In the case of gold, the standout feature this month has to be the lack of deliveries early on and the continuing slow pace of deliveries. Therefore, the most plausible explanation is that the shorts in December gold are more reluctant to part with metal and that the longs (JPM) are more interested in getting delivery. Combined with a continuing tightening of the inter-month spread differentials, gold looks tight on a physical basis, just as silver does, but not to the same extent of tightness.
On Thursday, metal holdings in the big silver ETF, SLV, fell by 1.5 million oz, bringing the total reduction in silver holdings in the trust to 4.7 million oz over the past two weeks. This is quite counterintuitive, since silver prices have been steady to somewhat higher over this time, with the biggest volume days being on up days and it would be most reasonable to expect metal holdings to be steady or even higher. Remember, the general rule of thumb is for metal to be withdrawn on obvious investor liquidation which occurs on pronounced price declines; and for metal to be deposited (or at least not be removed) on the net buying that typifies steady to increasing prices. So if plain vanilla investor liquidation doesn’t appear to be behind the withdrawal of silver from SLV, then what else could it be?
The two most plausible explanations I can come up with is that buyers of shares of SLV immediately converted newly purchased shares into metal to avoid SEC reporting requirements or holders of shares converted shares into metal because the metal was needed more urgently elsewhere. These are certainly not new ideas on my part, but that doesn’t make them less plausible. It also points to tightness in physical silver supplies, along with the other signs of tightness I’ve reviewed to this point.
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