One would think that as prices dropped sharply in the silver “market” during the month of May, the Comex would contain more silver in inventory as big players fearing some form of run on the Comex soon lost their appetite for the precious metal amid the mini-crash of a more than 30% in price in the first week of May and wouldn’t stand for delivery.
Well, one would think incorrectly. As the silver price dropped, the rate of depletion of available silver dropped as well, but the rate of depletion still remains at a near free-fall rate.
In fact, according to the Comex’s Metal Depository Statistics report, just released, registered silver bullion at the Comex has dropped again to a record low of 29.6 million ounces in May, a drop of 3.5 million ounces in one month. That drop comes off the heals of a 8 million plunge in inventories in April, from February.
At today’s silver price of $37, the value of total Comex silver available for delivery equates to a miniscule $1.1 billion.
Compare the 29.6 million ounces with the Comex’s inventory of registered silver reading of 86.6 million ounces in July of 2008, or a decline of 1.7 million ounces, on average, each month. So, the raid on the silver stock has escalated markedly during the last two reporting months of April and May.
At the present rate of offload, the Comex stores approximately six months of inventory of silver bullion.
Click here for a graph of the trend in Comex silver inventories since August 2008.
Rick Rule, founder of Global Resource Investor, told Eric King of King World News that the paper market in silver is a tool for institutions to trade the white metal, but the underlying physical shortage available to fabricators and retail investors continues at prevailing prices.
“Yeah I think there is absolute shortage in the physical market,” said Rule. “There has been some softness (in the price) which I think is mostly a function of two things, generally a sort of risk off trade as institutional investors in particular have found credit conditions more difficult, and of course the tightening of the margin requirements in the futures markets.”
Rule added, “But I don’t think that has obviated the near-term physical shortage, which has come about from very, very strong retail end user investment demand and a shortage of coin strip.”
3 Silver Stocks to Watch
Pan American Silver (Nasdaq: PAAS)
Coeur d’Alene Mines (NYSE: CDE)
Hecla Mining (NYSE: HL)