Physical Silver Being Drained From Bank Vaults

Investment Research Dynamics

Thru today (Oct 28) the U.S. mint has sold 4,365,000 silver eagles.  This is by far the highest total for October on record, with 3 business days left in the month.   It remains to be seen if 2014′s yearly total will exceed last year’s  42,675,000.  But if November and December continue at the September/October 4 million-plus rate, 2014 will smash last year’s record.Either way, the U.S. mint is selling more ounces of silver than all U.S. mines combined produce annually.

As most of you know the roughly 93% of the physical silver inventory – 1,062 tonnes has been removed this year from the Shanghai Futures Exchange – see this LINK.

Perhaps more interesting has been the drainage of silver from the Comex silver warehouses – since late February –  while the paper silver futures open interest has been soaring (source:  24hgold.com, edits are mine) – click to enlarge:

An “eligible” vault account holds silver being kept by investors at the Comex but not available to be sold or delivered.  Close to 20 million ounces have been removed from the “customer” accounts since February, held in vaults operated by banks like JP Morgan, Scotia and HSBC.  Yet, at the same time, the paper silver futures open interest has soared to near all-time highs.  At the beginning of January, there were approximately 132k contracts of silver open interest.  As of yesterday, the amount was over 173,000 – close to an all-time high.

To put this in perspective, 173k contracts represents 865 million ounces of silver.  Compare this to the 66.7 million ounces reported by the banks to be in their “registered” vault account (registered = the silver available to be delivered).   In other words,  there’s 7.65x more paper silver that has been sold to investors/speculators than there is physical silver available to be delivered.  This is a Ponzi scheme that only the upper managements at Enron, JP Morgan and Madoff & Co. + the Secretary of the U.S. Treasury could appreciate.   No wonder investors holding their silver at the Comex are taking it OUT of the Comex.

With the above ground physical supply of silver disappearing from sight, at some point investors will come to realize that silver in the ground is a lot more valuable than it is being valued in the stock market currently.   I have written a new research report on a silver explorer/producer that I believe is currently undervalued even with the price of silver at $17.  Furthermore, it is significantly undervalued relative to the amount of silver it will likely uncover on the properties it already owns.  You can access this report HERE.

This is a “de-risked” silver producer which went free cash flow positive during its 3rd quarter, will ramp up its production significantly next year and has one of the lowest cost per ounce cost structures in the world for a silver producer.  It makes money down to $12/oz. silver!