(Rock crushes Paper, Paper does not cover Rock!)
Silver Stock Report
by Jason Hommel, August 15th, 2008
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.
I’ve never seen that before.
David Bond notes that when silver hit $21/oz. about 5 months ago, the excuse was that the dealers were out because silver hit new highs, and the public was buying, not selling. Now, since silver has hit new lows, the public is still buying and not selling.
For 5 months now, nobody has had 100 ounce silver bars in quantity, over 100 of them, available for immediate delivery. Well, that’s not true, there have been reports here and there of one such lot, on occasion. A mere 10,000 oz. has popped up from time to time.
But for the most part, for most of the last 5 months, if you wanted 100 oz. silver bars, the wait would be 8-10 weeks from Johnson Matthey or NWT Mint, the only two places that make them anymore.
During the last 5 months, Silver Eagles have been rationed by the U.S. Mint, who makes the excuse that they cannot find or source silver blanks fast enough, even though they are making twice as many this year than last year.
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.
Many of the dealers above will buy paper futures to offset the silver that they sell. They don’t take delivery, since the public never buys 1000 oz. bars from them. Instead, they use futures contracts to offset any losses. They intend to sell the futures for the cash to buy the physical silver “from the public” when it “comes in the door”. Thus, they can sell physical product if they have it, even if they paid more for it, simply by buying futures contracts. So, it’s not a case of them being unwilling to part with silver that they bought at higher prices. They make money on the immediate spread of the immediate buy and sell.
Think of it. If you could make 1% every week, do you know how much that compounds to in over a year?
The compound interest rate calculator tells the tale:
The problem is that the public is no longer selling physical. The wise ones who have been educated are buying on the dips. And new public buyers enter the market when the silver price breaks to new highs.
So, the paper shorts are cornered by the physical market, who is now squeezing the refiners.
I’ve heard two rumors now that there might be a large buyer who wants silver, and is manipulating the price lower, temporarily, to try to lock in a low price to get it.
The first rumor was at the yahoo chat boards, the second rumor was in the musings at http://silveraxis.com/. Who knows if such rumors are true.
Here’s a great chart that shows that the silver price has likely bottomed out in the up trend channel.
It seems to me that the silver price should about double, to about $30, within about 6 months, to a year at the most, at a minimum.
On the other hand, if the paper market sizes up, or if the physical market continues to disconnect, who knows what the price will be, it could be much higher.
Price doesn’t mean anything if there is no product available.
A man emailed me tonight, and asked, “What is a reasonable price to pay to get 10,000 oz. of silver in 100 oz. bar form?” It used to be about 50 to 70 cents over spot. But I no longer know. You cannot find such silver in such quantity available anywhere.
I continue to offer free advertising to anyone who has such silver in size. I rarely hear anything about such silver in such size from my 80,000 readers. When I do, it’s usually sold out within days. But I can no longer offer free advertising, since a few new dealers turned out to be scammers. Instead, if anyone has such silver in size, they can sell it to the dealers listed above, they are all buying, and desperate to buy. And they will all pay more than the refiners will. All any silver seller needs to do is to ship the silver to the trusted dealers above. They all have cash, ready to pay for silver.
My advertiser, http://www.milesfranklin.com/splash.asp had 50,000 ounces of Silver Eagles a while ago, but they cost a few cents more than the guys who are all sold out now. I’m not sure what they have today.
So here’s what the shortages mean. The public has turned buyer, 5 months ago, and has remained a buyer, all the way down on this dip, ever since. This is a monumental sea change in the silver market.
