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Guest Post: Strong Indications of Gold & Silver Shortages

Tyler Durden's picture




 

Via Adrian Douglas Of Market Force Analysis

Strong Indications of Gold & Silver Shortages

Since reaching new highs at the end of 2010 gold and silver have been sold off, and the selling has been particularly intense in the last few days. The news on the economy is almost exclusively bullish for the precious metals. From the price action one might be falsely led to believe that investment demand for the precious metals is waning. On the contrary the data analysis I will show in this article reveals strong indications of growing shortages and furthermore that the gold and silver markets are approaching “tipping points” that will lead to an acceleration of price appreciation.

We will first consider silver because the data for silver is the most dramatic.

Figure 1

Figure 1 shows a cross plot of Comex silver futures open interest against the silver price since 2001. By looking at the data in this way the time element is removed and the relationship between open interest and price is revealed. On the left side of the chart the data falls within the green dotted ellipse. The long axis of the ellipse is slanted upwards which means that generally the data within the ellipse display a relationship wherein the price of silver increases as open interest increases and it falls as open interest declines. Within the green ellipse there are tightly packed clusters of data that have been enclosed in pink ellipses and are numbered from 1 through 4. Ellipse #1 is almost vertical; this data cluster is from the start of the bull market when silver was trading around $5/oz. Because this data cluster is almost vertical it means that at that time expansion of open interest did not result in an increase in price. In other words, there was sufficient supply of silver in the market that the commercials were ready to keep selling as many contracts short as speculators demanded. If all demand for contracts on the long side was met with eager short selling the price could never rise and it didn’t. The data within ellipse #1 demonstrate that whether the open interest was 60,000 contracts or 120,000 contracts the price remained around $5/oz. It can be seen, however, that this situation gradually changed. The data clusters 2, 3 and 4 are enclosed by ellipses whose long axes tip progressively more toward the horizontal as one goes toward the right of the chart. As the ellipse leans over it means that the price is becoming much more sensitive to the open interest. As open interest increases the sellers are only prepared to meet increasing demand from the speculators at ever increasing prices. The progressively decreasing slope of the long axes of the ellipses 1 through 4 is indicative of a tightening supply of physical silver. As the supply becomes tighter there are less willing sellers so there are only minimal increases in open interest for quite large increases in price.

The exciting revelation comes from ellipse #5 which is shown in red. This encompasses the open interest versus price data since silver went above $22/oz. The long axis of this ellipse is downward dipping. This means that as the price increases the open interest contracts! This means that in general existing shorts are covering their positions as the price rises. This is indicative of a looming chronic shortage. The owners of a commodity should be happy to sell at higher prices but that is not the case in silver. This shows that those who have committed to sell and don’t have the silver are buying back their commitments and those that have silver no longer want to sell it. There is no other way to interpret this change in relationship between open interest and price that has been developing over the last ten years. We have reached the tipping point where physical shortages are going to become more and more apparent.

John Embry in a recent interview with KWN explained how difficult it was to source physical silver for the Sprott Physical Silver Fund. In daily updates in the Midas column of www.lemetropolecafe.com I have shown how Comex silver inventories are shrinking and are not far from ten year lows. The Financial Times just reported on acute shortages of gold bars for investment in Asia.

Let’s now look at gold. Figure 2 shows a cross plot of Comex gold futures open interest against the gold price since 2001. There is a similar pattern to what was seen in silver except the lower volatility of gold results in the clusters being more tightly packed.

Figure 2

There are five ellipses shown in pink and numbered 1 through 5. The long axes of the ellipses tip toward the horizontal as one goes from left to right on the chart. Ellipse #1 encompasses data from very early in the bull market. The ellipse is almost vertical which means that at that time increased demand for gold futures was met willingly by the sellers such that increasing open interest resulted in only minor increases in price. It can be seen from ellipse #1 that an expansion of open interest from 100,000 contracts to 375,000 contracts resulted in the gold price increasing from $260/oz to $425/oz, an increase of $165/oz. The ellipse #5 shows that an increase of around 50,000 contracts (600,000 to 650,000) resulted in an increase in the gold price of almost $200/oz ($1200/oz to $1400/oz). Just as we saw with silver the tendency of the long axes of the ellipses to tilt over as we go from left to right on the chart is an indication of a growing shortage. Ellipse #6 has been marked in red. It is horizontal. That is not yet quite as dramatic as in the case of silver where the ellipse is downward sloping but nonetheless it is indicating a looming chronic physical shortage. This horizontal data cluster means that even as the price rises the sellers, considered overall as a group, can not be persuaded to sell more commitments to deliver gold in the future despite a rising price.

The clear trend in the data clusters that has developed over the last ten years indicates that the gold open interest will soon be declining with a rising price as is the case for silver. Taken together the data shows that in both gold and silver there is a growing reluctance of the traditional short sellers to meet rising demand even at elevated prices. This is strongly indicative of looming physical shortages. This conclusion is corroborated by many other market observations and anecdotal evidence. We are likely very close to the “tipping point” where shortages become exposed and a stampede of investors into precious metals to benefit from the accelerating prices will give rise to a feeding frenzy that will exacerbate the shortages.

Perversely the more the market becomes close to the tipping point the more we can expect the cartel of bullion banks to make bear raids as we have seen this last week because they desperately need to cover their short positions. However, in the case of silver and soon to be the case with gold a negatively correlated open interest to price relationship means that lower prices lead to higher open interest; in other words there is no way to cover at lower prices; the only way to cover is at higher prices. As this becomes increasingly obvious to the cartel the severity of the bear raids will decrease, particularly when the premiums in the physical market are showing that the bear raids are stimulating massive physical offtake making the predicament of the cartel ever more precarious.

This makes the brouhaha about the CFTC imposing position limits on the Comex a complete joke because, as always, the regulators are going to be too late.

Just like all the other nefarious financial engineering schemes that are falling like houses of cards, the scam of selling precious metals that do not exist is fast approaching a rendezvous with its day of reckoning.

h/t Peter

 

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Sun, 01/16/2011 - 21:23 | 880673 Mr Lennon Hendrix
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PMs looking good out of the gate.  PMs continuing the checkmark move from the friday drop.  Moving with the dollar.  Platinum is loving life above $1800.  Lovin' it!

