GoldCore Questions On Comex Silver Default Due To Secret Buying By Russian Billionaire, Chinese Traders and People's Bank Of China

Tyler Durden's picture

From Gold Core

Comex Silver Default Due To Secret Buing By Russian Billionaire, Chinese Traders and People's Bank Of China?

Gold rose to new record nominal highs at $1,540.85/oz in early Asian trading last night. Silver and gold remain very close to nominal highs today as the beleaguered U.S. dollar remains under pressure due to ultra loose U.S. monetary policies, deepening inflationary price pressures and concerns about the feeble economic recovery.

 
Gold has risen 8% this month and silver 28% due to the very poor U.S. monetary and fiscal position, the Eurozone debt crisis and in the background the Japanese nuclear crisis and geopolitical instability in the Africa and the Middle East. This is continuing to lead to diversification into the precious metals. 

COMEX Silver Default?

A number of readers contacted us yesterday to comment critically on our advice to “as ever” . . .  “ignore the daily noise and focus on the long term and the fundamentals driving these markets.”


Comex Silver Inventory Data

They felt that it was linked to the paragraph above regarding a possible COMEX default and was suggesting that rumours of a run on COMEX depositories was “noise”.

We were not suggesting that and with hindsight the juxtaposition of this sentence in the immediate aftermath of the paragraph regarding the COMEX was unfortunate and ripe for misinterpretation.

Let us reiterate a COMEX default on delivery of precious metals and specifically of silver bullion bars is far from “noise”. It is of significant importance and that is why we have covered its possibility for some months. A COMEX default would have massive ramifications for precious metals markets, for the wider commodity markets, for the dollar, for fiat currencies and for our modern financial system.

Silver surged 3.4% yesterday to settle at a 31 year nominal high and rose by $1.55 on the day. Silver is up some 28% in April alone. The last time this happened is when Warren Buffett took a large stake in silver in 1987 and there were rumours of Buffett “cornering the market”.

Silver remains in backwardation and the possibility of a COMEX default cannot be ruled out – especially as silver bullion inventories are very small vis-à-vis possible capital allocations to silver in the coming weeks and months. 

The possibility of an attempted cornering of the silver market through buying and taking delivery of physical bullion remains real and would likely lead to a massive short squeeze which could see silver surge to well over its inflation adjusted high of $140/oz.

Indeed, a recent article in the Financial Times suggested that private or state interests with very deep pockets are attempting to corner the silver market. Bizarrely, this massive story which mooted the possibility of Russian billionaires, Chinese traders and even the People’s Bank of China and other central banks secretly buying silver, has subsequently been barely reported or commented on.

There are now two “conspiracy theories”. One is the long side conspiracy theory which claims, a la the FT, that there are foreign private and state actors attempting to corner the silver market through secret buying.

The other is the more long standing short side conspiracy theory which has gained credence in recent months due to the CFTC’s investigation into silver manipulation by Wall Street banks, such as JP Morgan, who have massive concentrated positions. This theory has been backed up by some circumstantial evidence by GATA and has recently gone “viral” through the campaign of financial journalist Max Keiser.

The theories are not mutually exclusive and may be true. Indeed, Chinese, Russian and other private interests may be cornering the physical market in an effort to end manipulation of the silver market by Wall Street banks in order to ensure the silver price rises very sharply and creates significant profits on their silver bullion holdings.

Indeed, if the People’s Bank of China is involved – profit may not be the end game rather the positioning of the Chinese yuan as the new reserve currency through use of gold and silver bullion reserves.
Bloomberg Link Precious Metals Conference

The Bloomberg Link Precious Metals Conference heard a wide range of opinions from precious metal experts and mining executives. The vast majority believed that gold and silver’s strong fundamentals (especially due to anaemic supply and strong demand) should result in prices continuing to rise in the coming years.

The knowledge amongst the participants regarding the fundamentals is in stark contrast to many so called financial or market experts in the press who continue to be misinformed regarding the gold and silver markets (see news).

The knowledge amongst the participants is also in stark contrast to much of the western public (particularly in European countries), many of whom continue to believe that “cash is king” and remain unaware that they are very exposed to sovereign debt default risk, currency debasement and inflation.

