(If you don’t understand this, ask any 12-year-old* to help you.)
Silver Stock Report
by Jason Hommel, August 31st, 2008
On August 23rd, I linked Ted Butler’s article, showcasing market manipulation in silver at the COMEX:
Ted Butler released an article “The Smoking Gun”, where he revealed that two banks sold 27,000 paper contracts for about 139 million ounces of silver, from July 1 to August 5th, which depressed the paper price at the COMEX. Many are saying this is Ted’s greatest article, as it is better proof of market manipulation than any other evidence we’ve ever seen.
Two days later, another man, Gene Arensberg, did some 7th grade math, and put the amount of the silver sold short into context for us.
“A short position of 33,805 contracts is a big number. It represents 169,025,000 ounces of silver. That is a net short position by two U.S. banks of 5,257 tonnes on silver worth about $2.7 billion at $16.00 the ounce.”
$2.7 billion worth of “silver sold” has important implications, as even more 7th Grade Math will show.
The CPM Group has estimated that out of the 550 million ounces of silver produce by the mines, only about 60 million ounces are purchased by investors annually; the rest, and more (from recycling and government selling) goes to industry, jewelry, and photography.
The 60 million ounces purchased by investors, at an average of $13/oz., as 7th Grade Math shows, is $780 million dollars, or less than $1 billion.
Interesting. Let’s use more 7th Grade Math to compare those two numbers. $2.7 billion divided by $.78 billion = 3.46.
See, two U.S. banks sold 3.46 times as much silver in a month, as investors worldwide, bought in an entire year.
Doing more math, we can divide annnual investor demand by 12 months, to see what investors buy in a typical month.
$.78 billion / 12 = $.065 billion, or $65 million.
Doing more math, we can compare what the two big banks sold in a month, to what investors buy in a month.
$2.7 billion / $.065 billion = 41.53
Wow. In one month, the banks sold 41.53 times as much silver promises as investors buy silver. No wonder the price went down.
But the idiots who don’t know basic 7th grade math, and who refuse to do 7th grade math, or who think those people who do know how to do 7th grade math must wear tinfoil hats or be some sort of “conspiracy theorists”, will say, shout, deny, and scream, “no manipulation here”. Right.
God I love 7th Grade Math. It cuts through all the lies. It reveals so much.
If two banks sold that much silver, then where is it? Who has it? Why isn’t it for sale?
Oh, that’s right, they didn’t sell silver. They sold paper promises to deliver silver, to gamblers who never take any chips off the table. See, that’s what even a 7th Grader can know if they do the basic math.
Parents & Teachers. Show your children this article. Teach them to apply 7th grade math to numbers in the real world. Show them how exciting math can be! They will need that skill. You might need them to have that skill. After all, what if your kids end up managing your money for you in the final years of your life?
Investing is not all that difficult. You just need to do the 7th grade math that very few people are willing or capable of doing.
Extra Credit: While the math in this article in 100% correct, the assumptions used for some of the starting figures have 3 minor mistakes. Identify and correct the mistakes.
Hints: At the top of this article, there are two sets of numbers used for the silver short positions of the banks; the larger number is their total short position, and the smaller number is the number of new short positions put on “in a month”. Which number should be used, and which number did I use? And was the time period exactly a month? And what was the dollar value of silver used to compare the two amounts of silver the same? And how would those changes affect the overall numbers?
Advanced essay questions: Is it fair to sell so much paper silver? Is it fair for me to compare paper silver to physical silver? Is it fair for people to sell what they don’t have? Is it fair to sell what you have borrowed from someone else? Is it fair to sell physical silver to the highest bidder? What’s the best way to deal with things that seem unfair? What is the most fair way to run an auction? what is the most fair way to set up a market? Do free markets ever need help being set up, or do they form on their own? How will teacher’s union’s pension plans perform in the future, given that none them can own real physical silver?
As a student of the silver market, these are some of the questions that I’m thinking about, and may be the subject of my future essays.
* 7th Grade is a U.S. designation for the school year of most 12 year olds. It is one of the last years of math before pre-algebra or sometimes algebra, which is often taught in the 8th grade, which is a form of math more advanced than is used here.
May I suggest to Meet up other Silver Stock Report readers at YOUR LOCAL COIN SHOP, on Tuesday, September 2, at 2PM.
Suppose if all buyers during a month show up all at once? Clearly, the shop will be sold out immediately, if it isn’t already. I think that would leave an impression on the owner.
This will serve several purposes:
1. You will find out that you are not alone.
2. You will impress upon your dealer the amount of demand for silver.
3. The coin shop owner will be more confident and more likely to raise his bids to get silver for everyone, so it’s in your own best long term interests to show up.
4. Be prepared to network with other buyers. Other buyers may have bars to sell if they are retired, and “all in”; they may have to sell bars for normal life expenses.
I suggest that everyone visit their favorite local coin shop on September 2, at 2PM. That’s Tuesday, 2 days from now. (TWO’s-Day) Easy to remember!