Sun, 01/16/2011 - 21:27 | 880684 CrockettAlmanac.com
CrockettAlmanac.com's picture

Lovin' it!

 

Isn't that the latest McDonald's slogan? Of course, like gold, you can't eat it.

Sun, 01/16/2011 - 22:12 | 880753 naughtius maximus
naughtius maximus's picture

goldschlager Bitchez!

Sun, 01/16/2011 - 22:15 | 880759 Armchair Bear
Armchair Bear's picture

Wooo Hooooo!!!!

 

That's MY way of sayin' it.

Mon, 01/17/2011 - 10:51 | 881534 breezer1
breezer1's picture

as opposed to mcnuggets which you shouldn't eat.

Sun, 01/16/2011 - 22:56 | 880804 DoChenRollingBearing
DoChenRollingBearing's picture

@ Mr Lennon

Happy Camper Bearing is loving the PMs doing good out of the gate, especially the recent nice runs in Pt and Pd.

Yum!

Shortages bitchez!

Sun, 01/16/2011 - 23:51 | 880867 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Platinum just dominated the market.  Did the trolls notice?  No, they were busy watching gold.  Monie moves in mysterious ways.  Silver, gold, and platinum track each other in the long run, because they are all perfect monie, but they do not (always) move the same in the short term.  So while silver and gold tested support, berated by all haters, platinum jumped up and took the torch.  Now the sisters will kick their captures in the nuts, and run out of the castle.  We will help them out of the gate, you and I, and as always, a reward for the return of the princesses will be offered.

Mon, 01/17/2011 - 02:11 | 880879 Al Gorerhythm
Al Gorerhythm's picture

@Bearing

Not so happy camper Al Go, is not lovin the shortage. Can't get mine, ordered since November.

Sun, 01/16/2011 - 23:26 | 880844 Bay of Pigs
Bay of Pigs's picture

Mr Jimmy,

Adrian Douglas and GATA are spot on. Add Turk, Embry, Russell, Butler and Organ and you have all you need. Most others (especially the deflationists) have been consistently bad at calling the PM's markets. ZH has been fantastic at bringing the suppession story to light.

Rock on Bitchez! BTFD.

Mon, 01/17/2011 - 13:01 | 881906 Stuck on Zero
Stuck on Zero's picture

Palladium may be the next metal to skyrocket in price.  Check out this:

New Glass Stronger and Tougher Than Steel

ScienceDaily (Jan. 11, 2011) — Glass stronger and tougher than steel? A new type of damage-tolerant metallic glass, demonstrating a strength and toughness beyond that of any known material, has been developed and tested by a collaboration of researchers with the U.S. Department of Energy (DOE)'s Lawrence Berkeley National Laboratory (Berkeley Lab)and the California Institute of Technology. What's more, even better versions of this new glass may be on the way.

 

http://www.sciencedaily.com/releases/2011/01/110110121709.htm

 

Sun, 01/16/2011 - 21:26 | 880683 RobotTrader
RobotTrader's picture

Platinum and Palladium haven't sold off at all.

More proof that higher gold prices are assured, but only if the economy continues to boom.  Buying gold and silver on the assumption that their price will rise when the economy collapses is a fool's errand.

Another stock to watch is PAL.  Unlikely to see a severe correction in gold as long as the palladium producers fail to sell off.

Global car sales are booming.  And once those Indian and Chinese finally migrate off the motor scooter and into a car, they feel rich and buy lots of gold jewelry for their wives and daughters.

Sun, 01/16/2011 - 21:33 | 880695 Everyman
Everyman's picture

NICE Lady!

There is a fear that the Chinese market for autos will collapse.

http://www.chinadaily.com.cn/china/2011-01/14/content_11849882.htm


Since Christmas Eve, the day after Beijing announced strict measures to limit the number of new cars in the capital, Liu has not received even one prospective buyer, let alone signed any contracts.

His showroom in Beijing's Chaoyang district, which sells China-made Chery models, could "encounter its first single-digit monthly sales before Chinese New Year", said the salesman, who started in the industry four years ago.

"We've heard the store will lay off 60 to 70 percent of its sales staff after the holiday," added Liu.

To ease the gridlock, city authorities will now issue just 20,000 new vehicle license plates a month, meaning annual sales will plunge from 891,000 units in 2010 to 240,000 units in 2011.

Sun, 01/16/2011 - 22:17 | 880764 Infinite QE
Infinite QE's picture

Beijing car sales may taper off due to this but outside of the two main cities, Beijing/Shanghai, car sales are parabolic. Nearly all being sold for cash. Certainly the larges t car market in the world.

 

 

Sun, 01/16/2011 - 23:17 | 880828 DarkMath
DarkMath's picture

"NICE Lady!"

I agree, I'd like to give her a pearl necklace myself.

Mon, 01/17/2011 - 04:15 | 881082 Sudden Debt
Sudden Debt's picture

ONLY IF SHE'S TRAINED IN THE ARTS OF KAMASUTRA!!

 

Sun, 01/16/2011 - 21:38 | 880702 True.North
True.North's picture

Agreed, PAL is a favorite as a mining stock to complement my physical stuff

Sun, 01/16/2011 - 21:45 | 880710 merehuman
merehuman's picture

junked. You need a seeing eye dog. Economy is booming and  gold will only go up as long as economy keeps booming?

You really need help.  That pretty girl is no substitude for truth you rotten liar!.

Sun, 01/16/2011 - 21:52 | 880720 Spalding_Smailes
Sun, 01/16/2011 - 22:08 | 880748 Double down
Double down's picture

Nah, she is Robo's get out of jail card.

You are a free man, Robo, keep trolling.

 

Sun, 01/16/2011 - 22:17 | 880765 Hephasteus
Hephasteus's picture

It's like playing connect the dots with katherine hepburn steading michael j foxes hand.

Mon, 01/17/2011 - 00:16 | 880902 JW n FL
JW n FL's picture

that was funny! quick junkin the funny guy(s), fucking cock blocking pricks.