The one participant who was bearish on silver was William Hamelin, the president of Ames Goldsmith Corp., who forecast a drop to $35.85 by year-end. Hamelin’s company processes silver for use in a number of consumer products, such as electronic components, batteries and photography.

Gold in Euros to Play Catch Up?
Gold’s recent rise has not been solely US dollar related as gold has risen to new record nominal highs in British pounds and yen. Gold has underperformed in euros recently and yet remains only 3.7% below the record nominal high of €1,072/oz seen four months ago in December 2010.

The euro’s strength is not due to German economic strength or due to positive fundamentals rather it is purely due to the fundamentals of the dollar, the pound, the yen and other fiat currencies being very poor. It also may be due to short covering as those short the euro are forced to buy back positions.


Gold in EUR – January 2010 to April 2011

Gold’s continuing strength in euros suggests that the recent bout of euro strength versus the dollar and other fiat currencies will be short lived and the euro will come under pressure again in the coming months.

Gold in euros has risen 2% in April. It will be interesting to see if euro gold replicates the performance of April and May last year when Eurozone sovereign debt concerns saw gold rise to €825/oz to over €1,000/oz prior to a correction. Previous resistance at €1,000/oz gold looks to be strong support for gold.

NEWS

(Bloomberg) -- Silver May Jump to $62 an Ounce by Yearend, McGhee Says

Silver prices may climb to $62 an ounce by yearend, Frank McGhee, the head dealer at Integrated Brokerage Services, said today at the Bloomberg Link Precious Metals Conference in New York.

The current rally is “very different” from the jump in prices in the 1970s, and there is “no manipulation” in the market, he said.

(Bloomberg) -- Silver May Rise to $55 an Ounce by Yearend, Coeur’s Wheeler Says

Silver may rise to $55 an ounce by the end of year, Dennis Wheeler, the chief executive offer of Coeur d’Alene Mines Corp., the largest U.S. silver producer, said today at the Bloomberg Link Precious Metals Conference in New York.

“Silver has clearly become money,” Wheeler said. Industrial demand for the metal “continues to grow,” he said.

(Bloomberg) -- Silver Rally No Bubble as Price Will Top Record, Coeur Says

The rally in silver to a 31-year high in New York shows no sign of ending because tight supply and robust demand will send the metal to a record, according to Coeur d’Alene Mines Corp., the largest U.S. producer.

 “We’re in a legitimate market driven by financial interest in silver and strong industrial demand,” Chief Executive Officer Dennis Wheeler said today at the Bloomberg Link Precious Metals Conference in New York. “Supplies are relatively inelastic.”

Silver has surged 162 percent in the past year, outpacing the 31 percent gain in gold. Investment demand for silver jumped 40 percent in 2010 as inflation rose, currencies lost value and Europe’s debt crisis escalated, said researcher GFMS Ltd. Industrial use gained 21 percent last year and may climb to a record this year, London-based GFMS said.

The rally is “very different” from the surge in the late 1970s, when the Hunt brothers tried to corner the market, and in 1980, when prices touched a record $50.35 an ounce, Frank McGhee, the head dealer at Integrated Brokerage Services, said at the conference.

“There is no manipulation going on in this market,” McGhee said. “It does not take a lot to stop the market until this market decides to go. I’d like to categorize silver as a freight train.”

Silver futures for July delivery rose $1.554, or 3.4 percent, to close at $47.541 on the Comex in New York. Silver reached $49.845 on April 25.

Older Mines

Discovering new deposits has become more difficult, while “older mines cease production at a time when demand continues to grow,” said Wheeler, whose company is based in Coeur d’Alene, Idaho. High prices are not “a short-term phenomenon,” and the metal may jump to $55 by the end of 2011, he said.  Integrated Brokerage’s McGhee predicted $62.

Not everyone is bullish on silver. William Hamelin, the president of Ames Goldsmith Corp., forecast a drop to $35.85 by year-end. Some manufacturers are “leaning” toward using more substitutes, including copper and nickel, after prices surged, he said.

Coeur d’Alene, which is based in the Idaho city of the same name, fell 51 cents, or 1.6 percent, to settle at $31.70 in New York Stock Exchange composite trading. The shares have jumped 84 percent in the past year, compared with a 19 percent gain for the Russell 2000 Index.

