The London Bullion Market Association (LBMA) has just published a new report titled “Silver Investment 2021: Report” which looks at recent developments in the investment silver sector.

While it’s not clear who actually wrote the report, as no author is specified, the LBMA states that it “acknowledges Metals Focus’ contribution to this report” so we can assume Metals Focus actually wrote it or was heavily involved. Metals Focus is a precious metals consultancy based in London, which also at times, writes the Silver Institute’s annual World Silver Survey.

That the LBMA has decided to publish a specific report on investment silver at this time is notable in itself (as it hasn’t published this type of distinct report in the past), but beyond this, the report itself is worth reviewing for what it says, as much as what it leaves out.

Pitched as a “Spotlight on Silver Investment, a report which explores the key developments in silver investment over the last 12-18 months”, the LBMA report (which is quite short at 15 pages) focuses on recent trends in demand for silver Exchange-Traded Products (ETPs), silver coins and bars, and the in silver futures market. It also surprisingly mentions the #Silver Squeeze in great detail, which is refers to the “much-publicised social media campaigns” and a “social media buying frenzy” of silver bars and coins, and silver ETPs.

The report begins by commenting that “the past 12-18 months have witnessed some incredible developments in the silver investment market, including a dramatic improvement in investor activity”, and that the combined demand from silver bars, coins, ETPs and futures positioning rose by about 20% in 2020, with the growth in this trend carrying over into the first quarter of 2021.

Exchange Traded Products (ETPs) / Exchange Traded Funds (ETFs)

In chapter 2 on silver ETPs (more commonly called ETFs), the LBMA report notes that silver ETF holdings reached a record high on 1.2 billion ozs in early February 2021, and that London is the world’s largest storage centre for ETF silver, calculating that 725 million ozs is held on behalf of silver ETF’s such as the iShares Silver Trust (SLV) by LBMA custodians in London (the custodians being JP Morgan and HSBC and their sub-custodians Brinks, Malca-Amit and Loomis).

Surprisingly, the LBMA report acknowledges that strong inflows into silver-backed ETFs in late January and early February, if they had persisted, could have led to the LBMA London vaults running out of acceptable (good delivery) silver bars for the ETFs. The LBMA report states that:

“Early 2021 saw an unprecedented 110Moz added in just three days. Although some liquidations emerged, there were concerns that London would run out of silver if ETP demand remained at a high level.”

and

“this year, the location of the custodial vaults has come into sharper focus as ETP demand has jumped, leading to concerns about the potential availability of metal.”

This is something I had highlighted in a BullionStar article on 8 February titled “Houston, we have a Problem”: 85% of Silver in London already held by ETFs” which concluded that:

“A few more days of inflows like the ones seen over 29 January to 2 February would be a major emergency for these ETF providers, particularly the iShares SLV. Because there is just not that much physical silver left in the vaults of JP Morgan, Brinks, Malca-Amit, Loomis and HSBC, which is not already reported as being in these ETFs.”

Back to the LBMA report, which continues:

“As the social media frenzy gathered pace in late January, demand for coins, bars and ETPs all jumped. For the latter, global holdings surged by 119 mn ozs in just three days. This was concentrated in the iShares fund (SLV), where holdings rose by 110 mn ozs. Given that most of this metal was allocated in London, fears emerged as to whether there was enough silver should demand continue at this pace.”

What the LBMA report fails to mention though is that this extra silver (3,416.11 tonnes in the form of 113,501 Good Delivery silver bars) could only be added to SLV over those 3 days by SLV’s custodian JP Morgan frantically tapping into silver bars which it claimed to have secured in 5 vaults all over London, namely Brinks vault in Premier Park London, Loomis London vault near Heathrow, Brinks Unit 7 vault Radius Park near Heathrow, Malca Amit London vault, and JP Morgan’s own London vault.

More importantly, the LBMA / Metals Focus report also fails to mention that concerns about a lack of silver in London were so great that the iShares Silver Trust (SLV) actually changed its prospectus in early February, adding the wording that:

“The demand for silver may temporarily exceed available supply that is acceptable for delivery to the Trust, which may adversely affect an investment in the Shares.