Mon, 01/17/2011 - 00:18 | 880905 knukles
knukles's picture

Only a truly sick, twisted fuck could conjure any excuse junking such clarity of thought, my man.
BTW, they were only trying to connect one dot.

Mon, 01/17/2011 - 02:08 | 881017 merehuman
merehuman's picture

"they were only trying to connect one dot"  is funny.

Mon, 01/17/2011 - 02:20 | 881025 MsCreant
MsCreant's picture

I can't stop laughing. Katherine and Michael would laugh too.

Sun, 01/16/2011 - 22:15 | 880758 Aristarchan
Aristarchan's picture

My wife buys gold for herself.....if she put it all on at the same time, she would look like Goldfinger's christmas tree. Indian women have a thing for gold that goes beyond western comprehension.

Sun, 01/16/2011 - 22:16 | 880760 rosiescenario
rosiescenario's picture

"Buying gold and silver on the assumption that their price will rise when the economy collapses is a fool's errand."

 

...well, if the Fed's answer is to that is an even greater money dump, then the PM's will do even better in a collapsing economy since no one will want to hold paper...recall Weimar....as just one example.

 

ps...nice photo...is that the former Tunisian president's wife???

Sun, 01/16/2011 - 23:46 | 880861 JLee2027
JLee2027's picture

"Buying gold and silver on the assumption that their price will rise when the economy collapses is a fool's errand."

It's not the economy, it's the currency collapsing. 

Robo is a liar. See Robo, Junk Robo, and Never ever read Robo.

Sun, 01/16/2011 - 22:44 | 880787 DoChenRollingBearing
DoChenRollingBearing's picture

Well done Robo!

Your comments are always easier to digest when spiced up with some pretty pictures.

Sun, 01/16/2011 - 23:15 | 880823 CrashisOptimistic
CrashisOptimistic's picture

FYI sportsfans, unlike the USA, when a Chinese guy buys a new car, an old car somewhere is not junked because they are so new to the world of cars.  There ARE no old ones to be cut up as scrap.

Well, 2010 Chinese (excluding India) car purchases . . . about 17 million vehicles.  Give them just 10,000 miles / yr of driving (less than the US) and 25 miles per gallon and guess what, that's

10,000 / 25 = 400 gallons of gas.  42 gallons per barrel (approx with refining gains) and that's 9 barrels of oil per car X 17 million = 161 million barrels of oil or 440K barrels per day.

That's just from 2010's crop.  They are expecting to buy 21 million cars this year and 27 million next year.  This is a consumption increase of well over 1 million barrels per day just from China over the next 2 yrs.  Just from China.

Tra la.

 

Sun, 01/16/2011 - 23:22 | 880836 Dr. Gonzo
Dr. Gonzo's picture

If palladium diverges with silver again tomorrow I am going to trade 10oz for 8 kilos of silver. I am hope, hope, hoping this happens. Love the girl. 

Sun, 01/16/2011 - 23:47 | 880864 e_goldstein
e_goldstein's picture

of all the softcore porn on the internet, yours is the best.

Mon, 01/17/2011 - 01:18 | 880968 Dogfather
Dogfather's picture

FYI, it ain't softcore porn unless you see nipple...

Mon, 01/17/2011 - 00:13 | 880898 trav7777
trav7777's picture

notice how white she is

Mon, 01/17/2011 - 04:33 | 881087 Sudden Debt
Sudden Debt's picture

That's because woman like that are mostly kept in the bedroom and not outside in the sun ;)

Mon, 01/17/2011 - 09:52 | 881327 Arius
Arius's picture

Platinium and Palladium to the moon...be careful of the chinese...

Mon, 01/17/2011 - 11:34 | 881654 Savonarola
Savonarola's picture

If she had hairy armpits she'd be perfect.

Mon, 01/17/2011 - 13:06 | 881921 BrosMacManus
BrosMacManus's picture

wtF? you nasty...

Mon, 01/17/2011 - 17:35 | 882584 malek
malek's picture

As always it is most interesting what an (aspiring) manipulator is NOT talking about:

RT: "Buying gold and silver on the assumption that their price will rise when the economy collapses is a fool's errand."

But buying gold and silver on the assumption that their price will rise when the currency collapses is... ?

Sun, 01/16/2011 - 21:28 | 880687 HyperLazy
HyperLazy's picture

"...day of reckoning."

 

Can't wait, got my 4-D glasses and popcorn ready!

Sun, 01/16/2011 - 22:15 | 880756 naughtius maximus
naughtius maximus's picture

This guy has a system where you don't even need the special glasses! http://www.youtube.com/watch?v=Uef17zOCDb8&feature=player_embedded

Sun, 01/16/2011 - 21:30 | 880688 The Talmud Kid
The Talmud Kid's picture

I'm long the bullion and short the GLD.

Let's see what ya got CRIMEX.

Sun, 01/16/2011 - 22:12 | 880751 qrad
qrad's picture

nice strategy! you just have to cover the shorts, cash out and into physical before the dollars you make on your shorts won't buy the physical... hopefully that won't happen, but we must prepare for complete dollar death. keep posting your deliveries to http://standfordelivery.com

 

 

Sun, 01/16/2011 - 22:34 | 880775 The Talmud Kid
The Talmud Kid's picture

I'm long a few rolls of 1 oz AU/AG bullion coins from around 950 and 14 usds respectively, and short the GLD and SLV against at around 1200 and 28 usds.

Dislocation, bitchez.

Sun, 01/16/2011 - 22:16 | 880762 Armchair Bear
Armchair Bear's picture

CRIMEX...ha!

Sun, 01/16/2011 - 21:31 | 880690 BigJim
BigJim's picture

PMs cusping the Veblen Event Horizon.

Sun, 01/16/2011 - 21:44 | 880708 lawrence1
lawrence1's picture

What is the Veblen Event Horizon?  Or tell me where to look, thanks.

Sun, 01/16/2011 - 21:48 | 880716 smlbizman
smlbizman's picture

to late to turn back...

Sun, 01/16/2011 - 21:53 | 880722 lawrence1
lawrence1's picture

Thanks.

Sun, 01/16/2011 - 21:31 | 880691 gwar5
gwar5's picture

PM's is a way for me to get out of the dollar. If JP Morgue cheating makes me rich, that's their bad.

