"Would be interesting to see if any research organization has attempted to correlate the amount of bullion ostensibly held in escrow for the purported purpose of backing the "paper" ETF trade/versus the documented fact thereof?"
I think that information is "out there"...
The problem is acute in silver... for a couple of reasons that aren't an issue in gold...
First, gold doesn't have the industrial uses that silver has...
Second, silver has been devalued as a monetary metal over time... both in parallel with the effort to devalue gold as a monetary metal, and in terms of its relationship to gold... which you can see as recent extremes in the deviation from historic norms in the gold:silver ratio, from the historic 1:10 ratio. It's interesting for market historians to note... the initiation of the deviation from 1:10 is largely a legacy of the Spanish exploitation of the new world silver mines, that proves markets work, including in the fact of monetary metals values not being immune to the impact of "price inflation" when supply increases anomalously... while also showing that market inefficiencies can be sustained for a LONG time... given that the imbalances in supply and demand imposed by the conquistadors success in forcing slaves to produce silver for Spain, has long since been absorbed by the market and, in fact, the trends have reversed. Toss in a bit of impact from the U.S. subsidies to silver producers in the period from the 1880's to the start of WWI... and what you have is a market that is still poised to expect and still reflects the expectation in the market of a permanent surplus in supply of silver.
Supply reality is dramatically different... we've been working off a 500+ year surplus... and, right about NOW, we're at the point where the reality is DEFICIT, not surplus... in silver.
The factors that matter:
Silver as a monetary metal is regaining its luster, in spite of the effort to suppress the monetary value of precious metals... and that trend is likely to accelerate as monetary metals increase in price relative to fiat currencies. That is more true, in silver, for the same reason that you need more $1 dollar bills in circulation than $1000 dollar bills, to meet the demand for currency, and more true given the historic imbalances that exist between gold and silver now. So, silver should benefit in parallel with gold as precious metals are remonetized... which is happening, in spite of the efforts in denial and resistance, and, silver has upside in relation to gold... by a factor of a 3X to 6X multiplier, or more.
Silver IS an industrial metal, too, and, unlike gold, which sits around in repositories and accumulates over time, we've been actively using up the silver supply over time, with a trend that accelerates in parallel with the growth in the markets for things based on electronics. Secondary supplies of silver depend on production of base metals like copper, lead and zinc, so the heavy industrial metals demand has a relationship as a driver in relationship to the supply of metals used in electronics, while growth in electronics markets is diverging from growth in heavy industry, and isn't overly dependent on the fortunes of heavy industries. Slow downs in mining copper and zinc as heavy industry slows, shrink the silver supply, while not altering the silver demand in parallel with demand for copper and zinc, and reversing the trend in slowing the secondary supply will take YEARS.
We've been closing the gap between supply and demand for silver for a long time... while the market's focus is still tied to an expectation that demand depends on western economic performance, that is no longer true... so, in the short term, recent performance in western economies tends to generate expectations that understate the pace of demand for physical silver. If we'd not had the "slow down" in 2008/2009 we would have crossed over the supply demand imbalance in silver already... to put the market in deficit supply... so, there are MAJOR issues in the awareness, or not, of the balance that exists... relative to the fact of consumption vs expectations, the fact of supply vs expectations, and the proximity to "tipping points" we may be crossing, as the markets focus is on "slowing" and not on timing the cross over in having consumed a 500 year legacy of surplus in supply...
We're probably in silver deficit now... missing only market recognition of the fact... at a time that the markets have a couple of problems in parallel with excesses in the derivatives trade in general, that have... ahhh.... ummm... "over-hypothecated" the supply of real things in the interest of expanding profits based on trading... The physical supply of "things" isn't big enough to maximize the value potential in trading profits based on trading larger volumes of "things" in those markets... so, the traders have fabricated additional supply to facilitate trading more of those "things" than actually exist... by declaring paper representations equally valid as real things... for the purposes of trading. They don't CARE what the actual prices of the things ARE... they only care about the volume of them in the market, as THEIR profits are tied to expansion in trading volumes, not changes in prices ?
So, a "perfect storm" is brewing...
On the supply side: the 500 year (Spanish mining) and 100 year (American mining) sources of surplus in silver are gone, the surpluses absorbed, as the secondary metals supply has evaporated with the slow down of heavy industry in the shorter term, as base metal production has slowed.