… It is possible that Authorized Participants may be unable to acquire sufficient silver that is acceptable for delivery to the Trust” 

Luckily, I did mention the SLV prospectus amendment it in an article titled “#SilverSqueeze hits London as SLV warns of Limited Available Silver Supply” from 14 February.

The LBMA / Metals Focus report goes on to say that:

“had demand in iShares continued at the frenetic rate of late-January/early February it would only have been a matter of weeks before London’s existing stock was used up.

While it would have been surprising to see ETP demand maintain this pace of buying, the concerns were still very real.

This reflects both the time required for a refinery to convert non-Good Delivery (GDL) material into 1,000oz bars approved by LBMA as Good Delivery and then delivery of this by sea freight into London.”

If the above sounds like too much honesty from the bullion bank LBMA, you are not alone in thinking so. Perhaps no one from the LBMA read the Metals Focus draft of the report before they hit publish. Its a far cry from the bullion bank apologists of the silver market, for example see here and here. who said that there was no shortage of silver in the London market.

Its also interesting to see from the above quote, that silver, since it is bulky, is not transported by air but by container truck when moving within a Continent such as Europe, and by sea, when moving between continents or to an island nation such as Britain. Silver enters London via container ports located in  the terminal ports to the east of London.

 A section of the LBMA report also looks at identifiable global above ground silver stocks, commenting that “the recent jump in ETP demand has led to fears as to whether there are sufficient above-ground bullion stocks, should ETP holdings see a further sharp increase”

But, are there sufficient above-ground bullion stocks, that could be called upon by the ETFs?

LBMA / Metals Focus more or less say no, stating that:

• “there is a gulf between the total of silver above-ground stocks and the portion which can be quickly allocated against ETPs.”
• “Even though above-ground stocks are difficult to pin down, there is no doubt that bullion stocks account for a small share of the total.”
• The biggest identifiable silver holdings are held in London, COMEX [New York] and Chinese approved vaults, which at the end of 2020, stood at a combined 1.694 bn ozs of silver.

It’s interesting that the point about the 1000 oz silver bar market being far smaller than the above ground stock of silver is a point which exactly concurs with what was described by David Morgan in an interview which he recently did for BullionStar Perspectives. See relevant section of that interview video here.

But how much of these identifiable silver holdings in London, COMEX [New York] and Chinese vaults are actually available to ETFs? The LBMA report would have you believe that the answer is ‘a lot’. But is this really the case?

Regarding identifiable silver holdings held in London, the LBMA has just published its latest London vault holdings data, claiming that at the end of March there were 1.249 bn ozs (38,859 tonnes) of silver held in the London LBMA vaults. This data is then referenced in the new LBMA / Metals Focus report.

Putting aside the fact that this was a massive 11% increase on the amount of silver that the LBMA claimed was stored in the London vaults as of the end of February, and that none of these claims are verifiable and none of the claimed silver is independently physically audited in real time, Metals Focus calculates that 725 mn ozs (or 58%) of this London silver was held by ETFs at that time.

The LBMA report says that this ETF silver in London is held by “ten ETP funds”. Its unclear how LBMA / Metals Focus arrived at the figure of 10 ETFs, since there are actually 14 of these ETFs. See here for details. These ETFs are iShares SLV and SSLN, Wisdomtree PHAG and PHPP, Invesco SSLV, Aberdeen Standard SIVR and GLTR, ETF Securities‘ PMAG and PMPM, and five Deutsche Bank XTrackers ETFs. Perhaps they are counting all the XTrackers as one.

 

LBMA / Metals Focus also fail to account for the silver held in London LBMA vaults by GoldMoney and Bullion Vault, which together store about 690 tonnes in total. This silver is not available to ETFs. Nor is the allocated silver holdings held in LBMA London vaults by investment institutions, family offices and High Net Worth individuals. And finally, the elephant in the room, the LBMA report does not acknowledge the massive outstanding unallocated silver positions which are claims against the bullion banks for silver which they have not got but would have to try to allocate from stocks of silver that are in the LBMA London vaults, if unallocated silver holders requested allocation.