Sun, 01/16/2011 - 22:59 | 880807 DoChenRollingBearing
DoChenRollingBearing's picture

Yeah, TS JPM!

Sun, 01/16/2011 - 21:33 | 880692 Jace0228
Jace0228's picture

Silver / Gold
Bitchez!!

Sun, 01/16/2011 - 21:33 | 880697 Chappaquiddick
Chappaquiddick's picture

Tyler - you're welcome!

Sun, 01/16/2011 - 21:45 | 880709 smlbizman
smlbizman's picture

i don't know if this counts, but the silver market on ebay is really liquid with prices probably avg. 34 - 35 an ounce regardless of quantities . with a broader range of 39 to 33.

Sun, 01/16/2011 - 21:50 | 880719 merehuman
merehuman's picture

in the coinshop yesterday a lady brought in a 10 oz bar. It was a dark gray and had no shine or luster with chinese markings on it. The dealer took it for appraisal/verification since the lady now has doubts about her silver. As soon as she saw my shiny silvers she probably realized her 10 ozs were something other than 999 silver.

Sun, 01/16/2011 - 21:56 | 880729 smlbizman
smlbizman's picture

the coin shop i frequent has advised against poured bars....stick with the pressed...i ordered a 100 oz bar a week ago that has not shipped...

Sun, 01/16/2011 - 22:00 | 880737 lawrence1
lawrence1's picture

A dealer in NM recently bought some 30 fake silver pandas ... he learned this when I asked how he knew they were genuine so he tested one ... while upset, he nevertheless genuinely thanked me for alerting him.

 

Sun, 01/16/2011 - 23:15 | 880827 Eternal Student
Eternal Student's picture

That's hard to believe. Not much profit in the small silver pandas. Now gold pandas, I can believe. But silver? A lot more trouble for not much reward.

Mon, 01/17/2011 - 02:15 | 881020 merehuman
merehuman's picture

there is a sucker born every minute (PT Barnum) and the cute little fake coins are made in the thousands, not one at a time. You bet there is a profit.

They should have waited till the price was higher.Crooks are greedy and rash, their undoing. You hear that bernanke?

Mon, 01/17/2011 - 02:18 | 881023 Eternal Student
Eternal Student's picture

The trouble, of course, is that you have to deal with them thousands at a time, if you take that approach. Which isn't to say that it can't happen. But the sucker is more the person trying to go that route.

Mon, 01/17/2011 - 04:44 | 881094 Sudden Debt
Sudden Debt's picture

My first bullions I actually bought where silver panda's from 1999 in PCGS slabs pr70.

10 x 1 oz. I bought them for 25$ a piece 2 years ago and now they go for 10 times as much, 280$ on average.

My 2010 panda's are also worth 45$ per ounce which are also in slabs pr69 which I bought for 32$.

My second best buy where 20 x Lunar dragons 2000 which I bought at the beginning of 2010 for 23$ per ounce. I bought these because I'm from 76 and my constitution is dragon. Now they go for 60$ easy.

Another great buy where 200 English crowns from the end of the 1800's which I bought for 20$/pc on Ebay. You won't find these anymore at that price. The last time I checked they where about 100$ at least a piece.

 

Because everybody is buying silver, the rare pieces that where pretty cheap but where collector items all went pretty fast and are now locked in storage. Because they are now even more rare and the fact that the melters also got  a lot of old coins when silver went over 25$ their price will go up skyhigh also.

I also have a pretty large collection of peace dollars. About 2 years ago, they where concidered worthless coins. Now, their premium is going through the roof.

  

Mon, 01/17/2011 - 00:24 | 880913 FoodTiger
FoodTiger's picture

Don't buy your bullion from Walmart.

 

 

Mon, 01/17/2011 - 00:31 | 880923 knukles
knukles's picture

Upscale, go Target or Costco.  Hear tell they're gonna be makin' a Lambo-ginnie low rider drive thru window for the self-impressed. 

Mon, 01/17/2011 - 02:21 | 881026 merehuman
merehuman's picture

knuckles survived the depression of 2011

as a skilled comedian.

Merehuman got killed by the audience first day on stage.Beaten by his own violin.

Sun, 01/16/2011 - 22:03 | 880741 tmosley
tmosley's picture

For this very reason, I don't buy anything over 5 oz, sticking mainly to 1 oz bars and rounds.  Lately I like the rounds best, because you can flip them to test for silver content.  The ring is pretty obvious.  Sure, they are a pain in the ass to move around, but they are also a lot easier to spend and sell than large bars.

Sun, 01/16/2011 - 22:49 | 880795 DoChenRollingBearing
DoChenRollingBearing's picture

Despite the steep premia with Silver Eagles, that is what I buy (Gold Eagles as well).

Counterfeiting the 1 oz Eagles not only is harder, but would probably bring the Secret Service into action, as they are legal tender...

Also, Eagles are familiar to almost everyone in PMs, at least here in the USA.

Sun, 01/16/2011 - 22:16 | 880761 naughtius maximus
naughtius maximus's picture

I saw a 2011 year of the white metal rabbit Australia 1 oz coin sell for $45. People are insane. You can buy the same exact coin at a dealer for less than $35.

Sun, 01/16/2011 - 23:05 | 880812 Buzz Wired
Buzz Wired's picture

Not surprising. There are lots of ignorant sheeple out there.

Mon, 01/17/2011 - 02:29 | 881030 Lord Koos
Lord Koos's picture

Yep I see people on ebay paying more for 100 oz bars than the price at APMEX. 

Sun, 01/16/2011 - 22:20 | 880769 Armchair Bear
Armchair Bear's picture

"silver dime roll" going at spot...even uncirculated.

Sun, 01/16/2011 - 22:36 | 880779 smlbizman
smlbizman's picture

plus shipping...shipping has to be counnted towards ounce price...

Sun, 01/16/2011 - 23:51 | 880866 Armchair Bear
Armchair Bear's picture

with shipping

Mon, 01/17/2011 - 04:53 | 881103 ColonelCooper
ColonelCooper's picture

dimes, quarters and sometimes halves can quite often be had for their spot weight value.  Takes some patience though.  Hard to buy any real quantity that way.  Dollars have  pretty much moved to the stratosphere on premiums.

