Saturday, May 06, 2006

Buffett sees speculation in commodities

Warren Buffett says speculation is evident in commodities such as copper and that he no longer holds a position in silver. From Reuters:

"We had a lot of silver at one time but we don't have it now," Buffett said, speaking at Berkshire Hathaway's (BRKa.N: Quote, Profile, Research) (BRKb.N: Quote, Profile, Research) annual meeting.

Berkshire Hathaway has apparently disposed of its once formidable position in physical silver. Although the company's investment in silver was quoted at 129 million ounces and represented a significant percentage of all above ground supply, it represented only 2% of Berkshire Hathaway's investment portfolio. Interestingly, 129 million ounces is exactly the amount of physical silver that was required to launch the new silver ETF (SLV).

It would seem that Buffett & Co. have found, in this recent upsurge in demand, an opportunity to unload the remainder of their silver position. At the very least they have selected an appropriate time to announce that their foray into the silver market has been wrapped up. How was Berkshire's silver position liquidated? At this point, I don't know so I'll defer to the best guesses of those who have followed the silver market in depth for some time. The following exchange between Ted Butler and Jim Cook comes from an interview published in March, before the Barclays silver ETF was approved by the SEC.

Cook: From time to time somebody mentions Warren Buffett’s silver. What’s the story with this silver?

Butler: While it’s not surprising that people speculate about the silver purchased by Berkshire Hathaway, the truth is that it’s just that – speculation. Mr. Buffett has kept his promise and not mentioned it for years. That doesn’t stop folks from inventing stories. The most recent is that his silver will be made available to the proposed ETF.

Cook: No truth to that?

Butler: Not that I can tell. I’m sticking to my speculation that the Berkshire silver no longer exists in physical form, but only as a paper claim. I think it was all leased out many years ago.

I've also just found this past article of Butler's where he discussed the logistics of purchasing the amount of silver needed to back Barclays' silver ETF. Well, in spite of what he thought at the time, the ETF was approved, but I don't know if they've answered the question of where the physical silver came from or if it is numbered and allocated.