Silver Investors Resolute

Silver soared last summer on skyrocketing demand from stock traders stampeding into silver-ETF shares. These huge positions that sure looked speculative initially have largely stayed deployed since even riding out a silver correction. That implies these holdings are now being viewed as long-term investments. The silver investors’ resoluteness is very bullish for this metal, keeping silver high which fuels growing interest.

Silver has certainly had a wild ride this year, more than living up to its super-speculative reputation. It got sucked into the overwhelming maelstrom of fear from mid-March’s stock panic on governments’ COVID-19 lockdowns, plummeting 35.8% in under a month! The resulting $11.96 nadir was brutal, well below the world’s silver miners’ all-in sustaining costs of production. Silver had been left for dead at that 10.9-year low.

But like a phoenix rising from the ashes, silver’s rebound out of those extreme lows was incredibly violent. Over the next 4.8 months into early August, silver skyrocketed 142.8% higher to $29.04!That proved its best level in 7.4 years. If such high silver prices can be sustained, that would be a game-changer for the long-struggling major silver miners. And so far these way-better silver prices have largely held since.

In the 4.4 months since its latest upleg peaked, silver has averaged an impressive $25.00 on close. That is 54.5% higher than 2019’s average price! These far-higher prevailing silver levels are resulting from silver investors’ resolve. They haven’t unwound most of their massive new positions added during this past summer. That suggests they believe silver’s secular bull will keep powering even higher on balance.

Unfortunately, world silver supply-and-demand fundamentals are really opaque. Despite its enthusiast following, silver is a tiny global market with a dearth of reliable data. Silver’s definitive fundamental read is only published once a year by the venerable Silver Institute in its World Silver Survey. The last one was released in late April, covering 2019. Thankfully silver investment has a far-higher-resolution proxy.

That is the physical-silver-bullion holdings of the leading and dominant SLV iShares Silver Trust. They are published daily, vastly superior to the annual peek provided by the WSS. Launched way back in April 2006, SLV has grown into a silver juggernaut. Last year SLV’s holdings grew 45.4m ounces to hit 362.6m. According to that latest WSS, that growth represented 55.6% of the global silver-ETF-demand total.

And the 81.7m ounces of silver that exchange-traded funds bought in 2019 weighed in at nearly a third of overall investment demand. Last spring when they were preparing their latest WSS, its analysts forecast major growth in silver demand through ETFs this year. They projected this silver demand soaring 46.9% YoY to 120.0m ounces in 2020. But even that optimistic view fell way short of what recently transpired.

With this crazy year winding to a close, SLV’s holdings alone have skyrocketed 194.8m ounces year-to-date! Among all kinds of excellent data in the WSS reports is the silver-bullion totals held in physically-backed ETFs around the world. At the end of last year, SLV’s holdings commanded 49.8% of the world total! So this American silver ETF dominates its space, and silver ETFs are increasingly silver’s main driver.

Silver ETFs’ mission is to track and mirror the underlying silver price. But the supply and demand for silver-ETF shares is independent from silver’s own. So the only way ETFs can maintain price parity with silver is to shunt excess silver-ETF-share supply and demand directly into silver itself. That requires making these ETFs actual conduits for stock-market capital to flow into and out of real physical silver bullion.

When SLV-share demand exceeds silver’s, those share prices will decouple from silver’s to the upside. SLV’s managers prevent this by issuing enough new shares to offset this differential demand in real-time. Then they immediately plow the proceeds from those new-share sales into buying more physical silver bullion for their vaults. So when SLV’s holdings are rising, stock-market capital is flowing into silver.

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