Dealers used to buy more from the public than the public sold, but not any longer. Dealers used to think that meant that “silver is abundant”, and so they would not carry any inventory, but rather, they would sell the extra to the largest player in the industry, the “refiners” or the largest refiner, such as Johnson Matthey. But they no longer have any silver to sell the refiner, and have little for the public, either. This helps to explain why Johnson Matthey is taking 8-10 weeks to make 100 oz. bars. I think it’s not a shortage of manufacturing capacity, but rather, a shortage of silver. If you were JM, and if you used to regularly buy silver from the public at 1% under spot, you would be in no rush to buy silver at spot from the COMEX either, but that’s what they need to do to remain reputable, and to catch up on orders. But there is a problem. I hear that JM is 500,000 ounces behind. Also, maybe JM had orders to deliver to the COMEX? I hear that you cannot have both a long and short position at the same time!
Scorners and doubters claim that the public ought to buy 1000 oz. bars from the COMEX, or the dealers should, and “clean them out”. But that’s not our job. It’s the job of refiners or mints like JM to buy those clunkers and turn them into retail product.
It’s also the job of the Perth Mint. This is why I raked the Perth Mint over the coals for having run out of silver. They never should. They are supposed to have $880 million worth of precious metal to be used to make inventory available, so they should never run out, but they did, as I documented. A day or so ago, an internet email went out promoting Perth Mint, sent by Peter Schiff. I spoke with Peter about Perth, so he should know better. His ad contained a blatant lie:
But what might happen if demand for gold outpaces Perth Mint’s supply?
It can’t happen – the Mint literally cannot run out of metals.
Amazing hubris of them to say that what happened, as I documented in over 10 emails, containing shortage reports at Perth from over 50 readers, cannot happen.
Perth Mint Crisis Watch 5 June 6, 2008
People in Australia may wish to shop at the following sources, instead:
www.ainsliebullion.com.au/ in Brisbane
www.ausbullion.com.au/ in Sydney
Another source: ebay.com
Silver at ebay.com is now selling at $4/oz. over spot. But that’s likely because bids were placed before the current price dip. But we should watch to see if the price premium for physical, instead of paper, grows ever larger.
Larger traders may wish to purchase 1000 oz. silver bars directly from the refiners of the world, instead of waiting 2.5 months for 100 oz. bars:
In the long run, as silver prices outpace everything else, the cost to refine silver into rounds or bars will dramatically decrease, relative to the price of silver. So if you plan on selling silver when the price is 20 times higher, refining cost should be about 1/20th the cost that they are now, and thus, buying cheaper 1000 oz. bars, if you can afford and find and get the physical bars, would probably be wise.
But there are shortages of 1000 oz. bars, too. Remember there are both position limits, and potentially delivery limits. Position limits are 7.5 million oz., or 1500 contracts for the spot month.
Another form of silver to consider are the 90% bags of old silver coinage. Minting costs for 1 oz. silver rounds, these days, is about $1.50 per coin. Eagles sell for $1.25 over spot to the primary dealers if they buy in bulk orders of 25,000 oz. minimum, and then resell for about $2/oz. over spot. I’m sure it would be more expensive to mint silver dimes, which is why you cannot find silver 1/10th oz. pieces! Yet, you can buy a silver dime for under $1 each! Thus, when you buy silver dimes, the silver itself is essentially free, since the product sells for less than the minting costs!
Some of my readers think my overall facts on fundamentals of the silver market are wrong, since the price is “low”. No, my facts are correct. The fact is that the silver shortages were entirely predictable, and were entirely predicted. If anything, I’ve warned about this for so long, some people think I’ve been crying “wolf”. But price manipulation and price fixing must result in shortages. That’s what happens with communism — Shortages.
The shortages confirm everything!
Get silver. If you can find it.
I hope and pray that the silver shortages will not eventually manifest as gas and milk shortages. That tends to happen as totalitarianism and communism runs unchecked, and when people fail to understand the importance of free markets, and when the authorities refuse to allow markets to function.
Once again, the beauty of silver and gold is that they are luxury items, and you cannot eat them. This is why higher prices for gold and silver should hurt nobody, and benefit everyone. Higher prices for precious metals make mining profitable, which should encourage byproduct production of essential things like copper, zinc, and lead, which the developing world desperately needs to be able to continue to industrialize, which will help them to modernize, and produce the food that the world needs.