Two competing silver prices in Never-Never Land

Once-upon-a-time, in ‘never-never’ land,
There were two competing silver prices

Peter Degraaf

These two silver prices were at loggerheads with each other. Every time the ‘real’ silver price began to rise, a ‘paper’ silver price would show up in large quantities and scare some of the holders of real silver to dump and run.

Silver miners and coin dealers with ‘real silver’ in inventory, instead of being organized, and using supply and demand to determine the price of silver, would look at a computer screen, check to see what ‘paper silver’ was doing and meekly accept that as the price at which to sell silver.

The Silver Users of America (SUA), is the only ‘user cartel’ in existence. (Cartels are usually comprised of suppliers – OPEC comes to mind). For years the SUA and their willing accomplices have been able to spook the people who deal in ‘real silver’ into coughing up silver at low prices, simply by dumping ‘paper silver’ onto the markets. While there are no manuals available detailing how they do this, we will have to make some assumptions based on observations regarding market action.

Here is my assumption: Assume that I am a member of the SUA, and it is in my interest to keep the price of silver as low as possible. Along with my fellow SUA members, I go about engaging half a dozen large bullion banks that are active in the futures markets. I mention to them that my fellow SUA members and I would like to cap a rally that has just driven silver to a new high. Would it be possible, I ask them, as soon as we see that buying is drying up because of resistance at this new price, for you and your fellow bankers to start selling a large number of futures contracts and options using ‘paper silver’?

Let’s pick a time when there are not too many people active in the marketplace, and volume has slowed right down.

My fellow SUA members and I will do the same, and as soon as we create some momentum, the hedge funds will dump their ‘long’ contracts and join us, since they like to chase a trend. Then, the small and large investors who have bought silver on margin will have to sell, and they will also become our helpmates.

By any chance, do any of you bankers have an inside track to any of the central banks? It would be very helpful if one or more central banker could raise the value of the US dollar at the same time as we start our selling campaign.

It would also be very helpful if you people used your influence with the governing body at the various futures exchanges to tell them that what we are doing is simply ‘normal market behavior.’

If we all work together, then you and your fellow bankers will be able to buy back the contracts you sold high, at a lower price, and my fellow SUA members and I will be able to buy ‘real silver’ cheaply from the mining industry, since these people still have not figured out our game and have not yet banded together to form a suppliers cartel.

A funny thing happened last week. The SUA and its fellow travelers may have pushed ‘paper silver’ too low. Shortages in ‘real silver’ began to appear, and more and more people now are beginning to understand what is happening. My advice to those among you who think you are buying ‘real silver’ when you are trading ‘paper silver’ is this: Make sure you buy ‘real silver’ with the profits you make in ‘paper silver’, just in case it turns out there is a shortage of ‘real silver’ to back the ‘paper silver.’

Featured is the daily silver chart. The blue arrows point to times when the silver price fell below the 200DMA (red line on the chart). Two years ago, at the seasonal low in September, price fell to 2% below the 200D. A year ago during the August seasonal low, price fell to 3.5% below the 200DMA. Last week during the presumed 2008 seasonal lows the price was pushed 37% below the 200D!! Think of this as the sellers of ‘paper silver’ having pushed a beach ball well below the surface of the water in a pool. Think of how rapidly the beach ball can rise when it is released, then go buy some ‘real silver’, just as I have been doing.

Notice the RSI at the top of the chart is already turning positive, and the MACD at the bottom of the chart is also ready to turn up again.

The positive aspect that is impressive about the rise in today’s silver price (Tuesday 08/26)), is the fact that the US dollar is also rising. In 2005, silver, gold and the US dollar all rose in tandem.

Therefore, a decoupling (separating the metals from the movements in the US dollar), would not be unique. The main driver for silver and gold is the fact that ‘real interest rates’ (T-bills less CPI) are currently negative. Whenever rates are negative, silver and gold usually rise, as money in bank accounts is punished.

