Silver Rush Begins

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

As posted a year ago, silver isheading for a price blow off that is able to pass over the $100 dollarmark.  This now looks like we have reachedthe crisis point.  Silver is now grindingthrough the $35.00 mark and I am hearing of the short position paying as muchas $80.00 for delivery.

Read the second article andinterpret as you like.

The real problem is that silveris the one metal after gold that investors are prepared to simply own. It maynot really be rational but it has placed thousands of tons of gold away into privatehoarding hands and it can easily do exactly the same thing with silver, causingsilver to be marked to gold on an agreed upon ration such as the much toutedten  silver to one gold.  That gives us a price target of $145 perounce.

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

Feb 26, 2011 - 04:09 PM

Sean Goldsmith writes: The talk of the investment industry is avideo 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 SprottResources discussing precious metals at Casey Research's excellent Gold &Resource Summitlate last year. If you're interested at all in precious metals, Casey's work isa "must-read," and this video is a must-watch.

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

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

Using his own numbers, Sprott compiled the silver holdings for seven largeinvestors, including himself, iShares Silver Trust, ZKB, GoldMoney, and so on.Just those seven entities own 519.6 million ounces of silver… That's 225.8million missing ounces. And again… that's only seven investors. It doesn'tinclude central banks, individuals, hedge funds, etc. 

It's obvious, as Sprott notes, silver data has been "very, verymisstated." Sprott ends his speech saying, "There's $22 billion ofsilver available in the world, of which the ETFs already own half... andbetween you guys and us, we probably own the other half... which means there'snothing left." 

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

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

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

But for the first time in decades, people are viewing silver as amonetary 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 silverdoubled 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 youhaven't already bought, it's not too late. Yes, precious metals are morepopular than they were a few years ago, but we're far from a top. If you bringup your bullion holdings in conversation with a table of friends, you probablywon't get the weird looks you would have years ago… But you'll still be alonein your ownership. 

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

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

A Conspiracy With a Silver Lining
March 2, 2011, 7:40 PM

WilliamD. Cohan on Wall Street and Main Street.

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

Nonetheless, how to explain the price of silver? In the past sixmonths, the value of the precious metal has increased nearly 80 percent, tomore than $34 an ounce from around $19 an ounce. In the last month alone, itsprice has increased nearly 23 percent. This kind of price action in the silvermarket is reminiscent of the fortune-busting, roller-coaster ride enjoyed bythe Hunt Brothers, Nelson Bunker and William Herbert, back in 1970s and early1980s when they tried unsuccessfully to corner the market. When the Huntsstarted buying silver in 1973, the price of the metal was $1.95 an ounce. Byearly 1980, the brothers had driven the price up to $54 an ounce before theFederal Reserve intervened, changed the rules on speculative silver investmentsand the price plunged. The brothers later declared bankruptcy.

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

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

The gist goes something like this: When JPMorgan Chase bought BearStearns in March 2008, it inherited Bear Stearns’ large bet that the price ofsilver would fall. Over time, it added to that bet, and then the internationalbank 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 futurestrader and filed against both banks in November in federal court inthe Southern District of New York.
“The conspiracy and scheme was enormously successful, netting thedefendants substantial illegal profits” in the billions of dollars between June2008 and March 2010, according to the suit. The suit claims that JPMorgan andHSBC together “controlled over 85 percent the commercial net short positions”in silvers futures contracts at Comex, a Chicago-based exchange on which silveris 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 derivativecontracts, excluding gold.”

In the United States, trading in precious metals and other commoditiesis regulated and closely monitored by a federal agency, the Commodity FuturesTrading Commission. In September 2008, after receiving hundreds of complaintsthat silver future prices were being manipulated downward by JPMorgan and HSBC,the commission’s enforcement division started an investigation. In November2009, an informant, described in the law suit only as a former employee ofGoldman Sachs and a 40-year industry veteran, approached the commission withtales of how the silver traders at JPMorgan were bragging about all the moneythey were making “as a result of the manipulation,” which entailed “floodingthe market” with “short positions” every time the price of silver started tocreep upward. The idea was that by unloading its short positions like atime-released capsule, JPMorgan’s traders were keeping the price of silverartificially low.

Soon enough, the informant was identified as Andrew Maguire, anindependent precious metals trader in London.On Jan. 26, 2010, Maguire sent Bart Chilton, a member of the futures tradingcommission, an e-mail urging him to look into the silver trading that day. “Itwas a good example of how a single seller, when they hold such a concentratedposition 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 aboutan impending “manipulation event” that he said would occur two days later, whenthe Labor Department’s non-farm payroll numbers would be released. He thenspelled out two trading scenarios about which he had been told. “Both scenarioswill spell an attempt by the two main short holders” — JPMorganChase and HSBC —“to illegally drive the market down and reap very large profits,” Maguire wrotein an e-mail to a trading-commission investigator.

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

In March 2010, Maguire released his e-mails publicly, in part becausehe felt the trading commission’s enforcement arm was not taking swift enoughaction. He was also unhappy over not being invited to a commission hearing onposition 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 hewas at a gas station, a car came out of a side street and barreled into his carand two others; Londonpolice, using helicopters and chase cars, eventually nabbed the hit-and-rundriver. Reports that the perpetrator was given a slap on the wrist inflamed theonline crowds that had become captivated by Maguire’s odd story.

In any case, the class-action lawsuit contends that between March 2010and November 2010, JPMorgan Chase and HSBC reduced their short positions in thesilver 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 ofsilver 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 thebillions they made originally plus billions more. Whether these huge losseswill 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 easytask.)

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

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

What’s more, Chilton said in an interview last week, that “oneparticipant” in the silver market still controlled 35 percent of the silvermarket as recently as a few months ago, “enough to move prices,” he said, andwell above the 10 percent “position limits” the commission has proposed tocomply with Dodd-Frank financial reform law. Since that law’s passage lastsummer, the commodities exchanges have issued waivers permitting the ownershipof silver positions above the limits the C.F.T.C. has proposed, and which weresupposed to be in place by January of this year. Yet the waivers remain inplace, and the big traders have not been penalized, much to Chilton’sfrustration 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 atits most obvious and most vindictive,” wrote Richard Guthrie, a London-basedtrader, in an e-mail to Chilton. “How many investors lost money and positionsto the financial benefit of an elite few?”

It’s getting harder and harder to continue to brush off AndrewMaguire’s claims as the rantings of a rogue trader with a nutty onlinefollowing. The Commodities Futures Trading Commission should immediatelyrelease the files from its investigation into the supposed manipulation of thesilver market so the public can determine whether JPMorganChase and HSBC didanything illegal, with or without the help of the Fed. In addition, thecommission should start enforcing the 10 percent threshold on silver positionsit has proposed to comply with Dodd-Frank law. Basically, the othercommissioners must join with Bart Chilton to do the job they are required todo: Protecting the sanctity of the markets and preventing the sorts ofmanipulation we’ve seen all too often.

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