Eric Sprott Fights PM Manipulation Fire With Fire: Calls Silver Producers To Retain Silver Produced As "Cash"

Tyler Durden's picture

In what is likely the most logical follow up to our post of the day, namely the news of the lawsuit between HSBC and MF Global over double-counted gold, or physical - not paper - that was "commingled" via rehypothecating or otherwise, we present readers with the monthly note by Eric Sprott titled "Silver Producers: A Call to Action" in which the Canadian commodities asset manager has had enough of what he perceives as subtle and/or not so subtle manipulation of the precious metal market, and in not so many words calls the silver miners of the world "to spring to action" and effectively establish supply controls to silver extraction to counteract paper market manipulation in the paper realm by treating their product as a currency and retaining it as "cash". To wit: "instead of selling all their silver for cash and depositing that cash in a levered bank, silver miners should seriously consider storing a portion of their reserves in physical silver OUTSIDE OF THE BANKING SYSTEM. Why take on all the risks of the bank when you can hold hard cash through the very metal that you mine? Given the current environment, we see much greater risk holding cash in a bank than we do in holding precious metals. And it serves to remember that thanks to 0% interest rates, banks don’t pay their customers to take on those risks today." And the math: "If silver miners were therefore to reinvest 25% of their 2011 earnings back into physical silver, they could potentially account for 21% of the approximate 300 million ounces (~$9 billion) available for investment in 2011. If they were to reinvest all their earnings back into silver, it would shrink available 2011 investment supply by 82%. This is a purely hypothetical exercise of course, but can you imagine the impact this practice would have on silver prices?" And there you go: Sprott 'reputable' entity to propose to fight manipulation with what is effectively collusion, which in the grand scheme of things is perfectly normal - after all, all is fair in love and war over a dying monetary model. Who could have thought that the jump from "proletariats" to "silver miners" would be so short.

From Eric Sprott

Silver Producers: A Call to Action

As we approach the end of 2011, the silver
spot price has admittedly endured a tougher road than we would have
expected. And let’s be honest – what investment firm on earth has
pounded the table on silver harder than we have? After the orchestrated
silver sell-off in May 2011 (please see June 2011 MAAG article entitled,
“Caveat Venditor”), silver promptly rose back to US$40/oz where it
consolidated nicely, only to drop back below US$30 within a two week
span in late September. The September sell-off was partly due to the
market’s disappointment over Bernanke’s Operation Twist, which sounded
interesting but didn’t involve any real money printing. Like the May
sell-off before it, however, it was also exacerbated by a seemingly
needless 21% margin rate hike by the CME on September 23rd, followed by a
20% margin hike by the Shanghai Gold Exchange – the CME’s counterpart
in China, three days later.

paper markets still dictate the spot market for physical gold and
silver. When we talk about the “paper market”, we’re referring to any
paper contract that claims to have an underlying link to the price of
gold or silver, and we’re referring to contracts that are almost always
levered. It’s highly questionable today whether the paper market has any
true link to the physical market for gold and silver, and the futures
market is the most obvious and influential “paper market” offender. When
the futures exchanges like the CME hike margin rates unexpectedly, it’s
usually under the pretense of protecting the “integrity of the
exchange” by increasing the collateral (money) required to hold a
position, both for the long (future buyer) and the short (future
seller). When they unexpectedly raise margin requirements two days after
silver has already declined by 22%, however, who do you think that
margin increase hurts the most? The long buyer, or the short seller? By
raising the margin requirement at the very moment the long contracts
have already received an initial margin call (because the price of
silver has dropped), they end up doubling the longs’ pain – essentially
forcing them to sell their contracts. This in turn creates even more
downward price pressure, and ends up exacerbating the very risks the
margin hikes were allegedly designed to address.

