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Eric Sprott Fights PM Manipulation Fire With Fire: Calls Silver Producers To Retain Silver Produced As "Cash"
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.
The
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.
Expressed
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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Governments will just outlaw ownership of physical.
You become a silver "hoarder." An evil "speculator" intent on destroying the monetary system.
There is no worse form of terrorism in their eyes.
So if you are shoe producer and don't deliver to ShoeComex and try to negotiate the best price for your product you're "terrorist"? We're not talking about creating silver cartel or something like that. Where is the idea of free market?
Zack is right. A government that openly defies its constitution by eliminating habeus corpus and killing its own citizens, and assaulting them en masse (occupy movement) is easily capable, indeed likely, to declare anyone holding metal a threat. Look what they've done to that Liberty Dollar guy. Hell, I'm a threat because I have a few pounds of beans in my house. We should have a discussion on what to do with real money after it is declared illegal.
This is an interesting thread. I'm an "armchair" expert on silver. I see many reasons for a price rise going forward. I have seen several mention leaving it in the ground, or mining more to stockpile. Miners send "ore rich dirt" to be refined, and few if any have vaults of size. 70% of silver is mined with copper/lead/etc. So most global silver production follows, specifically, copper production. To dig more and send silver to the sky, means to glut the market with the copper, most mine's bread and butter. They won't do it, period. These primary silver mines, are not enough of the production to make a push of more than 7.5% price push, by stockpiling, by keeping 25% metal in reserve, using some simple math, even less once they PAY an additional 2% of profit to receive back .999 bars, from the refiner. The paper game prevails, for now. To quote Mr. Bass "Don't hate the mirror cause you're ugly". I love the metal, but cannot see this moving the paper price any higher than it has hit in the last 12 mos.
Here watch Kyle Bass explain his experience with COMEX and admits it's a fractional exchange with no gold. Go to 42min http://www.youtube.com/watch?v=5V3kpKzd-Yw
I notice, the trolling here suddenly seems to be on one heck of a panic mode..
The only time precious metals have any value is when you can find another party who has a surplus of the commodity you wish to purchase or another party whose service you wish to enlist and who values precious metals as a worthy trade for his services or commodity. Luckily, 5,000 years of history have shown that parties who have surplus commodities or valuable services will value precious metals as suitable for trade, as opposed to pieces of paper with ink impressions. Do you need to know more than this? Use your time wisely....
cheap silver is a gift.
a far better plan would be to give their shareholders silver instead of dollars/dividends in earnings. because the way sprott proposes if silver prices plunge the company goes out of business, (because shareholders pay for dollar earnings and sprotts plan would cause earnings to disappear). what a novel concept (I think). have gold and silver miners pay their shareholders in metal... not a mining trust -but the companies themselves. would that work?
This does not make a whole lot of sense to me as it represents the opposite of a Dollar Cost Averaging investment strategy for these companies. Miners will be setting aside more silver reserves when the price of silver is highest.
Also, the idea of keeping retained earnings as silver would mean if silver prices dropped the cash value of these reserves would be lowest right when the miners were most strapped for cash.
[No trolling intended, I just don't see it.]
I used to be bullish PM's just like everyone on this site, but a few months ago I switched gears, I have a feeling they topped out. ZH never will admit it, but price action speaks, and to me it is screaming we topped. This site has gotten bigger and bigger, and EVERYONE on this site is bullish. All the stuff that has happaned over the last few months you would have though the metals would have began their next leg up. All i see on this site is why metals are going up. Why not publish a fair article on why they may be going down. All i know is that when the story is too good to be true it usually is. All i hear on this site by Tyler and the rest is why metals can only go up. Please.
As well all I ever hear is they are manipulated, they have done a good job of that, whats gold up, 11 years in a row at a 20% clip. cmon Tyler, you should know better. You guys over here on ZH are starting to be gold bugs.
Just report the other side FOR ONCE, and just maybe, maybe the metals have topped out. The Deflationary force is too large, all assests are going to get taken down.
Now junk away, thats all that ever seems to happen on this site when someone has a different view.
Its the expansion in the paper money supply, stupid.
Oh that's it, wow i never knew it was that easy. Based on your logic then Gold and silver should never go down then. Paper money has been expanded since forever, so why is not gold at 100,000 or higher.
So I would say maybe you are stupid.
Lots of factors. Been discussed here many times. Sounds like you still don't get it though.
