was a net exporter of nearly 3,000 tonnes (3 million kilograms) of silver,” stated Commodity Online. “Last year, in 2010, China imported more than 3,500 tonnes of silver. Incredibly, Chinese net imports of silver surged four fold in just one year from 2009 to 2010.”

Silver’s dual purpose as an important industrial metal as well as a traditional role as a monetary metal in the Chinese culture dovetails nicely with the observations of the King World News’ anonymous London source. Double-digit GDP growth and reports of rapidly rising consumer prices in the world’s second-largest economy lends a lot of credibility to the story of an impending call for delivery of the SLV inventories by the Chinese.

“Demand for silver in China has risen sharply in recent months and years,” the Commodities Online article continued. “Growing middle classes and savers in China, India and other Asian countries have been turning to ‘poor man’s gold’ and using silver as a store of value. Gold has risen above its historical nominal high in local currency terms internationally and silver is seen by many as a cheaper alternative.”

While many articles have been written and interviews conducted about China’s insatiable appetite for copper, not much coverage has been spared regarding China’s 180-degree turn around in the silver market and its apparent impact on the price of silver.

A four-fold increase in China’s net imports of silver is yet another eye-popping statistic out of the People Republic, not to mention a frightening development to the silver shorts on the Comex.

It would be difficult to imagine this particular issue not becoming more widely disseminated by major media outlets, unless, of course, the issue can longer be ignored as the silver price begins moving at multiple percentage gains to new highs on a regular basis.  It appears that King World News’ anonymous London source could be telling it the way it really is, confirming in real-time what the periodic cold data tells us is true.

http://www.beaconequity.com/silver-market-king-world-news-mysterious-london-source-could-be-telling-the-truth-2-2011-02-18/

US Mint Sells Absolute Record 6.4 Million Ounces Of Silver In January, 50% More Than Previous Highest Month

Sales of 1-Ounce American Silver Coins Soar, U.S. Mint Says

January 19, 2011, 2:36 PM EST

Jan. 19 (Bloomberg) -- Sales of 1-ounce American Eagle silver coins are headed for a record this month, according to data from the U.S. Mint.

About 4,588,000 coins have been sold in January, according to data on the Mint website. That would be the highest monthly total since sales began in 1986.

Silver futures for March delivery dropped 11.1 cents, or 0.4 percent, to $28.801 an ounce on the Comex in New York today. The price touched a 30-year high of $31.275 on Jan. 3 and gained 84 percent last year as investor demand surged.

--Editors: Millie Munshi, Steve Stroth

http://www.businessweek.com/news/2011-01-19/sales-of-1-ounce-american-silver-coins-soar-u-s-mint-says.html

European Silver Shortage Spreads To UK - 01/17/2011

On Friday we disclosed that major PM distributor, retailer and trading house BullionVault.com had run out of physical silver inventories in Germany (and possibly elsewhere) and was advising clients to seek the precious metal elsewhere. Today, we find that the UK joins Germany in what is now becoming the second round of the global silver shortage (the first one occuring in May 2010 when it was unclear just how the ECB would deal with insolvent PIIGS). Below is the warning by British BullionByPost notifying clients that the company currently has no silver bars in stock. Inventories are expected to be restocked later in February. In the meantime, as before, we urge customs agents to do a quick check of the cargo hold of all private jets (and time shares) registered to any banker making over $25 million. After all, surely the Tunisian president didn't come up with the idea to flee with 25% of Tunisia's gold entirely on his own.

http://www.zerohedge.com/article/european-silver-shortage-spreads-uk

US Mint Reports Unprecedented Buying Spree Of Physical Silver

Three days ago we noted that in just the first week of January, the US Mint had sold 2,221,000 ounces of silver "a number which if run-rated would be an absolutely all time monthly record," A quick glance at the tally today, shows that something very scary is going on. In the subsequent three days, the number has surged by 50% and has hit 3,407,000 ounces of silver! In just the first 12 days of the month we have already surpassed the total monthly sales of 9 separate months of 2010.

ZeroHedge

Silver sees largest yearly gain in at least 30 yrs

(Reuters) - Silver scored an 80 percent gain in 2010, its largest in at least 30 years, according to Friday's fixing, due to rising demand from investors seeking a cheaper safe-haven than gold and to tap into its exposure to the industrial growth cycle.
The silver price fixed at 3,063.00 U.S. cents an ounce versus 3,070.00 cents at the last fixing on Thursday, showing an 80 percent rise based on the fixings.
The spot price was last at $30.58, up 0.5 percent on the day, bringing the gains for the year for the freely traded price to nearly 82 percent

Silver to pilot bullish commodity rally in 2011

NEW YORK (Commodity Online): As 2010 ends to a close, it is brightness in the commodities trading space globally. Throughout the year, all commodities—ranging from base metals, precious metals and agricultural produces—are all up in value, cheering commodity stocks and heralding bullish run for commodities in 2011.

Gold, silver and copper have led the metals commodities price boom in 2010. Though gold has been the trendsetter in this bullish run, silver has emerged as the darling among commodities among traders. And if traders and commodities analysts are to be believed, silver is all set to pilot the bullish commodity rally in 2011.

According to an year-end survey by global financial news service Bloomberg, silver is all set to lead gains in commodities in 2011. The agency carried out a survey among more than 100 commodities traders and investors and singled out silver as the hottest commodity that can lead the commodity super cycle in the new year.

This week, as the year comes to a close, silver surged to a fresh 30-year high in New York trading.

Throughout 2010, silver has been climbing higher, with support from both the precious and industrial metals industry. The main advantage silver enjoys is that it is simply less expensive alternative to gold.

March Comex silver futures are trading at new 30-year highs, recently changing hands at $30.755 per ounce, up .066. Overall bullish sentiment remains strong for silver.

Silver analysts Kevin Danny says that silver will lead the commodities boom in 2011. “Silver is going to shine in the new year as investors are bullish on putting their money into the commodity. If you look at commodities in 2010, silver has been a sterling performer. So, in 2011, silver will pilot the commodity super cycle,” Danny said.

While technical trend remains bullish for silver, a look at the monthly chart reveals four months of massive gains. Trading analysts like Danny points out that silver is eyeing the 1980 nominal high at $50 an ounce as a longer term price objective.

While gold has grabbed headlines this year with its rally to record highs around $1,400 an ounce, silver has quietly outpaced those gains, and is likely to repeat its success in 2011, reaching $40 an ounce on new applications and industry demand.

An extremely bright future for silver jewellery is one of several reasons to be extremely bullish about silver. To put the jewellery market into context, total jewellery demand was a little over 2,600 tonnes in 2008 (using numbers supplied by the World Gold Council and The Silver Institute).

Of this total consumption, gold jewellery comprised over 80%. Put another way, silver jewellery represented less than a fifth of total demand. The demand for gold jewellery has fallen in the last couple of years — as a response to gold rising to a new, (nominal) record-price of over $1000 an ounce (oz).

Rather as a jwellery, silver also possesses many extremely useful chemical/ metallurgical properties which have resulted in the massive consumption of silver in a variety of industrial applications. Investment will therefore have a major part to play in keeping prices at elevated levels.

Also the world’s supply of silver is being rapidly “consumed”. The evaporation of stockpiles has occurred because the vast majority of silver used “industrially” is in products where silver is used in tiny quantities. Because of this, it is impractical to recover/ recycle this silver, meaning it is effectively gone forever.

http://www.commodityonline.com/news/Silver-to-pilot-bullish-commodity-rally-in-2011-35173-3-1.html