When reviewing
the performance of silver this year, it’s important to acknowledge that
nothing fundamentally changed in the physical silver market during the
sell-offs in May or mid-September. In both instances, the sell-offs were
intensified by unexpected margin rate hikes on the heels of an initial
price decline. It should also come as no surprise to readers that the
“shorts” took advantage of the September sell-off by significantly
reducing their silver short positions. Should physical silver be priced
off these futures contracts? Absolutely not. That they have any
relationship at all is somewhat laughable at this point. But futures
contracts continue to heavily influence spot prices all the same, and as
long as the “longs” settle futures contracts in cash, which they almost
always do, the futures market-induced whipsawing will likely continue.
It also serves to note that the class action lawsuits launched against
two major banks for silver manipulation remain unresolved today, as does
the ongoing CFTC investigation into silver manipulation which has yet
to bear any discernible results.

Meanwhile, despite the needless
volatility triggered by the paper market, the physical market for silver
has never been stronger. If the September sell-off proved anything,
it’s the simple fact that PHYSICAL buyers of silver are not frightened
by volatility. They view dips as buying opportunities, and they buy in
size. During the month of September, the US Mint reported the second
highest sales of physical silver coins in its history, with the majority
of sales made in the last two weeks of the month. Reports from India
in early October indicated that physical silver demand had created
short-term supply issues for physical delivery due to problems with
airline capacity. In China, which reportedly imported 264.69 tons (7.7
million oz) of silver in September alone, the volume of silver forward
contracts on the Shanghai Gold Exchange was more than six times higher
than the same period in 2010. It was clear to anyone following the
silver market that the physical demand for the metal actually increased
during the paper price decline. And why shouldn’t it? Have you been
following Europe lately? Do the politicians and bureaucrats there give
you confidence? Gold and silver are the most rational financial assets
to own in this type of environment because they are no one’s liability.
They are perfectly designed to protect us during these periods of
extreme financial turmoil.

And wouldn’t you know it, despite the
volatility, gold and silver have continued to do their job in 2011. As
we write this, in Canadian dollars, gold is up 23.4% on the year and
silver’s up 6.8%. Meanwhile, the S&P/TSX is down -12.3%, the S&P
500 is down -5.1% and the DJIA is up a mere +0.26%.

So here’s
the question: we think we understand the value and great potential in
silver today, and we know that the buyers who bought in late September
most definitely understand it,… but do silver mining companies
appreciate how exciting the prospects for silver are
? Do the companies
that actually mine the metal out of the ground understand the demand
fundamentals driving the price of their underlying product? Perhaps even
more importantly, do the miners understand the significant influence
they could potentially have on that demand equation if they embraced
their product as a currency?

According to the CPM Group, the total
silver supply in 2011, including mine supply and secondary supply
(scrap, recycling, etc.), will total 1.03 billion ounces. Of that, mine
supply is expected to represent approximately 767 million ounces.
Multiplied against the current spot price of US$31/oz, we’re talking
about a total silver supply of roughly US$32 billion in value today. To
put this number in perspective, it’s less than the cost of JP Morgan’s
WaMu mortgage write downs in 2008.

According to the Silver
Institute, 777.4 million ounces of silver were used up in industrial
applications, photography, jewelry and silverware in 2010.12 If we
assume, given a weaker global economy, that this number drops to a flat
700 million ounces in 2011, it implies a surplus of roughly 300 million
ounces of silver available for investment demand this year. At today’s
silver spot price – we’re talking about roughly US$9 billion in value.
This is where the miners can make an impact. If the largest pure play
silver producers simply adopted the practice of holding 25% of their
2011 cash reserves in physical silver, they would account for almost 10%
of that US$9 billion. If this practice we’re applied to the expected
2012 free cash flow of the same companies, the proportion of investable
silver taken out of circulation could potentially be enormous.