(Bloomberg) -- Emerging Market Nations to Buy Gold, World Gold Council Says

Emerging market nations will be major purchasers of gold in the coming years, George Milling- Stanley, managing director for government affairs at the World Gold Council, said today at the Bloomberg Link Precious Metals conference in New York.

“China and the BRICs in general” are “the kind of countries we expect to see as gold buyers going forward,” Milling-Stanley said. China’s imports have risen “dramatically” in the last 12 months, he said.

(Bloomberg) -- Central Banks, IMF Gold Sales at 53.1 Tons in Current Accord

European central banks and the International Monetary Fund sold 53.1 metric tons of gold so far in the current central bank gold agreement which began September, the World Gold Council said.

Euro zone banks sold 0.9 ton of the metal in the period, the council said today in an e-mailed report.

(Bloomberg) -- Money Creation Will Boost Gold Prices, Cuggino Says

Money creation, increasing liquidity and the global macroeconomic environment will continue to boost gold prices, Michael Cuggino, the president and portfolio manager of Permanent Portfolio Family of Funds, said today at the Bloomberg Link Precious Metals Conference in New York.

(Bloomberg) -- Gold Will Climb to $1,650 an Ounce by Yearend, Rhind Says

Gold prices will climb to $1,650 an ounce by yearend, William Rhind, the head of sales and marketing at ETFS Marketing LLC, said today at the Bloomberg Link Precious Metals Conference in New York.
Most retail investors are still “not participating” in the gold market, and more buying would be “bullish” for the market, Rhind said.

(Bloomberg) -- Gold Will Climb to $1,575 an Ounce by Yearend, Anderson Says

Gold prices will climb to $1,575 an ounce by yearend, Thomas Anderson, the vice president and global head of ETF strategy and research at State Street Global Advisors, said today at the Bloomberg Link Precious Metals Conference in New York.

Investors are purchasing the metal for “wealth preservation” and to take “risk out of” their overall portfolios, Anderson said.

(Bloomberg) -- Lots of ‘Bullish’ Fundamentals for Gold, Arrowhawk’s Fan Says

There are lots of “bullish” fundamentals that will continue to support gold prices, and negative real interest rates make the metal “attractive,” Jennifer Fan, a partner and senior portfolio manager at Arrowhawk Capital Partners, said today at the Bloomberg Link Precious Metals Conference in New York.

(Bloomberg) -- Casimir Capital’s Sands ‘Very Bullish’ on ‘Going Higher’ Gold

Richard Sands, president and chief executive officer at Casimir Capital LP, said he is “very bullish” on gold. “We think it’s going higher,” Sands said during the Bloomberg Link Precious Metals conference in New York.

Earlier, George Gero, vice president-global futures at RBC Capital Markets, said the precious metal’s recent purchasers were “weak buyers” who bought the commodity for “momentum reasons.” The metal functions as an “additional, alternate currency,” Gero said.

(Bloomberg) -- Platinum May Climb to $3,000/Oz, Stillwater’s Mcallister Says

The price of platinum may climb to $3,000 an ounce and palladium prices to between $1,500 and $2,000 an ounce over the next five years, Francis McAllister, chairman and chief executive officer at the Stillwater Mining Company, said today at the Bloomberg Link Precious Metals conference in New York.

While platinum will remain the more expensive of the two metals, the gap between their prices will narrow, he said. Demand for the metals from the auto industry, particularly in China, will drive prices, he said.

(Bloomberg) -- PGM Supply Can’t Keep Up With Demand, CPM Group’s Rannestad Says

Platinum group metals supply can’t keep up with demand, Erica Rannestad, commodities analyst at CPM
Group, said today at the Bloomberg Link Precious Metals conference in New York. “The fundamentals are really tight,” she told the audience.

(Bloomberg) -- PGM Demand to Outstrip Supply on Auto Demand, TMR’s Lifton Says

Demand for platinum group metals will continue to outstrip supplies as long as the auto industry uses catalytic converters, Jack Lifton, founding principal of Technology Metals Research LLC, said today at the Bloomberg Link Precious Metals conference in New York.

