Silver Shortages Misunderstood
Silver Stock Report
by Jason Hommel, May 28th, 2008
The biggest proofs of the silver shortage are
the position limits at the NYMEX. These are 7.5 million ounces in
the spot delivery month. Another usually unenforced limit is
that the exchange can arbitrarily limit all physical deliveries to all
market participants to as little as 1.5 million ounces, in their
discretion, if they want to.
These are big limits, and most of my
readers will not "feel the pinch" of these limits, because the vast
majority of us don't buy 7.5 million or even 1.5 million ounces of
silver in a month. But the limits exist, and they are the
proof that there is a shortage.
Why do these limits
exist? Because there is more cash than silver. The demand side
in the fundamentals of silver is not the 40-75 million ounces of silver
demanded by investors, but rather, the demand side is potentially everyone
who holds any dollars, and who may one day wish to buy silver or gold to
protect their money from inflation.
But nobody will talk
about that; that's the big elephant in the room that is ignored. The
$14 trillion of M3 of money in U.S. banks is not even backed by the 261
million ounces of gold held by the U.S. government, which holds no silver
at all anymore. With $14,000 billion in M3, and only $1.1 billion of
annual investor demand for silver, there is a big problem brewing for
the dollar, and for the silver market, if anyone in America ever
became concerned about inflation!
Many uninformed market
commentators continue to deny there is a shortage of silver, even
though the largest silver exchange on earth is saying there is a shortage
through the existence of position limits. I will quote one such well
known willfully ignorant induhvidual.
fell apart dramatically today, losing 4.5% to $17.40 (down 79 cents) as
the "phantom shortage" of small fabricated products has proven to be real
only in the minds of those uninformed pundits who were trying to scare
investors into creating a real one. The backpedaling on the allegations of
shortages has already begun. Expect the reputations of the propagators of
such nonsense to be the ones damaged, not those of the various mints that
were selectively targeted. At last check, Platinum dropped a hefty $52 to
$2118 and palladium fell $14 to $441 per ounce."
must have an attention span of about 15 seconds, since a few weeks
ago, he was admitting the silver shortage had hit small
fabricated products, such as Silver Eagles.
Currently, there is a
wait of about 6-8 weeks on 100 ounce bars, which are the largest
fabricated products available in the silver market, besides the 1000 oz.
COMEX bars, upon which the previously mentioned position limits
Therefore, there is a shortage all the way around in the
silver market, everywhere you look, for big, medium, and small
1. On 1000 oz. COMEX bars, the position limits of 7.5
million ounces per month, or even a possible 1.5 million ounces per
month for everyone in total.
2. On 100 oz. bars, there is a delay
of 6-8 weeks from the major manufacturers, Johnson Matthey and NWT
3. On 1 oz. Silver Eagles, which, even though the mint is
making twice as many this year as last year, are still in short
The only one who could deny that such shortages exist must
either be willfully ignorant, willfully stupid, willfully blind, or just
flat out hell bent on lying to you.
However, maybe Mr. Jon
Nadler does not understand that shortages result from low prices, and
maybe, he was thinking that the dip in silver prices yesterday proved
that there was no shortage. So, I'll give him the benefit of the
doubt for today, and merely instruct him in basic economic principles so
that he can understand and mature as a commentator.
place when prices are too low.
shortage is a term describing a disparity between the amount demanded
for a product or service and the amount supplied in a market. Specifically, a shortage occurs when
there is excess demand; therefore, it is the opposite of a surplus.
Economic shortages are related to price—when the price of an item is
"too low," there will be a shortage."
Artificial controls on demand, such as rationing.
Non-monetary bargaining methods, such as time (for example waiting
in line), nepotism, or even violence.
The inability to purchase a product.
"silver shortage deniers", think that if they can find and buy a
small amount of silver, then there must not be a
shortage. But that's no evidence of no shortage.
up in Sacramento, California. We had droughts in some summers, and
sometimes there was a rather acute shortage of water. We were told
to conserve water. Take quick showers. Don't let the water run
which you brush your teeth. We were told to capture the water in the
sink to show how little water we used when brushing our teeth. We
were told, "If it's yellow, let it mellow. If it's brown, flush it
down." We were told to limit how often we could water the
But the fact that water continued to run from the
tap, was no proof that there was no water shortage. We always had
water for the swimming pool, even though there was a water
So, when I say there is a silver shortage, I'm clearly
not implying that there is no silver available at all. Clearly,
something around 550 to 650 million ounces of silver is being mined each
year, and it's being sold to a lot of different people, and most people
are getting the silver they want. But some people, or even many
people, at the very edge of the market, are not getting the silver that
they want, and they can see a shortage quite clearly, because there is a
shortage for them!
Shortages may result in:
We are seeing all of that in silver.
1. The Mint was
rationing Silver Eagles to their dealers, as indicated
We see people "waiting in line" so to speak for silver, as there are
delivery delays of 6-8 weeks.
3. We see price discrimination
at Kitco, where there is one price for the pool account, and another,
higher price, for physical delivery. Also many silver dealers tend
to offer price discounts on silver for larger orders.
people simply cannot get silver at all, because their dealers have no
We have all the evidence of shortages. It's simply
amazing that even people in the industry cannot see it. But then
again, that's what makes a market. If the whole world could see what
we see, there would be no such thing as paper money.
Clearly, most of the entire world is blind to reality, in more
ways than one. So Jon Nadler shouldn't feel too bad, after all, he's
a part of the vast majority.
Oh, by the way, shortages also often
end up creating much higher prices in the long run. But it might
take much more than 24 hours to see this effect.
I expect that a
major delivery default, either from a large institution such as the Perth
Mint, or from the COMEX, could set off a real panic, and orders by mints
or refineries could be canceled as spot prices begin to run
wild. It appears that with 6-8 week delays, as we are seeing now,
such an event could take place at any time.
When my readers ask me
where to buy silver, I tell them they ought to search for their
local coin shop.
that link, I provide links to a database of over 4000 coin dealers, and
all the major refineries in the world who supply silver to the COMEX,
where the acknowledged shortage and position limits exist. It may be
wiser, therefore, for large buyers of silver, to bypass the COMEX, and
contact the refineries directly, and buy silver before it ever gets to the
COMEX in the first place. I hear that you can get silver at the
largest Mexico refinery more cheaply than in America. But I don't
know anything at all about import/export rules and
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