September 26, 2008

CFTC relents and probes silver market

Persistent Complaints of Foul Play Draw the Still-Skeptical Agency to Investigate

By Carolyn Cui
The Wall Street Journal
Thursday, September 25, 2008

With silver prices falling this past summer, silver bugs worldwide set out to prove that their metal was in short supply and market manipulation was at work. They bombarded federal regulators with hundreds of emails crying foul play and demanded answers.

Though such pleas proved futile in the past, this time the rousing chorus grabbed regulators' attention. On Wednesday the Commodity Futures Trading Commission confirmed that there's an investigation into the silver market.

The CFTC isn't yet convinced there's systemic wrongdoing and in May published a report saying as much. But the agency decided to take a fresh look, in part to show critics that it checks out complaints, and also to make sure there isn't something new to uncover.

"We take the threat of manipulation in the futures and options markets very seriously and employ a number of measures to prevent, identify and prosecute it," said Stephen Obie, acting director of the agency's division of enforcement.

Silver investors have argued that a handful of U.S. banks have been controlling a large portion of silver's short positions -- or bets that prices will decline -- on Comex division of the New York Mercantile Exchange. Official data from the CFTC showed that two U.S. banks had increased short positions in the silver futures market between July and August by 450% and controlled 25% of the total open interest.

"The proof that this selloff was criminal lies in public data," wrote Theodore Butler of Cape Elizabeth, Maine, in August in a silver newsletter. "The concentrated sale of such quantities in such a short time" caused silver's fall, wrote Mr. Butler, who for many years has been vocal about purported silver-market manipulation. In September he reiterated to readers that they should email the CFTC.

The CFTC had argued in May that the large banks that people assailed for manipulating the market were instead acting appropriately as market makers, who take on futures positions to offset their exposure in over-the-counter markets. Therefore, these traders aren't "naked shorts" and won't benefit from long-term depressed silver prices. Many analysts agree with the agency's conclusion.

Silver stalwarts weren't persuaded. Jason Hommel, a newsletter writer based in Penn Valley, Calif., directed readers to visit their local coin shops at 2 p.m. on Sept. 2 to size up for themselves whether there was a silver shortage. From Michigan to North Carolina and beyond, he says, investors trekked to coin shops. Many reported no silver for sale.

Bart Chilton, one of the CFTC commissioners, said he has received about 700 emails from silver investors since August, far more than the estimated 100 he received from May to July. Mr. Chilton, a Democrat who has criticized the CFTC as doing a poor job communicating with consumers, says he has spent nights and weekends personally answering emails.

Historically, silver has been a volatile market. This year it saw a near-50% drop and remains down 9.5% on the year. Gold is up 6.5%. The agency has long heard from frustrated silver investors. In 2004, it published an open letter by Michael Gorham, then the agency's director of market oversight, after receiving more than 500 letters and emails from silver investors.

That the enforcement rather than oversight division is taking on the issue marks a difference from the CFTC's previous efforts regarding the silver market. The oversight division performs overall market surveillance. The enforcement division looks at activities in a specific time period.

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September 8, 2008

Jason Hommel: The World Needs a Free Market in Silver

The World Needs a Free Market in Silver

(Functioning Markets Solve the Problem and Free Markets Work Best)

Silver Stock Report by Jason Hommel,
September 7th, 2008

This may be the most important article that I will ever write in my lifetime, and it may be the most important you will ever read. I don't know if things will ever be as crucial on the world stage as they are today. The world has a choice to head towards increased freedom and prosperity, or towards shortages and misery.

Typically, stories of inflation and hyperinflation are accompanied by stories of food shortages, misery and pain. During some hyperinflations, people are reported to be so desperate to save their currency that they will buy bed pans or piles of horse manure to preserve the value of their wealth. Thank God we can still buy silver, instead!

The price of Rat Meat in Cambodia has increased 400% as investors flee from inflation!

Today, there is a world emergency, a world crisis that is being ignored, because silver is a neglected and forgotten metal and industry, and more eyes are on the banking crisis and on the election than on silver.

