Silver Rush Begins

This pretty well makes clear that global silver inventories have evaporated and it is simply impossible to bring on much in the way of new production anytime soon.  There will likely be an increase of scrap out of India as prices rise, but that is the only give out there.

As posted a year ago, silver is heading for a price blow off that is able to pass over the $100 dollar mark.  This now looks like we have reached the crisis point.  Silver is now grinding through the $35.00 mark and I am hearing of the short position paying as much as $80.00 for delivery.

Read the second article and interpret as you like.

The real problem is that silver is the one metal after gold that investors are prepared to simply own. It may not really be rational but it has placed thousands of tons of gold away into private hoarding hands and it can easily do exactly the same thing with silver, causing silver to be marked to gold on an agreed upon ration such as the much touted ten  silver to one gold.  That gives us a price target of $145 per ounce.

The Most Compelling Argument for Owning Silver I've Ever Heard

Feb 26, 2011 - 04:09 PM

By: DailyWealth

http://www.marketoracle.co.uk/Article26565.html

Sean Goldsmith writes: The talk of the investment industry is a video making its way around the internet right now…

And no… it's not the popular "End of America" video I'm sure you've seen.

The video is footage of expert resource investor Eric Sprott of Sprott Resources discussing precious metals at Casey Research's excellent Gold & Resource Summit late last year. If you're interested at all in precious metals, Casey's work is a "must-read," and this video is a must-watch.

Eric Sprott is one of the world's best investors… probably the best investor you've never heard of. He specializes in natural resources, and he's a big precious metals bull. He holds 70%-80% of his fund in gold and silver (he says silver is his largest holding). In the video, Sprott makes the most compelling argument to buy silver I've ever heard…

In short, the world is out of silver. Sprott says aggregate investment demand for silver between 2000 and 2009 was 293.8 million ounces (according to the GFMS, the world's foremost precious metals consultancy).

Using his own numbers, Sprott compiled the silver holdings for seven large investors, including himself, iShares Silver Trust, ZKB, GoldMoney, and so on. Just those seven entities own 519.6 million ounces of silver… That's 225.8 million missing ounces. And again… that's only seven investors. It doesn't include central banks, individuals, hedge funds, etc. 

It's obvious, as Sprott notes, silver data has been "very, very misstated." Sprott ends his speech saying, "There's $22 billion of silver available in the world, of which the ETFs already own half... and between you guys and us, we probably own the other half... which means there's nothing left." 

Sprott's comments remind me of a conversation I had with a friend this week… My friend is one of the largest gold and silver coin dealers in the country. He said he hopes silver retreats, because the coins are going crazy. "People have no idea how small the market is," he said. "I've seen prices jump 10% in the last week."

Sprott's argument only takes the investment demand for silver into account. And while investors do hoard silver, more than 95% of today's demand for silver comes from industry. And when that silver is consumed, it's gone forever. Silver's current production is just enough to meet the industrial demand. In other words, there is virtually zero new silver available for investment purposes. 

The U.S. Congress established its monetary system in 1792 and agreed to mint coins using both gold and silver. At the time, you needed 15 ounces of silver to buy one ounce of gold. (In other words, what we call the "silver-to-gold ratio" was 15:1.) But in the early 20th century, world governments stopped backing their currencies with gold. The ratio went haywire, cracking 71:1 during the Great Depression. Today, the silver-to-gold ratio is 43:1. 

But for the first time in decades, people are viewing silver as a monetary asset again. And when silver's viewed as money, the ratio contracts. Will we return to the 18th century ratio of 15:1? Probably not. Even if silver doubled while gold went nowhere, the ratio would still only be 22:1.

We've been asking readers to buy gold and silver for a decade. And if you haven't already bought, it's not too late. Yes, precious metals are more popular than they were a few years ago, but we're far from a top. If you bring up your bullion holdings in conversation with a table of friends, you probably won't get the weird looks you would have years ago… But you'll still be alone in your ownership. 

Don't speculate on gold and silver prices. Gold is money. Silver is money. Buy them as a form of savings, setting aside a chunk of cash each month just for bullion. Store your bullion somewhere safe (like self storage). And leave it.

Before you realize it, you'll have considerable wealth in precious metals. And as Eric Sprott has outlined, you'll likely see a huge increase in value when the world wakes up and realizes we're out of silver.