Mon, 01/17/2011 - 06:31 | 881135 Eric The Red
Eric The Red's picture

Let's say spot is 28.50, times the industry standard of .715 silver content per dollar face value, that's 20.38 per dollar face value to buy silver "at spot".  But realize that if you take your coins and walk down to the coin shop to sell them he's going to give you maybe 18.50 per dollar face.  You paid 20.38, can get 18.50.  So you still in effect paid about a 10% premium, even though you had it in your mind that you bought "at spot".  Not that there's anything wrong with that, but the point is keep your eye on the buy-sell spread, not the premium or discount to spot.  Same issue with silver rounds, peace dollars, sterling spoons, whatever.  

Mon, 01/17/2011 - 07:32 | 881152 ColonelCooper
ColonelCooper's picture

Your point on spread is valid, but I think not especially applicable to buying junk silver.  Most people buying junk are not looking to take profit in 30 days.  Spread always exists, thankfully, or else there would be no consistent market.  Your theory assumes that your only option for sale is to go to an unfamiliar coin shop and sell at less than melt.  I could just as easily re-sell that coin on E-Bay and keep the premium.  (or perhaps profit)

I think most people who buy phys. are aware of premiums and spread.  Most are long holders anyway.  I haven't heard from too many retail investors who are flipping coins, so to speak.

 

 

Mon, 01/17/2011 - 12:28 | 881800 Eric The Red
Eric The Red's picture

Yes I realize flipping coins is a bad idea.  But given my example above, if someone gets a roll of quarters for $204 I didn't want him thinking he had just gotten a tremendous deal.  Not that it's a horrible deal either but it's probably in the same ballpark as if he'd bought most any other form of silver.

Sun, 01/16/2011 - 23:09 | 880818 Bad Asset
Bad Asset's picture

I've been looking into old silver coins from panama on ebay.  they've got the silver percentage and grams of silver struck right onto the coin.

Mon, 01/17/2011 - 04:46 | 881095 Sudden Debt
Sudden Debt's picture

And they are just beautifull!

I also have quite a few.

 

I also have a lot of 1 peso silver star coins from Cuba. They also have the markings and are UBERCOOL to have :)

Sun, 01/16/2011 - 21:46 | 880712 lalit
lalit's picture

Sun, 01/16/2011 - 21:46 | 880713 gringo28
gringo28's picture

this is the best fucking chart and post i've seen on this site yet.

Sun, 01/16/2011 - 21:52 | 880721 New Revolution
New Revolution's picture

Silver vector buy point is $--.-0.   I'll give it as soon as it hits it and I load up.   Nothing is free.

Sun, 01/16/2011 - 21:54 | 880724 MsCreant
MsCreant's picture

Aberration

Statistical deviation

Aberrant nation

Convoluted communication

Aberrant reaction

Suppressed dissatisfaction

Abreaction

Trauma expressed action

If we could all unite around gold and silver, hell, even commodities period, we could end this. Let real things cost a lot. Let fake things die and fade while money rushes in to the real. Derivatives, derived from ponzi must die.  

Sun, 01/16/2011 - 22:15 | 880752 SWRichmond
SWRichmond's picture

Probably the most important things anyone can understand are these:

  1. Gold is money
  2. We are in a deleveraging / deflation
  3. Paper currency-thingies are inferior money, or not really money at all
  4. All things are deflating with respect to real money, some more than others.
  5. Paper currency-thingies are deflating with respect to real money (gold).
  6. The buying power of real money is increasing, just as one would expect in a deflation.
  7. The demand for real money is increasing, and it is becoming scarce, just as one would expect in a deflation.
Mon, 01/17/2011 - 00:42 | 880934 Dollar Damocles
Dollar Damocles's picture

Yep.  It was FOFOA that alerted me to the fact that a hyperinflation is really just deflation once you view gold as real money.  Everything else deflates in relationship to gold as capital flees risk.  Theoretically, the $ could be the numeraire that recieved an increase in purchasing power due to capital flight if it wasn't being trashed.  Think back the great depression, the last great deflation.  The dollar increased in purchasing power...  but the dollar WAS golden!  People tend to forget that Bretton woods would have never happened had the dollar not been backed by gold.  Gold is the only reason the dollar ever became the WRC in the first place.

All this inflation/deflation debate sigh...  Gold wins in either scenario, since capital flees risk and into assets with no counterparty risk in a deflationary collapse of debt based assets.  Gold just wins more when the monetary managers make fiat currencies unable to perform the function of "safety" for capital to flee to - i.e. inflationary policy.

This is the greatest deflation (debt collapse) in modern history and capital will flee to the sidelines.  Unfortunately, a dollar is a debt instrument rather than being a claim on a tangible asset like it once was, so it will not survive the great deflation.

Mon, 01/17/2011 - 01:56 | 881005 the rookie cynic
the rookie cynic's picture

5. All things are deflating with respect to real money, some more than others.

Would you throw oil and commodities in with that generalization?

(Kudos, by the way, smart list.)

Mon, 01/17/2011 - 08:30 | 881167 SWRichmond
SWRichmond's picture

Bubbles are still possible, even measured in real money.  But they're not as big when measured that way, are they?

Mon, 01/17/2011 - 02:40 | 881038 merehuman
merehuman's picture

Probably the most important thing to remember  is who you really are.

we were not born to work. We are here to experience and 20 years at same vocation, job or town is hardly getting a good healthy share of life experience which should be varied, diverse. We stay where its safe and warm and fail to challenge ourselves. Most of us are seeing all truh our mind and its desires. Our attention constantly grabbed by the outside world that we neglect our inner world and finally fail to see it at all.

Valuing where our "attention" is , may be importatnt also. Advertisers think so.

Time. yours  especially is of a certain duration.

spending money

spending time

even when you speak, you give your energy.

when you listen, you give your attention

Since we were discussing what has value/ worth like self respect and honor i thought to add whats often missed or undervalued.

i forgot the most important that underlines all of it

             TRUST

 without it, nothing works but violence

 

 

 

Sun, 01/16/2011 - 22:12 | 880754 Hephasteus
Hephasteus's picture

You know. You'd make a good teacher.