another way, consider that the majority of silver miners today can mine
silver for less than US$15 per ounce in operating costs. At US$30
silver, most companies will earn a pre-tax profit of at least US$15 per
ounce this year. If we broadly assume an average tax rate of 33%, we’re
looking at roughly US$10 of after-tax profit per ounce across the
industry. If GFMS’s mining supply forecast proves accurate, it will mean
that silver mine production will account for roughly 74% of the total
silver supply this year. If silver miners were therefore to reinvest 25%
of their 2011 earnings back into physical silver, they could
potentially account for 21% of the approximate 300 million ounces (~$9
billion) available for investment in 2011. If they were to reinvest all
their earnings back into silver, it would shrink available 2011
investment supply by 82%. This is a purely hypothetical exercise of
course, but can you imagine the impact this practice would have on
silver prices? Silver miners need to acknowledge that investors buy
their shares because they believe the price of silver is going higher.
We certainly do, and we are extremely active in the silver equity space.
We would never buy these stocks if we didn’t. Nothing would please us
more than to see these companies begin to hold a portion of their cash
reserves in the very metal they produce. Silver is just another form of
currency today, after all, and a superior one at that.

To take
this idea further, instead of selling all their silver for cash and
depositing that cash in a levered bank, silver miners should seriously
consider storing a portion of their reserves in physical silver OUTSIDE
OF THE BANKING SYSTEM. Why take on all the risks of the bank when you
can hold hard cash through the very metal that you mine? Given the
current environment, we see much greater risk holding cash in a bank
than we do in holding precious metals. And it serves to remember that
thanks to 0% interest rates, banks don’t pay their customers to take on
those risks today.

None of this should seem far-fetched. One of
the key reasons investors have purchased physical gold and silver is to
store some of their wealth outside of a financial system that looks
increasingly broken. The European banking system is a living model of
that breakdown. Recent reports have revealed that more than €80-billion
was pulled out of Italian banks in August and September alone. In
Greece, depositors have taken almost €50-billion out their banks since
the beginning of 2010. Greek banks are now completely reliant on ECB
funding to stay afloat. The situation has deteriorated to the point
where over two thirds of the roughly 500 billion euros that banks have
borrowed from the ECB are now being deposited back at the central
bank. Why? Because they don’t trust other banks to stay afloat long
enough to get their money back.

Silver miners shouldn’t feel any
safer banking in the United States. Fitch Ratings recently warned that
the US banks may face severe losses from their exposures to European
debt if the contagion escalates. There’s very little at this point to
suggest that it won’t. The roots of the 2008 meltdown live on in today’s
crisis. We are still facing the same problems imposed by over-leverage
in the financial system, and by postponing the proper solutions we’ve
only increased those risks. We don’t expect the silver miners to corner
the physical silver market, and we know the paper games will probably
continue, but the silver miners must make a better effort to understand
the inherent value of their product. Gold and silver are not traditional
commodities, they are money. Their value lies in their ability to
retain wealth in environments marked by negative real interest rates (),
government intervention (3), severe economic uncertainty (3) and
vulnerable banking institutions (33). Silver’s demand profile is
heightened by its use in industrial applications, but it is the metal’s
investment demand that will drive its future performance. The risk of
keeping all of one’s excess cash in a bank is, in our opinion,
considerably more than holding it in the more enduring form of money
that silver represents. It’s time for silver producers to embrace their
product in the same manner their shareholders already have.

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CharlieSDT's picture

Long article, but Sprott is a good guy for sure.  Why hold frms with counterparty risk when you can have a hard asset at a huge discount?

Silver Bully's picture

Sprott better be VERY careful here. The Hunt Brothers were essentially trying to do the same thing back when they attempted to corner the silver market (in essence, turning silver into an independent world currency under their control). They got taken out when the US government changed the rules midstream. The same thing can easily happen here. If Sprott managed to form a coalition of silver miners . . . watch out. Nationalizing mining companies could be the least of their worries. Even threatening to do this would cause action from governments and policy makers.

Do I want that to happen? Heck no! But it is wise to observe that he's playing with fire here, if he starts making things happen. Anyone holding investments in his funds ought to be aware of the possible consequences.

agent default's picture

The Hunt brothers accumulated a huge number of future contracts (paper silver) on margin.  Trying to beat the market maker with the leverage tools he provides to you is just beyond retarded.  What Sprott is recommending here is to hold the physical metal.  It is an entirely different situation, which the market makers cannot manipulate with the usual methods.

Silver Bully's picture

Agreed +9000.