A Conspiracy With a Silver Lining

March 2, 2011, 7:40 PM

By WILLIAM D. COHAN

William D. Cohan on Wall Street and Main Street.

http://opinionator.blogs.nytimes.com/2011/03/02/a-conspiracy-with-a-silver-lining/?hp

As Americans know all too well by this point, commodity prices — for corn, wheat, soybeans, crude oil, gold and even farmland — have been going through the roof for what seems like forever. There are many causes, primarily supply and demand pressures driven by fears about the unrest in the Middle East, the rise of consumerism in China and India, and the Fed’s $600 billion campaign to increase the money supply.

Nonetheless, how to explain the price of silver? In the past six months, the value of the precious metal has increased nearly 80 percent, to more than $34 an ounce from around $19 an ounce. In the last month alone, its price has increased nearly 23 percent. This kind of price action in the silver market is reminiscent of the fortune-busting, roller-coaster ride enjoyed by the Hunt Brothers, Nelson Bunker and William Herbert, back in 1970s and early 1980s when they tried unsuccessfully to corner the market. When the Hunts started buying silver in 1973, the price of the metal was $1.95 an ounce. By early 1980, the brothers had driven the price up to $54 an ounce before the Federal Reserve intervened, changed the rules on speculative silver investments and the price plunged. The brothers later declared bankruptcy.

Accusations that JPMorganChase and HSBC allegedly manipulated precious metal markets are worth looking into.

The Hunts may be gone from the market, but there are still plenty of people suspicious about the trading in silver, and now they have the Web to explore and to expand their conspiracy narratives. This time around — according to bloggers and commenters on sites with names like Silverseek, 321Gold and Seeking Alpha — silver shot up in price after a whistleblower exposed an alleged conspiracy to keep the price artificially low despite the inflationary pressure of the Fed’s cheap money policy. (Some even suspect that the Fed itself was behind the effort to keep silver prices low, as a way to keep the dollar’s value artificially high.) Trying to unravel the mysterious rise in silver’s price is a conspiracy theorist’s dream, replete with powerful bankers, informants, suspicious car accidents and a now a squeeze on short sellers. Most intriguingly, however, much of the speculation seems highly plausible.

The gist goes something like this: When JPMorgan Chase bought Bear Stearns in March 2008, it inherited Bear Stearns’ large bet that the price of silver would fall. Over time, it added to that bet, and then the international bank HSBC got into the market heavily on the bear side as well. These actions “artificially depressed the price of silver dramatically downward,”according to a class-action lawsuit initiated by a Florida futures trader and filed against both banks in November in federal court in the Southern District of New York.

“The conspiracy and scheme was enormously successful, netting the defendants substantial illegal profits” in the billions of dollars between June 2008 and March 2010, according to the suit. The suit claims that JPMorgan and HSBC together “controlled over 85 percent the commercial net short positions” in silvers futures contracts at Comex, a Chicago-based exchange on which silver is traded, along with “25 percent of all open interest short positions” and a “a market share in excess of 9o percent of all precious metals derivative contracts, excluding gold.”

In the United States, trading in precious metals and other commodities is regulated and closely monitored by a federal agency, the Commodity Futures Trading Commission. In September 2008, after receiving hundreds of complaints that silver future prices were being manipulated downward by JPMorgan and HSBC, the commission’s enforcement division started an investigation. In November 2009, an informant, described in the law suit only as a former employee of Goldman Sachs and a 40-year industry veteran, approached the commission with tales of how the silver traders at JPMorgan were bragging about all the money they were making “as a result of the manipulation,” which entailed “flooding the market” with “short positions” every time the price of silver started to creep upward. The idea was that by unloading its short positions like a time-released capsule, JPMorgan’s traders were keeping the price of silver artificially low.

Soon enough, the informant was identified as Andrew Maguire, an independent precious metals trader in London. On Jan. 26, 2010, Maguire sent Bart Chilton, a member of the futures trading commission, an e-mail urging him to look into the silver trading that day. “It was a good example of how a single seller, when they hold such a concentrated position in the very small silver market can instigate a sell off at will,” Maguire wrote.