(Bloomberg) -- Gold Luring Central-Bank Buyers May Extend Record Rally in Price

 Central banks that were net sellers of gold a decade ago are buying the precious metal to reduce their reliance on the dollar as a reserve currency, signaling demand that may extend a record rally in prices.

As developing countries accelerate purchases, gold may reach $2,000 an ounce this year, compared with a record of $1,538.80 yesterday in New York, said Robert McEwen, the chief executive officer of producer U.S. Gold Corp. Euro Pacific Capital’s Michael Pento, who correctly predicted gold’s highs for the past two years, forecast a 2011 high of $1,600.

Prices reached a record 14 times this month on demand from investors seeking an alternative to the dollar after the currency slumped to the lowest since 2009, U.S. debt widened, and the Federal Reserve signaled April 27 that borrowing costs will remain near zero percent for an extended period. The economy in China, the biggest foreign holder of U.S. Treasuries, grew 9.7 percent in the first quarter.

“China is out to have more gold than America, and Russia is aspiring to the same,” McEwen said yesterday in an interview in New York. “When you have debt, you don’t have a lot of flexibility. China wants to show its currency has more backing than the U.S.”

In 2010, central banks became net buyers for the first time in two decades, adding 87 metric tons in official-sector purchases by countries including Bolivia, Sri Lanka and Mauritius, according to World Gold Council data. China, with more than $3 trillion in foreign-currency reserves, plans to set up new funds to invest in precious metals, Century Weekly reported this week. Russia purchased 8 tons of gold in the first quarter.

China’s Gold Reserves

China, which has just 1.6 percent of its reserves in gold, may invest more than $1 trillion in bullion, Pento said. “China wants to be an international player, and they need to own more gold than they currently have.”

The U.S. Treasury Department projects the government could reach its debt ceiling of $14.3 trillion as soon as mid-May and run out of options for avoiding default by early July. The Fed has kept its benchmark rate between zero percent and 0.25 percent since December 2008 to help stimulate the economy, driving the dollar down 11 percent against a basket of six major currencies during the past year.

“Until monetary policy changes, you’re going to continue to see gold go up,” said Michael Cuggino, who helps manage $12 billion at Permanent Portfolio Funds in San Francisco.

“Ultimately the best thing we can do to create strong fundamentals for the dollar in the medium term is first, keep inflation low, which maintains the buying power of the dollar, and second, create a stronger economy,” Fed Chairman Ben S. Bernanke said on April 27.

U.S. Reserves

As of April, China was the sixth-largest official holder of gold, with 1,054.1 tons, according to World Gold Council estimates. The U.S. has the most, with 8,133.5 tons, or 74.8 percent of the nation’s currency reserves, council data show.

Central-bank buying may have the same impact on gold as the introduction of exchange-traded funds, Cuggino said. Prices have more than tripled since the SPDR Gold Trust, the biggest ETF backed by bullion, was introduced in November 2004.

Central banks in emerging markets may aim to hold 2 percent to 8 percent of their foreign-currency reserves in gold, Francisco Blanch, the head of commodities research at Bank of America Merrill Lynch in New York, said in an interview.

Gold is “close to” its cyclical high, said Blanch, who expects the metal to average $1,500 this year.
Gold’s Enemies

“The enemies of gold are rising interest rates and a balanced budget,” said Pento of Euro Pacific Capital in New York. “I look for a summer swoon once Bernanke exits the bond market. You’re going to have a temporary rise in real interest rates.”

The Fed said it would buy $600 billion in U.S. Treasuries through June.

The Federal Funds rate would have to rise to “Volcker” levels before gold enters a bear market, said Gold Corp.’s McEwen, who expects the metal to rise to $5,000 over three to four years.

Prices have advanced 7.7 percent this year, extending a decade of gains in which gold jumped sixfold from a low in 1999. The all-time inflation adjusted record is $2,338.92, based on the value on Jan. 21, 1980, according to a calculator on the Web site of the Federal Reserve Bank of Minneapolis.

Former Fed Chairman Paul Volcker ended gold’s rally to a then-record $873 by raising borrowing costs to 20 percent in March 1980.

 Silver Adjusted for Inflation – (U.S. Urban consumers price index) – April 1971 to April 2011

(Irish Times)-- Stock Take - Proinsias O'Mahony:  Silver Linings

A fortnight ago, this column warned that silver, trading at $40, had “seldom looked so expensive”. It almost touched $50 on Monday.

