The silver market has greeted the revival of forward sales by miners with sanguinity as prices sit at 31-year highs, but other signals suggest supply may really be scarce and investors are poised for more price gains.
The cost of borrowing metal in three months' time is around its highest in 22 months and traders and analysts believe at least five major miners have hedged their future sales by locking in prices that are around 31-year highs.
While the "H-word" might leave a sour taste in some mouths for chronically depressing the spot price years ago, the market has not taken it this time as particularly negative.
The U.S. silver futures' curve has inverted so nearby prices are above those for future delivery, a structure known as backwardation that can reflect a strain on supply of metal.
Yet the silver market has been in surplus for years, largely from rising output from secondary producers - those that mine the metal with base metals or gold.
Demand, with traditional photography in decay, cannot absorb excess supply.
So very few in the market have really bought the notion that near-term supply is anything other than plentiful. Until now.
"We have been a bit surprised by the extent of the backwardation that's developed and how it's gone from being a longer-dated phenomenon ... to being a backwardation at the front of the curve as well is suggesting there is a shortage of metal out there," said Natixis commodity strategist Nic Brown.
Silver stocks in COMEX warehouses are near their lowest since April 2006, when the silver price was closer to $5.00 (U.S.) an ounce and coin demand has picked up, particularly in the United States, where it hit a record in January.
GFMS, a consultancy, estimates global silver demand will reach 885 million ounces this year, and supply will rise by 90 million ounces from 889 million in 2009, leaving the market in a small surplus.
Total open interest in COMEX silver futures posted its biggest rise in February since September, driven by a 55-million ounce rise in the net position held by speculators, as reflected by the Commodity Futures Trading Commission (CFTC).
"There is a unique confluence of factors coming together that should play out eventually, but it depends on how much or how quickly stocks can now come to market to ease the physical tightness," said Credit Agricole analyst Robin Bhar.
When lease rates spiked in January, the world's biggest exchange-traded silver fund, the iShares Silver Trust saw its largest outflow of metal since its inception in 2006.
"It's no real surprise that in the presence of this substantial backwardation, you've got people who prefer to own silver in futures rather than in its physical form," Natixis' Mr. Brown said.
"But it does continually beg the question of where is all this silver going? Is it purely a reflection of the hedging that's going on or is there a more substantial factor that is leading to the apparent shortage in the market? Either way, the market is telling you there is not enough metal out there."
The silver price has risen 9 per cent this year, outpacing gold and building on 2010's 80-per cent gain, driven partly by safe-haven buying from investors deterred by the high price of gold as turmoil escalates in the Middle East.
WHAT IS IT GOOD FOR?
One of the great hopes of the silver bulls is the rise in demand for the metal from solar power, where it is used in photovoltaic cells in panels that turn sunlight into energy.
Barclays Capital says assuming around 0.1 g of silver are used for each watt of power generated and each solar panel has a capacity of 200 watts, up to 2,000 tonnes of silver may have gone into PV cells last year.
As with most other industrial commodities, analysts will scour import data from top raw materials consumer China to gauge demand for the metal from solar energy.
China is among the world's largest suppliers of panels, but uses little of what it produces domestically. Solar power has a notoriously uncertain future, as governments in top markets such as Germany and Spain cut subsidies.
"There is little doubt that PV demand is becoming more important to the silver market," said UBS strategist Edel Tully. "But don't get carried away: while the long-term prospects for cell production expansion are very positive, the sector's dependence on government largesse suggests that near-term expectations may need to be held in check."
Indeed, Chinese imports fell to three month-lows in January.
While the market seems to agree that the current constraint on supply is transient, its impact on the notoriously volatile silver price might not be.
"In the silver market, there is enough silver, it is more to do with a short-term squeeze," said Standard Bank analyst Walter de Wet. "If you're long silver, stay long, but it's probably not worth the risk/reward getting in now," he said.
"It's not called the devil's metal for nothing."