The silver markets are failing and breaking down. The COMEX fraud of allowing the sale of excessive and unbacked paper futures contracts is destroying the silver market. Too many silver dealers, refiners, and coin shops have relied on the COMEX price to set their own prices, although nothing was for sale and no silver came to market when those prices were set, and so they mostly all ran out of inventory.

If we do not solve the problem of the broken COMEX market, the world will continue to be plagued with shortages that will extend much further than the silver market, and into all other markets. We could end up with desperate food shortages, as investors who cannot find silver may end up purchasing food to protect their money, instead of silver, and if that happens, starvation on a world-wide scale could result. In fact, it has already begun with rising food prices worldwide as investors pour into grains as a result of inflation driving speculators into all commodities.

Price increases push US soy beyond reach of poor:

That is the danger of allowing COMEX fraud to continue unopposed. The best way to oppose COMEX fraud and end it, is not through letter writing campaigns to the CFTC, and not through police crackdowns from the SEC, nor from new regulation by Congress.

We don't need to use force to stop evil. We can overcome evil with good. Where the spirit of the Lord is, there is Liberty! We just need to understand, embrace, and create freedom.

And so, rather, the best way to oppose COMEX fraud and end it is to create an alternative free marketplace or free markets where silver can always be more and more freely bought and sold.

An alternative free market will end the fraud faster than you can imagine, much faster than any CFTC investigation, through the profit incentive to buy from one market to sell into another.

Have no fear. The profit incentive, and the ease of the use of the internet, will create the incentives to create that alternative market where our silver will be fairly valued, and freely traded.

Traders rightfully point out that if the COMEX price is fraudulently too low, then people would buy bars at COMEX, and sell into the free market, and make a killing.

After all, you can make much, much more on a 20% mark-up by quickly flipping silver and selling to investors than you can with a 100% mark up selling jewelry, because the jewelry market has slower turnover of product.

Example: If you can make 20% per transaction, and make 12 such transactions per year, only once a month, you can make 792% in a year!

for the math.

I might not be willing to risk my money to stand for delivery of a COMEX contract, but others will, if there is another market for them to easily sell into.

You could make even more money, 1200% per year, making a 5% profit spread if you bought in one liquid market and sold into another liquid high volume market once a week. Liquidity is key. Liquidity is crucial to the speed of trading, which aids turnover. Silver, by its nature, should always be extremely liquid.

At COMEX, liquidity in silver is thwarted by having a "delivery month" of an unreliable time frame, and not every month is a major delivery month. The Post Office, as dreaded as it is, is far more reliable than COMEX. COMEX also does not ship out silver, but makes you go there to get it.

Given that silver coins are selling at a $3-4 per ounce premium over the spot price, which is about a 30% premium or profit, then makers of silver coins and bars should be able to make huge profits, if they can find silver bars at COMEX prices to turn into coins!

This is how we know 1000 oz. silver bars are in short supply! Perhaps the recent shortage is at least partly a result of this month, September, being a delivery month.

But there's a bigger problem. A free market in silver with high volumes and low spreads does not exist. So, you can't go and buy silver from COMEX, to sell into a non-existent market.

Today, maybe neither market exists!

There are alternatives to COMEX, but none of them has the capacity to pick up the slack and carry the huge volumes of trade, and allow a trusted and reliable form of price discovery to take place.

For example, Fresnillo, the silver refinery in Mexico that refines about 90% of the silver in Mexico, which produces about 80 million ounces of silver per year, ships out 600,000 ounces of silver at a time, in 1000 oz. bars, 30,000 oz. per pallet at a time.

The world needs a market that can handle and service the needs of refiners such as Fresnillo, so they will ship to the free market or at free market prices; instead of to COMEX or to other places at COMEX prices.

Yes, there are the coin shops and online bullion dealers. But investors typically do not want 1000 oz. bars because they are ugly, not standard size, and too heavy at around 70 pounds. APMEX recently had more than 20 for sale for a few days, and they sold out, but that's not a very large volume, and they didn't sell at a much of a premium, only about 35 cents over spot.

Ebay is good because they only allow people to sell what they have, and there is a rating system in place to allow feedback on sellers reputations, and ebay allows competitive bidding to allow an odd form of price discovery to take place.

