Silver Demand Surges & COMEX/ETFs bleed

Silver is seeing a surge in demand across a number of fronts including both investment and commercial uses.

Perth Mint just revealed that silver sales in June were their 3rd highest month on record at 1.82m oz or nearly 57 tonne, a 7.2% increase on May and 15.8% increase year on year.  The 2 higher months were 1.83m oz in March of this year and 3.35m in September 2015 near the bottom of the market.  June, also marking the end of the first half of the year, saw 9.92m oz for H1, up 16.8% year on year.

From Perth Mint themselves:

"Despite the correction [in gold and silver prices], investors are still turning to precious metals, with many looking to take advantage of the recent weakness to build their holdings. This can be seen in the demand for gold and silver seen across The Perth Mint product range, especially minted product sales, which recorded another strong month in June,", and “We have ended with another stellar month for our silver products. The market momentum meant that we sold all the silver coins that we could make in June,"

The total silver holdings in all know depositories such as ETF’s, COMEX and mutual funds saw another week of net deposits of 4.9m oz.  Over the last 4 weeks a massive 5.3m oz of silver has been withdrawn from COMEX and SLV (worlds biggest silver ETF) on the combined basis of industrial demand and also likely in reaction to the ‘silver squeeze’ movement seeing people taking delivery of physical silver.  The latter means it is still in play for investment but not captured by these official numbers from reporting entities.  Despite the 5.3m oz withdrawn, 10.7m oz were deposited hence the still climbing blue line below:

Whilst on COMEX, the latest Commitment of Traders report showed the Commercial short position fell by 8,326 contracts or 41.6m oz of ‘paper’ futures silver.

You will note how silver rallies after each dip in the net short position of the commercials and so the current action bodes well.  But it is the following chart which always amazes and titillates at the extent the so called ‘big 4’ bullion banks short this market.  You can see just 4 banks are short 107 days of global silver production, and the top 8 at 140 days, nearly half a year! 

To be so extremely short in such a macro economic set up and demand seems incredibly risky.  As Ed Steer says:

“They're stuck on the short side -- and that's for the very simple reason that the Managed Money traders are no longer willing to go mega short like they used to in the past. Because of that, the Big 4/8 traders can't cover.

The situation regarding the Big 4/8 shorts continues to be beyond obscene, twisted and grotesque...especially the Big 2/4 -- and as Ted [Butler – famed silver COMEX analyst] correctly points out, its resolution will be the sole determinant of precious metal prices going forward.”

If silver takes off, just as we saw in 2011, we see a massive short squeeze on these positions forcing covering and acceleration of that price rise.  At some stage natural order and market forces prevail…