THC,
The Silver Institute site has a pie diagram of silver production showing 26 % from primary silver mines. But, I don't think primary silver mines would be the only producers that sell silver forward.
I agree that Ross Beaty's comment about forward sales is telling. I think the situation is bullish for two reasons. First, forward sales represent supply that isn't real or, if you wish, a reduction in future supply. Second, it suggests to me that the price is at the low end of its range. As Beaty says, the forward sales were "to lock in profit margins". Companies are run by humans and humans aren't likely to be looking to lock in profit margins when they are large, only when they are small and appear to be about to disappear. As you know, the crowd always buys high and sells low. I suspect that a large fraction of forward sales are more "acts of desperation" than well thought through hedging strategies to provide immunity to volatility.
I was equally interested in the statement that follows Beaty's quote:
"Although supplies increasingly fall short of demand, warehouses still contain five years' worth of stocks, despite the worsening economics of storing silver."
I have sent Einhorn an email asking where this came from. It is my understanding that no one knows what is in the warehouses (at least, not in the UK) and, as indicated, many have been closed down for lack of need. Armstrong's bearish position last year was based on the argument that warehouse stocks were very large but he also said that no one knows how much is in them, which I thought undermined his claim. If I get a response from Einhorn, I will post it and then go back to my normal mode of just lurking on this thread and looking particularly for whatever Ray Hughes has to say. He has more info on the tip of his tongue than I will ever know.
Cheers,
larry |