Mea culpa? No. Such parabolic moves are typical of bubbles, which tend to unwind just as rapidly. Having traded more than 26 per cent above its 50-day moving average – no other commodity was remotely as overbought – the metal finally sold off, quickly falling below $45 on Tuesday. Silver has risen by almost 150 per cent over the last year and by 50 per cent since January. The gold:silver ratio, having this month fallen below 40:1 for the first time since 1983, fell to 32:1 on Monday.

Trading volumes, which hit record levels this week, have tripled over the same period. Leveraged exchange-traded funds, which allow traders to bet against silver, are also seeing record trading volumes. The huge volatility has resulted in a rise in margin requirements for speculators. Silver trading, it appears, is best left to those with strong stomachs.

(Editors Note: A little knowledge is a dangerous thing. This superficial analysis of silver purports to analyse the silver market and yet completely ignores the fundamental driver of prices in the silver market and other markets – supply and demand. It also completely ignores the fact that silver is near record nominal highs and well below real inflation adjusted highs of $140/oz (see chart above). It talks about “silver trading” being best left to “strong stomachs”. This is true however trading and speculation is in large part why wealth has been decimated in recent years and passive allocation and diversification into safer assets would be more prudent advice then superficial analysis regarding trading silver. The article is indicative of the lack of understanding about gold and silver as safe haven diversifications. As the old expression goes some “know the price of everything but the value of nothing”.)

(Miningweekly.com) – Old gold fundamentals are 'passe' – Peter Munk

The traditional supply and demand fundamentals that have determined the gold price in previous decades no longer apply, Barrick Gold chairperson and founder Peter Munk asserted on Wednesday.

Gold prices, which reached record highs above $1 520/oz on Wednesday, are being driven by investors looking for security, and looking to protect wealth, he said at the annual shareholders meeting of the world's biggest gold company.

Investment demand exceeded jewellery demand for gold in 2010 for the first time, and some analysts have suggested this puts the market in a precarious position, as prices could fall sharply if investor demand growth slowed or reversed.

But Munk insisted that the old dynamics of physical demand have lost their importance.

“Gold today is no longer related to a normal economic cycle of supply and demand, jewellery and Indian wedding seasons...” he said.

“All those things are passe, forget about them.”

Gold is being driven by “a fundamental, global and growing insecurity, a fundamental, global and growing lack of confidence of the world in everything they were brought up to believe in”.

All this means that “gold's future is assured”, Munk said.

“Because ultimately more and more people every day looking for security and looking to protect wealth are driven to gold.”

Speaking earlier, CEO Aaron Regent said Barrick remains very positive on the outlook for gold, which is proving to be the “currency of choice as the ultimate store of value”.

Barrick reported a 22% increase in first-quarter net profit on Wednesday, thanks mainly to higher bullion prices

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Citxmech's picture

I love how you talk shit about Ag being in a bubble - but you think you can time the top...  What a crock.  Holding phyical I can't lose more than I've invested - And since my cost-average is still below $20/oz [even though I'm still buying every month] I really can't lose.  Buying puts or calls on leverage - THATs how you can lose your ass.  Holders of physical are preserving wealth.  You need to worry more about your position than ours.

PS  I note that you never comment on the inflationary influance of money-printing...  No smug "$5 to dig it out" answers for that charge?

Ahmeexnal's picture

MathMan, why don't you just go line up at Mickey Dees HR so you can be first dibs when the next round of hirings are announced?

Al Gorerhythm's picture

 

Blythe at the controls, Comex CEO in Tower.

3:29:21 New York TRACON: "Cactus 1529, turn right 2-8-0, you can land runway one at Teterboro."

3:29:25 Flight 1549: "We can't do it."

3:29:26 New York TRACON: "OK, which runway would you like at Teterboro?"

3:29:28 Flight 1549: "We're gonna be in the Hudson."

SPLASH!   Cactus 1529? Cactus 1529? Respond.

