Silver, gold becoming Giffen goods

New York futures out of action probably doesn’t help. But silver hits new highs in volatile conditions. In this report, we look at the factors driving gold and silver higher still.

During Thanksgiving week (US markets closed on Thursday) the bullish running has been made in Asia. In European trade this morning, gold was $4,173, up $90 from last Friday’s close. Silver at $53.85, up $3.87 on the same time scale was making the running. Overnight in Shanghai, spot silver spiked as high as $55.13 surpassing previous highs, and the February future closed at $56.

The situation is complicated by Comex trading halted overnight, it is said due to cooling issues at a data centre. It may or may not have contributed to silver spiking higher. But the real problem in markets is an acute shortage of deliverable silver.

So far this year, 12,834 tonnes have been stood for delivery. As a source of silver bullion, Comex exceeds the combined output of Mexica, China, Peru, and possibly Chile — the world’s four largest producers. We don’t know how much of this is no longer available in the form of market liquidity, but with liquidity clearly stretched it will require higher prices, probably far higher to find out.

The chart below, which shows the relationship between the silver price and open interest encapsulates the problem.