What made this recent withdrawal noteworthy is that it appeared to be made by a single entity. Most likely, it was not a movement by an industrial consumer, given its size, rendering it as some type of investment flow.
Since this movement coincided with a 4 million ounce deposit in the big silver ETF, SLV, I can’t help but speculate that the COMEX withdrawal was shipped to London. Perhaps more confirmation, in the way of additional SLV deposits, will be revealed in the near future. The connection of the COMEX withdrawal to the deposit in the SLV, which I lean towards, would be important if accurate. That’s because nothing would reflect tightness in the wholesale silver market like someone having to satisfy metal requirements in the SLV by withdrawing the metal from the COMEX.
The recent deposit of close to 4 million ounces in the SLV (to a total of over 270 million ounces) was noteworthy on another level. The deposit also coincided with a decline in the reported short interest of close to 3 million shares in SLV, from 6.8 million shares to 3.9 million. There are only two ways to close out a short position in SLV, namely, by buying the shorted shares back or by depositing the metal against shorted shares. My guess is that the metal deposit was intended to close out those short positions. This also may be related to the recent announcement that Barclays was selling its I-Shares operation, of which SLV is a part.
Long-time readers should know how I feel about the short sale of shares of SLV, as well as the two other hard-metal gold ETFs, GLD and IAU. (I don’t think any short sales of any stock should be allowed, but that’s another topic). To me, the short sale of hard-metal ETF shares is fraud, pure and simple. That’s because the innocent and unaware buyer of any share sold short does not have the metal backing promised in the prospectus. How could he when the short seller of these shares does not deposit metal at the outset of the transaction. I went over this in great detail almost a year ago in "A Hidden Silver Default?" http://www.investmentrarities.com/06-16-08.html I remember Barclays dancing around the issue in a manner that would have won Dancing With The Stars.
My point here is that neither Barclays nor the new buyer of I-Shares, CVC Partners, are fools. They know the shorting of SLV is a fraudulent practice and can cause headaches at some point. What better time to address the issue than upon a change in ownership. If this is what the shipment of metal and close-out of shorted shares is about, then it’s especially bullish. Not only would it confirm silver is tight, it would also suggest the fraudulent short-selling of SLV shares may be ending.
The current set up, in both the paper market structure and the physical world, should be the start of something good, price-wise. Whether it runs into increased manipulative short selling on a rally remains to be seen. I know many feel this pattern won’t be broken, but a true physical shortage will trump any and all paper games. When this baby goes, it will be a sight to behold.
-- Posted 14 April, 2009