 

wandstrasse's picture

sorry for the out of context post, but you cannot afford to miss the info:

Trash director Uwe Boll makes 'a thriller where a guy actually strikes back and starts killing all the investment bankers'

http://insidemovies.ew.com/2011/03/23/uwe-boll/

 

snowball777's picture

Please let it be a documentary. Please let it be a documentary. Please let it be a documentary.

narapoiddyslexia's picture

Ummm, why do you think this is out of context, again?

Forward History's picture

Ever seen "Rampage"? It's actually a pretty smart flick that is surprisingly well done. I am still dumbfounded that Uwe Boll made it.

Zedge Hero's picture

"chirp chirp" - Rampage is great, saw it a couple times and it give me tingles every time. The talk radio in the backround of that movie reminds me of Zero Hedge. 

snowball777's picture

What's the problem? Everyone here talks about how they buy a monsterbox every payday and have been burying rolls in their backyard since the Ford administration...there must be trillions of ounces above (or slightly below) ground by now. ;)

 

Treeplanter's picture

Trillions of ozs. hoarded. None for sale.  

Urban Redneck's picture

Sort of like a Poor Man's CBGA, trickle-up economics, force the big buyers to pay the same or higher premium that everyone else must.  

Hephasteus's picture

Nobody knows what you are talking about.

Temporalist's picture

Seems like last week it had just hit $50...oh it was last week.

cowdiddly's picture

Yes officer I know I buried that pvc pipe around here some where. Better take off those sunglasses I have seen a few rattlesnakes in the past around . Oh an watch out for that trip wire. Spikes? No those are not spikes, our native cane just sprouts at funny angles. Reciept with my name on it? Yes I traded that for this here rifle. Just You and your friend in the car came out here by yourself? Fade to strange banjo music.................ping, pa pling pling,

PLATA, PURA, PUTAS

Ahmeexnal's picture

Protect your PMs with APMs.

Bouncing Betty is your friend!

Creed's picture

The Federal Funds rate would have to rise to “Volcker” levels before gold enters a bear market, said Gold Corp.’s McEwen, who expects the metal to rise to $5,000 over three to four years.

 

using a GSR of 30, $5k gold would equal $166.6 silver

TeMpTeK's picture

Fastmoney says Silver is in a bubble yesterday....quick,... Head for the Doors!

http://www.youtube.com/watch?v=VdfoNb4x0j0

Hephasteus's picture

Yahoo says billions globally watched some wedding.

People lie.

CH1's picture

FT is putting up a trial baloon.

Rather than "JPM was caught in a short squeeze, after long-term naked shorting and other manipulations, which Comex ignored," it will be "evil speculators tried to corner the market."

 

DeadFred's picture

So let's send out the National Guard to confiscate their gold and silver.  Beware, they could sell that story to the masses.

The Axe's picture

Excuse me....come up from the boiler room....please.

sunnydays's picture

This last week I have never seen so many anti silver articles on all the financial pages.

From Seeking Alpha, Kitco, and others they have had one analyst after another saying "Don't buy silver, about to drop to the teens - it is over bought etc". 

It seems they brought out every media person they could to try and scare the people.

 

Now if this is correct.... then we will have default.  Are 108 MILLION ounces really standing for delivery? -  Sirens ahead and it won't just be in the 50's that silver will be at - by the end of May.... think triple digits!

 

http://harveyorgan.blogspot.com/

Before beginning, Adrian Douglas of GATA and Market Force Analysis has just commented that the options exercised in gold for the month of May totalled an astronomical 18,366 or 1.8366 million oz of gold. In silver he announced that 21,721 contracts or 108 million oz of silver were exercised.
If this is true, either Blythe asks the Fed to start printing massive dollars or the Comex goes belly-up.
I am in the process of verifying this and I will inform you.  If true this is a major development.

here is Adrian's comments:


In a stunning development yesterday 18,366 MAY GOLD CALL options were EXERCISED for futures contracts and 21,721 MAY SILVER CALL options were EXERCISED for futures. If these are not settled in a backroom cash deal for large premiums a default is looming!
Cheers
Adrian

 

 

overmedicatedundersexed's picture

wynter benton, you magnificent bastard!!

sunnydays's picture

I can tell he does not like Eric Sprott.  Wow over and over again saying Eric is the only reason silver is high and implying Eric is ripping people off. 

 

Oh besides the sell sell sell sell any silver you have, because it will only drop from here.

