Friday, July 22, 2011

Paper Silver Vs. Physical Silver

I often discuss the difference between the "paper" silver market and the "physical" silver market.  The following goes through a real time trading event this week that provides an example of how large the paper market is compared to the physical. (If and when there is a rush for physical metal it would be an enormous game of musical chairs with very few places to sit down)

From Tuesday trading this week.....

This man had a live stream from the Commercial Mercantile Exchange (COMEX) for the minute by minute trades. Silver contracts were selling higher and at about 1:40PM they started to sell off for no reason. Then at 2:03PM there was a trade for 50,000 contracts of silver sold. (This would lead anyone to conclude that the sale was known 23 minutes before it occurred.) This is not a typo -- 50,000 contracts in one minute! Each contract is for 5,000 ounces of silver. So if we do the math 50,000 contracts by 5,000 ounces per contract equals 250,000,000 ounces of paper silver contracts. If we do some further math and we multiply 250,000,000 contracts by the proxy price of silver yesterday, which was $40.00 per ounce, then that trade was for 10 billion dollars in one minute.

I'll this one step further. According to Jason Hommel writing on behalf of the US Mint, the amount of silver produced per year in the entire world is roughly around 680 million ounces and the amount mined in the US last year was 50 million ounces. The amount that was traded on the CME on Tuesday was approximately one third of all of the silver mined in the world. It was 5 times the amount mined in America.

Source: Minyanville

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