Wow, you really are stupid, since you say things like "forever," and "100,000." This isn't a 2 hour hollywood movie, it plays out when it does. Betting on the timing will cost you money, as it has cost me. Do what you have to ths is real-life.
Agreed Elmer. As someone once said, "the markets can remain irrational longer than you can remain solvent."
Interesting, so since the last issue of American gold coins, they have gone from $20 in value to ~1500 (in gold content).
Yeah, no trend there.
You are a fucking retard. As if anything ever just went in a straight line.
paper money supply ($) has increased by $200 billion in last 3 years (M0). out of 100 trillion in total claims that aint much. (I think you meant 'digital money supply') Lots of conflation/misunderstanding of terms in this space...
@ deep:
Robo_T is forever here to remind us how dependent PM-luverZ are on the FED keeping the econom goosed w/ liquidity, and how susceptible PMs are to deflation here
you know many don't trade, and we're hoping we don't end up using silver dimes by the end of 2012 b/c everything else has turned into tiger butter, but who knows?
you hold your assets however you wish, too
there are billions of differences of opinion about "price trends" at any given time, as we all, including tyler, know
why has gold (and silver) kicked ass?
with volatility and uncertainty on the upskie, recently, PMs have been volatile, and iffy, too; we've either missed or are kinda late for the seasonal rally, while registering our amazement, disdain, and disgust at watching the momo boyz ring the cash register as the dollar plummets its way upward as "deflation" strengthens the econom
some apparently are not enthused about "selling" for FED reserve "notes" which are payable in... more FRNs, and then trying to get back in later, ...if they feel the need to get outa paper backed by paper...
...assuming they're not simply hopelessly insane, of course...
You must be paranoid about TSA and other forces behind the scene, all those criptic posts supossed to give you security and immunity to gov info mining operations, that's your tactic? Don't worry they know you anyway and pretending you're drug-infused poster won't work man!
oh, shit! rilly?
L0L!!!
no wonder i'm so paranoid! i thought it was the drugs!
when zeroHeads have the FBI File Weighing Contest, root for slewie!
Yes they do!
The Deflationary force is too large, all assests are going to get taken down.
Now junk away, thats all that ever seems to happen on this site when someone has a different view.
*************
I didn't junk you-only want to show you that you have it completely assbackwards about gold and deflation and that the price of gold means little-no different than how many dollars you hold-it is never about how much money you have-it is always about what each one can buy you-
http://www.marketoracle.co.uk/images/2010/Apr/DOW-JONES-GOLD.png
http://www.marketoracle.co.uk/images/2010/Apr/S-P-GOLD.png
http://www.marketoracle.co.uk/images/2010/Apr/NEW-HOME-SALES-GOLD.png
http://www.marketoracle.co.uk/images/2010/Apr/FOOD-GOLD.png
http://www.marketoracle.co.uk/images/2010/Apr/CAR-GOLD.png
Here's how gold performed relative to prices in the last deflation-
http://4.bp.blogspot.com/_nSTO-vZpSgc/RbZwf5lgCXI/AAAAAAAAAN0/WJYO6dh-og...
http://2.bp.blogspot.com/_nSTO-vZpSgc/RbmMtplgCjI/AAAAAAAAAPk/NtN5JDlwHi...
What makes you think that you can say with authority that "all" assets are going down?
Money/cash is a commodity/asset just like any other commodity/asset-how hard is it for you to figure out that an oil company sells you oil for cash and you sell your cash for oil?
I agree Jimmy. We have $1,500,000,000,000,000 in derivatives that must be unwound which is extremely deflationary. After a violent deflation the reflation will begin and look out above!
You know it tuco-
The forgotten/ignored massive deflation of credit money yet to unwind that lies somewhere ahead of us-
The inflationists don't see the deflation-because they missed the hyper-inflation of the credit money supply and the shadow banking credit "money" that sits on balance sheets "somewhere" even if they "special account" it-that has absolutely zero for collateral underpinning it--
maybe sprott is a little late to this party?
some miners been keeping their silver safely stored underground, er, in der ground , haven't they?
esp since Ag is often a product of Cu mining, which mines have also cut back on shovelling a bit due to "dr copper's" Rx and what seem to be ample above-ground supplies, suitable for bankster shenanigans, too!
about the only thing two miners might agree on is which young lady is the prettiest; beyond that, they are an ornery, secretive lot; worse than pirates, almost...
