Gold News

5 Silver Nuggets from LBMA 2022

Silver Eagle coin premiums hit record highs...
FIFTY-TWO per cent by this time next year, writes Adrian Ash at BullionVault, back at the grindstone after joining the London Bullion Market Association's annual conference, held in 2022 in Lisbon, Portugal.
That would make quite the profit for a silver investor...
...(provided of course that they weren't buying silver coins and paying twice the actual bullion price in premiums, mark-ups and sales-tax, with no hope of getting those costs back on sale).
52% would mark a stronger gain than silver's Covid-stimulus surge of 2020...
...and the best profit since 2010 delivered 80% gains for silver after 2009 had delivered 57%.
But down here today, barely $1 above September's 2-year lows in US Dollar, who in their right mind would forecast such a jump for silver?
Well, the average delegate at this week's LBMA conference in Lisbon would, that's who.
Chart of US Dollar silver prices, last 5 years. Source: BullionVault
If you follow BullionVault on Twitter you will have got the news, views and hot takes of expert speakers and market executives as they happened on Monday and Tuesday this week.
For the wider conference attendees, polled in the closing session on Day 2 – and answering via the conference app on their smartphones – they said on average that gold will rise by 12% from here to October 2023, when 700-or-so delegates will next gather together.
On average, LBMA attendees see platinum rising by 34% towards $1240 while sister PGM palladium holds flat around $2050.
But the star-prize goes to silver, with its average forecast of a 52% rise to $28.30 per ounce.
In truth, that super-bull outlook means that some attendees were even more bullish. Like, crazy bulls.
Because the average delegate included all the people I spoke to – including people who make a living projecting such things, several of them joining Monday afternoon's excellent Silver Roundtable discussion chaired by Rhona O'Connell of brokers StoneX.
The majority of those bullion professionals hold a gloomier outlook for silver for now, thanks to rising interest rates and the darkening industrial outlook ahead. But from chatting to them in Lisbon this week, they tend to have a longer-term bias for rising prices...
...thanks to the deficit of global supply versus demand widening as the decade rolls on, drawing out and slowly depleting silver from existing stockpiles.
The outflows already seen from London and New York this year have of course grabbed the attention of the bug-o-sphere online, albeit with much confusion.
No, the outflows from Comex warehouses and London bullion-bank stockpiles do not signal the impending collapse of anything much. Instead, they reflect a surge in end-user demand, buying metal and shipping it out... factories and mints and fabrication plants... contrast to the record-heavy investment hoarding demand of 2020 and early 2021.
All that and much more was made very plain in the excellent presentation on 'global flows' from Mark Woolley at Brink's...winner of the best speaker vote this year, and rightly so.
We shall share more in due course from that session, plus notes on gold, the macro outlook, what fund investors are thinking, the future of PGMs, and also from the geopolitical panel I joined Monday morning.
Meantime, here are 5 silver nuggets to chew over.
1 ounce
That's how many ounces of silver are contained in all the electrics and electronics in a brand-new passenger car with a petrol or diesel engine, according to the best guess-timate I got from expert analysts this week.
For a fully electric battery vehicle? They reckon 5 ounces today.
12 per cent
That's the percentage of annual world silver supply which speculators on the Shanghai Futures Exchange had sold short in September according to more than one trader I spoke to. The SHFE's big short came just after the Dollar price of silver had fallen to new 2-year lows, and just before it jumped by $3 per ounce in barely one week.
So clearly, those shorts rushed to cover, driving the market higher.
Alongside those SHFE shorts, speculators on the US Comex futures and options exchange were also chased out of betting heavily against silver, slashing their net short position from the equivalent of 3,800 tonnes – the heaviest bearish net bet since June 2019 – to a net long position of more than 1,000 tonnes by the start of October.
The hot money still loves trading silver, in other words. And so it still offers short-term traders the chance to go the other way, buying when the hedge funds are bearish in the hope of cleaning up when those bearish bets get closed out in a rush.
14 bucks
Want to buy a 1-ounce silver Eagle coin right now? In the USA, the wholesale distributor who supplies your retail dealer will be paying $14 above the coin's bullion value to restock their inventory...
...a truly unprecedented premium driven by record demand and very weak supply.
Why weak supplies? Blame post-Covid supply breaks, ongoing China lockdowns, plus the 'great retirement' and a little deglobalization.
Labour-market participation rates have dropped the world over as Baby Boomers decided that going back to work after lockdown just didn't make sense. Many migrant workers meanwhile decided to stay and rebuild their lives at home too, again cutting the work force in richer Western nations.
