April 26, 2024

Gold and Silver ETF Holdings Decline On Week

June 8, 2011 by 1 Comment

Silver holdings of the iShares Silver Trust (SLV) declined for the week by 27.12 tonnes after being unchanged in the previous week.  The price of silver, as measured by the closing London PM Fix Price has declined by $1.73 or 4.6% since June 1st.

After reaching a high of $48.70 per ounce on April 28th, silver has declined by $12.48 or 25.6% based on today’s closing price.  From the low of $32.50 on May 12, silver has seen a price recovery of $3.72.

The iShares Silver Trust has seen a substantial reduction in silver holdings of 1,007.36 tonnes since the beginning of the year when silver traded at $30.67.  The decline in holdings by the SLV from late April have been even more dramatic.   The SLV hit an all time high for silver holdings on April 25, 2011 of 11,390.06 tonnes.  The decline in SLV holdings from the all time high registers at 1,448.73 tonnes or 46.6 million ounces of silver valued at $1.7 billion.

The iShares Silver Trust currently holds 318.7 million ounces of silver valued at $11.5 billion.  On April 27th, the value of silver held by the SLV was $16.1 billion.

At today’s closing price of $36.03, shares of the SLV traded at a premium of $0.71 or 2.0% to the net asset value of the Trust.  Since the beginning of the year, the SLV has gained 20.2% and over the past year has increased by 115.4%.  For a discussion on why silver prices may see a quick recovery to all time highs see – How Soon Will Silver Hit New Highs?

GLD and SLV Holdings (metric tonnes)

June 8-2011 Weekly Change YTD Change
GLD 1,211.57 -1.30 -69.15
SLV 9,914.21 -27.12 -1,007.36

Holdings of the SPDR Gold Shares Trust (GLD) were little changed on the week, declining by 1.3 tonnes, after a decline of 1.21 tonnes in the previous week.  The GLD currently holds 38.95 million ounces of gold valued at $59.9 billion.  Holdings of the GLD hit at all time record high of 1,320.47 tonnes on June 29, 2010.

Gold prices gained slightly on the week, closing up $4.00 per ounce from the June 1 close.  Gold has now gained $149.25 since the beginning of the year, up 10.75%.  Gold has remained in a narrow trading range for several months, consolidating its early year gains.  Gold has remained above the $1,500 level since May 20th when it closed at $1490.75 per ounce.

Filed Under: Gold, Silver, Statistics Tagged With: , , , , ,

Silver Demand To Soar In Solar Energy Applications

June 8, 2011 by Leave a Comment

Industrial applications for silver continue to increase based on silver’s unique chemical properties.  In 2010, total industrial demand applications for silver increased by almost 21% and since 2001 has increased by 40%.  Industrial applications now consume 46% of total world silver supply and are likely to show continued increases as new uses for silver are discovered.

One fast growing business sector that is projected to consume increasing amounts of silver is the solar energy industry.   According to the Silver Institute, the amount of silver used in photovoltaics could double by 2015 to 100 million ounces from last year’s consumption of 50 million ounces.  Based on last year’s supply statistics, solar energy applications would absorb almost 10% of total silver supply within the next four years.

According to the Silver Institute, silver is used as a film coating on photovoltaic cells to maximize light absorption which enhances the electric output of the cells.  Due to silver’s high efficiency in conducting both electrical and thermal energy, it is an essential component in photovoltaic produced energy.

The Silver Institute notes that silver’s use is also essential in many products of everyday life such as cells phones, personal computers and laptops, solid state lighting, global positioning devices and automobiles.

The Executive Director of the Silver Institute, Michael DiRienzo, stated that “Silver surround us.  And every day, from our commute to work, to our cell and smart phones, to the lighting in our workplace and homes, to our computers, silver is an important element which makes our lives more convenient and energy efficient.”

 

Filed Under: Silver Tagged With: , , ,

Gold Advances On Week, Silver Retreats As Financial Crisis II Looms

June 3, 2011 by Leave a Comment

Gold, platinum and palladium all advanced on the week while silver gave up most of the previous week’s gains.