This is ‘real silver’. It does not fold, crumple or burn, you cannot create it on a computer.

DISCLAIMER:

Please do your own due diligence. I am NOT responsible for your trading decisions.

Peter Degraaf is an online stock trader with over 50 years of investing experience. He issues a weekly alert to his many subscribers. For a free 60 day trial, just send him an E-mail at itiswell@cogeco.net, or visit his website www.pdegraaf.com

Gene Arensberg: Silver sucker-punched by two U.S. banks

Resource Investor today posted a special "Got Gold Report" by Gene Arensberg in which he credits silver market analyst Ted Butler for exposing the recent vast downward manipulation of the silver market by two unidentified U.S. banks. Arensberg expects the Commodity Futures Trading Commission to take action against these banks. He writes:

"It will not be surprising at all if we learn that these two U.S. banks are taken to task by regulators for their actions. It will be even less surprising to learn that they have become the target of multi-billion-dollar class-action lawsuits by hungry lawyers representing silver investors everywhere."

Maybe U.S. financial market regulators will do their job right for once, but we'd find it easier to believe in the tooth fairy.

You can find Arensberg's commentary, headlined "Silver Investors Sucker-Punched by Two U.S. Banks" complete with some nice charts, at Resource Investor HERE

Jason Hommel: Silver has Run Out, Now!

Silver has Run Out, Now!

(Just try to find some!)

Silver Stock Report

by Jason Hommel, August 20th, 2008

For a long time, people have been asking me, "When will silver run out?". They know that the world uses up more silver each year (about 850 million ounces) than the world mines (about 600 million ounces), and that existing demand can only be met by selling existing inventory (such as recycling 200 million ounces, or goverments selling 50 million ounces), so it's a natural question to ask. The question is not implying that mankind will be unable to mine any more. Rumor is that there remains at least about 14-16 years of silver in the ground at "current" prices; while at much higher prices, silver mining becomes more economic, and more deposits can be added to that "in ground" reserve number.

So, the question is really just asking, "When will we run out of "excess" above ground silver that can meet the supply/demand gap, so that the price will begin to really take off upwards?" Clearly, the world has silver in supplies above ground, and such silver supplies are dwindling in order to meet the supply/demand gap. About two years ago, the world started adding to above ground silver supplies as silver investors started buying, (and the silver surveys label investor buying as a "surplus". However, silver recycling was still greater than new stockpiling, which continued to deplete overall silver supplies.

Such a question as "When will silver run out?" cannot really be answered in advance, since nobody really knows how much silver there is, and who owns it, and at what price they are willing to sell it. Again, that brings us back to the nature of silver; it's inherantly private wealth, held anonymously. Estimates on "above ground" silver, in refined, deliverable form have ranged from 300 million ounces to 1 billion ounces, to about a high of 4 billion ounces if you include jewelry and flatware, up to 20 billion ounces if you include all forms of silver that have not ended up in landfills, out of the total of 43 billion ounces of silver estimated to have been mined in all of human history. Furthermore, nobody is arguing that the last bit of silver that exists needs to be consumed before the price rises substantially. The question is really about when will all the unwanted silver, in so-called "weak" hands of holders who don't really want it, be sold, to allow the price to rise to meet the majority of the expectations of the remaining wise investors who have planned in advance to actually store up some of the rare stuff.

But finally, I think the answer has arrived. The answer is "NOW!" Silver has run out, now! Or, in other words, most of the cheap silver has run out.


There are two excellent articles on the shortage of Silver that I'd like to bring to your attention if you have not already seen them:

This one is by "seekingalpha", and is very excellent, and very comprehensive.

The Disconnect Between Supply and Demand in Gold & Silver Markets
(August 18th)
http://seekingalpha.com/article/91357-the-disconnect-between-supply-and-demand-in-gold-silver-markets

The article goes over how the silver shortage is also affecting India.
He also covers the paper silver fraud that is commonplace and "standard business practice" in Wall Street brokerage houses.

