Perth Mint Crisis: Solutions and Ramifications

(Central Banks will buy gold!)

Silver Stock Report

by Jason Hommel, May 23rd, 2008

The vast majority of my readers understand the Perth Mint crisis.  They know that when the Perth Mint is supposed to have an operating pool of $880 million Australian dollars of precious metal, and yet, the Mint has delivery delays for precious metal; they can see the obvious conflict there.

A rep from the Perth Mint admitted, today, that they have a delay in deliveries.

From: Liselle Carroll
Sent: Friday, May 23, 2008 3:38 PM
Subject: RE: Purchase of silver bars


Our metal is state government backed, there isn’t a shortage and the delay is only in production.

Kind Regards

Liselle Carroll
The Perth Mint
310 Hay St
East Perth
WA 6004

While obviously lying about a shortage, because a production delay is a shortage, the Perth Mint is admitting the essence of what I’ve reported that my readers have said with that one phrase, “the delay is only in production”.

I continue to wonder why, and ask why there should be production delays if the size of their operating pool is $880 million Australin dollars worth of precious metal.

When you go to buy bread from the bakery, do they tell you there will be a “production delay?”  After all, it does take time to harvest wheat and bake bread.   But, no, they don’t say that. 

When you go to buy new tires for your car, do they tell you there will be a “production delay” of 6-8 weeks?  No.

When you go to the bank to cash your paycheck, do they tell you there will be a “production delay?” of 6-8 weeks?  No.

How can the Perth Mint have a production delay if they have an operating pool, to be used for operations, that is $880 million Australian dollars?

I did not pick this fight with the Perth Mint.  I tried to avoid it as long as I possibly could.  I ignored many of my readers’ complaints for a long time.  Some of them specifically asked me to not say anything because they didn’t want the Mint to shut down or have any problems, because they wanted to order more!

I was told in person, by a second person of problems at the Perth Mint, at the Silver Summit in September, 2007.  I finally hinted at the problem on February 27th, 2008, nearly 5 months later.   
How to Get Into Silver, for Billionaires February 27, 2008

I have long advocated that people get and take physical delivery of real silver, and not trust anyone or any bank or institution to hold silver for them.  And so, my readers ask me things about major companies in the industry.  And, my readers also ask me for my honest opinion, because they assume I will end up hearing things.

And so, after getting a few complaints about the Perth Mint’s long delivery times, I had to mention it, privately in an email to one of my readers.  And then I got more complaints, and still I avoided mention, until people were willing to let me use their names.  Then, I went public with the complaints, and I got a lot more complaints.
Perth Mint and Kitco Scheme Exposed March 26, 2008

That was nearly two months ago, and the Perth Mint is still having problems with delivery delays.  Therefore, I think this is a systemic problem at the Perth Mint.

Of course, I have never said what is on the tip of everyone’s tongue, given the evidence.  I’m just making the contrast between the size of the pool of bullion to be used for operations, and the fact that there are delivery delays, both of which are indisputable facts.

The Perth Mint might well be fully 100% honorable about how they use the pool, refusing to use the pool to fill new orders.  And the Perth Mint could have easily simply told their customers, “We simply do not use our precious metals pool to fill customer orders.”  But if that’s the case, it would beg the question, “What exactly would you use the pool of precious metals for, if not for filling customer orders?” 

And furthermore, why are there reports of delays of up to 7 weeks just to transfer silver from unallocated to allocated, when allocated silver costs more due to storage costs?!

One comment I read out on the internet was from a customer holding unallocated and allocated silver with the Perth Mint.  He is therefore a creditor of the Perth Mint, who is thus funding their operations.  He flatly refused to believe there is any shortage of silver, despite the many reports that I’ve shared that speak of delivery delays.  His reason?  Because the Perth Mint had called him, wanting to know if he would like to buy any more allocated silver (that they can’t seem to deliver promptly)!  Can you imagine that!  He must think that all my reader’s reports are some vast conspiracy or something, that all those people are liars.  Either that, or he is unable to think for himself, and he simply trusts what he is told.

Speaking of the gullible, there are always major silver reports being trotted out by analysts at major banks and brokerages that say things like they expect a silver surplus this year, and that they don’t expect investor demand to be able to rise enough to buy it.  Today’s ridiculous report is called “No More Silver Lining: Poor Man’s Gold Will Suffer from Too Much Supply in 2008,” by Eric Roseman, who appears to have bought into such reports.  There’s always a few of my more gullible readers who get scared by those kinds of comments, despite the fact that the purchase of silver Eagles is soaring this year, and so is investment demand soaring, just like inflation.  Last year’s investment demand of about $1.1 billion for silver is nothing compared to what we are already seeing this year, with many dealers reporting that January and February saw ten times the normal business, and then in March, the reports of shortages started.  You are more capable of making predictions about how this next year will go in the silver market than most “analyst reports” you will read.