As measured by the London PM Fix Price, gold gained $7 on the week to $1,540.00 while silver pulled back by $2.50 to $35.19.   Platinum moved up by $21 to $1,807.00 and palladium gained $13 to $770.00.  After the London close, prices of precious metals moved up strongly in New York trading, especially silver, which last traded at $36.39, up $1.20 from the earlier London closing price.

Financial markets worldwide pulled back sharply as the stock traders finally began to acknowledge the fragility of the world’s paper back financial system.  Governments that have borrowed and spent trillions of dollars to stimulate economic growth and support a fragile banking system now find themselves reaching the limits of their borrowing capacity.

It is becoming obvious that the financial crisis of 2008 was just a warm up act to the real financial nightmare that is looming ahead.  Despite trillions of dollars in stimulus spending, coordinated with a money printing campaign by world central banks, the economies of the U.S. and Europe have not recovered.  Unemployment continues to grow, real estate values continue to plunge, debt levels have reached unsustainable levels and real incomes for the majority of workers continue to decline.

There are numerous events that could trigger the second financial crisis  There is no way of knowing which specific event will trigger the next crisis,  nor does it matter.  What does matter is the manner in which Financial Crisis II will be dealt with by world governments and central banks.  Unable to raise taxes or take on trillions more in borrowing, monetary authorities will exercise the last resort option of money printing on a massive scale to avoid a total collapse of the world monetary system.  The gold market is already reflecting this scenario as one of the few safe havens against paper currencies that have little intrinsic value.  When Financial Crisis II gets under way, uninformed talk of a “gold bubble” will quickly disappear as investors will buy gold at any price to preserve their wealth.

Precious Metals Prices
PM Fix Since Last Recap
Gold $1,540.00 +7.00 (+0.46%)
Silver $35.19 -2.50(-6.63%)
Platinum $1,807.00 +21.00 (+1.18%)
Palladium $770.00 +13.00 (+1.72%)

Will platinum, which has lagged the price rallies in other precious metals, start to play catch up?  According to the Wall Street Journal, due to rising production costs for platinum, a price of $2,100 per ounce is necessary to encourage increased mine production.

The historical price ratio of platinum to palladium also suggests that platinum prices could rally significantly.  The Wall Street Journal notes that when palladium reached $860 per ounce in February, the ratio was 2.15 compared to 2.12 today.  The historical average of the platinum/palladium ratio is 3.0 to 4.0, suggesting that platinum is undervalued.

 

PLATINUM - COURTESY STOCKCHARTS.COM

Filed Under: Featured, Gold, palladium, Platinum, Silver, Statistics Tagged With: , , , , ,

Precious Metals Stage Impressive Rally – Are Gold Stocks Next?

May 27, 2011 by 1 Comment

As measured by the closing London PM Fix Price, precious metals staged impressive gains this week, rallying across the board.  Ongoing concerns about the sovereign debt crisis in Europe, the debt limit ceiling stalemate in the U.S. and a weak dollar all contributed to continued fundamental demand for the metals.

After the London close, precious metals continued to gain in New York trading with gold at $1,537.00, silver at $38.15, platinum at $1,805.00 and palladium at $766.00.

The star of the week was silver which gained $2.89 per ounce for a gain of 8.3% on the week.  Although the correction of silver in early May was dramatic, the sharp pullback has provided long term investors with an opportunity to add to positions.  Silver fundamentals remain strong as detailed in a recent report by the Silver Institute in which it was noted that demand remained robust despite higher prices.  In addition, although higher prices has lead to increased mine exploration and production, new silver production during 2010 rose by only 2.5%.

Precious Metals Prices
PM Fix Since Last Recap
Gold $1,533.00 +42.25 (+2.83%)
Silver $37.69 +2.89(+8.30%)
Platinum $1,786.00 +19.00 (+1.08%)
Palladium $757.00 +23.00 (+3.13%)

Gold has recovered nearly all of its early May price correction and is now only $8 off its high of $1,541.00 as measured by the London PM Fix Price.  The trend in gold remains solidly bullish and any price corrections should be viewed as a buying opportunity.

 

GOLD - COURTESY STOCKCHARTS.COM

 

Gold stocks, many of which have trailed the returns of gold bullion, may also be viewed as attractive at this point. As measured by the Market Vectors Gold Miners ETF (GDX),  gold stocks are moving up after making multiple bottoms at the $55 support level.