My point is, Sprott wants the miners to make the rules. The problem is, they don't. Governments do. As the Hunt Bros found out the hard way. Worse, our governments and the manipulators are one and the same. There are a thousand and one ways to make the miners play ball, whether they like it or not. If they do what Sprott suggests, they're would be playing with fire. I also think this explains why miners in general haven't attempted anything like this recently. Eventually, you just lose your mine, so why even think of going there?

bernorange's picture

Sprott gave a follow up interview on this call to action with Mineweb:

Asked whether or not he has received any feedback from the producers on his suggestion that they "reinvest 25% of their 2011 earnings back into physical silver," Sprott said that there had been a groundswell of interest - more than he had ever seen before - but that still more needs to be done.

If the supplies in the physical market really are as tight as various parties would have us believe, the miners would not have to withhold/reinvest an extreme amount of silver to effect "Sprott's pop".

spinone's picture

right, price is determined at the margin in a free market. but silver is not a free market.  this would make it more difficult to manipulate the silver price, and probably more MF Global situations take place.

Oh regional Indian's picture

It's the old hedging game really, played differently. Very apropos. Clever too. 

The more you study the situation, the more you realize that Silver HAS to be kept moving in trade at any cost, gold, not so much so. Where is industrial inventory carried? At the miners? At the end users? In Banks?

Methinks a big spanner is being wedged into the PM markets in general and the issue will be who owns it on the third lease out.

The parallels to the real Estate market are interesting. More volatility though, that is for sure.



Pladizow's picture

The Government would have a hard time justifying any repecutions, as the miners would simply be engaging in what all fortune 500 companies do - stock buy back and inventory control.

The problem is Gov's dont have to justify anything!


T1000's picture

It's the hidden tyranny, yo!

 "The Federal Reserve system fitted our plan nicely sinceit is owned by us, but the name implies that it is a government institution. From the very outset, our purpose was to confiscate all the gold and silver, replacing them with worthless non-redeemable paper notes. This we have done!"

JW n FL's picture

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grid-b-gone's picture

It would be difficult for the government to make accounting changes affecting only silver miners. Companies already build up finished goods before large layoffs. In effect, the labor portion is held as a component of finished goods. 

Even if accounting changes were made, miners could just hold silver upstream in the process as work in process (WIP).

I'm not sure how Sprott's proposal would be much different from a distiller that holds whiskey, etc. for years before sending the aged product to market.

Already, there must be some corporations holding PMs as part of their cash and not specifically reporting the strategy to shareholders. Does anyone know of any corporation specifically listing PMs in their balance sheet detail?

rosiescenario's picture

"Even if accounting changes were made, miners could just hold silver upstream"


One mining company I own did this last year with their zinc concentrate (which is a bi-metal from their primary silver production). Zinc prices were low so they just piled up the concentrate until prices recovered. The miners would not need to stock pile pure silver...the concentrate would be just fine.


It would also put a new dimension into choosing mining stocks....investors could end up buying silver at a substantial market discount. In a sense many miners today offer this discount based on their proven ore reserves. Sprott's idea is to just take that a step further and at the same time, drive up the price of silver and make the CME superfluous.

DeadFred's picture

If the miners take Sprott's advice they will become huge asset-rich companies that the squid and its cohorts will target. Never underestimate the ability of the squid to smell blood and home in on the new victim. I've heard that JPM has derivatrives with the miners that destroy the mining companies if silver supplies go too low. Anyone know about short-silver derivatives? What little I've heard about them has been scary enough to keep me away from the miners but I haven't been able to discover if the threat is real or just a myth. What I've heard is if the silver supply goes too low the value of the derivatives skyrocket and the bank (almost exclusively JPM) that loaned money <with derivative attached> to the mining company now owns the miner. I read it on the internet so it must be true right?

tarsubil's picture

Well, that would negate the need to nationalize them. What a fucking mess.

