Jeff looks at some trends in silver supply and common misperceptions surrounding the gold and silver markets. He breaks down recent claims about deficits in silver, and explains how investor behavior and unreported inventories play a crucial role in meeting demand. Jeff then provides an update on gold and silver prices, highlighting key economic and political factors driving the markets including tariff policies, economic growth data, and upcoming futures contract rollovers.
Silver Supplies
Unreported Inventories and Deficits
- Investor Holdings: CPM Group tracks both reported silver inventories (e.g., coins, ETFs) and unreported bullion bars. Historically, significant volumes of silver—potentially several billion ounces—are held in private and institutional hands but remain off public radars.
- Why Deficits Aren’t Always True Deficits: Though fabrication demand (for electronics, jewelry, etc.) may outpace newly mined and recycled silver in some calculations, large unreported investor holdings frequently bridge the gap. This means the market can appear to be in a “deficit,” yet there is ample supply when owners decide to sell.
Shift from Bars to Coins and ETFs
- From the mid-1980s onward, investors often moved from large bullion bars to official coins and, later, ETFs. Reasons include:
- Ease of Sale: Selling smaller coins can be simpler and less reportable than selling large, high-value bars.
- Storage & Security: Precious metals in coin form or via ETFs can be easier to hold and trade without the logistical headaches of storing and liquidating hefty 1,000-ounce bars.
Central Banks and Government Purchases
Are Central Banks Buying Silver?
- While central banks buy gold for monetary reserves, silver is generally not considered a modern monetary reserve asset due to its smaller market size, higher price volatility, and lower liquidity compared to gold.
- In certain countries, central banks facilitate silver sales for government agencies or private companies, but this is typically a market-making function, not a strategic reserve-building effort.
Gold Holdings in Global Vaults
- Christian clarified that rumors of gold shortages at places like the Bank of England often stem from logistical bottlenecks—small vault doors, security checks, etc.—rather than any true scarcity of the metal.
- The price of gold may temporarily rise or fall due to delivery delays, but significant gold reserves remain available worldwide, including in central bank vaults and private depositories.
Economic Indicators Affecting Precious Metals
GDP Growth and Inflation Outlook
- Strong GDP can influence interest rates and inflation, both of which affect silver vs gold value by shifting investment demand.
- With potential policy changes—like tariffs—there is an added risk of inflation, boosting the appeal of precious metals as safe havens.
Arbitrage Opportunities
- Investors track global spreads between London and New York gold prices. If buying gold in one market and selling it in another yields a quick profit, metal flows naturally follow. This arbitrage corrects local supply-demand mismatches rather than signaling an actual shortage.
Price Outlook: Gold and Silver
Gold Price Drivers
- Heightened political and economic uncertainties (stock market volatility, rising debts, potential inflation) are attracting more investors to buy gold.
- In early 2025, gold briefly surpassed $2,800 per ounce—illustrating how external shocks and contract rolls (like COMEX deliveries) can push the market higher.
Silver Price Drivers
- March Delivery Factors: February is not a major silver delivery month, but as March contracts approach settlement, speculative and investment buying can lift silver prices.
- Potential for Gains: CPM Group sees silver in the mid-$30 range as feasible if investor sentiment remains strong. However, investor buying and selling from abundant, unreported silver holdings can moderate or amplify any price surges.
Call Monex today (800) 453-2924 or visit them online at www.Monex.com and learn why they have been a trusted name in precious metals investing for over 50 years.
