if there is one thing stockhouse is good for, it is posting gene arensberg's report, if only in abbreviated form. he notes that if the custodian does not add more silver, slv could trade at a premium to the spot price.

(that is surely not what barclays and jp morgan had in mind, so i have no doubt they'll find a way around it.)

SLV Metal Holdings

Believe it or not, even though it lost ground for the week, silver actually turned in a slightly higher high ($13.91) and a considerably higher low ($12.97) as it held onto chart real estate just above the popular 50-day moving average. Speaking of the 50-dma, it is currently crossing back above the 200-dma for the first time since last August, an event known in technical circles as a “golden cross.” Silver closed the week on a less than enthusiastic dip with a last Friday 3/27 trade of $13.33 on the cash market. (See the silver chart linked below).

Investors apparently chose to buy the dip in silver more than not. For the week metal holdings for Barclay’s iShares Silver Trust [SLV], the U.S. silver ETF, rose another 116.49 tonnes to show a new record 8,296.93 tonnes of silver metal held for its investors by custodians in London. SLV reported adding 282.07 tonnes the prior week.

Like GLD, the authorized market participants (AMPs) for SLV add shares to the float and increase the amount of silver held (in minimum basket amounts of 50,000 shares) to answer imbalances of buying pressure over selling pressure. So, we know that when the amount of silver being held increases, buying pressure is prevailing. The opposite is true when selling pressure overwhelms buying pressure.

Clearly there continues to be net positive money flow into the silver ETF, which now holds silver worth a little over $3.5 billion, roughly 10.5% of GLD gold holdings. Although perhaps a little choppy from time to time, it really isn’t hard to discern the trend for SLV metal holdings over the past year in the chart above. Even if the trend for the metal itself is more opaque. Investors want more silver.

Still no new custodian for SLV

As of Friday, March 27, SLV still had not filed an amendment with the SEC either naming an additional custodian or increasing the amount of silver storage available under the current custodian agreement with JP Morgan Chase London.

Repeating from the last Got Gold Report: “We remain vigilant, because there is very little “room” under the current custodian agreement for SLV to add additional silver as we reported in the last Got Gold Report. There is no doubt ample silver available in London (for now) from one of the other London Bullion Market Association (LBMA) members with large metal holdings in London warehouses, but so far we don’t know whom SLV will name as the additional custodian or sub-custodian and we don’t know how much silver “storage” that new custodian will be able to provide.”

As of this past week, the amount of silver being held by the SLV custodian actually exceeded the amount of silver foreseen in the current custodian agreement, yet the sponsor of SLV, Barclays, has yet to announce any additional storage capacity to the existing agreement or a new custodian.

The details are in previous Got Gold Reports, but briefly, SLV reported holding 266,752,671.5 ounces of silver as of March 27. The current custodian agreement was for up to 264,550,265 ounces. So SLV now holds 2,202,405.5 ounces, or about 68.5 tonnes more silver than the current custodian agreement covered.

News reports surfaced again this past week that Barclays might be in the final stages of a sale of its iShares division to, among others, Goldman Sachs. While we will await further developments before commenting on that potential change, we sincerely doubt that a pending sale of iShares by Barclays is the holdup for SLV to announce additional silver storage capacity.

In order for SLV to continue to accurately mirror the spot market for silver, its AMPs simply must have the flexibility and opportunity to take advantage of the NAV-SLV share price spread arbitrage, which makes the ETF work. SLV has tracked in lock step with the spot price of silver flawlessly so far, but without the ability to add more silver, and if buying pressure for SLV continues to prevail over selling pressure, the large U.S. silver ETF could face a condition where the shares would trade at a premium to spot silver. Therefore, an expansion of the current silver storage arrangement or another custodian or sub-custodian is almost certainly to be announced by SLV imminently.

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