 

GDX - COURTESY YAHOO FINANCE

Many of the gold mining stocks are selling at steep discounts to their gold reserves and represent solid values. Earlier this week, Kinross Gold, which sells at the equivalent of $250 per ounce, was a featured story. Value investor David Steinberg of DLS Capital Management, has a price target on Kinross of $27 per share. Kinross closed today at $16.11.

Filed Under: Gold, palladium, Platinum, Silver, Statistics Tagged With: , , , ,

The Federal Reserve Can’t Produce Oil, Food Or Jobs But They Will Continue To Produce Dollars

May 26, 2011 by Leave a Comment

Federal Reserve

No bull market goes straight up without normal price corrections along the way.  The recent sharp pullback in silver prices and the more subdued correction in gold prices are likely to be viewed in hindsight as a superb buying opportunity.

Simple trend line analysis suggests that current prices for gold and silver are in a buying range.  Using the SLV and GLD as proxies for the metals, we can see that the recent sell off has brought prices to trend line support.   Combining the “trend is your friend” theory along with solid fundamental underpinnings for gold and silver, higher prices seem inevitable.  For patient long term investors, especially in the gold market, every pullback of the last decade has simply been another opportunity to exchange depreciating paper dollars into a better store of value.

The SLV recently hit its trend line in the low 30’s.

SLV - COURTESY ETRADE.COM

The GLD’s long term trend line does not even hint of parabolic price movement, contrary to mainstream press reports warning the public of the dangers of gold investing.

GLD - COURTESY ETRADE.COM

Despite the assertions of Fed Chairman Bernanke that inflation is not a problem, any one outside of the academic inner circle of the Federal Reserve sees inflation everywhere they look.  Soaring gasoline and heating costs have decimated family budgets and retail food inflation is projected to hit 4% or higher in 2011.  Constantly higher inflation, as measured by the Consumer Price Index, has prevailed ever since the U.S. officially went off the gold standard in the early 1970’s.  (See also Why Higher Inflation and $5,000 Gold Are Inevitable).

This week we have seen announcements of higher prices by Starbucks, Smucker Co, Nestle, McDonald’s and Whole Foods.  Walmart previously warned that the debasement of the dollar was translating into higher retail prices on imported items.  The upward price spiral in the cost of necessities is especially burdensome since incomes for the majority of Americans are not increasing.

In an excellent article in the Wall Street Journal this week, Ronald McKinnon persuasively suggests that the United States is entering 1970’s type stagflation, the result of high inflation, high unemployment and stagnant demand.  According to Mr. McKinnon,  “the U.S. economy again seems to be entering stagflation. April’s producer price index for finished goods, which excludes services and falling home prices, rose 6.8%. The Bureau of Labor Statistics reports that intermediate goods prices for April were rising at a 9.4% annual clip. Meanwhile the official nationwide unemployment rate is mired close to 9%.”

McKinnon argues that stagflation is being caused by the Fed’s zero interest rate policies (which besides robbing retirees and savers), has cause a global flood of hot money that has resulted in surging inflation in Asia and Latin America and a 40% rise in commodity prices over the past year.

The Federal Reserve’s policy options at this point seem limited to continuing their policies of cheap money and dollar debasement.  The Fed cannot produce oil as Bernanke recently commented.  Nor can the Fed produce food, jobs or higher housing prices.  The one thing the Fed can and has done is to produce paper dollars in extraordinary quantities.  Debt, when allowed to expand to levels that make repayment impossible, leaves the debtor with no good options – a point that we are rapidly approaching. (See also Why There Is No Upside Limit To Gold and Silver Prices).

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How Wall Street Pros Made Huge Profits On Silver ETF Crash As Small Investors Sold

May 25, 2011 by Leave a Comment

The holdings of the iShares Silver Trust (SLV) declined by a substantial 505.10 tonnes from the previous week.  The decline in SLV silver holdings from the all time high of 11,390.06 tonnes reached on April 25th comes in at a hefty 1,448.73 tonnes or 12.7%.  Silver, meanwhile, has declined in price by $8.31 per ounce or 18.3% since April 25th.

