If the price of silver were based directly on the real physical silver market, silver’s price should be at $5,000 an ounce. I’m not saying the price of silver will reach $5,000 an ounce; I’m just saying that the actual PHYSICAL silver spot price is not only extremely undervalued, but that it is an illusion compared to the real value of an ounce of physical silver, since it is totally disconnected from reality. [Let me explain further.]
By Fabrice Drouin Ristori (goldbroker.com) as originally entitled The Paper Silver Market is 250 Times the Size of the Physical Silver Market.
…[A price of $5,000] may seem totally crazy, but who can pretend knowing exactly how an ounce of silver is worth, after decades of manipulation and turning real investors’ demand from the physical market to the paper one, and years of exponential monetary printing by all the planet’s central banks?
The Physical vs. Paper Market Difference
The actual spot price for silver has no real value and is not legitimate when we seriously compare the real physical silver market to the paper market and its myriad of financial derivatives.
- [According to an] article by Bloomberg, which has always been a reliable source with their published data, the size of the global annual silver market is equal to $5 trillion…
- [According to a recent interview with] David Morgan…the annual physical silver production is roughly one billion ounces.
- With silver trading around $20 currently, this represents a $20 billion market for physical silver so the size of the physical silver market is of $20 billion.
[The difference between the $5 trillion & the $20 billion number is that]… Bloomberg’s $5 trillion number represent the entirety of the paper silver market, including all paper financial products (certificates, options, ETFs etc.) derived from the real physical market…[that allows] investors to be exposed to silver.
The 250:1 Leverage
[The above discrepancy]…makes for a 250 to 1 ratio between the paper market and the physical silver market…meaning that, for every ounce of physical silver, there are 250 ounces of paper silver circulating in several financial products. In other words, only one contract or certificate issued out of 250 could be convertible into physical silver…[that is,] the silver market is being leveraged 250 to 1.
(The multiplication of those financial products on silver has skirted investors’ demand from the real physical market, thus creating a virtual silver supply without putting any pressure on the physical silver market. A roundabout way of keeping the price low.)
If now, as the regulation agencies are claiming, the goal is to create a new fixing for silver that would better reflect the physical market (notably from pressure coming from countries, like China, wishing to have their say in the fixing of precious metals prices), the leverage between paper silver and physical silver is at risk of radically evolving.
Let’s hypothesize what the silver price would be directly based on the physical silver market:
- Today, the actual size of the silver market is, according to Bloomberg, of $5 trillion.
- $5 trillion divided by 20 billion (physical market) = 250
- 250 X $20 (silver spot price) = $5,000 an ounce
Every investor holding silver in the form of financial products, without the possibility of verifying the physical existence of their investment, should ask the question as to what will happen when more holders of said products will ask for physical delivery. (In reality, we already know what will happen, because one of the large banks from the Netherlands, ABN-AMRO, already defaulted, a little more than a year ago, on its gold certificates by settling customers in cash.)
[The above article is presented by Lorimer Wilson, editor of www.munKNEE.com and the FREE Market Intelligence Report newsletter (sample here) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. This paragraph must be included in any article re-posting to avoid copyright infringement.]
*https://www.goldbroker.com/en/news/paper-silver-market-250-times-size-physical-silver-market-526 (GoldBroker.com © 2011-2014; All rights reserved )
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