Regarding the COMEX approved silver inventories in New York (combined registered and eligible categories), the LBMA report says that there was a total of 393 mn ozs of silver in those vaults at the end of February, but concedes that of this total, over a quarter represents silver bars held by the SLV in JP Morgan’s vault in New York. This is something I first explained in the “Houston, we have a Problem” article in early February. See section ‘A Note about SLV and COMEX’ here.

LBMA also fails to mention that a lot of other eligible silver in the COMEX vaults in New York may have nothing to do with COMEX trading. The CME have already gone on record to explain to the CFTC regulator that in the case of ‘Eligible Gold” in COMEX vaults, this is the case. It is also the case with silver to some extent.

Regarding China, the LBMA report says that as of the end of 2020, the Shanghai Gold Exchange (SGE) held 130 mn ozs of silver bullion stocks, and the Shanghai Futures Exchange (SHFE) held 89 mn ozs. None of these SGE and SHFE silver stocks are related to ETP holdings, but they are stocks which are used in SGE and SHFE trading and can be quickly withdrawn into the Chinese silver market.

Excluding LBMA London, COMEX and China, the report says that “silver bullion stocks that exist elsewhere and are in a deliverable form (specifically LBMA or COMEX Good Delivery compliant) appear extremely modest.”

These other locations would be, according to the LBMA report a) India, where some bonded warehouses hold good delivery silver bars, but these are for the local market, and rarely flow back to London, and b) Switzerland, which apart from silver allocated to Swiss silver ETFs, stores little other silver holdings.

LBMA / Metals Focus go on to suggest that it’s possible to add both the silver in the London LBMA vaults to all the silver held in COMEX, and view them as a combined pool of available silver for the ETFs. The report says:

“Another way to view this is to look at combined Comex/LBMA holdings, which at end-February were 1,518 mn ozs. ETPs vaulted in these locations stood at 880 mn ozs, which meant that 42%, or 638 mn ozs was in theory immediately available to meet new silver ETP demand.”

But this is wrong. Why? Because silver not currently in ETFs is not necessarily available to ETFs, and besides, ETFs which hold their silver in London cannot hold silver in New York (apart from SLV). Its against their prospectus rules.

This, however, doesn’t stop the LBMA report from sweeping the problem under the carpet by concluding that “the pool of available metal should be sufficient, for the foreseeable future at least, to meet new ETP demand.”

Although in the next sentence they seem concerned about the potential lack of supply as they continue that “this also pre-supposes there is no repeat of the social media frenzy.” Note to LBMA – the social media frenzy is still on, and by being worried about it, it will now only get more frenzied.

There then follows a bizarre line in the report which says – “Should this occur [repeated frenzy], higher prices would almost certainly be triggered, which would be met by heavy selling.” We therefore have to ask, “heavy selling” from who? The bullion bank members of the LBMA no doubt?

Retail Market

Chapter 3 of the LBMA report discusses the retail silver market. Briefly, some highlights from Chapter 3 are as follows (quotes from the report are in italics):

• Retail investment in silver (coins and bar demand) recovered in 2020 and into 2021
• The [retail] sector then burst into life this year, initially as a social media buying frenzy emerged
• The industry was quickly beset with product shortages, in part due to logistical restrictions
• While social media discussions have abated, silver coin and bar demand has remained extremely strong, especially in the US
• Ongoing strength in the US coin and bar market, which also reflects some supply issues, extended product delivery lead times and premiums

First some corrections to the above. Product shortages primarily arose due to huge demand, not logistical restrictions. And, if the LBMA / Metals Focus is not aware of it, ‘social media discussions have not abated.’ Far from it. Just look at Twitter and Reddit.

This doesn’t stop the report condescendingly referring to ”the recent, if short-lived, social media phenomenon surrounding silver that emerged in the US in late-January this year and what legacy, if any, it leaves behind.”

