ilver prices are at their peak and look as though they are going to go higher, once this period of consolidation is out of the way.   Silver prices have risen steadily over the years alongside gold despite there being both a surplus and government selling of stockpiles.   When we hear reports that the surplus for 2008 will be over 7,000 tonnes eyebrows rise as we see prices continue to rise.   However, other surplus projections are as low as 700 tonnes, which is more consistent with the silver price moves.   If the surplus is so high, then why is the silver price rising?   This tells us that it is far lower and far more difficult to access than one thinks.   Why?

The prime overall reason is that statistics may show these figures but are these amounts available in the market place?   The surplus is an overall figure that may or may not reach the marketplace.   The surplus, whatever it is will appear steadily over the year, not at any one time such as the start point.   The current silver price tells us that silver is not available over and above current market demand, or the silver price would not be rising.   At best the full real picture of the silver market is nigh on impossible to quantify accurately.  How much silver will come off tables and go down to a scrap merchant, then to the refinery and then to the market cannot be measured.  And there are many other such obstacles that may surprise one. 

Take the situation in India, where the silver market, we are told, is nearly dying.   There are huge volumes of silver bought over time there, so why doesn’t it leave the homes in which it is kept and travel to the market?  Once there why don’t merchants then take it in at the prices they offer, parcel it up and ship it to the international markets to get the apparent profit?

In India, the main buyers of silver and gold [70%] are rural people, who do not suffer income tax on their farming income.   When they sell their produce they are paid cash and don’t generally have a bank account.   Rather than keep this paper medium of exchange in their house they take the money and buy gold and silver for cash, which then make up their savings.   Over the last few years the rising prices of the two precious metals has confirmed the wisdom of such policies.

However, should the need arise for them to sell their gold and silver, they approach their dealer.   When he buys, he has to report the transaction “officially” and pay purchase tax, which is enormous relative to his profits.   He also would have to expose his complete business to the authorities, whose reputation is more than poor.   Should he then want to export this purchased metal, he needs to reflect the metal in his accounts and confirm purchase tax has been paid.   With a similar aversion to tax as one has to the plague, dealers buy such scrap for cash and hoard it in their own private invisible stores.   Then out of the sight of Indian authorities again, he will hedge his long position on the international exchanges through a short position, matching the long position he has, thus removing the price risk on the metal, again in a secretive manner.

Remarkably then NO gold or silver is exported from India, despite this invisible surplus.   The only sign of it is in the short positions [Commercial] on international exchanges.

This helps us to appreciate that there is little need to invest through Indian gold or silver Exchange Traded Funds, hence their poor performance.   Hoarding of gold and silver in India is huge proven by the fact that none is exported, perhaps more than the tonnages held in non-Indian Exchange Traded Funds?

“There will be no exports of silver from India!”

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