from Silver Doctors:

The massive capital inflows deluging into silver show no signs of abating. This is very bullish for silver, yet most traders remain unaware…

by Adam Hamilton of Zeal LLC

Silver investment demand is exploding in recent months, skyrocketing higher in wildly-unprecedented fashion!  That has catapulted silver sharply higher since mid-March’s COVID-19-lockdown stock panic.  Accelerating even in this usually-weak summer season, the massive capital inflows deluging into silver show no signs of abating.  This is very bullish for silver, yet most traders remain unaware it is happening.

While silver prices are fairly-widely followed, the data revealing the underlying fundamentals driving this metal is sparse.  The best silver global supply-and-demand data is only published once a year by the venerable Silver Institute in its outstanding World Silver Surveys.  The latest covering 2019 was released in April, and is essential reading for all traders interested in silver.  One key trend is very relevant to today.

Last year global silver demand edged up an ever-so-slight 0.4% to 991.8m ounces worldwide.  Every demand category fell except for two, net physical investment and net investment in exchange-traded funds.  The former rose a respectable 12.3% to 186.1m ounces.  It makes sense investors’ interest in silver should grow with its price climbing 15.3% in 2019.  That translated into far faster growth in silver ETFs.

Global demand for physical silver bullion held in trust for the shareholders of these trading vehicles shot up from -22.3m ounces in 2018 to + 81.7m in 2019!  That was an all-time-record high.  Stock investors are increasingly getting silver exposure through ETFs, which are quick, easy, and cheap to both trade and own.  The Silver Institute tracks the world’s silver ETFs, and one behemoth utterly dominates that space.

As 2020 dawned, the American SLV iShares Silver Trust held 362.6m ounces of silver on behalf of its shareholders.  That commanded an enormous 49.8% of all the silver owned by all the world’s silver ETFs!  Launched way back in April 2006, SLV pioneered silver ETFs and has maintained an insurmountable lead since.  SLV is in a league of its own, with its next-biggest competitor trading in Switzerland running just 11.4%.

Following SLV is exceedingly important for speculators and investors alike, since it acts as a direct conduit for the vast pools of American stock-market capital to slosh into and out of silver.  That happening in a big way really moves silver prices.  SLV’s managers publish its physical-silver-bullion holdings daily, offering a high-resolution near-real-time read on silver investment demand!  And they’ve been skyrocketing.

In an opaque silver world where comprehensive investment data is only available once a year in those World Silver Surveys, SLV’s daily holdings as a proxy for investment demand are invaluable.  Watching how they are trending gives great insights into why silver prices are moving and which direction they are likely heading.  Yet only a small fraction of traders interested in silver seem to regularly watch SLV’s holdings.

Before we delve into silver’s exploding investment demand they reveal, realize how unusually-strong silver’s price action has been.  This chart updated from my summer-doldrums essay a couple weeks ago compares silver’s current performance to how it has fared in past market summers in modern gold-bull years.  Gold dominates silver psychology, making gold’s fortunes silver’s primary driver most of the time.

These lines are individual summers’ silver price action indexed to its final May closes of those particular years.  The red line averages together silver’s performances from the summers of 2001 to 2012 and 2016 to 2019.  Note that silver’s seasonal tendency is to drift sideways during market summers, which tend to be devoid of recurring investment-demand spikes.  The blue line is summer 2020’s indexed silver price action.

During the first half of June, silver was largely drifting lower tracking its normal summer trend.  But in the second half of June and especially July, silver has surged dramatically decoupling from its usual weak seasonals this time of year.  What’s fueling silver’s outsized counter-seasonal gains over the past month or so, and is it sustainable?  The answer to the first question is definitely exploding silver investment demand!

SLV’s skyrocketing holdings since mid-March’s stock panic have been mind-blowing.  Given SLV’s size and dominance of the silver-ETF world, they are the best daily proxy for global silver investment demand.  Understanding why is important.  The iShares Silver Trust’s mission is to mirror the silver price, to give American stock traders easy portfolio exposure to silver.  Tracking ETFs only succeed acting as capital conduits.

The supply and demand for SLV shares is independent from silver’s own.  So if stock traders are buying SLV shares faster than silver itself is being bought, SLV’s share price risks decoupling from silver’s to the upside.  The only way to prevent this ETF from failing its tracking mission is to shunt excess SLV-share demand directly into physical silver.  That equalizes the demand differential between this ETF and the metal.

Mechanically this is accomplished by SLV’s managers issuing sufficient new shares to absorb all excess SLV demand.  Then the capital raised from those share sales is immediately used to buy physical silver bullion that same day.  SLV acts like a channel for American stock-market capital to flow into the global silver market.  Differential SLV-share buying forcing holdings builds reveals rising silver investment demand.

SLV’s capital pipeline between the stock markets and silver naturally works the other way too.  When American stock traders sell SLV shares faster than silver is being sold, this ETF’s price will disconnect from silver’s to the downside.  SLV’s managers have to avert this by buying back enough SLV shares to absorb the excess supply.  They raise the capital to do this by selling some of SLV’s silver-bullion holdings.

So if SLV’s holdings are rising, stock-market capital is flowing into the world silver market.  If they are falling, it is flowing back out.  With that in mind, the following chart is one of the most stunning in the wake of mid-March’s stock panic.  American stock traders, both speculators and investors, have been flooding into silver via SLV shares at a really-unprecedented pace!  Thus silver has bucked its summer doldrums.

Read More @ SilverDoctors.com