Today in Silver Misinformation

It’s no wonder there’s such a preponderance of confusion about actual facts in the silver community – not only are readers misinformed by the blogs, but also from mainstream sources at respected financial outlets.  Today, Barrons:

Silver ETF Files To Sell 50 Million More Shares As Volume Surges

“In order to meet rising demand for the popular iShares Silver ETF (SLV), the trust set up to guide the fund is making plans to offer 50 million more shares to institutions.

In a filing with the SEC dated Wednesday, the ETF’s managers list a proposed maximum aggregate offering price of nearly $2.2 billion. The ETF’s parent is the world’s biggest money manager, BlackRock Inc. (BLK)

Achem – no – that’s not what happened – the $SLV Trust is not going to “sell” 50mm more shares.  The filing is here; it’s a filing to increase the maximum number of shares that the SLV Trust is allowed to issue.  Share count has been increasing as authorized participant create new shares by delivering silver bullion to the trust.  That’s how it works.  They still had 29MM shares left from their prior registration, so now they have 79mm that they can issue in exchange for bullion in new share creations.  (There’s even another confusing twist: if SLV issues 10mm shares for new creations, then has an Authorized Participant remove bullion from the Trust and redeem 10mm shares, and then has another 10mm share creation – they need to have TWENTY million shares registered – even though the net increase is only 10mm.)

Side reminder for noobs: SLV Trust issues new shares (“create”) to Authorized Participants (the big broker dealers) who deliver bullion to their Trust.  Similarly, they return bullion to Authorized Participants who “redeem” their SLV shares.

Elsewhere, today, in “misusing data to confuse silver noobs,”  ZeroHedge rants about the “doubling” of silver market backwardation.

“While the near-far contract backwardation was about $0.75 yesterday, it has since doubled in less than 24 hours.”

Sadly, although there are multiple pages of comments on the ZH post, there is not a single reader who noticed that this “phenomenon” was taken out of context and isn’t even a phenomenon at all.    You can see prices for the entire futures curve yourself at the COMEX website.   Tyler had his panties in a bunch about the July 2014 futures which, at the time of his post was trading at $47.50, vs roughly $49 for the near contract: the May 2011.  When you look at the current data, what do you notice?  Hopefully you notice a few things:  1) The July 2014 contract has a total volume thus far today of 8.  EIGHT contracts.  The May 2011, on the other hand, as I write this, has volume of more than 36,000.  2) The last trade time for the July 2014 contract was 11:12am Central time.  As I write this, that’s 2 1/2 hours old!  When you compare a liquid contract to a completely illiquid contract, you may occasionally get data points like Tyler stumbled across, but you have to be aware that conclusions derived from miscomparisons of this nature are nearly meaningless.

In other words, if I look at the data right now, I can accurately say “The near contract (May 2011) is trading a $48.50, and the July 2014 is trading at $47.95, so the “backwardation” is 55cents, which is MUCH LOWER THAN THE $.75 FROM YESTERDAY!!!”  It’s factually correct, and yet idiotic to draw any meaning from it – as I’m comparing an active, updated contract price (May 2011) to a stale, 150 minute old price (July 2014).  Half an hour ago, silver was a buck lower, and the May contract was trading below the July 2014 contract – WHICH ISN’T TRADING AT ALL!!!!  See the point?  Beware of data manipulation and of people drawing inane conclusions from misinterpreting data.


disclosure: I am long SLV. readers should have NO expectation that they will be notified in a timely manner if and when I decide to sell my SLV position.

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