 

Math man and him must be same person and is this Jon Nadler's other persona?

 

floydian slip's picture

I read 321 gold every day for people like stewart thompson and daryl shcoon

but when i saw this(link below) and the article bob wrote the other day, seems like hes kinda losing it

http://dont-tread-on.me/my-skirmish-with-321gold/

John Wilmot's picture

The 'options monster' guy on fastmoney yesterday called the action in silver options a 'freakshow' and then promptly crapped himself on air...

HellFish's picture

 

Question to those in the know - what happens to the price of a share of SLV if COMEX defaults?  Does it go to zero or does it attempt to reflect the high market price of silver due to the squeeze?

Don't worry I'm just playing with SLV options.  I have my physical.

Thanks.

sharkbait's picture

I am in exactly the same bought.  Large position (large by my standards, which is not large for most people) SLV call position.

I beleive SLV will be fine in a COMEX default.

I am not in the COMEX default is imminent camp.

Snidley Whipsnae's picture

You're holding paper silver with a default possible and you are not concerned?

What kind of meds are you on?

DeadFred's picture

Your danger comes from the gov/regulatory response to the default.  Who knows what they could come up with but the downside could be sudden and huge.  I don't want to sound like a troll but we are in uncharted waters now.  I'm thrilled to see what is happening but the law of unusual events says when you are experiencing one unusual event don't be surprised if other unusal things occur as well.  I'd love to know how to hedge for governmental malevolence.

Snidley Whipsnae's picture

Get some of your assets out of the US... In fact, you should have done so years ago... This is a slow motion train wreck and it's been evident to me since before the housing bubble collapse. Anyone that has watched the secular rise in gold for the past 11 years and not thought 'what's up with this?', must have been living in a cave.

Did you see the new rules for aquiring a pass port? Draconian is the word that comes to my mind.

Tidewater's picture

My read is that, were the COMEX unable to deliver silver, volatility on the SLV would skyrocket as the market questioned the legitimacy of the trust's holdings and custodial integrity, even as the price of the metal surged. No net benefit to the long-term SLV holder there (relative to he who holds the metal). Because regardless of how the story ultimately shook out (BlackRock can back the trust, BlackRock can't back the trust), SLV would carry massive downside volatility relative to the physical commodity as the drama played out. We'd see large upside moves in SLV on the "new" fundamental information of a commodity shortage, and downside pressure on investor concerns of a run on the trust (again, regardless of how that question ultimate resolves). So you'd be better off holding the metal than irredeemable listed claims on the metal, obviously. At least that's my read and one way it could play out. That said, if the COMEX defaults I'd rather hold SLV than not hold it -- but I'd rather hold the metal than the iShares. And I do.

Piranhanoia's picture

then one must rely solely on faith in your masters.  Burn the witch, eh?

Temporalist's picture

It goes to zero because everyone with enough money redeems their shares for the physical and then only paper is left.  When the underlying asset goes there is nothing but lawsuits.

trav7777's picture

COMEX is price fixing mechanism...I don't even know why they bother with this legacy function of warehousing.  They should leave that to real buyers and sellers.

CD's picture

Wouldn't that be because then the sellers might actually have to put up physical collateral for the paper being sold...?

Silver Shield's picture

At some point you will not be able to trade your trash/cash for real money.

http://dont-tread-on.me/2011-doom-is-6-months-away/

falak pema's picture

this guy's a few years ahead of us...but its pointing that a way...

floydian slip's picture

nice site  :)

 

liked the way you got bob all undie bunched lol

Forward History's picture

It really pays to dabble in numismatics as well when you're looking for the best bang for your buck. I never buy silver at spot. Here's one of my latest hits: 1988S Olympic Silver dollar: Melt: ~36$. Paid: $10.

cossack55's picture

I'll share another trick. Look for sports "medallions" which many are 1 oz .999 which you can often pickup way less than spot. Good hunting.

Snidley Whipsnae's picture

Yeah, I bought 20 'Joe Camel' medallions that are 999 silver 1oz for cheap about 2 years ago...paid about 12 bucks each for them...looking good now...Few people wanted the 'Joe Camel' collectibles cause smoking has been villified...but, silver is silver no matter the form. I look for this stuff at flea markets where many times vendors are selling way under spot.