Most mining companies need bankers for loans, on top of that the banksters control their stock float capability and price. So basically the banksters have them by the ballz.
Neat idea, but lets be realistic, most players aren' going to want to rock da boat.
Some miners already hold some of their PM's. Gold Resource Corp (GORO on Amex) is keeping a portion of their treasury in bullion. If memory serves me, they have minted some of their own coins. They are pursuing paying dividends in gold/silver coinage, though I think there are some hurdles to make that happen.
Disclosure: I'm long GORO. Do your own due diligence if interested.
I regret having to say that although almost all stories here on ZH are WAY ahead of the curve this one is old news. Good news, but old news. For those who haven't already seen it though - very much worth reading and considering the implications.
There’s manipulation, and then again, there’s manipulation; you don’t go through the files to find a powerful Greek protest and substitute it for a Russian protest by accident. It was deliberate. Why?
Backwardsevolution reported yesterday on Nathan’s Economic Edge blog:
Fox News wrongly reported on a Russian riot, only they used video from the WRONG country – Greece. CNN wrongly reported Russian riots too.
Apparently Russia has had protests, but nothing like what Fox and CNN portrayed.
They recant their stores hours later, though after the damage is done. Are they going after Putin now?
http://www.youtube.com/watch?v=DU2kRoToIT0
Newt Gingrich is only a candiate for nomination so far, and already he plans a war with Russia.
Here’s your answer; it’s the Neocon War against Russia. And Newt Gingrich intends to name John Bolton as secretary of state… Here’s Pat Buchanan on Lew Rockwell today:
In August 2008, as the world's leaders gathered in Beijing for the Olympic games, Georgian President Mikheil Saakashvili, hot-headed and erratic, made his gamble for greatness.
It began with a stunning artillery barrage on Tskhinvali, capital of tiny South Ossetia, a province that had broken free of Tbilisi when Tbilisi broke free of Russia. As Ossetians and Russian peacekeepers fell under the Georgian guns, terrified Ossetians fled into Russia.
Saakashvili's blitzkrieg appeared to have triumphed.
Until, that is, Russian armor, on Vladimir Putin's orders, came thundering down the Roki Tunnel into Ossetia, sending Saakashvili's army reeling. The Georgians were driven out of Ossetia and expelled from a second province that had broken free of Tbilisi: Abkhazia.
The Russians then proceeded to bomb Tbilisi, capture Gori, birthplace of Joseph Stalin, and bomb Georgian airfields rumored to be the forward bases for the Israelis in any pre-emptive strike on Iran
The humiliation of Saakashvili was total, and brought an enraged and frustrated John McCain running to the microphones.
"Today, we're all Georgians," bawled McCain.
Well, not exactly.
President Bush called Putin's response "disproportionate" and "brutal," but did nothing. Small nations that sucker-punch big powers do not get to dictate when the fisticuffs stop.
What made this war of interest to Americans, however, was that Bush had long sought to bring Georgia into NATO. Only the resistance of Old Europe had prevented it.
And had Georgia been a member of NATO when Saakashvili began his war, U.S. Marines and Special Forces might have been on the way to the Caucasus to confront Russian troops in a part of the world where there is no vital U.S. interest and never has been any U.S. strategic interest whatsoever.
A U.S war with Russia – over Georgia, Abkhazia and South Ossetia – would have been an act of national criminal insanity.
Days later, there came another startling discovery.
McCain foreign policy adviser Randy Scheunemann had been paid $290,000 by the Saakashvili regime, from January 2007 to March 2008, to get Georgia into NATO, and thus acquire a priceless U.S. war guarantee to fight on Georgia's side in any clash with Russia.
What makes this history relevant today?
Last week, Sen. Marco Rubio, rising star of the Republican right, on everyone's short list for VP, called for a unanimous vote, without debate, on a resolution directing President Obama to accept Georgia's plan for membership in NATO at the upcoming NATO summit in Chicago…
http://lewrockwell.com/buchanan/buchanan199.html
"And" our establishment corporate run media reported that Russia attacked first. Wow! Yes, this is old news but we can learn from recent history the mindset of these demons. Thank you.
Poor Eric Sprott
Sounding more desperate every day.
Probably kicking himself because he's not running a retail stock fund.
RTH is within a hairsbreadth of making lifetime record highs:
http://bigcharts.marketwatch.com/kaavio.Webhost/charts/big.chart?nosetti...