AE911Truth's picture

Dear DeadFrED: "I've heard that JPM has derivatrives with the miners that destroy the mining companies if silver supplies go too low. [...] I read it on the internet so it must be true right?" BullS*&T! Truth is the bankers are scared sh*%less over this plan. Not only should the miners implement this plan fully, they should take it three steps further! How? 1. Miners, do not sell your priceless Physical Silver for worthless paper or instantly erasable digital bits. 2. Ask and even encourage your employees and suppliers to consider taking a percentage of their payments in physical silver. I am sure they understand why. If not educate them. 3. Encourage your employees and suppliers to talk to their downstream merchants, employees, and suppliers about accepting physical silver instead of worthless paper. Educate them to educate others downstream. See how this works? The miners can spearhead a shift of the entire economy away from worthless banker paper (soon to implode anyway), and toward real money in the form of physical silver. Only the tiny portion for payment of tax need be in wortless dollars. The shift itself will make the dumped dollars worth less and the tax easier to pay. It is a win win win win! The only losers are the banker/government criminals.

Transformer's picture

Silver Bully, I think you are just that, and a troll to boot.  I have studied the whole Hunt Bros. debacle to the point that I could write endless essays.  The whole Hunt Bros. takedown was all about them playing the paper market and the rulemakers (COMEX) changing the rules, plus breaking their own rules extant at the time.  The government had very little to do with it.  If anything, pretty much all the government did was not to back up the Hunt Bros., no different than today when the CFTC won't do anything about Corzine, or the manipulation in general.

If the Hunts had merely bought and taken delivery of what they could afford, and kept doing it, they would have won, and the silver market would be a different animal today.  Instead they got wrapped up in trying to beat the game with paper.  Big mistake.  As long as you play the fractional reserve game in all its guises, you are subject to the whims of the big banks.  You can't beat the rulemakers at their own game.  What Sprott is suggesting is probably much safer for the Miners than having all their reserves in banks.  They are no different than individuals.  A banking shutdown could severely impact their ability to operate.  Silver is money, and it takes money to operate a business.  If the banks shut down for two weeks, the Miners could pay employees and make other needed cash disbursements from their silver reserves.  AND you know that if the bank Holiday comes to pass, silver will quickly become currency.

If the collapse happens, or banking event, whatever you want to call it, and the government wants to Nationalize industries, they will do it, reserves not withstanding.  Miners can hold back silver, simply by increasing their on site inventory, which can be done for a multitude of reasons.  Miners could look at going into DirectSales (retail) of their product, just as First Majestic has done.  You should check out their retail store, online, as it is obvious that they do not follow the spot "paper" price.  From a CFO's standpoint, Sprott's letter makes good sense.  Corporations need to protect themselves every bit as much as we do.

Real Money Wins's picture

While Eric Sprott's idea is note worthy and makes perfect sense to those of us who hold physical, the concept for mining companies is a bit more complex. First a companies operating personnel would have to have controlling interest in the company to do this. The problem is that most mining companies are owned by share or stock holders(i.e. Paper investors). If the share holders are the controlling interest then a  board if it has the power would have to decide. If the board does not have that much power then it would have to be put to a vote of the shareholders. Here is where it gets sticky. Shareholders are investors who deal in paper and expect dividends in paper. And now you are going to ask them to vote to turn their profits to bullion and sit on it and not receive their paper profits. this will not be well received for those who value everything against paper assets, remember Wall Street is engaged in in Insanity Investing these days. In a perfect and logical world the concept should be that every company should store 25% of their profits in PM's. In a perfect world

Eally Ucked's picture

Example of one of the biggest gold miners Goldcorp:


Listening to Our Shareholders 

Gold is Money – Goldcorp is Gold! 

At the end of the 1


 quarter, 2004 

Goldcorp’s gold inventory had reached 2.25 

tonnes, or 72,716 ounces.  We asked our 

shareholders to tell us how much gold we 

should hold back from sale and you told us loud 

and clear to “hold back  more!” Therefore, we

made the decision to accelerate the 

accumulation of the new gold inventory to reach 

previous levels by holding back 33% (51,925 

ounces) of the 1


 quarter, 2004 production.  It 

is anticipated that a comparable percentage of 

gold production will be held back in future 

quarters until the gold inventory reaches the 

previous level of 266,730 ounces equal to 8.3 

tonnes which was sold during the fourth quarter 

of 2003."