On Feb. 3, 2010, Maguire gave the futures trading commission word about an impending “manipulation event” that he said would occur two days later, when the Labor Department’s non-farm payroll numbers would be released. He then spelled out two trading scenarios about which he had been told. “Both scenarios will spell an attempt by the two main short holders” — JPMorganChase and HSBC — “to illegally drive the market down and reap very large profits,” Maguire wrote in an e-mail to a trading-commission investigator.

On Feb. 5, Maguire took a victory lap, writing in another e-mail to the trading commission that “silver manipulation was a great success and played out EXACTLY to plan as predicted.” He added, “I hope you took note of how and who added the short sales (I certainly have a copy) and I am certain you will find it is the same concentrated shorts who have been in full control since JPM took over the Bear Stearns position … I feel sorry for all those not in this loop. A serious amount of money was made and lost today and in my opinion as a result of the CFTC’s allowing by your own definition an illegal concentrated and manipulative position to continue.”

In March 2010, Maguire released his e-mails publicly, in part because he felt the trading commission’s enforcement arm was not taking swift enough action. He was also unhappy over not being invited to a commission hearing on position limits scheduled for March 25. Then came the cloak and dagger element: the day after the hearing, Maguire was involved in a bizarre car accident in London. As he was at a gas station, a car came out of a side street and barreled into his car and two others; London police, using helicopters and chase cars, eventually nabbed the hit-and-run driver. Reports that the perpetrator was given a slap on the wrist inflamed the online crowds that had become captivated by Maguire’s odd story.

In any case, the class-action lawsuit contends that between March 2010 and November 2010, JPMorgan Chase and HSBC reduced their short positions in the silver market by 30 percent, causing the metal’s price to rise dramatically, but leaving them still with a large short position. Now, with the value of silver rising nearly every day, the two banks are caught in a “massive short squeeze,” according to one market participant, that appears to be costing them the billions they made originally plus billions more. Whether these huge losses will show up on the books of JPMorgan Chase and HSBC remains to be seen. (Parsing through the publicly filed footnotes of derivative trades is no easy task.)

Nonetheless, the conspiracy-minded have claimed that the Fed must have somehow agreed to make JPMorgan and HSBC whole for any losses the banks suffered if and when the price of silver rose above the artificially maintained low levels — as in right now, for instance. (About all this, a JPMorganChase spokesman declined to comment.)

Some two-and-a-half years later, the Commodity Futures Trading Commission’s investigation is still unresolved, and at least one commissioner — Bart Chilton — thinks that after interviewing more than 32 people and reviewing more than 40,000 documents, there has been enough investigating and not enough prosecuting. “More than two years ago, the agency began an investigation into silver markets,” Chilton said at a commission hearing last October. “I have been urging the agency to say something on the matter for months … I believe violations to the Commodity Exchange Act have taken place in silver markets and that any such violation of the law in this regard should be prosecuted.”

What’s more, Chilton said in an interview last week, that “one participant” in the silver market still controlled 35 percent of the silver market as recently as a few months ago, “enough to move prices,” he said, and well above the 10 percent “position limits” the commission has proposed to comply with Dodd-Frank financial reform law. Since that law’s passage last summer, the commodities exchanges have issued waivers permitting the ownership of silver positions above the limits the C.F.T.C. has proposed, and which were supposed to be in place by January of this year. Yet the waivers remain in place, and the big traders have not been penalized, much to Chilton’s frustration And the mystery deepens: last Thursday, the price of silver fell $1.50 per ounce in less than an hour before recovering. “This was robbery at its most obvious and most vindictive,” wrote Richard Guthrie, a London-based trader, in an e-mail to Chilton. “How many investors lost money and positions to the financial benefit of an elite few?”

It’s getting harder and harder to continue to brush off Andrew Maguire’s claims as the rantings of a rogue trader with a nutty online following. The Commodities Futures Trading Commission should immediately release the files from its investigation into the supposed manipulation of the silver market so the public can determine whether JPMorganChase and HSBC did anything illegal, with or without the help of the Fed. In addition, the commission should start enforcing the 10 percent threshold on silver positions it has proposed to comply with Dodd-Frank law. Basically, the other commissioners must join with Bart Chilton to do the job they are required to do: Protecting the sanctity of the markets and preventing the sorts of manipulation we’ve seen all too often.