This next article is short and powerful, and written by a coin dealer:

The Disconnect Between The Physical Gold and 'Paper Contract' Markets
(August 19th)
http://www.numismaster.com/ta/numis/Article.jsp?ad=article&ArticleId=5093



What's amazing is that last year, net physical silver investment demand was estimated to be about 30-60 million ounces, or about $1 billion worth.

Today, with 90% of the people in the U.S. being concerned about inflation, and a growing awareness of the danger of banks going bankrupt, there ought to be about 90% of the $14,000 billion of money in the banks that should be seeking to buy either some silver, or gold.

So, where do you think silver prices are headed? How can most of $14,000 billion enter a market of $1 billion that is already suffering a shortage, and prices not go up, a lot?

And oh yes, what about that current low price?

There's a short story that goes something like this. A lady wants to buy sausage. There are two butcher shops next to each other, one advertises $1.99/lb., the other advertises $2.99/lb. She goes to the $1.99/lb. shop first. But there's no sausage, they are out. So, she goes across the street, and sees sausage for $2.99/lb., and promptely complains about the price. "Why don't you sell it for $1.99/lb like the other guy?" Butcher answers, "Lady, when I'm out, mine is $1.99/lb, too!"

Price means nothing if you can't get the product. Many people are still sending money to dealers who will take your money, but have no silver, and no idea when they can get it.

Be very, very careful about ordering silver right now. Demand to know exactly when they can deliver. If they can't guarantee delivery within a week or your full money back, then consider that they probably don't have it!

Here's what I suggest. FIND YOUR LOCAL COIN SHOP and go there, in person. Or visit the dealers who are recommended at:
www.find-your-local-coin-shop.com


In fact, now might be a good time to meet up other Silver Stock Report readers.

I suggest that everyone visit their favorite local coin shop on September 1, at 1PM. That's a Monday.



Sincerely,

Jason Hommel

David Bond: Let's be Hunts

Let's Be Hunts

By: David Bond, Editor The Silver Valley Mining Journal
-- Posted 17 August, 2008

The Wallace Street Journal

Wallace, Idaho – Forgive two rants so close apart, but no sooner had our tirade on the scarcity of retail silver appeared on Goldseek and LeMetropole Cafe – it would have appeared on our own Silverminers.com except we're still rebuilding the site from whoever hacked the hell out of it last month – than the U.S. Mint halted sales of its fabulously popular 1-ounce Gold Eagle coins to the American public.

That was last Thursday night, after we went to bed. Much has happened between Thursday night and this Sunday night. There's no retail 1-ounce silver left on the market; deliveries of 100-ounce Comex-grade bars won't happen until October 15th. The Gold Eagles are gone. GONE!!!!!!!

One would think, as we postulated last Thursday, that the reason the prices for gold and silver were so low was that nobody wanted them. That would be the classic Keynsian explanation. But instead we were told that the reason the prices were so low is that EVERYONE wanted silver and gold 1-ounce coins.

When the market starts talking such gibberish, it's time to start thinking about a Hunt. As in, Nelson Bunker and William Herbert Hunt. We remain amazed, 28 years later, that supposedly sophisticated investors regard the events of 1979 and 1980 as “that time when the Hunts tried to corner the silver market.”

This is one of those monster myths that is so incredible and so false it must be believed by the unwashed masses. Regrettably, detritus of these masses grow up to be Presidents of the United Snakes, or of some branch of the Federal Reserve Bank. Makes them no less idiots, their Ivy League pedigrees notwithstanding.

In 1977, Bunky Hunt surveyed a battlefield much as the one that confronts us: there was paper silver a-plenty for sale, but not a physical ounce in sight. Hunt and his brother, reared in the resource-rich ethic of mid-Texas and Oklahoma, saw a gaping hole in the illusion that is American wealth: a bunch of paper selling a commodity that could not be bought. These things occur from time to time in corn, soybean, and oil commodities, but only temporarily until the market quickly achieves contango – its balance. The only time a gaping imbalance between the paper and the physical market is allowed to persist, the only time the paper price is allowed to be lower, and lower for a long period of time, than the physical price of the commodity, is in the trading of silver and gold.

