The Street article on silverA significant decline in levels of registered silver suggests major investors are taking a defensive stance when it comes to the metal.
There are two kind of inventories on the Comex -- registered and eligible. Registered is available silver not yet spoken for. Eligible is silver that investors have purchased, but is stored by the CME for them, otherwise known as taking phsyical delivery.
Since the beginning of 2011, the amount of registered silver has fallen almost 38% with a steep drop coming in mid April. Registered silver now stands at 28.7 million ounces as of June 8th while eligible silver has risen 23% to 72 million ounces.
Part of the explanation for this shift was that Scotia Mocatta, one of the banks that holds the Comex' silver, reclassified a large portion of their silver from registered to eligible, which means more silver was being taken off the shelf and being claimed by investors.
This shift occurred when the silver price was at $43.26 and continued as silver rallied to nearly $50 an ounce, which means investors might have been scared of supply crunch and grabbed the metal while they could, leaving less silver in the marketplace for everyone else.
"More and more people are taking delivery of the product," says Phil Streible, senior market strategist at Lind-Waldock. The silver futures market is also in backwardation, meaning that the most current month trades higher than future months. Backwardation often indicates that investors are worried about an immediate supply crunch.
Mark O'Byrne, executive director of Goldcore, a bullion dealer, says the small amount of registered silver is dangerous because if a "tiny fraction of those in the futures decide to take delivery, there is the potential to default." If the Comex can't make good on their commitments, O'Byrne predicts there would be a huge rush into the physical metal or allocated storage and out of paper silver. He also wonders if the steep and aggressive margin hikes silver saw in May, which led to a more than 30% correction in the silver price, were a way of the Comex shaking out investors to prevent them from taking physical delivery.
The conspiracy theory doesn't hold much water, however, with Jeffery Christian, managing director of the CPM Group. To put the numbers in perspective, he looks at the 550 million ounces of silver in ETF vaults instead.
Well lets see, J Christian , self appointed silver expert, 2 years ago said silver would average under 20$ per oz in 2011 , and decline in the next years after. He is off substantially there.
AND all those ozs in silver etfs? Well lets see, Sprott's etf has quite a pile, AND 0 ozs of that are for sale, so not available. And the SLV has a reportedly big physical positon, but as most should know, JPM is the custodian of that silver at the SLV, and of course JPM is short a few hundred million ozs. Just how much of that silver is really there?
Well the shady writing in the prospectus for SLV, actually claims that at times it will not have the silver to back the share price.... it was by design.
Here is a clip from a post by JS KIM.
Conflicts of Interest
Let's begin with the obvious. Is it not a huge conflict of interest that JP Morgan, a bank that perpetually ranks among the largest short positions against silver on the COMEX, is the custodian for the iShares Silver Trust (SLV)? According to silver analyst Ted Butler, JP Morgan is consistently among the one or two U.S. banks that hold more than 80% to 90% of the entire commercial net short position in COMEX silver futures. If you have positioned yourself to make huge profits from drops in the price of silver, is it reasonable for you to simultaneously desire investors to buy more physical silver (if indeed the SLV holds the amount of physical silver it claims)?
Is it also not a conflict of interest that HSBC bank, a bank that allegedly holds some of the largest short positions against gold on the COMEX, is the custodian for the SPDR Gold Trust (GLD)? If these banks profit when gold and silver drop, and they manage the largest ETFs in the US regarding these respective metals, is it unreasonable to state that these two banks should be barred from acting as custodians of the GLD and SLV? In fact how is this situation any different than Goldman Sachs's actions in the past when they originated CDOs and then made a fortune by shorting them, actions that back then, were apparently unknown even to the firm's own traders? On the surface, it certainly appears to be another classic case of the fox guarding the henhouse.
Alice in Wonderland Prospectuses
I have maintained for a long time now, ever since I carefully read the GLD and SLV prospectuses, that any investor that buys the GLD and the SLV and believes that these two investment vehicles are as risk-free and as sound as purchasing physical gold and physical silver is highly delusional. I call the prospectuses of the GLD and the SLV "Alice in Wonderland prospectuses" because it is literally impossible to ascertain what information contained within them is fact or fiction...