Although the price per share of the SLV tracks the price per ounce of silver very closely, the actual bullion holdings of the SLV can fluctuate, sometimes dramatically, from the underlying price movements of silver.  This same situation applies to the SPDR Gold Shares (GLD).

The reason why the physical holdings of the SLV and GLD do not closely track the price of gold and silver is due to the complex mechanism by which Authorized Participants can “create or redeem” shares in the SLV and GLD.  The silver and gold trusts are structured to allow large Wall Street investment firms to act as Authorized Participants to arbitrage against a premium or discount of the SLV or GLD share prices to the underlying net asset value of the Trusts.

Premiums or discounts to the net asset value of the Trusts occur based on normal supply and demand by investors during the course of trading in SLV and GLD shares.  The Authorized Participants routinely reap profits from their arbitrage activities based on the prevailing discounts or premiums .  According to the prospectuses of the GLD and SLV, the Trusts were structured in this manner to allow the price of the GLD and SLV shares to closely correspond to the underlying value of gold and silver bullion.

The Trusts do not directly buy or sell bullion based on investor buy or sell orders for the SLV and GLD.  The Trusts are not structured like a typical mutual fund which liquidates its holdings if there is a surge of investor redemptions.  Changes in the number of Trust shares outstanding and changes in holdings of gold and silver occur only based on the creation or redemption of shares through Authorized Participants.

Premiums or discounts of the SLV and GLD shares to net asset values are normally less than 1% but can expand dramatically when trading is volatile.  For example, on May 2nd, when silver prices were plunging, the shares of the SLV reached a huge discount of 9.87% from the net asset value of silver held by the SLV Trust.  Investors desperately seeking to liquidate their SLV shares caused the value of the SLV to trade at a steep discount to the underlying net asset value of the Trust.

At this point the lucky Wall Street pros who act as Authorized Participants were gladly buying the SLV shares and simultaneously shorting silver bullion, locking in huge profits.  Authorized Participants who arbitraged during this volatile trading profited greatly at the expense of panicky SLV sellers who sold shares of the SLV at $42.79 that were worth $47.51 based on the net asset value of the SLV.  (Pricing data on the SLV share discount was obtained from the iShares Silver Trust web site).

The Authorized Participants who bought SLV shares during the panic sell off then delivered their SLV shares to the iShare Trust and requested that they be redeemed for silver bullion which was then used to close out short positions in silver bullion.  Under this situation, the silver bullion holdings of the SLV decreased since they delivered silver bullion to the Authorized Participants in exchange for redeemed SLV shares.  This is exactly the situation that has occurred during the May silver sell off and it is therefore no surprise that the holdings of the SLV have plunged.

The average investor in the iShares Silver Trust would be hard pressed to understand the “creation and redemption” features of the SLV shares.  Although the SLV can be an easy way for an investor to participate in silver bullion ownership, my investment thesis is to avoid investments that cannot be fully or easily understood.

For investors seeking to establish investments in gold and silver without having to hold the physical metal, the Sprott Physical Gold Trust (PHYS) or the Sprott Physical Silver Trust (PSLV) offer better opportunities.  Both of these Trust hold specific amounts of physical gold or silver which do not change.  Each share holder has an unallocated interest in the precious metals held by the Trust.

All precious metal holdings of the Sprott Trusts are secured not by a bank, as with the GLD, but by the Royal Canadian Mint of the Canadian Government which is responsible for any loss or damage .  The gold or silver backing the Sprott Trusts are specifically allocated by the Mint to the Sprott Trusts.

From a total investment return standpoint, it is also important to note that the shareholders of the PHYS and PSLV are taxed at the capital gains rate of 15% (if held for more than one year) whereas shareholders of the GLD and SLV are taxed at 28%.  For further information see Sprott Physical Gold Trust Advantages Over SPDR Gold Shares Trust.

GLD and SLV Holdings (metric tonnes)

May 25-2011 Weekly Change YTD Change
GLD 1,214.08 +22.74 -66.64
SLV 9,941.33 -505.10 -980.24

Holdings of the SPDR Gold Shares Trust (GLD) increased by a modest 22.74 tonnes from the prior week to 1,241.08 tonnes.   The GLD held 1,280.72 tonnes at the beginning of the year.  The all time record holdings were reached on June 29, 2010 at 1,320.47 tonnes.  The GLD currently holds 39.0 million ounces of gold bullion valued at $59.6 billion.