It is useful for a government like the one that has commandeered the United Snakes, such government and its banks, to permit such an imbalance to exist. If the paper price of silver and gold are severely lower than their actual value, the paper money that the United Snakes and its banks issue is theoretically more valuable – relative to silver and gold – than it really is. Push down the metals, up goes the U$ Dollar. This is our current situation.

And it is profitable for the United Snakes government until some kill-joy comes along and wants delivery. The Brothers Hunt saw that the absurdly-priced silver contract of $3.50 an ounce was a bargain, that $3.50 silver existed nowhere in the real world except in the paper futures pits, but there it was, for sale, on the Comex.

My late friend, Paul Sarnoff, watched the thing unfold from his front-row seat at Paine Weber. The Hunts were a client, as was a Catholic archdiocese and several Arabs, who were getting worried about the quality of the paper they were being paid for their oil. Put yourself back in those times: gas prices were going through the roof; home mortgages, if you could get one and had perfect credit, were going for 18 percent APR; we had a weak President facing unpopular situations in Iran (where there were hostages) and Afghanistan (where the Russians were being adventurous). There was a run on the U.S. dollar in Europe.

And there was no silver. Not since the United Snakes had kicked silver out of the U.S. monetary system had silver been more scarce. Yet there it was, for sale on the Comex, for sale by the likes of the big central banks and bullion banks of the world. But such was no big deal. Between 97 and 99 percent of those 5,000-ounce silver contracts were settled in paper.

But the Hunts and their friends – this was in 1977 – began buying this paper over a period of years. By October 1979, the Hunts and their pals had bought up the bullion dealers' paper positions to the tune of 192 million ounces. Nelson Bunker Hunt owned 79 million ounces of silver – on paper; William Herbert Hunt, another 48 million ounces; their pals, including the Arabs, another 65 million ounces.

Is it too much to ask, if you buy a car from a guy, and you pay him the cash and he signs over the title, that you might get the car? This, ladies and gentlemen, is all the Hunts ever asked. They did not ever “corner” the silver market. All they asked was for the bullion dealers to keep their promises, and deliver.

Chaos ensued. There was then – as there is now – no silver to be had. Not in London or New York warehouses nor in the ground. Not anywhere. And for the simple reason that the Hunts and their pals asked for the delivery of silver they were promised by contract, they were vilified. Driven to ruin. And they provoked their own ruin: Bunky said he'd issue silver certificates in lieu of paper dollars, if people wanted to play. When I was a child, silver certificates were the money of the land.

This writer carries no cross for the Hunts. They were forced to sell the brokerage, Bache, that had carried their contracts but bet against them. But they still have their race-horses in Paris, and I am sure they have not missed a meal.

But there is a monster short position in silver again. It probably exists to prop up the Bush puppetry until the November election. Presidential election years are always hard on metals and easy on mortgage rates, except this year, the mortgage market is done, so new paradigms are in the making. Metals may come back far sooner than is ordered by the Fed and the FDIC. And remember, here is no Jimmy Carter to sell a billion ounces of silver into the market to quiet the Dollar worries. Carter's still around, but those 1 billion ounces are long gone.

The Hunts shook the lying bankers to their boots – to the point where intervention by the Fed, Treasury, and the Defense Department were warranted – merely by asking for delivery of the 192 million ounces of silver they'd been promised. This was not a “cornering” of a market; it was the attempt to enforce a contract, same as you've got with your landlord or bank.

So let's all of us be Hunts. Ask delivery of $12.80 silver and $790 gold, today. There are 300 million of us. A single ounce of physical silver for every man, woman and child in the United Snakes would squeeze these rat-bastards harder than the Hunts could ever do. There were two Hunt brothers in 1979. There are 300 million of us in 2008. Even in this country, there aren't enough jail cells to hold us all. And we could take their pants off, once and for all.

