first majestic silver

Silver market fundamentals DISTORTED by bullion-ETF's

June 3, 2009

Global statistics were recently released by the “precious metals research and consultancy” firm GFMS Limited, based in London. These results, in turn, have been made public by the Silver Institute, an excellent source for data on the silver market, which I have referred to in previous commentaries.

The Silver Institute presented 2008 supply/demand data side-by-side with the 2007 numbers, and the data can only be described as “incredible” (or should I say “un-credible”?).

World Silver Supply and Demand (million ounces)
(totals may not add due to rounding)





Mine Production



Net Government Sales



Old Silver Scrap



Producer Hedging



Implied Net Disinvestment



Total Supply










Industrial Applications












Coins & Medals



Total Fabrication



Producer De-hedging



Implied Net Investment



Total Demand



It is understandable how the supply and demand numbers can perfectly balance out, once government and “scrap” sales are factored into the equation. However, how could anyone possibly believe that supply/demand from 2007 was absolutely identical to supply/demand for 2008?

With 2008 being the most volatile year for global markets since at least the Great Depression, it would have been surprising to see numbers for 2008 being even close to 2007 totals – especially given that 2008 saw a new, multi-decade high in the price of silver.

Moreover, there have been big changes in many components of the silver market. Photography demand dropped (apparently) by 16% in 2008. “Coins and medals” demand was supposed to have jumped by 60%, year-over-year, while “implied net investment” (which is primarily bullion-ETF demand) more than doubled.

Given these huge changes in the sub-components of this market, the chances of supply/demand numbers being identical year-over-year is essentially zero. Thus, we start from a position that data for this market is being “doctored” - on both sides of the equation.

Empirically and anecdotally, we have reports of bullion dealers paying record premiums for silver, while retail dealers all over the world were reporting shortages and huge delays filling orders. Meanwhile, patents and new industrial applications for silver continue to soar. Thus, the “conclusion” of this data: that silver demand was totally unchanged from 2007 to 2008 lacks any credibility. The difficulty is in trying to ascertain where these numbers are being fictionalized – and by how much.

In doing further “digging”, I came across something much more remarkable (and much less ambiguous) when I looked at silver inventory levels. The recent peak was in 1990, at approximately 2.2 billion ounces. At that point, silver inventories began a dramatic plunge. Supposedly, these inventories “bottomed” at the beginning of 2005 – and have been rising ever since.

Does this seem even remotely credible, given the obviously “tight market” which we saw last year? The answer to this conundrum is found when we add in the fact that bullion-ETF “holdings” have been added to silver inventories. As everyone familiar with the precious metals sector knows, demand for bullion-ETF's has exploded since 2005.

Regular readers will be familiar with my stance on (so-called) “bullion-ETF”s. With the exception of a few, reputable funds which explicitly guarantee that they hold actual bullion, the business model of these ETF's is openly fraudulent (see “Bullion-ETF's a multi-purpose scam”).

Previously, I have accused the Manipulators of using these scam-investments to divert a huge component of silver investment demand from buying real silver, into purchasing phony, “paper promises” to deliver silver. What is more, these “paper promises” are being made by the same bullion-banks who have been able to criminally manipulate Comex futures trading (thanks to the non-existent oversight of the corrupt, CFTC).

However, what is now finally apparent to me is that these phony, “bullion-ETF's” have a second, equally-important use (as a tool of the Manipulators).

At the beginning of 2005, total silver inventories had dwindled to a tiny amount of less than 200 million ounces – less than 10% of the recent high from 1990. Yet, today, despite the steady tightening of this market, inventories have supposedly tripled to about 600 million ounces.

The difference between these two numbers corresponds almost identically with the total holdings of “bullion-ETF”s. The reason why this “coincidence” is of such tremendous significance is because bullion-ETF's are considered part of global silver inventories.

Theoretically, the inclusion of these funds makes sense, since supposedly they are holding silver bullion. However, these bullion “holders” are never subjected to any kind of audit, nor are the Manipulators – the bullion-banks who supposedly hold all of this bullion for the ETF's.

As of today, the total amount of this “inventory” is now over 430 MILLION ounces, equal to roughly ½ of total, annual “supply” (if we take the GFMS numbers seriously). The larger this mountain of “phony” silver gets, the more that silver “inventories” supposedly grow.

It is just another outrage to the precious metals market, the most-heavily manipulated commodities market in history, that the Manipulators can grossly distort supply/demand fundamentals – simply by writing-in their ownsupply, demand, and inventory numbers.

Obviously, there are similar games being played in the gold market. However, the “game” being played by the Manipulators in the silver market is much different, and more dangerous (for them), due to one, overriding consideration: it is a widely-known fact that the vast majority of above-ground silver inventories has been literally “consumed” in various industrial applications.

Conversely, with gold, virtually all the gold ever mined is still available, somewhere, in some form. Thus, for gold, there are still (dwindling) supply sources which the Manipulators can use to shore-up supply. No similar stockpiles for silver exist.

In a follow-up to this commentary, I will speculate on what lies ahead for a market with fictionalized supply, demand, and inventories – in a world where the (real) above-ground stockpiles of silver have not been this low incenturies.

The original commentary has many reference links not included in this version. To view these links, please go to...


Jeff Nielson

Jeff NielsonJeff Nielson is co-founder and managing partner of Bullion Bulls Canada; a website which provides precious metals commentary, economic analysis, and mining information to readers/investors. Jeff originally came to the precious metals sector as an investor around the middle of last decade, but soon decided this was where he wanted to make the focus of his career. His website is

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