Life for these guys sure would have been easier if they bet on the U.S. Consumer instead of betting on "system collapse".
L0L!!! speaking of the devil
heeeere's Robo!
Robo is in the 'Gordon Brown' group of Gold traders.
Poor Eric Sprott, WTF?
He's a billionaire.
So what does that make Robot Trader?
And what about General Jim?
And don't even get me started on all the poor schlubs who went "all-in" on General Jim's TRX and took physical delivery of their stock certificates.
What a disaster, watching your investment melt down and you can't even sell your shares because you have the stock certs in your safe.
Even a cult retail stock like FOSL which took massive hammering this year is still up over 400% since 2009.
http://bigcharts.marketwatch.com/kaavio.Webhost/charts/big.chart?nosetti...
Far better investment than these "Bre-X" plays.
Just when I think you've reached an all time low, you better yourself one more time.
And no, I'm not bashing you on the TRX call, which I've never owned. Just your pathetic view on gold itself.
You are ZH's version of Bozo the Clown...
to bop
with ya pal, these trolls are clearly scared sitless, its the ultimate backhanded compliment.... the most trolls i have EVER SEEN ON ZERO HEDGE
Robo prefers the 50x book plays, Semper Netflix is his motto.
Semper Netflix, BiCheZ!!!
hahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahaha
In the not-too-distant future, inside of 10 years, if the US is still a 1st world technological society, there will be an absolute debacle in the silver market. Price suppression over all these years has caused misallocation of the metal. Nobody attempts recycling. Every electronic device, from RFID chips to microwave ovens, to phones and big screen tvs, to cruise missiles and lasers, optical telescopes and solar panels, burn cream and water purification to the door knobs in the hospitals, use various amounts of this metal. Where will it come from? China wants to be modern, they need to build a first class electrical grid to serve millions of homes and factories. Every junction box, transformer, cable lug, light switch and disconnect contains a fair dollop of silver, baby.
I hope I get to see the blow-up that's coming. There will be roving trucks with a pa on the roof, "Bring out your silver! Top prices paid for silver!" The miners would be foolish not to take advantage of their position, and hold some back.
An olympic sized swimming pool would hold all the above ground silver in the world. The investment grade bullion would be a 10th of that amount. That ain't much phyzz for the whole world to share.
Hold Fast.
Junction boxes contain no silver.
They are not a current carrying part of an electrical system (unless there is a fault to ground, and even then only for about a second) so no need for the superior conducting properties of silver.
I greened you for the rest of the rant though.
If it's just a tie-point for low voltage controls, yea but it can house a splice for high voltage cables. Splices (for power handling) are done with silver if you want a quality installation. T'anks for da greenie.
silver shares are being hit hard. I'm getting destroyed. Sooner or later, the shorts will be pissing their panties.
libertarian86.blogspot.com
I would bet dollars to a donut that Robo has a safe full of Krugs. He has already covered his behind and now he wants to keep his playground pumped in the interim with these inane commercials.
Hopefully no newbies are disheartened from covering their own behinds and decide to "exist" only on paper.
Robo is the Serpent in the Garden of Eden saying to Eve, "just keep eating that rotten apple dear".
Sprott is a pleasure and even though he obviously plays his book, this is one guy I can believe in.
Rehypothication of Silver
It appears that silver is being treated in a similar manner as cash in fractional banking. In fractional banking, an ever increasing amount of cash is required to keep the wheels turning. Recent articles by ZH point out the folly of allowing your paper assets to be rehypothicated. You may not end up the owner of any of your "paper" that others have rehypothicated!
It also appears that physical silver is being rehypothicated. Rehypothication may multiply each physical ounce of silver 100 times. It would also be true that to reduce the amount of phyical silver in accounts that have been subject to rehypothication, any reduction in physical silver would result in a reduction of 100 paper ounces for every one ounce of physical silver that is subtracted from these accounts.
If silver also requires an increasing amount of physical (similar to the increasing cash requirements of fractional banking), the miners would strangle the paper silver market very quickly if they retained even a small percentage of their annual production.
This can accomplished in two ways. The first is by the miners themselves simply keeping a portion of their production as suggested by ZH. The second is for large buyers of silver (such as Sprott) to buy directly from the miners. This would keep it from being rehypothicated and choke the ever increasing demand for "fractional" silver.
Fractional reserve banking was created in an environment where money was gold and silver. The very scarcity of the money caused banks to lend fractionally.