 

Sun, 01/16/2011 - 22:08 | 880747 pomogranate
pomogranate's picture

nothing of course is for certain ... but odds seem to favor gold testing the 200SMA.

Sun, 01/16/2011 - 22:18 | 880766 trav7777
trav7777's picture

well if you were so inclined, why would you close OI?  JPM shorting naked, if they're doing it, is free cash basically, because they wouldn't be able to deliver it and you'd get the premium

Sun, 01/16/2011 - 22:20 | 880768 Missiondweller
Missiondweller's picture

Thanks again Zerohedge for posting highly relevant information.

Sun, 01/16/2011 - 22:34 | 880777 smlbizman
smlbizman's picture

hear hear..

Sun, 01/16/2011 - 22:20 | 880770 RockyRacoon
RockyRacoon's picture

Great article!  Thanks for posting it. 

Sun, 01/16/2011 - 22:22 | 880771 Armchair Bear
Armchair Bear's picture

off topic but everyone should read this:

http://www.hartford-hwp.com/archives/41/385.html

Mon, 01/17/2011 - 00:01 | 880884 Hephasteus
Hephasteus's picture

Thank you for sharing that.

Mon, 01/17/2011 - 09:06 | 881201 hardcleareye
hardcleareye's picture

History is written by the winners.  Spent several months on a little island called Dominica, last population of the Carib Indians, discovered this ugly piece of history.  Due to the crazy terrain they succeeded in holding off the invaders, no slavery on this island, 70 to 80% of the virgin rain forest intact, wonderful hiking, great diving, wonderful people.  Interesting matriarchal society, old women run the place.  Lots of investment by China on that island..... infrastructure.

Sun, 01/16/2011 - 22:38 | 880782 Twindrives
Twindrives's picture

It sucks to be Blythe Morgan.  She's essentially a ruined, tired, and wore out bitch.  A looming business failure, fading looks, bitterness in her last years.  

 

Blythe Morgan JPM starring as Joan Crawford......bitter and washed up bitch.  How about a illustration of that William?  

Mon, 01/17/2011 - 00:51 | 880941 Careless Whisper
Careless Whisper's picture

i think you are seriously underestimating miss blythe masters.

don't fuk with me fellas

http://www.youtube.com/watch?v=bSGXe-x-E9g

 

Sun, 01/16/2011 - 22:53 | 880801 Rotwang
Rotwang's picture

Someone will buy.

The following link tells who the 'official' gold hogs (per capita) are.

Wannabees like India and China have to buy a lot to move towards the top.

http://prudentinvestor.blogspot.com/2010/11/list-of-per-capita-official-...

 

 

Sun, 01/16/2011 - 23:16 | 880824 DoChenRollingBearing
DoChenRollingBearing's picture

Rotwang,

Excellent, excellent list!  The USA has (Official Gold Holdings, I presume that is Ft. Knox and/or US Fed's holdings of gold belong to .gov) 0.84 oz per capita and yet manages to be in 9th place.

...

Here is the Bearing's way of thinking about gold.  There are approximately 6 billion oz of gold being held in the world.  And approx. 6 billion people, so there EXISTS about 1 oz / capita worldwide.  The existence of gold being held by central banks is essentially irrelevant for me, as it is NOT MINE.  How much gold (minimum) should we hold as individuals?

Let us posit that as relatively rich Americans, each individual, being perhaps 10 x as wealthy as the average Earthling, should hold 10 oz each.  Married and have a kid?  30 oz.

Are YOU there yet?

Sun, 01/16/2011 - 23:54 | 880874 Armchair Bear
Armchair Bear's picture

how many oz silver you figure?

Mon, 01/17/2011 - 00:16 | 880897 DoChenRollingBearing
DoChenRollingBearing's picture

Armchair,

I have not thought through how much silver, so I will just wing this one now.  It is said (I do not have the source) that there exists about the same number of oz of silver as there are for gold.  Factoid 1.

Factoid 2 would be that gold is approx. 50 times more expensive than silver, over the last century or two the average has been around 16.

Factoid 3 is that silver will be easier to SPEND if things get tough.

Factoid 4 is that gold is probably the BEST wealth preserver in town.

Throw the Factoids into the bowl, toss in a little FOFOA (Chief Adviser to the PM tribe I belong to) and I would say you probably want to be 2:1 or 3:1 silver to gold (weight), so 20 - 30 oz per capita.  In addition to the 10 oz gold.  Note that MUCH MORE of your PM wealth would be in gold.

If you have LOTS of money, you probably would lean to having more gold.

 

EDIT: The above analyses would be for the "average" (not median) American.  If you are, say, twice as wealthy as "average" there is a very compelling argument to having 20 oz gold / capita and, say, 50 oz silver / capita or more depending on your circumstances.

Mon, 01/17/2011 - 02:20 | 881024 JLee2027
JLee2027's picture

Current above-ground silver supplies are estimated to be 1-1.5 billion ounces...max. The result of 30+ years of PC's, cell phones, medical, and electronic uses.

I'd say if you own ONE OUNCE of silver, you have the wealth of 4 to 6 people. At 500 ounces or so, you'll be sitting pretty.

Mon, 01/17/2011 - 04:29 | 881086 Armchair Bear
Armchair Bear's picture

That sounds about right.  I don't have an attraction to gold like I do silver so I have no gold at all..

Mon, 01/17/2011 - 02:49 | 881041 Lord Koos
Lord Koos's picture

The general public in India are by far the leaders in holding gold as far as it being spread around to the average individual.  Even many of the poor still have some small piece of gold jewelry. As nations India and China are definitely playing catch up to the US while the price is still relatively low.  But the general public in India is in far better shape than the average American when it comes to PMs.

Mon, 01/17/2011 - 00:44 | 880937 trav7777
trav7777's picture

now you tryin to make friends around here?  LOL

Mon, 01/17/2011 - 10:13 | 881403 dark pools of soros
dark pools of soros's picture

not hardly.. did you see those lame estimates/?

Mon, 01/17/2011 - 05:51 | 881121 malikai
malikai's picture

That is the most scary thing gold holders can ever see.

