this is a long article by gene arensberg, in which he shows that the commercial short position of gold is as small as it has ever been, a bullish sign for the metals. i have extracted a portion that deals with silver and the silver etf:

What we do not see is evidence that investors overwhelmingly wanted out of SLV and silver. What we do not see is evidence to support the theory that there has been more investor selling pressure than buying pressure for SLV. To the contrary on both counts. There are other, more sinister reasons for the plunge in spot silver prices and we covered those in the last Got Gold Report.

Persistently High Premiums

Many think part of the strength of silver ETFs stems from the enormously high premiums for silver (and gold) metal in the real physical bullion market. As silver futures prices fell off a cliff, already tight supplies for products like 100-ounce bars, silver eagles, 1-ounce prospectors, Mexican Libertads, old 90% silver U.S. coins in $1,000 face value bags and every other kind of small silver product, got so tight, so scarce, that premiums shot up to the highest levels seen since 1980. Premiums are the amount paid and charged by dealers over the prevailing futures-dominated spot price.

Recently premiums have even gone quite high on the largest bullion items such as the 1,000-ounce silver bars that futures markets trade and ETFs use for their bullion storage. That’s odd and unusual. The reason? They are practically and actually the only physical silver item left that can be sourced reliably in quantity, close to spot prices, but there’s a catch. If investors want them, they have to wait until December for delivery on the futures exchanges, so even 1,000-ounce bars that can be locked in and delivered today carry an unusually high premium to compensate for immediate delivery.

Heck, some well-known, very large and popular bullion dealers are charging the high premiums and also making customers wait until December or January for actual delivery! That’s kind of a middle man double whammy. If buying 5,000 ounces or more it makes little sense, because anyone can open a futures trading account and buy a contract for delivery in December. It’s easy. The details of how were in a special Got Gold Report two weeks ago.

It’s Demand Stupid, Not Stupid Demand

In case the point of mentioning that ETF demand affects the futures market inventory was a little opaque, each bar of silver that gets allocated to the SLV custodial accounts is one less bar that can have the name tag of an LBMA futures-trading member, a COMEX futures trader, a manufacturer, or any other silver buyer in the bullion futures market warehouses. In other words, silver removed from the market by ETFs means less silver available in the overall bullion trading market and therefore should be supportive of higher silver prices in the long term.

It is becoming more clear now that the lack of physical supplies relative to very high physical demand, extraordinarily high premiums for silver (and gold) on the street, coupled with a shortage of available contracts on the futures markets that could be delivered into the physical market until December, increased demand for SLV even while the price of silver was falling. SLV represents one way to participate in the lower price of silver until one can lock in and take delivery, either in a local bullion house, an online source or on the futures markets themselves.