Eric decides to go on the attack with just how crazy the silver market is. He notes that 1.1 billion ozs trade daily but annual production is only 979 million oz/year and only 322 million ozs are available for investment. So basically 1.3 million oz are produced each trading day but 1.1 billion oz are traded, a ratio of 891 to 1, talk about insane! He also notes since 2009 the ratio of paper silver to physical silver has increased fourfold from approximately
8 times to almost 33 times.
Sprott then provides a detailed hypothetical trade blotter of someone playing futures and the negative impact on their account and shows the impact of the margin increases and silver price decreases on his account from April 28th, 2011 to May 17, 2011. He then ties this in with the COT reports to show the impact of the 4 large short sellers in silver.
He concludes that there is a nice setup for the next run in silver and the selloff has eliminated the weak hands and those remaining would appear to be strong hands that won’t surrender at current prices and likely have very low or no leverage with a longer time horizon. He advises looking at the various mints and India and China imports for clues to how strong the physical silver market truly is. Indian import’s of silver increased 6 fold and the Bombay Bullion Association expects a 43% increase this year. Given these strong fundamentals why would there be such a large short position? It should also be noted that this 332,000,000 oz available for investment each year would only be worth $11.2 billion at current prices, an incredibly small market.
His closing comment says it all, “Who is most at risk in the silver markets:
the buyers of a scarce and real asset that serves a growing multitude of purposes, or the sellers, who are short a quantity of silver which may very well not even be obtainable at anywhere near current prices? Let the Seller Beware!”. When you add his previous arguments that for each dollar invested in gold at least a dollar is invested in silver and the arguments only get stronger to hold physical.
See full commentary here.