But ebay is not useful because we often do not see the final auction price at the last minute. And ebay is bad because fees are excessive with fees ranging from 10-15%! That's not a "free market", it's a rather costly market! Also, it is difficult to buy in volume, because there is limited product available. And fraud levels are still too high, and there are additional penalties on sellers. Another drawback to ebay is that there is no aggregation ability to place large orders over multiple auctions of standardized fungible products that are similar enough to be interchangeable. Nor can you use ebay to sell into anyone's standing bid for a standardized form of product. So ebay is mostly a one way market, not a two way market, like an exchange should be.

There is But it, too, suffers from low volume, lack of product availability, product delivery delays, and difficulty of use.

There is The advantage is that you can connect with people in your local area anonymously for cash to silver transactions, but there is no volume at all. is another site where you can trade. But there is a restrictive trading limit of 1500 ounces of silver per day.

And there are other futures markets and exchanges in Tocom, Dubai, Shanghi, and elsewhere, but their volumes are much lower than at the COMEX, and like the COMEX, futures contracts can be created and sold to excess.

In any reasonable money exchange marketplace, gold should also be able to be traded for silver, and silver for gold, without having to move into fiat currencies. So, although my personal focus is on silver, I'm really talking about a new kind of silver and gold market exchange.

The world desperately needs a better silver market, in multiple locations around the world that cannot be shut down by desperate and dying governments that rely on paper money fraud, if the world is to survive the implosion and end of fraudulent futures contract trading.

I strongly believe that the most important features of a free market are to end fraudulent transactions of promises to deliver silver in the future that may not exist.

The fraud must end. That is the most important.

But also, perhaps next most important is to encourage high volumes by providing the best market structure at the lowest possible cost?

Readers, the world needs your help!

There are people who know how to make things happen, who can design specs, set up markets, hire programmers, set up verification systems, set up storage locations, and handle the logistics much better than I can. I'm merely a thinker, a theorist, and a writer. And I have a family, and I'm located in a small town, far away. I'm a horrible manager, and I don't like working with people as I have little patience for those who cannot understand right away, even though it sometimes takes me years to "get it". Anyone who has ever emailed me probably knows I'm "short tempered" that way.

Please give me feedback and share your thoughts, and I'll collect your emails and share your suggestions to inspire those people who are more people oriented and action oriented who can make this happen. What other features are important in the design of the most optimal and most free, free market for silver?

Topics for thought:

Ease of use? - OR - Verification of users?
Elimination of fraud? - OR - A Reliable and successful transaction history?
Standardization of bars? - OR - Verification of bars?
Bid/Ask trading at all hours? - OR - Once per day auction price setting?
Reduced speculation & Reduced leverage? - OR - Fully paid for trading?
Ability to handle small transaction sizes - OR - ability to handle large volumes through high minimum transaction sizes?
There is also the issue of cross border shipping logistics.

I'm doing my best to end world poverty by educating investors.

There may be limited silver, but there is unlimited wealth in silver. It just needs to be unlocked by a higher price that can be discovered by a functioning and honest free market in silver.


September 7, 2008

Jason Hommel: Where's the Abundance of Perth Mint Rounds?

Where's the Abundance of Perth Mint Rounds?
(No wonder you can't find any!)

Silver Stock Report
by Jason Hommel, September 6, 2008

If the Perth Mint has $880 million worth of silver and gold in inventory from their certificate program, to use as working inventory to make coins, then why aren't they producing many Australian coins that should be flooding the marketplace and available everywhere at close to spot prices?

Let me explain why I hammer Perth so mercilessly. The Perth Mint has issued silver certificates. Investors trust them. Perth has issued those silver certificates for a reason, a reason that silver investors should love.

As they are a mint, they need an "operating pool" of physical metal to use as inventory for operations, to be able to make silver coins to sell to the public in the form of one ounce rounds. This is a fantastic reason, and I would support that 100%, especially if they buy more silver as needed, buying one ounce for every ounce sold. In theory, that would mean that there could never be a silver shortage at the Perth Mint. There is especially no reason for a silver shortage to exist at Perth, given that Australia exports over 400 tonnes of silver each year! The Perth Mint could never run out of silver to sell if that program was run honestly, in stark contrast to the U.S. mint, which is suffering a shortage of blanks.