• Global retail investment in silver coins and bars in 2020 is estimated to have exceeded 200 mn ozs for the first time in four years. This was the result of higher demand in the US and Germany, while purchases in India weakened sharply.
• Over the past decade, the US has been the largest retail investment market in all but two years (2018-19), when purchases fell sharply
• During 2018-19, India occupied top spot, with retail investment in each year exceeding 50 mn ozs. ..In general, Indian demand has typically benefited from strong silver price expectations, with many viewing silver as being undervalued. This has often led to a surge in investment when prices have fallen.
• In India, high net worth individuals tend to purchase large silver bars, such as 5kg, 15kg and 30kg bars. Others are consumers and investors who buy small-minted bars
• Germany completes the top-three listing and has only emerged as a prominent market for silver bars and coins over the past two years.

 

Social Media Storm

There then follows an entire section of the LBMA report titled ‘The Social Media Storm”, which begins:

“The events of late January/early February this year have almost become folklore in the silver market. It is worth recalling how this emerged and its impact on retail buying even after the social media storm faded.”

For obvious reasons, the LBMA would like to have people believe that the #silverSqueeze has faded. If anyone wants to check on Twitter and Reddit, they will, however, see that this is not the case. The LBMA / Metals Focus then show their hand by dismissing the existence of a bullion bank short position in silver.

“Buoyed by this success, social media discussions soon focused on silver, and in particular longheld conspiracies that financial institutions were holding significant short positions.“

Not content with hurling conspiracy theory accusations against anyone mentioning the Wall St silver short position, while trying to pretend the frenzy has faded, the LBMA report then doubles down, referring again to both in the same sentence:

“Although the silver price achieved a six-year high of $30.10, the social media frenzy quickly faded – dynamics in the silver market are quite different to those behind the GameStop trade. In essence, there were no massive short positions in silver to force out.

But then the social media frenzy was seemingly back:

“As the social media frenzy was picked up by the mainstream media, silver benefited from widespread news coverage, particularly in the US.”

“As dealer inventories were depleted the emphasis shifted to silver coin and bar manufacturers. Although many fabricators quickly ramped up production, three issues emerged –

a) lockdown restrictions affected how much the manufacturers could respond to the jump in demand, c) the increase in retail sales was so great that delivery lead times grew, ..added to concerns about a shortage of silver, which further boosted sales, c) US Mint gold and silver Eagle coin minting scaled back due to switch of production to new design.”

“As a result, February and March 2021 have seen retail silver investment demand remain exceptionally strong in the US.”

Finally, the LBMA / Metals Focus report also notes it does not see recent inflows into silver ETPs as competing with the demand for silver bars and silver coins, as the retail investors are new buyers with a different profile to physical silver stackers:

“[Silver] ETPs have attracted a large swathe of new buyers, including those active in the stock market who might not have previously bought precious metals. As a result, there appears to be little sign of an adverse impact on physical investment by the success of silver ETPs.

Conclusion

This new silver report published by the LBMA is indeed a strange report, discussing as it does the fact that if inflows into SLV and the other ETFs had continued , “it would only have been a matter of weeks before London’s existing [silver] stock was used up”. And its a far cry from LBMA CEO Ruth Crowell on 8 February, telling NASDAQ that there were ‘healthy’ silver stocks in London.

Equally strange is the LBMA acknowledging the power of the social media buying frenzy in silver (cue memes of silver back Ape ‘frenzy’). Which would make a good story that the  report was written by Metals Focus, and published by the LBMA intern when the rest of the LBMA staff was out to lunch. Stranger things have happened.

On a serious note, it’s increasingly obvious that those few days in late January and early February when there were huge inflows into SLV and when the silver price hit $30, terrified the powers that be within the bullion banks and within the central banks that the silver market was about to explode. Which is why the silver price was not allowed to rise any further and which is why the CFTC and US Treasury was monitoring the action closely.

It should also give hope to the #SilverSqueeze movement that the LBMA thinks they have ‘faded’ and gone away. Because, as Sun Tzu once said on the art of war,  “Appear weak when you are strong, and strong when you are weak“.

For those who want to read the report, it can be downloaded here.