this is from gene arensberg's latest report, analyzing the silver market. the charts are available if you follow the link at the bottom:

SLV Metal Holdings

Silver turned in a short-term bearish outside week with a slightly higher high ($14.63 Monday), a lower low ($12.85 late Friday) before settling for a near-low Friday last trade of $13.11 on the cash market (see the silver chart linked below). For the week, metal holdings for Barclay’s iShares Silver Trust [SLV], the U.S. silver ETF, added a net 30.68 tonnes of new silver, to show 8,057.79 tonnes of silver metal held for its investors by custodians in London.

SLV actually began the week by adding another 153.35 tonnes of silver, up to 8,180.46 tonnes, (almost all of the amount of silver JP Morgan Chase London has contracted to store as Custodian for the trust), but the sell-down in silver produced an increase in selling pressure on the silver ETF long enough and strong enough that the authorized market participants saw fit to reduce the float and the amount of silver holdings by 122.67 tonnes Friday 2/27.

Despite that last minute sale of silver, we can conclude that for all of 2009 so far, buying pressure has dominated selling pressure as SLV has added a staggering net 1,264.8 tonnes of silver to its allocated silver bar hoard in London.

Indeed, the past two months have seen more buying pressure for SLV than any other two month period since the inception of the trust in 2006. A lot more.

SLV Custodian Shopping?

Incidentally, as of February 27, 2009, SLV reported its custodian, JP Morgan Chase London, as holding a total of 259,063,966.9 ounces of allocated silver, which is just 5,486,298.1 ounces (about 171 tonnes) shy of the total amount JPM London has contracted to store for SLV under the current custodian agreement. So far, SLV has not yet announced either an increase in the amount of silver “storage” under the present custodian agreement or announced the name of another custodian to allow for more silver storage.

We’ll be keeping an eye out for filings along those lines daily going forward. There is probably ample silver still available for ETF allocation purposes in London from one or more of the eight or so London Bullion Market Association (LBMA) member dealers and their customers holding large physical hoards in LBMA member metal warehouses, but with over 8,000 tonnes (about 260,000 bars) already put away by SLV alone, it might not be all that long before the heavy, bulky, average 1,000-ounce silver London Good Delivery Bars get more difficult to source by investor ETFs. Depending on which estimates one chooses to use, SLV already controls a significant percentage, perhaps approaching or already in the low double digits percentage wise, of all the investment silver bars available in London.

While no one knows at what point this collective investor and ETF silver hoarding would reach supply chain “critical mass,” we certainly can conclude that as of February, global silver ETFs now hold an amount of silver metal that is larger than some fairly popular analysts (with large subscriber lists) thought possible just a few years ago. So perhaps we have gotten a little closer to the time when actual (as opposed to wished-for) shortages might be felt in the commercial, OTC and silver futures markets. That is unless the price of the metal rises enough to coax more real silver out of private-hands hiding.

In case that wasn’t crystal clear, what we are suggesting is that the acceleration of investor participation in world silver ETFs is gobbling up a bunch of the world’s “static inventory” of investment silver. From the same diminishing source of silver metal that has been satisfying a consistent production-consumption deficit for decades.

If investor demand continues growing at anywhere near the current pace, or even at half of the current pace for very long, the word could get out in the financial media there is a potential for a true silver shortage. Not just a shortage of bullion coins, 90% junk silver coins, bullion rounds and small bars (which are already in short supply), but a bona fide worldwide shortage of the “heavies,” the big bars used in OTC commercial trade, futures and ETF storage.

If that kind of news does surface, then we can look for rapid contraction of the gold:silver ratio which remains elevated in the low 70s.

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