Are Current Silver Bullion Coin Shortages Caused by Production Capacity Restraints or a Shortage of Silver?

There is a global shortage of silver bullion coins. Both the US and Canadian mints have reduced their weekly allocation to their primary dealers. This is resulting in increased premiums and long delivery delays. We have seen some sites only committing to December delivery dates for American Silver Eagles.

Paper Comex pricing dictating the price of physical gold and silver is akin to the tail wagging the dog. With leverage of up to 100 to 1 banks are able to manipulate the silver price. In September ratios for paper claims for ounces of gold registered for delivery at the Comex was seen to be as high as 228 : 1. Source ZeroHedge If a small % of traders on the Comex decided to exercise their rights and demanded delivery of the physical metals the Comex would default at which point demand for physical metal would start to dictate gold and silver prices. Free market forces of supply and demand would inevitably push prices a lot higher.

Are Comex Silver Inventories Falling?

[su_pullquote align=”right”]The Comex provides a marketplace for buyers and sellers, bringing together individuals, companies and institutions that need to manage risk or that want to profit by accepting risk. – CME Group Website[/su_pullquote]

Big banks and other large investors are afforded the opportunity to store their gold and silver at Comex storage facilities at minimal storage charges. The metals stored in the Comex warehouses are used to settle futures contracts and are divided into two categories.

Futures Contract : A contractual agreement, generally made on the trading floor of a futures exchange, to buy or sell a particular commodity or financial instrument at a predetermined price in the future. – Investopedia

Registered Category

Metals stored at the Comex in the Registered category are metals that belong to big banks and other investors that are not available for Futures Contracts delivery.

Eligible Category

Metals stored at the Comex in the Eligible category are metals that belong to big banks and other investors that are available for Futures Contracts delivery.

From the graphs below we can see that while Comex reserves in the registered category have fallen from 70 000 000 ounces to around 46 000 000 ounces the silver available for Comex futures contract delivery is still significantly above its historical average.

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Graph credit : 24HourGold

• Government Mints have limited reserve capacity and when investment demand spike as it has in recent weeks, cannot keep pace with increased demand.
• We are not seeing any significant increase in premiums or shortages of 1000 Ounce bars in the wholesale market.
• Silver available for Comex futures contract delivery is still significantly above its historical average.

Current silver bullion coin shortages are a result of production capacity constraints and not physical silver shortages. We do not see the reduction in the Comex registered category as bullish for silver but continue to monitor comex inventories.

Our View on Silver Price Movement for 2015 / 2016

There is mounting evidence that the US could go into recession in late 2015 / early 2016. This would give momentum to the downward trend in the DOW which would divert investment funds from the DOW to “safe haven” asset classes like physical gold and silver. This would exacerbate mint capacity constraints and also put pressure on the wholesale silver market.