More Signs of Silver Shortage

“This is the definition of a silver shortage – nothing to do with the physical amount of the substance being in deficit, but people’s psychological intention not to sell. The extent to which a shortage is developing is witnessed by the extent of backwardation.”

That’s what Ned-Naylor Neyland wrote in a recent commentary (thanks to GATA for bringing it to our attention). He is the Investment Director at Cheviot Asset Management, one of the UK’s largest independently owned investment firms. His commentary was triggered by the decision of the London Bullion Markets Association (LBMA) to cut the reporting on the Silver Forward Rate on the 2nd of November, playing it down as “only indicative rates and therefore not dealable rates between forward Market Makers.”

Clearly, Ned-Naylor Neyland holds another opinion. He is monitoring the Silver Basis & Co-Basis (by Sandeep Jaitly) and it showed a huge anomaly more or less at the same moment of the LBMA’s decision. That kind of behaviour points to strong backwardation, a signal of silver shortage (based on the earlier mentioned definition).

silver futures basis november 2012 gold silver insights

We wrote earlier that John Embry expects a silver price explosion driven by a silver shortage. Meanwhile, sales in the physical silver market is increasing significantly. We reported that the latest US Mint statistics showed an explosion of gold and silver coin sales in the month of November.

Eric Sprott confirmed during an interview on King World News a big uptake in demand in the last six to eight weeks, based on data in his own channels. He is well known for his in-depth research on the precious metals markets and quantiative argumentation. Eric Sprott comments on the potential effect in the gold and silver price, should the invested assets rise from 1% to 5% (as advised by a lot of experts): “The only way you can go from the current 1% to 5%, is essentially to have the price go up by 500% and I think that’s probably more likely what is going to happen.”

Based on his weekly analysis of the COT reports, Ted Butler writes the following in his latest commentary: ”Conditions in the wholesale physical silver market continue to appear as tight as a drum. I am overly sensitive to signals that the physical silver market has grown tight because I am convinced that a physical silver shortage must and will terminate the ongoing silver price manipulation.” Read more about his work by subscribing at ButlerResearch.com.

Does all of this mean we’ll see price spikes in the short term? Not necessarily. These experts are signaling what’s happening with the fundamentals in the silver (and gold) markets, which is not necessarily reflected in short term price movements. As appears from the chart, the silver price has been trading in a sideways range for the past two months.

silver price november 2012 gold silver insights

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