Silver Stock Report
March 21, 2006
NY silver sprints to 22-year high on ETF ruling
Tue Mar 21, 2006 12:21 PM ET
NEW YORK, March 21 (Reuters) - U.S. benchmark silver futures shot to a 22-year high on speculative buying on Tuesday after the U.S. Securities and Exchange Commission approved rule changes for a silver exchange-traded fund.
Silver for May delivery (sik6) at the COMEX division of the New York Mercantile Exchange had surged [to] $10.55 an ounce, up 16.8 cents -- the priciest for futures since late 1983 -- by 12:13 p.m. EST.
The SEC said it has approved rule changes that will allow the American Stock Exchange to list shares in Barclays Plc's
iShares Silver Trust, which is designed to track the price of the metal. [ID:nWBT005013]
My comments: I do not yet know if this Silver ETF is yet trading. Keep watching the news.
The iShares are [to be] listed and trade on the American Stock Exchange (the "AMEX") under the symbol "SLV".
It was feared by the Silver User's Association, that this Silver ETF would create a silver shortage, since up to 130 million ounces of silver were supposed to be purchased to back the Silver fund, and, in theory, that could create a silver shortage, since the NYMEX commodity exchange has barely over 100 million ounces of silver.
Silver Users Fear Silver Shortage
Nymex Silver Warehouse Stocks
But there is another source for silver.
It is possible that Warren Buffett's Birkshire Hathaway's 129.7 million ounces of silver have been used to back the fund. And thus, no immediate silver shortage may result. Nevertheless, silver prices did rise to a new high today of $10.55/oz. briefly on the news of the approval of the Silver ETF.
Regarding Warren Buffett's silver, I can only speculate. But as a silver writer, I hear things, and can speculate, and so I will.
I have heard from several reliable sources over the years that Warren Buffett was prevented from buying any more than the 129.7 million ounces of silver he acquired for his fund. I heard that the U.S. government basically told him, "You can't buy any more silver. We won't let you. You may win the battle on silver, but your other insurance businesses that require licenses, will be revoked, and you will lose the war if you go to war with us on this." One source was a merchant banker who contacted Warren Buffet's people for the purpose of trying to convince Warren to buy gold stocks, back in about 2000. Another source is a prominent newsletter writer that I follow. And I've heard the same thing from other sources, too.
Other particulars about Warren's silver are that it is stored in London, and that he was not able to receive full delivery of all of his physical ounces of silver. He didn't exactly lease out the silver that he never received, but he did allow those who had shorted him the silver, more time to deliver, which is something similar.
I do not think that Warren sold his silver, since he said, at the time, "equilibrium between supply and demand was only likely to be established by a somewhat higher price" www.berkshirehathaway.com/news/feb03981.html
Supply and demand in the silver market have not yet reached an equilibrium, especially not now that investors are just beginning to become aware of the silver shortage, so there is no reason to suspect that some of Warren's silver has been sold nor any reason to think it may be sold any time soon, even if it is used to back the Silver ETF (and both items are pure speculation).
But there is a good reason why Warren Buffett may have lent some of his silver to help establish the Silver ETF--for reasons other than selling it (which does not make sense to me). First, the Gold ETF's were put into place by the former head of Calpers, which is the California Public Employee's Retirement System. This is important to note, because many funds like Calpers, which has about $200 billion to manage, need something like a Gold ETF in order to buy gold. Further, Warren Buffett is also friends, and economic advisor, to the Governor of California, Arnold Schwarzenegger, so it could be that Warren Buffett himself is a guiding force behind the establishment of the Gold and Silver ETF's, if only in an advisory sense. Even Warren's public statements, condemning derivatives, are a type of support for the gold and silver ETF's.
My point is that if Warren used some of his silver to back the Silver ETF, he may have done this for a good reason: to help other large funds, like Calpers, buy silver! The point is that a Silver ETF has a legitimate reason to go into the market to acquire more silver for the fund, whereas Warren Buffett (and Birkshire Hathaway) may be blocked from buying any more silver.
So, my conclusion is that the approval of the Silver ETF may not cause an immediate shortage in the silver market by the time it starts trading on the AMEX, under the symbol, "SLV". But longer term, say, in the next year or so, we should expect silver prices to rise significantly, as $200 billion dollar funds like Calpers (and thousands of other such funds), finally have a way to buy silver.
Silver should rise significantly, because if there is only about 100 million ounces, then, at $10.50/oz., that's only about $1.05 billion dollars! By the time $2 billion dollars of investment demand tries to buy silver, you probably won't be able to imagine how high silver prices will be.
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