Paper Silver Market Vesus Physical Silver Market

[Copper Catcher]

A recent article I read stated that the paper silver market is 250 times the size of the physical silver market!
https://www.goldbroker.com/news/paper-s ... market-526

Wow!

[Morsecode]

Too bad jonflypaper isn't here to tell us why that ratio is a good thing.

[silverstacker]

Well I knew that it was a stretch but I didn't expect this:

"This would mean that, for every ounce of physical silver, there are 250 ounces of « paper » silver circulating in several financial products. In other words, only one contract or certificate issued out of 250 would be convertible in physical silver."

Wow

[Recyclersteve]

Well I knew that it was a stretch but I didn't expect this:

"This would mean that, for every ounce of physical silver, there are 250 ounces of « paper » silver circulating in several financial products. In other words, only one contract or certificate issued out of 250 would be convertible in physical silver."

Wow

It should be less than 1 out of 250 ounces. Why? Think about all the physical silver in the hands of people on this site. You could argue that all would be sold at a price, whatever that price might be. I'd like to suggest there are people who own physical silver that have it (perhaps because they inherited it) and might have no clue if the price hit $100-500 an ounce. They just don't follow the news that closely, or (if they are really wealthy) perhaps they just don't care. So there is silver out there that wouldn't be sold under almost any circumstance.

[IdahoCopper]

Today at $16.12. x250= $4030.00/oz

Now if we could only engineer the complete and total crash of the paper market.

[barrytrot]

From the article:

"In a recent interview, David Morgan confirmed to me that the annual physical silver production is of roughly one billion ounces. With silver trading around $20 currently, this represents a $20 billion market for physical silver. So the size of the physical silver market is of $20 billion, whereas Bloomberg is mentioning $5 trillion."


So the physical market and the paper market are likely pretty close since the world has been here for longer than 1 year. I know production hasn't been the same for the last 250 years, but production has gone on for no less than thousands of years so my guess is we are pretty close to par.

[theo]

I agree. Using the annual silver production as the base asset for all of the paper trading sounds a bit misleading. Even suggesting that silver is undervalued by a factor of 250 really undercuts their credibility. They are also likely using the notional value (counting both sides of the trade) on silver options contracts. This also artificially inflates the size of the paper markets.

What does the paper market look like for for oil? If it is say 200 times annual oil production, does that mean that a barrel of oil should really be valued at $12,000?.

[68Camaro]

I haven't read the article but discussion above disputing the market size suggesting that it is really par at 250 billion oz is just stated as fact without support. I don't believe it. I think you would be harnessed to find more than maybe 10 times annual production in storage. Most silver is consumed never to be reused or recycled.

[theo]

True, using all the silver ever produced is also unrealistic. I'd want to know how much silver is available for delivery in a given period compared to the size of the paper market. Also I'd want to have the "paper market" defined. Do we include shares of silver ETFs and their options contracts? Do we count the notional value of those contracts? Do we also count the shares of mining companies and their attendant derivatives? Finally, and most-importantly, how does the composition and behavior of the silver paper market compare with those of other commodities, like oil? It is my understanding that the paper market for oil is truly massive.

As I've said before, I do believe there as been manipulation in the silver market; however throwing around wild numbers with little or no real analysis or research does not get us closer to the truth.

[barrytrot]

Also the math is hard to figure out due to how Paper contracts are structured (NOTE: I'm not sure what math they are using but it is almost certainly not "spot on".)

Say you have a contract to buy at $100 expiring in January. Someone else buys a contract at $100 expiring in February. Someone else at $100 in March, etc.

Does that mean that the market is worth $100, $200? $100 x number of months? My guess is that in order to make the article writer's argument seem more valid that it is likely $100 x some large number X.

And this is just one of dozens of more complex examples where the same silver (contract of any kind) could be sold multiple times without implying any failure to deliver.


I'm not saying that the market isn't over sold, but it's very likely to be a lot closer to parity than this deceptively written article indicates.

[beauanderos]

without taking the time to skim this article, my takeaway at this point is just another iteration of "if you don't hold it, you don't own it."

Don't presume that you own physical if all you've done is enter into paper contracts. Good luck getting your allocation, when everyone else decides it's time to do the same.

[Recyclersteve]

One of the things that boggles my mind is the inherent contradiction here. People who don't trust governments and banks may invest in gold and silver. But then if they trust someone to store the metals for them, I just don't understand their line of reasoning.

[68Camaro]

Most paper metal investors just treat it as yet another commodity.

[Treetop]

Didnt people get forced to accept dollars instead of silver a few years back during a crunch? or was that only a rumor? Either way, in the age of "to big to fail" I expect that is exactly what would happen if push came to shove. whatever the real numbers, there is clearly more paper silver then deliverable silver for such contracts. So Id also expect the dollars you got in place of your silver couldnt in fact actually buy the allotted amount of silver. I know my silver would never be deliverable under such circumstances, Id never sell in such a market unless the feds found my treasure map and steal it. Silver is still ultimately a tiny market, it would be interesting to see how high it would be if each ounce someone bought actually existed and only had one owner. Of course I might never have gotten what I did if that was the case I expect silver was artificially low the whole time Ive bought.

[68Camaro]

To further elaborate on something TT's last post reminded me of:

Deliverable silver in the terms of these contracts is not generic silver - it is a very specific type of silver, being nominal 1000 oz certified london good delivery bars manufactured by one of the few acceptable suppliers. In that sense the article (which I still haven't read) is probably spot on - there is probably 250x the amount of paper traded as the amount of LGD bars (which back the paper) that is available.

[theo]

To further elaborate on something TT's last post reminded me of:

Deliverable silver in the terms of these contracts is not generic silver - it is a very specific type of silver, being nominal 1000 oz certified london good delivery bars manufactured by one of the few acceptable suppliers. In that sense the article (which I still haven't read) is probably spot on - there is probably 250x the amount of paper traded as the amount of LGD bars (which back the paper) that is available.

Silver took another hit this morning; down .55 or about 3.5%. Platinum and Palladium are both down less than 1% while gold is down about 1.3%. I would assume that paper trading on all four metals is based on these "Good Delivery Bars." My question is what is different about the silver market that makes it subject to these waterfall declines. Is it the size of the market? The ratio of Good Delivery Bars to the paper market? The size and timing of the paper trades? If you guys know of an article that engages in this type of analysis, please post a link.

[68Camaro]

Many have theories. No one that is talking claims to be absolutely sure of why because they aren't privy to the specific details.

Possibly the truth will eventually come out after it's over. Maybe. But even then it might be decades too late to matter.