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The Silver Paradox In One Chart

As gold and silver prices tumble to multi-year lows, an odd thing is happening in the 'paper' precious metals ETF markets. Demand remains high for silver ETF exposure as 'someone' is aggressively unwinding gold ETF positions.. and yet the prices for both are falling rapidly. It appears the retail investor is taking advantage of the lower prices in silver to accumulate additional exposure as Credit Suisse notes, "the perception is that silver will do well, and should outperform gold as the economic recovery strengthens," adding that "belief in silver’s dual properties, as a financial asset and also as an industrial metal, appears to remain strong."

  • *SPDR GOLD HOLDINGS TUMBLE 1% TO 776.44 TONS, LOWEST SINCE 2008

ETF demand remains high for silver... as gold ETF demand tumbles...

 

And yet Silver prices are languishing just as much as gold prices...

  • *SILVER FUTURES FALL TO $18.125/OZ, LOWEST SINCE AUG. 2010

Short-term...

 

And longer-term...

Charts: Bloomberg

Bloomberg suggests,

Buyers of silver are less swayed by price movements, because unlike gold, the metal is a “buy and hold and forget about it kind of investment,” said Kendall, the third-most accurate precious-metals forecaster tracked by Bloomberg in the eight quarters ended June 30.  

 

“It’s not so actively managed by the retail crowd. It’s tucked away as a retirement store of value or hedge against disaster.”

*  *  *

As GoldCore noted earlier,

At the Denver Gold Summit, yesterday, Keith Neumeyer, president and CEO of First Majestic Silver Corp pointed out that after all the talk by the London Bullion Market Association (LBMA) of greater  transparency for  the new LBMA Silver Price and wider market participation in the auction, nothing much has changed:

 

“Any time you have a small group of people fixing a price, it’s prone to manipulation,” he said. “There’s no change from how it was done before to the way it’s done now – it’s just a different group of players and now they do it on a computer.”

 

To that we would add that the “group of players” is still not all that different since only one player has changed. The old Silver Fixing process had three participants, HSBC, ScotiaMocatta and Deutsche Bank. When Deutsche Bank announced in April that it was pulling out of the Silver Fixing, it precipitated the move by the LBMA to create the new Silver Price.

 

Then, when the new auction was launched on August 15, HSBC and ScotiaMocatta reappeared as participants, bringing Mitsui on board in place of Deutsche Bank. So it’s still the same old usual suspects continuing to fix the silver price each day in London, and there is still little or no transparency about the auction beyond a few netted out buy and sell volume figures.

 

It remains to be seen when if ever the LBMA Silver Price auction will allow in a wider range of direct participants such as mining companies and refiners.

In the meantime, the retail silver investor, as indicated by the silver ETF flows, appears to be taking advantage of the lower price environment to accumulate additional metal. This is also true in the silver coin and bar market.