In fact, the current world-wide shortage of investment silver, such as one ounce coins, means that the world desperately needs a functional mint with plenty of silver for operations.

But Perth does not produce one ounce rounds for the public in bulk form at just above spot prices, as other mints do. Why not? Why can't they?

For example, the Canadian Mint produces silver Maples 3-5 million per year, and the U.S. Mint produces silver Eagles, about 10-20 million per year, and Austria is now producing silver Philharmonics, and France, I hear, may also start producing silver again, too.

And all of these are available at between $2-3 per ounce over the spot price, and sometimes now at over $4/oz., due to the shortages of silver.

In stark contrast, Perth produces much less, and they sell their 1 ounce coins at an average price of $61 per ounce!


That's $48 over the spot price for Perth 1 oz. rounds! Isn't that a 369% premium over the spot price?!

What's the problem here? Shouldn't they be able to produce silver coins like the U.S., Canada, and Austria? Perhaps Perth doesn't have enough silver in their "working inventory" to produce more?

But they have issued $880 million worth of gold and silver certificates to the public, and therefore, should have plenty of working inventory. In fact, it is so much working inventory, that it amounts to an entire year's worth of investment demand for silver.

Net investment demand for silver is estimated at 60 million oz. by the CPM group, which, at $13/oz. is only $780 million!

Perth has is so much working inventory, that even if the Perth Mint had to wait for a 1 year hold time for delivery to replace their inventory, they would still be able to supply nearly 100% of the silver that the investment world needs, and they could supply it with no delays to the public whatsoever!

It is so much working inventory, that if the Perth Mint had to wait 1 month for supplies of all new silver, they could provide 12 times the world's annual silver demand, and all silver investors everywhere would be buying nothing but Perth Mint Australian one ounce coins, and no other forms of silver whatsoever.

If only 1/10th of the $880 million of gold and silver certificates is in silver (and they don't reveal what percentage it is), then that would be $88 million. Divide by $13 = 6.8 million ounces of silver. If that much were minted monthly, that would come out to 81 million one ounce rounds, which would be 4 times as many coins minted by the U.S. Mint.

Therefore, one would think that if the Perth Mint was honorable, that the Perth Mint should be producing far more silver ounces than the U.S. Mint each year, at a lower cost, and that we would see those in abundance in the marketplace.

But Perth does not issue coins like that. You cannot buy Australian bullion coins in bulk at APMEX, Tulving or any other major wholesaler. Why is that? I think the answer is obvious.

Where is the abundance of Perth Mint rounds? There is no abundance. They are scarce.

It appears to me that Perth's silver in their certificate program, "used for operations" was used to cover unprofitable operations, for years, and that in actual fact, they have no working inventory, or they have less than 1% of the $880 million worth of inventory, barely enough to meet some redemptions and orders on occasion.

Over 50 people have continually complained to me of shortages of silver from the Perth Mint, in my prior emails exposing them. Why are these people complaining to me? Do I have the words "Perth Mint Customer Service Rep" tattooed on my forehead, or in my disclaimer? No.

Sell or redeem your Perth Mint certificates, quickly

Nadler, Kitco, Perth, Matthey; Sold Out! September 3, 2008

Perth Mint Crisis Watch 5 June 6, 2008

Perth Mint Crisis Watch May 23, 2008

Perth Mint Crisis: Solutions and Ramifications May 23, 2008

To the largest newspapers in Australia May 22, 2008

To the government of Western Australia May 21, 2008

Poor Prospects for Kitco/Perth/Matthey May 19, 2008

Kitco / Perth Mint / AGR Matthey / Bullion Bank Connections May 17, 2008

Will Kitco Sue me?! May 16, 2008

Silver Shortage Drives Men Nuts March 31, 2008

Perth Mint and Kitco Scheme Exposed March 26, 2008

See what others are saying about the Nadler/Kitco/Perth/Matthey issues, here:


Jason Hommel

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