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Precious Metals Little Changed On Week While Investors Ponder Government Defaults

May 20, 2011 by Leave a Comment

Precious metal prices traded in a narrow range this week.  As measured by the closing London Fix Price, gold, platinum and silver declined slightly while palladium gained $16 per ounce.

After the London close, prices of precious metals rose across the board in New York afternoon trading.  Gold closed at $1,514.50 up $19.70, silver at $35.26 up $.12, platinum at $1,775 up $8 and palladium at $739 up $8.   Buying in the precious metals may have been prompted by late day worries over the downgrade of Greek debt by Fitch Ratings as well as concerns over the worsening state of public finances in Spain, Portugal and Italy.

Yields of 25% on short term debt Greek debt imply that the markets are are pricing in a very high probability of default by Greece.  What markets do not seem to have priced in is the contagion risk of Greek default and what impact that would have on investor confidence, world financial markets and the global banking system.

Meanwhile the U.S. debt crisis continues to brew as the debt ceiling limit was reached with no indication of a resolution by Congress.  If the past is any guide, Congress will let the debt bomb/deficit crisis simmer until the last minute when the debt ceiling will be raised yet again under the guise of “future fiscal restraint” and the deficit spending and borrowing will continue as usual.

Ignoring the eroding financial condition of the U.S. today only ensures that the inevitable financial crisis will be more devastating than one might chose to contemplate.  The timing may be uncertain but the outcome is not.

The American Precious Metals Exchange (APMEX) included a chart in one of its latest email newsletters that depicts the gap between the growth of  U.S. GDP and debt.  The chart graphically illustrates the extent to which the U.S. has been living beyond its means and using trillions in deficit financing to do so.

DEBT VS GDP - COURTESY APMEX

APMEX also notes that  “If there is no resolution (of the budget ceiling) by August 2nd, there could be disastrous ramifications for the U.S. and the global economy. The U.S. will be in default on its promises to pay. The value of the dollar could drop dramatically.”

 

Precious Metals Prices
PM Fix Since Last Recap
Gold $1,490.75 -15.00 (-1.00%)
Silver $34.80 -1.40(-3.87%)
Platinum $1,767.00 -7.00 (-0.39%)
Palladium $734.00 +16.00 (+2.23%)

Precious metals, silver in particular, have been undergoing corrective price action during May, but the fundamental reasons for owning precious metals grows stronger by the day.   Demand for precious metals remains strong.  The World Gold Council’s latest report shows that global demand for gold increased by 11% in the first quarter, while buying by Chinese investors reached all time highs.  The trend is still your friend in the precious metals markets and price weakness should be viewed as an opportunity to increase long term positions.

Filed Under: Gold, palladium, Platinum, Silver, Weekly Recap Tagged With: , , , , , , ,

Why Higher Inflation And $5,000 Gold Are Inevitable

May 19, 2011 by 1 Comment

In his press conference on April 27, 2011, Federal Reserve Chairman Bernanke dismissed inflation worries, stating that “Our expectation is that inflation will come down and towards a more normal level”.   Should we believe him?  Not if you want to preserve your wealth and here’s why.

Chairman Bernanke has a perfect record of making inaccurate economic forecasts.

  • Bernanke, March 2007, prior to the historic housing crash said,  “At this juncture . . . the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained.”
  • Bernanke, February 2008, prior to the banking crisis that almost resulted in the collapse of the entire U.S. banking system  said, “I expect there will be some failures. I don’t anticipate any serious problems of that sort among the large internationally active banks that make up a very substantial part of our banking system.”
  • Bernanke, June 2008, prior to the worst recession and job losses since the 1930’s, said the danger of the economy falling into a “substantial downturn” appears to have waned.

Even if the Fed was able to keep inflation at a “benign” rate of 2% a year, the long term effects on savings are devastating.  Over ten years, a 2% inflation rate reduces the value of $100,000 to $82,034, resulting in an 18% loss in purchasing power.