On the market expectations side, the markets haven't absorbed awareness of the shift in reality in long term supply fundamentals, while they're focused on the western economies as the drivers of demand and markets, while ignoring divergences between heavy industry and electronics markets, and between western economies and demand based in emerging market growth. That, at the same time that excesses in market "over-hypothecation" are being forced to come to grips with an actual PHYSICAL shortage developing, that will prevent continuation of "hypothecation" much less "over-hypothecation" in the future, when divergences between paper and physical are forced to be recognized. The market in silver WILL fail... because of the inability to deliver physical that "exists" in paper form only in the market. There is more "paper" silver being traded... than there is silver that exists. As producers withdraw real supply from markets that fictionalize and depress "prices", to benefit more from higher real prices than from participation in the markets... the markets that trade paper will fail, as the ability to trade paper is divorced from any real ability to deliver physical. That failure will occur when that reality that already exists is "recognized"... in a "recognition event"... and our slouching toward that may have been precipitated by the combination of the COMEX scandals and the recent MF Global failure's impact on the commodities trade. The markets HAVE failed already... now just missing the "push" necessary to have behavior change to reflect what people do know.
On the demand side, photographic demand is gone... which was huge... so, an undercurrent in expectations of surplus there, that has now been overcome by persistent growth in electronics now, just as interest in forcing remonitization of precious metals begins to add a larger portion of investment demand for physical silver. In the short term, a market dynamic in place now that is tending to depress prices and market interest...
Change in any of those elements... any increase in real growth and better economic performance in the west, a continuation and/or acceleration in demand in emerging markets, a reversal in the market decline occurring now, recognition of the fact of changes in demand/supply realities, accelerations in the trend toward remonetization, with necessary relative adjustments in silver in relation to gold ? Any one of those shifts are likely, and any one of them might force awareness of others, leading to recognition events in relation to the broken market functions that exist...
And, of course... inflation... lurking out there... WILL bring recognition of some elements of the supply/demand imbalances that exist, whether the "market failure" I see occurring now is recognized or not...
That's not to say that silver prices can only go up...
Silver likely will continue the current trends... along with gold... until it finds a bottom...
WHEN it finds a bottom though, there are WAY more drivers ready to drive it higher based on fundamental issues in the fact of supply and demand, than there are potentials that markets have to "create new supply"...
Silver looks less like a "once in a lifetime" opportunity... than a "once every 500 years" type of opportunity.
Other things we could discuss include market cycles, that suggest the next 50 years are going to be focused on the value in commodities... as shortages develop even without economic "growth" occurring, while economic growth IS occurring globally... peak oil... but, also peak everything, given the situations we've created... and "black swan" risks other than those we've discussed re market failures... wars and rumors of wars, etc.
Time horizons ? Give it a decade or more for "all of the above"... with the money supply / inflation issues being ones with a shorter fuze, the currency regime issues being ones with a longer fuze, maybe twenty or thirty years to be resolved with the remonetization of metals occurring in fact ... But, as far as handicapping nearer term "recognition events" ? Expect QEIII coming early this year will drive... something... Expect the election in November this year... will cause change to occur that will have impact in Feb next year and beyond... NO MATTER WHO WINS...
My synthesis... suggests three to five years is now a REALISTIC time frame in which you can expect momentous and transformational events must and will occur... at least in relation to the trade in silver. The above descriptions should make it apparent that there is a situation that exists that looks something like a string of dominoes lined up... where one event is likely to trigger others...
And, in spite of the insistent tone I've adopted here, these "events" DON'T need to be traumatic or even particularly dramatic... to be recognized by those looking for them...
The shift in silver producers bypassing the markets to sell directly to customers... and being rewarded with higher prices for doing so... is one of those things you need to recognize as as a "recognition event" that is NOT particularly dramatic... rather than a FACT that is showing producers have recognized the fact of the value equation in market participation now dictates a change in their behavior. That others are ignoring that, still, for now...? Heed that subtle shift... and be aware of the corrosive/erosive effects of it. It creates awareness of FACTS in market function, that will be recognized, INEVITABLY... because they are FACTS... showing that realignment of market behaviors have begun, to have behaviors begin reflecting changed awareness... with that change in behavior being rewarding...
Whatever trauma results in terms of "disasters" that occur that cause market reactions... or wider market recognition events ? The dominoes are lined up in the silver market... and, the first domino has been felled...
Others may not recognize that for a while... and probably will not... until there is a reversal in the direction of the markets... When that shift occurs ? The weaknesses apparent in the paper trade now are ones that make markets hugely vulnerable... and they are not dependent on any "black swan" events for recognition... only on recognition in the markets... that "what works" has changed, or that the direction of the trade has changed. Then, the failures in and of the trade in paper silver may become a black swan for other markets...
When the dominoes fall... they may even drag gold and silver, or gold and silver stocks, down with them... giving that last chance to grasp that one per 500 years opportunity...
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