Some serious analysis from Kid Dynamite's World:
Eric Sprott Must Think Silver is Going Lower!
You’re probably confused by the post title, right? After all, Sprott’s Physical Silver Trust ($PSLV – no positions) just announced a $ 200MM secondary offering. Here’s the fun part – we can look at the actual data and draw some conclusions about what went down.
First, take a look at a snapshot of PSLV’s Net Asset Value page from last night (7/11/2012)...
... I explained the methodology last time around, but we can use these numbers to back into the price per ounce that PSLV paid for their silver purchase today. In fact, we can do more than that.
The first thing that should stick out to you is the difference between the last two lines in the second (7/12/2012) snapshot: the difference between the total NAV of the Trust and the market value of the silver held by the Trust is an approximation of the cash that the Trust is holding. As of tonight, it’s $ 59.7MM. That’s a huge number. It’s much bigger than normal: it was $ 8.5MM immediately preceding the secondary.
After the Trust’s January, 2011 secondary, the Trust held roughly $ 9MM in cash. Sprott’s much larger Physical Gold Trust ($PHYS, no positions) currently holds about $ 22.7MM in cash – but as I noted, it’s a much larger fund with larger expenses as a result. Of course, PSLV holders don’t want the Trust to be holding too much cash: when the price of silver goes up, the cash portion of the Trust doesn’t.
So the point here is simple: PSLV is holding much more cash than it normally holds and than we’d normally expect it to hold. The obvious question is, WHY? Well, take a look at the intraday chart of silver today (green line):
Can you see what happened? The PSLV secondary offering priced a little before 9:30am. Sprott’s bankers went out to buy silver for him, but the sellers were ready (yeah, guess what – they read the same press release everyone else did last night – they knew PSLV was coming in to buy silver, so they figured they’d stick it to him*) and tried to squeeze him. They pulled their offers and the price started rising. I’ve been in situations like this as a trader before, when you’re trying to buy something that’s ripping higher. Normally, you end up on the phone screaming at your broker “WTF ARE YOU DOING YOU F*CKING MORON!!?? STOP RAMPING IT. BACK OFF!” I imagine Sprott had a “conversation” similar to this, and that he actually cancelled his order before it was complete! Hence, the Trust is left with a larger than normal cash position because they didn’t finish executing their order!...MORE