According to the Bureau of Labor Statistics, inflation averaged 3.4% since 1980.  At the beginning of 1980, one dollar had the same purchasing power as $2.86 at the end of 2010.

The cost of living has spiraled upwards since the early 1970’s, correlating perfectly to the point at which the value of the dollar was decoupled from gold.  In 1971, the United States stopped exchanging dollars for gold to foreign official holders of dollars and the dollar gold standard was officially ended in 1973.

The Fed’s policy of pushing easy credit for the past 30 years to fuel economic growth has left Americans swimming in debt.  The housing collapse and declining incomes have resulted in millions of mortgage defaults and underwater homeowners.  The Government’s attempt to bailout a collapsing economy and over leveraged banks and consumers has resulted in trillions of dollars in new debt and a $1.5 trillion deficit.

Government debt has exploded to the point where the solvency of the U.S. Government is now being questioned.  Large tax increases to erase the deficit would spin the U.S. into a deep recession.  The President and Congress lack the political will to cut spending.  The U.S. has spent and borrowed itself to the eve of financial ruin and must “inflate or die” at this point (see Why There Is No Upside Limit For Gold and Silver Prices).

The Fed, with the experience of two money printing campaigns already under its belt, will have no problems extending this practice.  As Bernanke noted in 2002 before he became Fed Chairman, “The U.S. Government has a technology, called a printing press, that allows it to produce as many U.S. dollars as it wishes at no cost”.

The Fed’s cheap money policies and concerted efforts to debase the value of the dollar are just beginning, and that means the biggest move up in precious metals is still in front of us.  My minimum long term forecast for gold remains at $5,000 per ounce and silver at $170 per ounce.

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Gold And Silver ETFs Show Modest Decline In Holdings

May 18, 2011 by Leave a Comment

The holdings of the iShares Silver Trust (SLV) declined slightly on the week by 53.10 tonnes as silver prices continued to consolidate after the sharp sell off of early May.

Since the beginning of the year, holdings have declined by 434.19 tonnes to the current level of 10,540.48 tonnes.  The all time record holdings of the SLV were 11,390.06 tonnes on April 25th, as the price of silver was approaching the $50 per ounce level.

Even after the early May pullback, silver has rewarded investors with a gain of 29.7% from the January low of $26.68.  The SLV has delivered a total return of 115.4% over the past year, and an average 25.8% yearly return since its inception in April 2006.

Despite the downturn in ETF holdings, there is strong evidence of continued strong fundamental demand for silver:

  • The U.S. Mint continues to ration sales of silver bullion coins, as total production cannot meet full market demand. This has led to higher premiums for American Silver Eagles and the newly introduced America the Beautiful Silver Bullion coins.
  • Dealers are reporting continued high demand for silver bullion as an increased number of new investors seek to protect their wealth by diversifying out of paper currency and existing investors use the reduced prices to increase holdings.
  • Investor demand for physical gold and silver is growing dramatically in countries such as India.  According to the Financial Times, silver traders in India report that “People are booking incredible amounts of Silver as they see the current drop in prices as a great opportunity to buy more…most are buying for pure investment.”

Meanwhile, the cheap money policies of the Federal Reserve are not likely to change any time soon.  Minutes of the last Fed meeting on April 27-28th, indicate that the Fed extensively discussed an exit strategy from its easy money policies but provided no guidance on timing.  Most analysts have concluded that it may be years before the Fed actually starts to tighten monetary policy.

GLD and SLV Holdings (metric tonnes)

May 18-2011 Weekly Change YTD Change
GLD 1,191.34 -9.70 -89.38
SLV 10,540.48 -53.10 -434.19

Holdings in the SPDR Gold Shares Trust (GLD) declined slightly on the week by 9.7 tonnes.  It was disclosed this week that investor George Soros sold 4.7 million shares of the GLD during the first quarter, bringing his holdings down to a token 49,400 shares.  The liquidated shares were valued at $684 million based on today’s closing price of the GLD.  The 4.7 million shares of GLD represented only approximately 15 tonnes of gold or 1.2% of total GLD holdings.