Not to mention that I was beneficiary of that policy and made 400% on the stock of the company.

Pladizow's picture

In some of these miner's Sprott owns more shares then management!

Eally Ucked's picture

That's true but they all are very junior cos with very small market cap. And don't forget that many of them wouldn't survive without injection of some fresh capital and that is what Sprott is doing. I don't have Sprott's capital but i'm myself looking for very small miners with promise (like Sprott) and invest my 1 or 2k in them and wait. I lost few k but I made few too and I have fun. Too bad my waiting time (I can afford) is getting shorter and shorter and that is long term business. 

Pladizow's picture

May interest you:


My top 20 list of companies under $0.10 is about to be released to subscribers early next week.
Don’t miss out on this Special Report or any future issues of
Resource Opportunities!

tmosley's picture

Oh boy, so we can pay to have penny stocks pumped to us?  Dandy!

Eally Ucked's picture

I dont care about special reports, I can find my info from mineweb or geo magazines. I'm not pusher of any stocks so I will not give you any examples but for sure you should forget about special reports.  

HoofHearted's picture

Coeur d'Alene has suggested they might consider Sprott's ideas within a few years. If everyone bids up CDE because of this, then it would show that these paper investors are in it for the long haul. The problem is the MF Global situation. We're back to asking a third party to hold our silver for us. The only thing I can think that might make this work is all those retirement accounts where we have to hold something in paper or take a penalty for taking the money out. If many people decided to let CDE hold their paper money and CDE holds the phyz, then it shows that there is some trust in this idea. Yet it still seems like unallocated silver being held for me, and that just got troublesome with rehypothecation.

The mot du jour is "counterparty" as in counterparty risk. And this has caused the big intervention in the gold market last week. Likely we'll see more attempts to keep people in the system and away from barbarous relics.

AE911Truth's picture

Dear HoofHearted, "all those retirement accounts where we have to hold something in paper"

Self directed IRA accounts can hold physical American Gold and Silver Eagle coins. For example, IRA Services, and more.

Thisson's picture

No, they can only pay someone else to hold it for them.  With no way to verify if that is true, or avoid possible confiscation when the time comes.

Irene's picture

"Shareholders are investors who deal in paper and expect dividends in paper."

Actually, a lot of shareholders would love to see their dividends paid in oz. of silver or gold.  Jim Sinclair has talked about the gold paper market being taken down if miners started paying their dividends in gold.  Why wouldn't anybody investing in gold (or silver) miners want their dividends payable in oz. of product?  If you believe in pms enough to purchase miners, this makes total sense.  Count me in.

rosiescenario's picture

"Shareholders are investors who deal in paper and expect dividends in paper."


Not true...I search for undervalued miners whose reserves of pm are at a huge other words, I am buying silver "in the rock".


I hope Eric keeps hammering on this could have huge potential rewards for the mining companies and their shareholders. AND it would put the CME out of the pm biz.

Missiondweller's picture

Hell, why not go one step further and only sell their silver on a physical contract only exchange for absolute price transparency?

They could set up the exchange and bar rehypothecation, margin,or leasing. All contracts take physical delivery.

Cut offthe Comex!



He_Who Carried The Sun's picture

This sounds as if Sprott was almost as desperate as the Hunt brothers during their last days. He probably blew up his positions expensive and is now underwater.

Sprott apparently has made some strange investments over the last two years and started year-end windowdressing by selling losers in his portofolio as early as September or so it seems. Some senior managment has left the firm as well if I am not mistaken.

Now this? Fact is, if Europe gets her house in order, problems of the US will come back into focus - so? What's to worry Mr. Sprott?

Bay of Pigs's picture

Dream on. Your comment is laughable.

He_Who Carried The Sun's picture


Look at you! What a fantastic comment of yours. That's quality, really...

How about addressing the subject?

Bay of Pigs's picture

Anyone who has followed Sprott for the last ten years has made lots of money. How's that?