Result? Fewer truck drivers, mint staff, airport and seaport handlers...all leading to delivery delays and higher costs.
But why such strong demand for coins and small bars? Blame Biden, inflation, the war, and – thanks to the fear of missing out – the very same high costs which high demand is helping create.
"Those high premiums sell themselves," as one expert analyst put it to me. Because if your local coin shop is charging such high prices above the bullion value, there must be a rush you need to chase!
To repeat, that $14 premium is what wholesale is paying for a US silver Eagle. So if you're drunk enough to find yourself throwing money away on the ugly trading spreads between buy/sell prices on silver coin, you can expect to burn a whole lot more of your cash on top of that, because your retailer will need to charge a whole lot more again. And for UK and Euro investors, you then pay VAT sales tax on top at 19% or more.
Result? A boom for mints and logistics providers (albeit stressful) and a real bull market for retailers. Not so much for their customers.
22 weeks
That's how many weeks of last year's global end-use demand would have matched this year's flood of silver so far out of New York and London stockpiles.
With more than 40 weeks of the year now gone, that might sound soft. But if demand could be met from silver mine output, those stockpiles wouldn't need to reduce. So after 2021 already saw the heaviest silver-product demand in 6 years, and with mining output extending its post-Covid rebound, this statistic means that current demand for fabricated silver – whether as jewellery, coins, small bars, chemical catalysts, solar panels, electrical switches, saree thread and all the rest – is clearly running very hot, sucking 14,500 tonnes of silver from the inventory piled up in large bars in Comex and LBMA market vaults.
25 cents
When gold bullion travels the world, it goes airfreight – most usually in the belly of a passenger jet ( Covid lockdowns aside). That's cost effective thanks to gold's high value-to-weight ratio compared to, say, silver. The grey metal more often travels by sea and truck.
Here in 2022 however, and against the 5 cents per ounce which an importer in India might typically pay to book silver onto a ship, dealers are now rushing to pay 25 cents per ounce to fly silver straight into Mumbai, Chennai or Ahmedabad. And rushing is the word. Because instead of waiting 4 weeks for silver by seafreight, they want it in 2 days by air.
You can see why in this chart from Brink's excellent presentation...
Chart of global silver flows, ex-London, 2018-2022. Source: Brink's at LBMA 2022
Why is silver literally flying into India today?
Instead of the usual 5-6,000 tonnes, 2022 full-year imports will total at least 10,000 tonnes.
That's due in part to compression of demand following the Covid lockdowns. India even saw exports of silver in 2021 thanks to weak consumer buying.
Here today, the rebound following re-opening has not yet abated, with the relative high price of gold in Rupee terms spurring fresh substitution into silver for weddings, gifts, personal purchases and temple donations.
Much of India looks set for a decent harvest this year too, boosting rural incomes and accompanied by government incentive schemes driving more income-growth and therefore discretionary spending.
Against that, note that India's silver demand is elastic to price. So let's see what happens, as one senior executive said on the LBMA global flows panel this week, when silver prices rise.
That price sensitivity also means demand and therefore the current premiums would likely vanish on a price spike. But for supply, silver isn't like gold in India. There are fewer players due to shipping times, extra handling, and all the other frictions which the lighter and less valuable metal brings. 
Dislocations in global silver supply chains are also likely to continue into 2023, the LBMA panellists said, not least because China's strong domestic demand for the metal is curbing outflows from that major supplier to the rest of world.
Bottom line?
All in all, I would say the LBMA/LPPM conference was split over price direction, both for gold and silver, because of who works where in which part of the supply chain.
And that, as ever, comes down to the form and location of the metal you're handling.
If you run a coin shop in the States or Germany right now, this year is proving a real bull market.
But for your customers? Not so much...
...because they are paying record premiums which they will not and cannot get back when they sell.
2022 is also far from a bull market for the miners and large-bar traders who ultimately supply the metal in those coins and small retail bars as well.
But the reality is, as the expert panel discussing global bullion flows at LBMA 2022 agreed this week, that coins and bars have very little impact on underlying bullion pricing.
Or put another way, the futures and large-bar market isn't representative of physical fabricated demand. And the ultimate buyers in those fabricated-product markets – most notably silver coin buyers – are not enjoying anything like a profitable bull market either.
It just feels that way if you rush into paying twice the bullion price for a 1-ounce silver coin with no hope of getting that back when you sell. 

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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