Was Soros turning negative on gold, as suggested by the media, or was Soros simply taking some short term profits?  While Soros was selling, legendary hedge fund manager John Paulson did not reduce his massive stake of $4.4 billion in the GLD.  Although Soros has a great long term track record, during the financial panic of 2007-2008, he bought Countrywide and Lehman Brothers shortly before they collapsed.  Perhaps history will repeat and the sale of gold by Soros will mark a major bottom in the gold market.

The long term uptrend in gold is still intact and supported by the fundamentals (see Insights From A Legendary Gold Investor).   Since the SPDR Gold Shares inception date of November 12, 2004, the fund has had a spectacular annual average return of 19.6%.  The GLD currently holds 38.3 million ounces of gold valued at $57.3 billion.



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Silver And Gold ETFs Stable – Bank Savings vs. Precious Metals and How Much Is a Trillion?

May 12, 2011 by 2 Comments

As the silver market stabilized after last week’s sell off, holdings of the iShares Silver Trust (SLV) increased by 153.22 tonnes over the past week.

Since the beginning of the year, the SLV holdings have declined by 381.09 tonnes, but the largest decrease in holdings tracks the silver sell off that began in late April.  From a record high holding of 11,390.06 tonnes of silver on April 25th, the SLV has seen a decline in holdings of 849.58 tonnes.   The reduction of holdings since April 25th exceeds the amount of silver originally held by the SLV at its inception in April 2006 when it held 653.17 tonnes.

One indication of the amount of forced selling that occurred last week is reflected by the premium/discount on the SLV compared to its net asset value.  On April 25th, when the SLV had peak holdings and silver was surging towards the $50 level, the premium on SLV shares was 1.48%.  Investors at that point were paying $45.83 per share while the SLV’s net silver assets were $45.14.  Two days later and trading at very high volume, investors paid $47 per share for the SLV which held silver worth $44.20, a fat premium of 6.29%.

The first week of May saw a steep price decline in silver caused, in large part, by five margin increases by the COMEX on silver futures trading (see How The Comex Crashed The Silver Market).  Forced selling of the SLV resulted in huge discounts from net asset value.  On May 2nd, the discount on the SLV reached a huge 9.87% and sellers of the SLV were receiving only $42.79  for shares with a net asset value of silver worth $47.51.  On Monday and Tuesday of this week, pricing became orderly with only a minor difference between net asset value and market value of the SLV.

The SLV currently holds 338.9 million ounces of silver valued at $13.3 billion.  Despite the recent sell off, silver has had a spectacular performance this year.   From its January low of $26.68 to its closing New York spot price on May 11th of $35.27, silver has risen by 32%, proving the case for diversification into precious metals.

By contrast, savers of paper currency in banks have been treated to returns of virtually zero, courtesy of Ben Bernanke’s zero interest rate policies.  As the public wakes up to the fact that their paper currency savings are becoming worth less and less, the demand for both gold and silver should increase exponentially.

GLD and SLV Holdings (metric tonnes)

May 11-2011 Weekly Change YTD Change
GLD 1,201.04 -18.90 -79.68
SLV 10,540.48 +153.22 -381.09

Holdings of gold by the SPDR Gold Shares Trust (GLD) declined by 18.90 tonnes on the week.  The GDL currently holds 38.6 million ounces of gold valued at $58.2 billion.

How Much Is A Trillion?

Sometimes a very routine event can open your eyes and keep you on the right long term track.  Last week I was having breakfast in Mexico and casually put a tip of a couple of U.S. dollars on the table.  (Yes, they still take our paper money in Mexico).   Gazing at the paper dollars I reflected on how, as a child, two hours of working odd jobs for neighbors would earn me two dollars.

Then, I tried to figure out how big the table would have to be to hold the $2 trillion dollars printed out of thin air by the Federal Reserve over the past couple of years.   At this point, my wife started getting annoyed with me, so I gladly restrained myself from an academic exercise that was fruitless anyways.   How many people can comprehend a trillion dollars?  Not me, but I know it’s a crazy large amount.  I also know that anything that can be produced in the trillions at virtually no cost cannot have any real long term fundamental value.  And that’s all I really need to know to make me indifferent to a short term sell off in the gold and silver markets.

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