Jason Hommel: Silver shortage causes price disconnect

In commentary posted this afternoon Silver Stock Report's Jason Hommel elaborates on the shortage of silver. He writes:

"If you have to wait 30, 60, or 90 days for silver from any seller, it means they are selling what they do not have, and hope to get it from someone else who does not have it today either. That means they are short -- they owe you silver they do not have. And if there is a 'regular' 60-day delay, where they have you pay for it all up front, instead of making a tiny 5-percent deposit as down payment, then they are 'floating' on your money, like you gave them an operating loan."

Hommel's commentary is headlined "Silver Shortage Causes Price Disconnect" and you can find it HERE

Jason Hommel: What the Silver Shortages Mean

Silver Stock Report's Jason Hommel has no doubts or second thoughts regarding the real causes behind the latest silver (and gold, mind you) shortages:

"Silver prices are dropping like a rock, down to $12.50/oz., and yet, none of my trusted, major, regular dealers have any silver to sell...
..So, why are prices crashing when no silver is available?
Manipulation. Lies. Paper games. I've covered this many times before in the last few years..."

Please click HERE to read J. Hommel's missive.

David Bond: Silver Shortage? What, Me Worry?

Silver Shortage? What, Me Worry?

The Wallace Street Journal

By David Bond, Editor
The Silver Valley Mining Journal

Wallace, Idaho – We received a missive yesterday from the American Precious Metals Exchange, an Oklahoma-based company that retails silver and gold bullion – American Eagles, Canadian Maple Leafs, Krugerrands, bars, coin bags and the like, that immediately raised alarms in our cranial area.

The gist of their missive was: There's a silver shortage because the price ($14.35/oz at this writing) is too low. Particularly hard to find are the 2008 American Silver Eagle 1-ounce coins. Here's what APMEX said yesterday:

“You may have noticed a significant number of products on the APMEX.com website are listed as 'Out of Stock' right now. This stock shortage coincides with a low price for the precious metals we provide investors and collectors across the nation. Most, if not all, dealers are experiencing temporary shortages right now. . .

“When the price of silver, or other precious metals, drops to a low position, everyone who has been waiting to purchase comes in and buys. Whatever silver or gold is in inventory is quickly depleted – not just in our reserves, but also in those of our suppliers. Ultimately, this reduction in supply increases demand, and will eventually increase prices.

“This is basic supply and demand. This effect is felt across the marketplace, from suppliers to dealers to the investors.”

Well, we appreciate the lesson in Economics 101. But it had an eerily familiar quality to it, this particular lesson in Econ 101, a deja vu feeling. Had we not heard this same stuff about five months ago, only in reverse? So we dug through our Platts Metals Week archives, and lo and behold, found that we were writing about a silver shortage back in March – under entirely different circumstances.

Here were the same folks, only this time, they were saying there was a silver shortage because the price was too high! Said Metals Week:

“Silver buyers overwhelmed retailers during the third week of March, when silver was trading above $20/oz. (Retailers) stopped taking orders over the Internet, limiting business to telephone orders of no more than $5,000 -- if buyers could get through. 'Demand is incredible; it seems like there are 5 to 10 times as many people wanting to buy [silver] as opposed to selling,'” said one dealer.

Said another: “'We're running out of metals, and silver in small quantities is extremely difficult to find right now. The largest demand is for silver rounds and for small (100 oz or less) silver bars." The early-year price run from $17/oz to $22/oz sucked outfits like APMEX, Northwest Territorial and others dry.

We find this quite curious. It seems that when the price of silver is low, there is a shortage of silver, because people can't get enough of the white metal. When the price of silver is high, there is a shortage of silver, because folks can't get enough of it. Would it be too much of a reach to surmise that there's just a plain shortage of silver?