And Europe "getting it's house in order"? I hope you aren't serious.

akak's picture

Hey Twisted Tits,

Your ludicrous anti-PM, pro-financial establishment trolling in this forum has been quite evident for some time now.  But please note that it is pathetic, and laughably inane, and utterly ineffectual with this crowd --- we have already slaughtered numerous trolls of far greater intelligence and zeal than you.

JOYFUL's picture

the subject is your premises. They are faulty. Therefore your argument has been dismissed.


Calmyourself's picture

Did you just say Europe gets her house in order, as in a statement which may in fact happen?  Government spending will equal revenues and all Euro governmentsa wiill allow Brussels to set their budgets.  The Greeks and Italians will pay their taxes which will rise 40%.  Turkey and Greece will be best buds and monkeys will fly out of merkozy's collective asses and snowballs will..  You get the point..

SRSrocco's picture


Both of these men are telling their readers to make sure to hold the real metal.  Jim Sinclair goes further to say each person should be their own central banker and clearing house.  Bascially Jim is saying holding the actual metal and stock certificates are your best ways to protect your wealth.

On a different tangent...there is this so called notion that in the past several years there has been a SURPLUS OF SILVER.  The GFMS- World Silver Survey is the one that comes up with these figures.  The reason why we have had a so called LARGER SURPLUS is due to taking COIN & MEDAL out of the Fabrication figures. The coin & medal figure is included in the total fabrication number, but they have decided to take it out.

GFMS Calculation for Deficit-Surplus Silver:

Mine Production +Scrap - Fabrication (subtracting Coin & Medals) = Deficit-Surplus

Here is the 2010 figures:

735.9 mil + 215 mil - (878 mil - 101.3 mil ) = +174.2 million surplus


GMFS believes that coin & medal count as new bullion demand.  So the higher the amount of silver that goes into COIN & MEDAL acutally adds to the so called surplus.  Silly isn't it?  Most of this coin production is from Govt mints making Eagles, Maples, Philharmonics, Pandas, Kookaburras and etc.  Most people who own these are not going to sell them for melt.

So, 101.3 million ounces worth of coin and medal in 2010 accounted for 58% of the so called surplus.  This year in the 2011 Interim Silver Market Report, GFMS says that coin & medal demand will increase 25 million.  That would give us a ballpark of about 126 million ounces to coin & medals.  This will be added to increase the surplus in 2011.

Also, the Scrap silver which comes from recycling industrial silver is part of the Supply.  Why does GFMS not take this out as it is also a form of bullion... scrap maybe, but supply that does come back into the market.  Interesting...


I had an email exchange with Oliver Heathman, metals analyst at GFMS and they believe global silver production with increase 30 million ounces in 2011 or 4% above last year.  In my research I thought we would see a decline in 2011 and I have posted a few comments here to that effect.  Australia, Peru, Chile and the United States will come in lower, but Mexico, Russia, and China are higher. 

GFMS's 2010 Interim Silver Market Report showed a higher global silver production in 2010 than its final report.  I believe they will be wrong by at least 15 million.  Anyhow, I wrote that article Peak Silver Revisited: Impacts of a Global Depression, Declining Ore Grades & a Falling EROI, where I believe we are going to see a peak in silver soon.

Anyhow, this so called surplus is really a joke when you figure just how little silver the world owns. 

Lastly, when we had a deficit in silver, we also had LOW SILVER PRICES.  As this so called silver surplus went higher, so did the price of silver.  REASON?  It was investment demand that pushed the price higher, not industrial demand.  This will be the very reason why we see much higher silver prices when the system implodes.



SRSrocco's picture

bernorange... I checked out those charts and have to say the first one does not make sense.  If we go to the silver institute's supply/demand page we see that industrial applications alone accounted for 487.4 million ounces of silver.  Then they have the following:

Photography = 72.7

Jewelry = 167.0

Silverware = 50.3

Coins & Medals = 101.


then on the bottom of their chart they have what is termed IMPLIED NET INVESTMENT at 178.0 million ounces.  If we were to add this plus Coin & medals we would get 279.3 million ounces.  I don't know how GFMS who was sighted on the bottom of that chart stated that investment demand is higher when their own figures show otherwise.