I don’t think the Perth Mint is engaged in any conspiracy to defraud people.  More likely, they’re simply “doing their jobs.”  I believe that the trouble was low silver prices.  For years, silver remained at $5/oz., and minting costs, I assume, were about $2.00 per ounce, at the bare minimum in the private sector.  Like most government agencies, the Perth Mint was probably not too concerned about costs.

During silver’s bear market, a lot of silver was coming to market by investors as “recycled siver”, who were dumping their silver, thus depressing prices of all silver products, below market prices, which, as all student of free markets know, creates a challenging environment for all producers, who usually find it hard to compete under such circumstances. 

What would you do if you worked at the mint?  You might not even know if minting costs were as high as $3-5.00/oz on top of the silver price, because things might be done the typical inefficient way of all governments, and your job may well have depended on continuing to mint coinage, whether at a profit, or loss. 

The Perth Mint appears to me to have been funded for years, by precious metals loans from banks, which is similar to how all government operations on the planet are funded, by loans.  Are there any governments not in debt?  The difference is that these are precious metals loans.  The other difference is that these precious metals loans were transfered to the public via the selling of the Perth Mint certificate program.

The Perth Mint says in their annual report that these are “non interest bearing loans” and technically, that is correct.  However, with precious metals prices rising at about 25% per year, these loans are quite expensive, and will grow much more expensive as precious metals prices continue to rise.

The Perth Mint, if they truly have no precious metal backing their liability of their certificate program, ought to quickly notify the governmment of Western Australia, so that they can start buying silver and gold options in the futures markets to cover their entire liability.  Then, they ought to allocate $5-10 million to the purchase of real physical metal, to create a real pool of real metal to operate out of, and to deal from, so that they can fill customer orders promptly.  The delivery delays ought to be embarassing, and dangerous for the credibility of the Mint.

For years, I’ve written that the only way the market prices for precious metals can be manipulated is if the manipulators actually provide real physical metal to the market, so that the market does not catch on.

It appears that somebody forgot to inform the Perth Mint of that.

I always assumed that we would first see major delivery delays (defaults) on the NYMEX, in their futures contracts.

I never suspected the Perth Mint.

Or, perhaps the Perth Mint can’t get silver promptly enough because the NYMEX is already in default, or is limiting deliveries, as they can, to no more than 1.5 million ounces in a month?

But if that’s the case, why doesn’t the Perth Mint comment about the precise problem?

I’ve always maintained that we would see the major price rise of the precious metals after a major default and delivery delay and scarcity of silver.

This is it.  If this is not it, what is this?

Hold on to your silver, and try to get some as soon as possible.

I sincerely believe that conditions like this come along once in a lifetime, and in silver’s case, I’ve long said that today’s opportunity is unique in all of human history. 

My gut tells me that silver prices might not stay below $20-25/oz. for more than about another month or two.

Never before has silver been so rare and scarce due to consumption by industry.  Never before in all of human history have all nations in the world abandoned silver as money. 

No history professor knows anything from history that is even close to what we are seeing today.  No event in prior human history can be compared to what we are now witnessing, and will soon witness.

I can only guess as to how high silver is set to go, and my experience is that you don’t want to hear it, either.

Two days ago, a director of the CFR, the Council on Foreign Relations, said that the world might return to using gold as money, and that central banks might start a bidding war for gold.

Key excerpt:

AUDIENCE: Do you think central banks would start selling, and void their own agreements to limit the sales, which they have now, by selling much more of their gold in order to try to hold the price down once it starts spiralling up?

DR. BENN STEIL: My view is that if you look at the central banks around the world that represent our major creditors like in Asia and the Middle East, the big concern is the following: We hold too many dollars, too many dollar-denominated assets. We’d like to redenominate them, but this is tough. If we all decide to redenominate them, say, in euros, we’re going to take a big capital loss on what we currently own, and we don’t want to do that.

So how do central banks get out of that dilemma? My view is that they’re going to begin surreptitiously to buy out hard assets. For example, there was recently, I think it was about a week or two ago, a piece I saw on, talking about how commodity price inflation may in fact be driven by monetary policy in the United States. And one private bank economist said, “This is ridiculous because the dollar, since last September, has only gone down by 11%, but oil prices have skyrocketed far more than that. If people are selling dollars for oil, then obviously the exchange rate, vis-à-vis other currencies, doesn’t go down.”

Central banks, I think, unlike this particular economist, understand that. So if they want to make sure that the value of their dollar-denominated assets don’t go down vis-à-vis other currency-denominated assets, the easiest way for them to do that is by buying commodities like gold.

AUDIENCE: They haven’t done that.

DR. BENN STEIL: They haven’t – well, they haven’t done it yet. But you understand that at some point, you reach a sort of tipping point. In other words, government officials tend to believe that the private market is full of herders, speculators who tend to move in one direction or another en masse, at any given point in time.

Central bankers definitely herd in their behaviour. That’s what they did in the 1990s when they all started selling gold. So it wouldn’t be particularly surprising if they all started buying commodities at the same time as well.



Jason Hommel