In December, I made public an article discussing the
short position in the big silver ETF, SLV. At that time, the short position
in SLV shares was in excess of 25 million shares and would run up to 26.6 million
shares by mid-January. I hold that the shorting of shares in SLV is both
fraudulent to shareholders of SLV and is manipulative to the price of silver.
That’s because shorted shares of SLV do not result in physical silver
being deposited into the Trust and leave the Trust, effectively, with shares
not backed by metal to the extent of the short interest. (There is supposed
to be one ounce of silver deposited for every share issued according to the
prospectus and short selling circumvents that requirement.) Because physical
silver is not bought and deposited on shorted SLV shares, the normal price
impact of more demand on the physical silver market is also circumvented.
That constitutes price
As a result of many of you writing to the sponsor of
SLV, BlackRock, there were a number of
consequences. For one, as previously mentioned to subscribers, within days of
the publication of the article, lawyers representing BlackRock
demanded, in no uncertain terms, that I cease what they claimed was
defamation of their client and my publication of email addresses of top
officers. More importantly, another consequence may have revealed itself late
last week with the release of short interest data as of Jan 31. The new
report indicated that the short position in SLV plunged by more than 35%, or
by more than 9.4 million shares, from 26.6 million to under 17.2 million.
This is the lowest level of shares held short in SLV in almost a year. The
number of shorted shares in SLV is still too high, at over 5.3% of all
outstanding shares issued, but at its peak last spring, the shorted shares
represented more than 12% of total shares outstanding.
The timeline on all this suggests that the most
plausible explanation, at this point, is that BlackRock
or someone in position to influence the SLV shorts to reduce their short
position, did exert such influence. The sudden reduction in the short
position came as prices were rising strongly, something not witnessed
previously and also suggestive of an outside influence. Certainly, big future
increases in the SLV short position will negate the explanation that BlackRock saw the merits of the allegations against the
shorting of SLV and moved to curtail it. For now, however, it looks like the
short covering in shares of SLV is as it appears, namely, as a result of the
matter being brought to BlackRock’s attention
and them acting on it. Thanks to all who took the time to write in.
Potentially, this could be a big deal in silver.
Unlimited shorting in hard metal ETFs can have a very negative influence on
the price of silver. At two previous significant tops in the silver price, in
2008 and 2011, the short position in SLV was at record high levels. I believe
these record short positions in SLV were a strong influence in the price of
silver breaking badly on both occasions. Eliminating and then preventing
excessive short positions in SLV in the future will eliminate the incentive
of large short sellers to rig prices lower and insure that SLV shares are issued
in accordance with the terms of the prospectus and have real metal backing.
This is not my first initiative in attempting to
influence how the SLV is run. As a silver analyst, the Trust is an important
factor in the silver market since it is the world’s leading silver
investment vehicle and the largest single stockpile of silver on the planet.
Not to focus on it would be a mistake. Back at the end of 2007, after the SLV
had been trading for a year and a half, I asked you to write to Barclays (then
the sponsor of the Trust) and ask them to publish the list of serial numbers,
weights and hallmarks for the bars that were held in the Trust. Up until that
time, I had made a big deal about holding silver in professional storage only
if you had the serial numbers and weights of every 1000 oz
bar held for you. It seemed only fair that the SLV be held to the same
Within a couple of months, much to their credit,
Barclays agreed that the full bar list would be published and updated
regularly. I believe to this day that only because so many of you wrote to
them and because it was a simple and constructive suggestion that aided
Barclays and SLV shareholders that Barclays quickly agreed to the listing the
Just like was the case with Barclays, it’s only
fair for a tip of the hat in BlackRock’s
direction for any possible involvement by them in the reduction in the SLV
short position. Let’s hope it lasts. Let’s also hope that the
CFTC follows through and finishes their silver investigation soon. In the
meantime, it’s important to recognize that sometimes we succeed in
trying to bring about change and that bodes well for the future.
For subscription info, please go to www.butlerresearch.com