If the first chart you linked was included jewelry and silver ware as investment rather than fabrication demand it would turn out to be this:

279.3 + 167 + 50.3 = 496.6 million

Compare that with plain on Industrial Application at 487.4 million ounces and we still can't get to that 55% investment demand figure.  Now, there could be more demand of silver above and beyond what is show in NET IMPLIED INVESTMENT DEMAND.  I have read several articles about this.

In the end...who the hells knows.  I am surprised GFMS is listed as a source on that chart when we can see their information on the silver institute refutes this.

I guess the best we can do is buy and hold physical silver and gold and watch the GRAND FIAT MONEY SYSTEM IMPLODE at a safe distance from us.  We will know it's time when the FIAT PHAT LADY SINGS...

bernorange's picture

Thanks.  Appreciate your comments.

max2205's picture

Ie; withhold production. Or as the hunts would say corner the market. Bubble and pop would not be in their long term interest.

rosiescenario's picture

..sounds like they employ folks from the BLS.....

Western's picture

@Silver Bully, you make a great point.


However, I don't believe that nationalizing the mining industry is in the best interests of TPTB. They need gold and silver to keep coming, nationalization would collapse the entire industry (don't view it the same as banking where every blood tie to some Zionist is immediately in the gang) and nobody will produce any metals. The best estimate of what would happen if they attempt this is what we see in the blood diamond regions in Africa. Slave labour rather than the professional industry it is now. It's probably not impossible to destroy the current industry and turn into an arm of the cartel... but that would take decades.

TPTB would limit the effects of whatever Sprott's ultimate goals are... rather than outright nationalization. They need the industry.

Silver Bully's picture

'However, I don't believe that nationalizing the mining industry is in the best interests of TPTB.'

Oh certainly, that would simply be the nuclear option, if you will. They wouldn't even need that, however. The CFTC and other government organizations would regulate them to their knees. It would be very easy to regulate how much excess silver a miner is allowed to keep on hand. Everything else is details.

Again, it is very simple - the miners don't and can't make the rules, despite what Sprott wants. The miners could certainly try, but they would pay the price. If Sprott somehow made them move at all, he would be painting a literal, regulatory, and financial bullseye on his chest. More power to him, just be aware.

scatterbrains's picture

Homeland security could just declare all ZH members terrorists and have them imprisoned at the nationalized SILVER MINES.. could you imagine ?

All of your personal wealth in pm's seized then sent to jail working in a silver mine for the benefit of tptb ? 

If they can train crackheads, burgles, glue sniffers, shoplifters etc how to milk cows, pasteurize, homogenize, package and ship (as they do now in many state prison systems) I doubt they would have much trouble training silver/gold mining convicts.


Eally Ucked's picture

oh well there must be always victims, and finally you will have topic to talk about, not in Russia, China or whereever it is but US, and your superiority syndrome will be destroyed. Just waiting for it, other things we'll follow and you'll be happy! 

prole's picture

Our Gulag is the most secure!

Our chains are the tightest!

We get shot first!

What "superiority syndrome" are you referencing stranger?

We get insulted most on blogs by retards!!

Pegasus Muse's picture

"Sprott better be VERY careful here."

If Western governments were concerned enough about Muammar Gaddafi's effort to transition the African Continent to a Gold-Back Monetary System (Gold Dinar) that they would conspire overthrow an sovereign nation for no just cause, kill thousands of innocent civilians, and steal the countries national resources, there is little doubt they would let the ethics/morality, the Rule of Law or other inconvenience get in their way to crush Sprott's initiative.  As we've seen with MF Global and other dastardly deeds, the SOBs calling the shots will stop at nothing to retain their control of money.  Money Power is the the basis of their strength.  Not to say they cannot be defeated.  It will take tremendous effort and sacrifice by the proletariat to do so.  An American or French Revolution kind of effort and sacrifice.  It will be interesting to see who emerges as today's Andrew Jackson.