News Bureau

November 24, 2022

Physical Silver Demand Soars

Silver Analyst Craig Hemke learned that an interesting dichotomy has developed in the silver market. What does it mean? Does it mean anything at all? We'll know soon enough. What an interesting year this has been, and the last six months have been positively brutal.

While we await the eventual central bank pivot back toward easing and QE, Comex digital gold and silver have been whacked, cracked, and shellacked. But as we've seen multiple times in the past, this has led to a widening gap between the futures price and the physical price.

There's a lot going on behind the scenes in the commodity markets. For example, crude oil demand should be falling with the global economic slowdown. However, crude oil supply is also falling, save for the short sighted U.S. policy of draining its "strategic reserves". And have you noticed the dwindling stockpiles of copper, not only in London but in China, in part due to the unwinding of loans and credit where copper was used as collateral?

But let's focus today on silver, as it's of the greatest interest to all of us precious metal stackers. Most know that the price of silver that's prominently featured in financial media is the price discovered on futures exchanges like Comex. As with anything else, this price is often dependent upon supply and demand—in this case, the supply and demand of the futures contracts themselves.

What's interesting is that the current supply of futures contracts is at a nine-year low. On Comex as of last Monday, the total open interest in silver was just 125,748 contracts. At 5,000 digital ounces per contract, this represents 628,740,000 of silver, and this is the lowest total open interest level since November 11, 2013.

While 125,748 contracts and 628,740,000 digital ounces may seem like a lot, by any historical measure it isn’t. For example, as recently as June of last year, total open interest was near 200,000 contracts. Additionally, the all-time high in COMEX silver open interest was reached on February 24, 2020, at a whopping 244,705 contracts for 1,223,525,000 digital ounces.

Stated another way, total open interest in Comex Digital Silver has fallen by 48.6% since the all-time highs two and a half years ago.

Now, again, maybe this is no big deal. Perhaps this simply reflects the notion that nobody cares or is interested in trading silver futures at present. But how do you square the declining interest in digital silver with what appears to be increasing interest in physical silver? And I'm not talking about simple retail demand here, even though dealer premiums for many popular investment options are now over $5/oz and sometimes approaching $10/oz.


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