Mon, 01/17/2011 - 00:26 | 880900 AUD
AUD's picture

Interesting, what Douglas seems to be saying I'd interpret as backwardation. My COMEX data doesn't show it but I've heard along the grapevine that there are signs of backwardation in gold.

It doesn't take a genius to work out the potential of a crisis in the government bond market.

We will see.

Mon, 01/17/2011 - 00:28 | 880920 Aristarchan
Aristarchan's picture

Maybe a little off-topic, but one metal trade that may become profitable in the future is depleted uranium. It is legal to own (up to several kilograms), is not really very radioactive (although is toxic), and has many uses from ceramics, to semiconductor manufacturing, radiation shielding, photography and military weapons. Plus, with the Chinese breakthrough on reprocessing spent uranium, it may become even more valuable in the future, especially if nuclear power has any kind of rebirth.. Just a thought.

Mon, 01/17/2011 - 00:56 | 880946 Careless Whisper
Careless Whisper's picture

is not really very radioactive

sounds delish

Mon, 01/17/2011 - 01:03 | 880950 Aristarchan
Aristarchan's picture

Well, if you have dentures, or any coffee cups with green glaze, then you probably already have a close relationship with it. It is not really dangerous at all from a radioactive standpoint, that is all media hype.

Mon, 01/17/2011 - 07:33 | 881153 Hephasteus
Hephasteus's picture

You are an idiot.

Mon, 01/17/2011 - 00:54 | 880944 Zerohedge fan
Zerohedge fan's picture

Even Hitler is jumping on gold bandwagon:

http://www.youtube.com/user/vimeocomuk#p/a/u/1/ITx3AJ1eahs

Too late Adolf, there is no more physical.

 

Mon, 01/17/2011 - 01:11 | 880961 Bárðarbunga
Bárðarbunga's picture

Yah, good luck with your uranium stockpile there jerky, I'll stick with silver thank you very much.

Mon, 01/17/2011 - 01:33 | 880966 Aristarchan
Aristarchan's picture

I have no stockpile of anything...gold silver, stocks, bonds, food or uranium. I was just throwing an idea in over the transom. Good luck, BTW, on your silver stockpile there...HO HO HO!

Mon, 01/17/2011 - 01:13 | 880963 Temporalist
Mon, 01/17/2011 - 01:52 | 880998 teotwawki
teotwawki's picture

robo is my hero.

Mon, 01/17/2011 - 01:53 | 880999 teotwawki
teotwawki's picture

Fuck you shitbag

Mon, 01/17/2011 - 01:54 | 881002 teotwawki
teotwawki's picture

does anybody wantt some new mexican recipes

 

Mon, 01/17/2011 - 01:56 | 881004 teotwawki
teotwawki's picture

I have goat cheese teotawki

Mon, 01/17/2011 - 01:56 | 881006 teotwawki
teotwawki's picture

cochinos

 

Mon, 01/17/2011 - 01:58 | 881008 teotwawki
teotwawki's picture

ill show you how to make fumunda cheese too

 

Mon, 01/17/2011 - 01:58 | 881009 teotwawki
teotwawki's picture

fuckin yankees

 

Mon, 01/17/2011 - 04:50 | 881100 Sudden Debt
Sudden Debt's picture

Do you have problems writing in "complex" multiple phrased sentences?

Mon, 01/17/2011 - 02:03 | 881012 CustomersMan
CustomersMan's picture

 

I keep saying that at some point the "shorts" will try and claim "Force Majeure"

 

But what the fuck,......is there an answer to this or am I blowing smoke up my own ASS?

Mon, 01/17/2011 - 09:19 | 881236 FunkyMonkeyBoy
FunkyMonkeyBoy's picture

Yeah, they'll probably say that it was an act of God that he didn't put enough gold and silver on this earth.

Mon, 01/17/2011 - 02:32 | 881027 Aristarchan
Aristarchan's picture

To all you pussies out there who are hoarding precious metals, foodstuffs, guns, basic explosive materials and ammo, I am giving you a heads-up on what kind of shitstorm is gonna come down if all your idiot conspiracy and armageddon theories come true: To begin with, you have no fucking chance of defending your hoard against people like me. I got my
first gun in the first grade, and started killing animals with it almost immediately. My Grandpa gave it to me...a .22 rifle, single shot, bolt action.  By the time i was in the third grade I was a fucking sharpshooter...I could blow a bird off a highline wire, or vaporize the bare aluminum highline wire under the bird, leaving the steel leader holding it together. later, I got my hands on pistols, shotguns and high-powered rifles. I became adept at using them to kill before most of you even knew girls had twats. Later in life, Uncle Sam drafted my ass and sent me off to a resort called Vietnam, where I was payed poorly to kill slopes. I became very good at it....in fact, I fucking enjoyed it. I would have paid Uncle Sam for the opportunity. Unfortunately, I was drafted late, so had only a couple of short years to kill off Viet Cong, Viet Minh and any fucking civilians who got in my way. After vacating in Vietnam, I spent a few foul years in Thailand, working for the CIA in support of South Vietnam. We drank and fucked a lot, but never got to kill anyone outside of a few Laotian opium smugglers. The CIA is a fucking jerk-off outfit...too many Godamned civilian rules. After that, I bounced around: Cambodia, Laos, Mozambique, Iraqi Kurdistan prior to the Iraq war...just doing normal shit, demining, killing idiots and setting booby traps for Saddam's commandos who sneaked across the line.

Anyway, my point here is that you can hoard all the wealth you want, talk as big and tough as you want, but if things come down to the nut-cracking, people like me are just going to move in and take your shit away from you. I am not afraid of you, or your guns. Shooting at me just pisses me off. You do not want me in your house, pissed off. No, what you will do is just give me what I want. If you do not, then I will dry you out for jerky, and eat you, and in the meantime, use your treasure for my benefit.

So, all you shitheads out there who are hoping for the apocalypse....you better thing twice, because people like me are also hoping for it, because it gives us free reign to do what  we want, and what we want is to take full advantage of a bunch of Wall Street geeks and conspiracy theorists and pseudo survivalists. Going up against me, you have no chance of survival, because I have no fear of you, and no fear of dying.  Matter of fact, you might as well just give me your shit now, and save yourself the pain and the terror.

