Hello Ron: Sorry to barge in but found the following article on silver from the recent Northern Miner interresting.
To: Donald McRobb (242 )
From: Donald McRobb
May 24 1997 3:48PM EST
Reply #245 of 250
The Northern Miner Volume 83 Number
13 May 26, 1997
FACTS AND FIGURES -- Silver inventories dwindling
The silver price was, at best, flat during the first four months of
1997, leading some observers to wonder if something is wrong
with the market. The new supply of silver from mines, scrap and
other sources continues to run at levels far below fabrication
demand, though prices remain weak. In this situation, some
observers are questioning available statistics.
The market is not broken, however, and the statistics are not wrong.
Supply is actually running below demand. The deficit of new supply is
projected to total 168.8 million oz. in 1997, compared with 197.8
million oz.
in 1996. Supply and demand, however, are only two parts of the total
silver market. One must look also at investment demand and inventories, and here the
outlook is far from bullish.
Investors continue to be net sellers of silver. Inventories also remain high, relative to the
annual shortfall of new supply -- even after seven
consecutive years of such shortfalls.
Total bullion inventories worldwide are estimated at 450 million oz.,
representing 2.7 years of current account shortages at this year's rate.
Including another 370 million oz. held by investors in coin form, silver
bullion and coin inventories are large enough to cover deficits for 4.9
years.
As long as the investors and banks holding this metal are willing sellers,
the silver price does not have to rise in the face of current account
deficits.
The flow of silver inventories is like the flow of water from the hole at
the bottom of a barrel. The water will flow out of the hole at a roughly
steady rate, regardless of whether the barrel is full to the brim or almost
empty.
The rate of flow hardly changes until the barrel is virtually empty. Until
one gets to the bottom, there is no indication that the water is about to
run out.
So it is with silver coming out of inventories -- as long as
inventory-holders are willing to sell at near-Market prices, the flow of
silver from inventories will continue until they are largely gone.
Also at issue is the amount of silver held in banks in London and Zurich,
where such data are not available. The evaluation of historical estimates
of silver stocks, however, shows that they have declined to 80 million
oz. from 350 million oz. in the early 1990s.
Some European bankers say stocks stand at about 150 million oz.,
whereas other estimates put inventories as high as 320 million oz.
Bankers acknowledge, however, that such estimates are highly
speculative, and no doubt double-Count much of the metal, given the
interlaced nature of bank holdings and dealers. These estimates also
include scrap and in-process metal held at refineries around the world
on account of these banks.
Senior dealers at banks in both London and Zurich say they do not
know how large inventories are but that they are sure they must be
"ample." Many of the bankers and dealers do not know how much silver
is currently in European market centres. Their reasoning is that the
arbitrage between London and New York silver prices is at typically
low levels, and silver lease rates have been stable, suggesting there is no
tightness in the London market. The same, however, was true of the
arbitrage and silver lease rates in July 1995, just before a large shortage
of silver in London led to a sharp increase in both lease rates and the
London premium over New York. These two price measurements do
not serve well as leading indicators since they do not react to a crisis
until one erupts.
One Swiss banker put it best, saying that it was clear that stocks have
been flowing out of both London and Zurich in the first four months of
this year, but no one seems to know by exactly how much stocks have
fallen.
-- From a report published by New York, N.Y.-based CPM Group, a
precious metals research and consulting firm. |
