Guest Post: "Rapidly Declining Silver Inventories on the Shanghai Futures Exchange", by SRSrocco

30
Sat, Aug 9, 2014 - 12:25pm

Our pal, Steve St. Angelo wrote this about a week ago. However, I found it so compelling and important that I asked him if I could re-print it as a "guest post". He happily obliged. Thanks, Steve!

So please take the time to read this report. Keep in mind that the Shanghai Exchange primarily settles in physical. Having seen their inventory depleted by 90% in the past 16 months, the questions become:

  • From where will they get the silver to replenish their inventories for future deliveries?
  • What would become of Comex silver inventories if they actually settled in physical metal instead of paper warehouse receipts?

So, with these questions in mind, please take the time to read this important and insightful article.

TF

"Chinese Silver Inventories Nearly 90% Depleted At Shanghai Futures Exchange"

by, Steve St. Angelo aka SRSrocco

Chinese silver inventories grow increasingly tight as stocks at the Shanghai Futures Exchange continue to fall to record low levels. It is truly amazing to watch how much silver inventories declined at the Shanghai Futures Exchange since March of 2013.

It’s important to understand that the Shanghai Futures Exchange as well as the Shanghai Gold Exchange behave more as a physical delivery market than the COMEX. I was speaking with Chris Marchese, analyst at Silver-Investor.com on this very subject.

I don’t spend a lot of time researching or analyzing the trading behavior in the silver or gold futures market. Chris went onto say the most of the silver and gold contracts at the COMEX are settled in cash, whereas the vast majority of contracts on the Shanghai Exchanges are settled in physical metal.

Which is probably the reason we are seeing a huge draw-down of silver stocks at the Shanghai Futures Exchange.

Let’s first look at what took place at the Shanghai Futures Exchange during the month of July. On July 1st, there were 234 metric tons of silver held in warehouse stocks. However, in the beginning of the month and especially during the last two weeks, there were large withdrawals.

As you can see, by the end of the first week of July, silver inventories fell 30 metric tons (mt) from 234 to 204 by July 4th. There were some small withdrawals and deposits over the next several weeks, but the net change amounted to a 12 mt withdrawal by Friday, July 18th.

Then in the last two weeks, withdrawals picked up considerably. There were 23 mt removed by the week ending July 25th and another 21 mt during the last week of the month. Here is a screenshot from the Shanghai Futures Exchange website showing how much silver was withdrawn on Thursday, July 31st:

In one day, 15 metric tons (15,278 kilograms) were removed, which accounted for nearly 10% of remaining silver stocks.

While withdrawals of silver from the Shanghai Futures Exchange were substantial during the month of July, if we look at a more longer-term chart… its even more impressive. At peak inventories, the Shanghai Futures Exchange held 1,143 mt of silver in March, 2013.

After the PAPER SMASH in the price of silver in April, we can see just how fast inventories declined. By August, 2013, silver inventories at the Shanghai Futures Exchange fell 610 mt to 533… a staggering 53% decline. Inventories continued to fall, but a slower pace until they reached a low in November at 418 mt.

Then over the next three months, there was a build of silver stocks to a high of 575 mt in February, 2014. Interestingly, the price of silver and inventories at the Shanghai Futures Exchange both increased during the same time. As the price of silver went from a low of $19 at the beginning of February to a high of $22 at the end of the month, silver stocks increased by 84 mt (491 mt to 575 mt).

Once the price of silver started correcting lower, inventories declined in March to 417 mt, and then a huge fall to 246 mt by the end of April. In May and June, silver inventories remained relatively flat as spot price bottomed then headed higher in June.

When June rolled into July, once gain, the price of silver headed lower right along with the decline in silver warehouse stocks.. Another 86 mt were withdrawn in July as inventories are now the lowest level (148 mt) they have ever been.

In a nutshell, silver inventories declined nearly 90% from their record peak set in March, 2013. The Shanghai Futures Exchanged experienced a net decline of 995 mt from March, 2013 to the end of July this year.

Lastly, Chris stated that trading volume on the precious metals exchanges are heading East to Asia. He said that trading volume the Shanghai Futures Exchange and Shanghai Gold Exchange are nearly 3 times higher than the volume at the COMEX. Investors are beginning to realize the COMEX is nothing but a paper rigged market so they are moving to Exchanges where one can actually acquire PHYSICAL DELIVERY.

Things seem to be getting quite interesting in the precious metal markets. I discussed this in my recent article, Three Signals For A Huge Silver Spike In 2014. If you haven’t read the article… it’s worth a look. (https://srsroccoreport.com/three-signals-for-a-2014-silver-spike/three-s...)

Next week I will be publishing diesel consumption figures for the top 5 gold miners in 2013. It took some time, but after a few phone calls, I was able to acquire the remaining data necessary to complete my charts.