 

NOTE TO HOMELAND SECURITY/FBI/BATF...this is satirical role playing....humor.

Mon, 01/17/2011 - 02:49 | 881040 merehuman
merehuman's picture

it will be along walk to my place fella. You wont be driving and you will be in the company of other assholes just like you. Good luck as you all play at survivor.

I will be feeding my neighbors, who like to hunt and also have war experience.

 

Mon, 01/17/2011 - 02:51 | 881044 Aristarchan
Aristarchan's picture

Well...you just scared the shit out of me.

Mon, 01/17/2011 - 03:02 | 881052 merehuman
merehuman's picture

lol. roll another one

Mon, 01/17/2011 - 02:56 | 881049 Aristarchan
Aristarchan's picture

I guess some people are too fucking stupid to understand satire....but I am making fun of survivalists - like you....get it? get it?

Mon, 01/17/2011 - 03:04 | 881053 merehuman
merehuman's picture

if i did not get it , i would have junked you. many folks are naive, innocent and foolish.It gives many pause for reflection and thats a good thing.

Mon, 01/17/2011 - 05:33 | 881118 ColonelCooper
ColonelCooper's picture

++++

We get it, Dipshit.  But if we're going to listen to you, we could just as well all move in with Mako. 

You could kill me, I could starve, I could be overrun by a horde, struck by lightning, hit by a car, have a heart attack,  suffer a stroke, get shot in the street, a tree could fall on my house........  SO? 

Your alternative?  Give you shit now?  Keep writing your "satire".  Your true nature, fictional or not, shines through like a spotlight; you have some issues.  Good luck.

Mon, 01/17/2011 - 02:57 | 881050 BankRiot
BankRiot's picture

I think you have mental problems.

 

Mon, 01/17/2011 - 02:59 | 881051 Aristarchan
Aristarchan's picture

You may be right....when I start dreaming about bank riots, then I will know it is time to seek help.

Mon, 01/17/2011 - 04:51 | 881102 Sudden Debt
Sudden Debt's picture

I think now your insulting 99.99% of the ZH readers, me included :)

Mon, 01/17/2011 - 03:06 | 881054 Aristarchan
Aristarchan's picture

Normally, on this site you do not have to explain satire, or irony, or any other thing associated with being perceived by minimal intellect as being some kind of attempt at humor. But, here goes: Ok, you assholes, I was putting forth a satirical scenario about what might happen in the event of a total breakdown of order. How fucking difficult is that to understand? I even put in a note at the end for those who have been on the crack pipe too long to read and understand the fucking English language. Now, does anyone else need to be led by the nose down basic third-grade humor?

Mon, 01/17/2011 - 11:02 | 881559 pomogranate
pomogranate's picture

it's not the crack pipe.  they've been rubbing themselves raw with their bullion for too long.

Mon, 01/17/2011 - 03:18 | 881064 laosuwan
laosuwan's picture

My Grandpa gave it to me...a .22 rifle, single shot, bolt action. 

 

Even your grandpa knew you could not be trusted with a semi auto

Mon, 01/17/2011 - 04:54 | 881104 Sudden Debt
Sudden Debt's picture

How old where you when you got the .22?

I hope your grandpa was responsible enough to wait until you where at least 10 years old before he gave that to you with 5 boxes of ammo to go with it.

Was that the year the neighbourhood dogs and cats started to go "missing"? :)

Mon, 01/17/2011 - 04:18 | 881079 Laura Ingalls
Laura Ingalls's picture

Good job Aristarchan, people need to be aware of this.

I'm not saying that they shouldn't buy gold or silver if that is what they feel is in their best interest. All I'm saying is that we shouldn't let ourselves fall into the fallacy of feeling like this is going to be some kind of adventure like in the movies where the hero makes it through with only a few scratches (with us as the hero of course).

Mon, 01/17/2011 - 04:55 | 881107 adeptish
adeptish's picture

do you want a cookie ???

Mon, 01/17/2011 - 06:05 | 881127 RafterManFMJ
RafterManFMJ's picture

Hell I like you. You can come over to my house and **** my sister.

Mon, 01/17/2011 - 07:18 | 881150 Hephasteus
Hephasteus's picture

You're definitely on your 3rd murder the cocky stage.

http://www.youtube.com/watch?v=R02XR4EwV0I

Mon, 01/17/2011 - 09:18 | 881227 Beam Me Up Scotty
Beam Me Up Scotty's picture

To those who feel so entitled:

You are typical of so many Americans today my friend.  "I want what you have earned, because I have not earned it, I deserve it". 

Use the gun on yourself, you waste of skin.

Mon, 01/17/2011 - 10:10 | 881390 goldsaver
goldsaver's picture

Rant was somewhat plausible until you mentioned Vietnam. Lets say for the sake of this discussion you were drafted late in the war...lets say 1970. Lets also say you were the earliest you could be drafted...18 years old. That would make you at least 58. True, no convalescent, but a far cry from a fighting age. Now... if you would have said OEF or OIF.... much more believable. 

Mon, 01/17/2011 - 12:25 | 881788 grey7beard
grey7beard's picture

I'm glad I read through the replies, at least to thei point, before I replied, as you came to the same conclusion as I did.

The guy does bring up valid points.  I've spent a lto of time reading survival and doomer sites, still do read some of them.  Most folks are living a fantasy world when it comes to survival/collapse survival.  If it ever came down to it, the folks who plan on fleeing the city and surviving on the land would be shot like rats a the garbage dump for them most part. Hell, I've sold all my city possessions, relocated to a remote piece of land out in the country, and and have spend a good deal of time trying to get this crap hole into some kind of survivable camp.  The odds are heavily in favor of me not making it if the SHTF, and I'm here with many truck loads of supplies.  Jump in the old Nissan Altima with the back set stuffed with canned tuna and .22 shells, head for the hills and I'd say your chance of survival before running out of your first tank of gas are poor indeed.  Live off hte land?  Unless you can subsist on litter, good luck.  If the SHTH, this won't be a video game. 

Personally, I don't see it happening, just a slow, methodical grind down of living conditions, interspersed with occasional quick decents.  My plan is to just survive such a situation, not social Armageddon.

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