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FOCUS-Buffett may not be only big player in silver
Reuters Story - February 04, 1998 21:06
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By Clive McKeef
NEW YORK, Feb 4 (Reuters) - News that U.S. billionaire
Warren Buffett bought 129.7 million ounces of silver restored
some credibility to silver as an investment asset class, but
Buffett may not be the only player with a large holding of
silver, analysts said.
"Buffett's statement confirms our analysis of the market
going back to October," said Bill O'Neill, commodities research
director for Merrill Lynch.
"We will now find out how much silver is out there and how
available is it, though the real question is how such a big
position will be exited," he said.
Merrill Lynch advised its clients last October that a hedge
fund and two bullion banks may be joining forces with two
bullion banks and accumulating silver.
"Production on an annualized basis has been less than
consumption for some years, drawing down inventories and Buffet
as a respected investor recognized the fundamentals," O'Neill
said.
Demand for silver exceeded supply by about 160 million
ounces in 1996, according to industry consultants Gold Fields
Mineral Services (GFMS).
"But Indian demand for silver is very price sensitive which
is an argument against Buffett's position," O'Neill said.
India is the largest consumer of silver, accounting for
about 15 pct of world demand.
Late Tuesday Buffett announced that his company, Berkshire
Hathaway Inc accumulated 129.7 million ounces of
silver between July 25, 1997 and on January 12, 1998.
The purchase represented about 15 percent of the world's
annual supply of silver, and about 20 pct of the world's above
ground silver in vaults in banks, analysts said.
Total supply from mines, scrap and disinvestment in 1996
was estimated at 814 million ounces by GFMS and total
identifiable above ground stocks in the warehouses of the New
York Mercantile Exchange (COMEX) and bullion bank vaults was
estimated at around 660 million ounces in 1996.
Buffet said Berkshire Hathaway had already taken delivery
of 87.5 million ounces of silver and had contracted for a
further 42.2 million ounces for delivery at various dates until
March 6, but would be willing to defer delivery for a
reasonable period on payment of a "modest fee" if any seller
should have trouble making delivery.
PHIBRO CONFIRMS IT WAS SILVER BROKER FOR BUFFETT
The news followed the filing of a class action lawsuit in
federal court in New York last month by law firm Lovell and
Stewart against Phibro Inc , alleging manipulation of
the silver market.
Phibro is the commodity trading arm of investment bank
Salomon Smith Barney, and Salomon Smith Barney was 18 percent
owned by Buffett's Berkshire Hathaway in 1996, according to
Securities and Exchange Commission (SEC) filings.
Phibro subsequently vigorously denied the allegations
through legal counsel, and the New York Mercantile Exchange
said there was "absolutely no basis" for allegations of
manipulation.
But the U.S. Commodities Futures Trading Commision (CFTC)
confirmed last month it had "heightened its surveillance" of
the silver market, and the Bank of England, which is formally
resonsible for supervising the bullion markets, said it was
monitoring the markets on Wednesday.
And Wednesday, a senior Phibro company officer told Reuters
that Phibro, which is an affiliate member of the London Bullion
Market Association (LBMA), was the broker that handled
Buffett's transaction.
OTHER LARGE SILVER PLAYERS SUSPECTED
Asked for comment on Warren Buffett's announcement that he
had bought 129.7 million ounces of silver, Chris Lovell, an
attorney with Lovell and Stewart, the law firm that filed suit
against alleged silver market manipulation, said: "One down,
three to go".
For some weeks traders in the silver market have been
claiming that there were several players with large positions
in the silver market, analysts said.
"The order was probably originally for about 200 million
ounces, but you can't buy 200 million ounces without people
hearing about it and other players have probably taken
advantage of the move also," said Martin Armstrong, director of
Princeton Economic Institute.
The lawsuit named Republic National Bank as assisting in
the purchase of the silver or its removal from COMEX warehouses
and shipment to London.
Last week when the lawsuit was filed, Republic legal
counsel said that as the bank was not named as defendants in
the lawsuit, they had no comment.
COMEX silver warehouse stoCOMEX silver warehouse stocks
fell a further 756,284 ounces to 103,021,805 ounces in Tuesday
night's data, a new 12 year low.
But COMEX has position limits of around 7,500 lots for most
traders, representing only about 37.5 million ounces, so most
of the position of 129 million ounces held by Buffet must have
been accumulated in the bullion market in London, analysts
said.
"Who knows who is also a big player here?" one New York
commodity dealer asked.
"Bill Gates may have a position, as he's a good friend of
Warren Buffett's and has the money to fund it," he said.
A spokesman for Microsoft said Wednesday the
company does not generally comment on the investments of its
chairman Bill Gates.
A spokesman for the New York based Tiger Fund, managed by
Julian Robertson, said the fund does not comment on its
investments.
"The Tiger Management fund may also have a position, as
they reportedly did last year in palladium when they
accumulated about 20 percent of the world's annual supply of
that metal."
"I mean silver's supply/demand fundamentals are good, but
are they good enough to lift prices 60 pct in six months?", the
New York commodity trader said.
SOROS INTERESTS OWN 26 PCT OF COLORADO SILVER MINER
Spot silver prices rose to new nine year highs at around
$7.31 an ounce at the close Wednesday and the move also boosted
the prices of gold and silver mining stocks also.
The Philadelphia Stock Exchange's index of North American
precious metal mining stocks (XAU) was up 5.83 pct 75.23 points
at the close.
"The news of Buffet's purchase re-legitimizes investment in
silver as an asset class," said Thomas Kaplan, the chairman of
APEX Silver Mines Corp , of Denver, Colorado.
Kaplan noted that interests associated with hedge fund
manager George Soros, were the largest shareholder in APEX and
Soros associates were on the APEX board.
Soros' Quantum Fund is the largest investor in APEX with a
26 pct stake held through Silver Holdings LDC, a vehicle 50 pct
owned by the Quantum Industrial Fund, and 50 pct by a group
including George Soros, Jack Nash and Paul Soros Consultores
Asset Management.
The position in APEX has been held since 1994 but an extra
half million shares were bought in November 1997 when the
company held an initial public offering.
A spokesman for the Quantum Fund in New York said the fund
had no comment on its investments. |