Please check back for new articles and updates at the SRSrocco Report.

https://srsroccoreport.com

About the Author

Founder
turd [at] tfmetalsreport [dot] com ()

  30 Comments

silver66
Aug 9, 2014 - 12:40pm

First

My lucky day Now to read the post and then go outside and enjoy the day Silver66

bluefish
Aug 9, 2014 - 1:08pm

COMEX etf

If there was an ETF that owned COMEX futures contracts, stood for delivery and then sold on to precious metals buyers I think I would have a little of that. How much delivery would it take to break the cycle of short selling manipulation? I expect Sprott Asset Management could do this blindfolded if they chose to.

Silvergunn
Aug 9, 2014 - 1:37pm

Thurd it is, thanks Turd

Always awesome to have SRSrocco in the house!!!

treefrog
Aug 9, 2014 - 2:12pm

furth

IVth

Spartacus Rex
Aug 9, 2014 - 2:36pm

Another Thing About " 90% "

Here in the U.S., it is only the " 90% " Gold & Silver Coins that are actually Money / "Dollars" /$

So in all your prepping and stacking, make sure you indeed have plenty of these.

Cheers, S. Rex

SS121
Aug 9, 2014 - 3:29pm

bluefish re: how a billionaire could 'bust' the paper market

your post reminded me of a similar physical market game theory that i used to kick around.

here it is-

I've got 10 billion dollars (Sprott, HSP, Greece, and Turd sponsored me)

I take my 10 Billion dollars and i go to 10 of the larger cities in the U.S. say...

NY - Chicago - Houston - L.A. - Philly - Phoenix - San Antonio

San Diego - Dallas - Atlanta

In each of these cities I open up a tiny little store in a strip mall or 'where ever'.

The sign on the outside of each of those 10 stores says-

SELL SILVER HERE $50.00 Per Oz.

Each of the 10 stores gets $1,000,000,000 of the $10,000,000,000 that Sprott, HSP, Greece, and Turd originally 'donated' to the cause.

Holding 1 Billion Dollars and paying out 50 bucks an ounce, each store has enough cash to purchase 20,000,000 (20 million) ounces of physical silver, from the public. And that is the policy- 1- Only buy from the public who physically brings the silver into the store. 2- $50.00 per oz. and 3- We don't sell it back for any price

Now let's push -PLAY- on this game theory. What happens?

Obviously some people would start running back and forth to the LCS. But how long would that last, really?

after a few purely fiat profit trips, some would probably start thinking "hey, not only is this too good to be true, but maybe i should hang on to some of this Silver.

how would the Local Coin Shops react? Would they quickly catch on and only sell Silver for 49 an ounce, while quickly selling out and re-ordering from their wholesalers?

It's interesting to play out, but what seems fairly certain-

  • My stores would all run out of people willing to come in and sell, before they ran out of cash.

so then maybe change the 10 signs on the 10 stores in the 10 cities to-

SELL SILVER HERE $100.00 Per Oz.

...but then business might get even worse!

----

DeaconBenjamin
Aug 9, 2014 - 3:41pm

Jean Marie Eveillard on Value Investing

Value investing works over time, but the key words are “over time.” If you are a value investor you are a long term investor. Ben Graham used to say “Short term, the stock market is a voting machine. It is market psychology that prevails. Long term, it is a weighing machine that weighs the realities of businesses.”

If you are a value investor, you are a long term investor. If you are a long term investor, you accept in advance that every now and then you will lag your peers and the benchmark, because you are not trying to keep up with your peers and the benchmark on a short term basis.

Clearly, the precious metals are a value investment.

Eveillard went on to describe how, from 1997-early 2000, his fund lost 2/3 of its funds under management because he did not choose to participate in the dot com mania. However, from that low in early 2000, his fund now has 50 times as much under management because of the success of the principles he followed.

This is a subscription podcast. Jean-Marie Eveillard: Value Investing - Why It Holds Sway in Today’s Treacherous Landscape https://www.financialsensenewshour.com/broadcast/insider/fsn2014-0807-ev...

sierra skier
Aug 9, 2014 - 3:46pm

Thanks for the Update Report.

Thanks for the Update Report. At least in Shanghi they are running their exchange the way it is supposed to be run instead of just shuffling leveraged paper back and forth.

treefrog
Aug 9, 2014 - 3:53pm

@ ss121

an interesting variation. instead of the "SELL SILVER HERE $50.00 Per Oz." a sign "SELL SILVER HERE, $10.00 OVER SPOT - CURRENTLY $30.00" updated hourly to the average spot + $10 price of the last previous hour. how long do you think it would take to get the price to $100/oz?

SS121
Aug 9, 2014 - 4:09pm

-treefrog

I see what you're saying, but no, no more letting the fake chart wag the physical market.

no more referencing the fake silver chart to determine the price of physical transactions.

Better to help people start using their noggins again and get back to monetary reality.

Only Silver and Gold are Money

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