In a paper/digital money environment fractional reserve banking makes absolutely no sense. There is no need. You can simply print more money if it's required.
Why would anyone disagree? Sprott, only making the point, why throw all good money after bad!...
Gold and Silver, equals, REAL MONEY!...Use sparingly!!
When you realize that a lot of the silver bought by the sprott trust was actually provided by production from the MINERS AFTER THE FACT, you realize that the banks absolutely rely on new production to SETTLE THE FUTURES DEMAND FOR DELIVERIES. If you cut off or severely curtlail that and FORCE THEM TO USE EXISTING ABOVE GROUND INVENTORY TO MEET PHYSICAL REQUESTS, lets see what the price will be. My guess? Much much higher
zola the bars were still warm when the delivery reached the royal canadian mint in FEBRUARY, (90 DAYS POST ISSUE wonder why these fucktards are trolling tonite? THERE IS NO TANGIBLE PHYS IN THE WORLD, and Sprotts follow on prospectus for a BILLION FIVE got cleared ten days ago. Letss do some grade 3 arithmetic.
So if 500million dollars triples silver from 18 to 50, then , uh what does a billion five do from a kickoff point of 30 in a MUCH TIGHTER MARKET
Here's a plan. Some Big Boy buys a year's supply of silver directly from several of the miners and thereafter announces the launch of "x" ounces into outer space to be captured shortly by the sun. He profits handsomely on what he has left, despite the costs of the launch, etc.
TP Barnum busts JP Morgan.
Silverfinger?
How about a silver bullion dividend.
Though I guess for smaller shareholders it'd be cash.
I expect the shareholders would love that. They understand the fundies or they wouldn't be holding those shares to start with.
"Look hon, we got another 10 oz bar from Hecla.."
I've been doing a little calculator work, check this out:
Silver = 653 lb per cubic foot. (Heavier than I thought!)
653 X 16 = 10,488 AV oz = 9,522.916 troy oz per cubic foot.
Total mined in the year 2010 = 715.4 million troy oz. (Silver Institute)
715.4 mm / 9522.916 = 75,124 cubic feet of silver mined for the year of 2010.
The cube root of 75,124 = 42.2. (42.194blah blah blah)
Therefore the total mined silver for 2010 would equal a solid cube about 42.2 feet on a side. This would fit in my small back yard.
This to support the entire world and all of its manufacturing. Trillions of dollars in GDP, billions of people trying to live the 21st century lifestyle.
I doubt the banks could muster a 12 foot cube of the actual metal. (16.5 mm oz)
All we need to do is wait.
Sprott's timing is a little dense. I'm sure that silver producers are hesitant to follow his leadership on this topic even if it is in their best interest. He just spent the last year trying to purge a ridiculous lawsuit settlement out of Aurcana Corporation, a growing, future mid-tier silver producer. He brought the suit on at a critical time in the final stages of their development from junior to mid-tier. Fortunately, his laughable lawsuit was summarily dismissed by the Canadian court system.
Sprott could take a portion of his money and simply buy everything at the COMEX and take delivery; no need to create some vast system of tacit collusion.
With all of this said, I agree with Sprott that the producers should find a way to put themselves in the driver's seat. Anybody with the vaguest understanding of the market knows that it is a ponzie scheme and all one has to do to end the leverage is create enough outflows in the physical market to bankrupt the paper market. Probably this will work itself out once inflation starts to increase enough that people who are not fluent in finance start to understand that the value of the fiat is decreasing.
This is a great idea. Basically do the same thing as De Beers does with diamonds. Decouple the paper market from the physical market and destroy JP Morgan in the process.
Here is the Silver Standard Bowdens sale to Kingsgate. $75m for 90m ounces silver in Sept 2011. Thats 80 cents an ounce! The idea that silver in the ground is $5 is incorrect. Now it does have to be dug up, but my point is this. If silver in theground is so friggin cheap, why in the world would I want my producer holding 1oz at $32 when (based on this deal) that producer could then go and get 40 oz. Thats 40:1 leverage.
So last quarter First Majestic produced 1.7m oz of silver. If I am a silver bug I want then to buy projects like Bowdens (turn 1.7m oz Ag into 68m oz Ag using 40:1
This is s self centered of Sprott it stinks to high heaven. No Mr Sprott, we dont want our juicy producers to play your little pump and dump game.
Sprott just lost all credibility. Sad.
Silver Standard Sells Bowdens to KingsgateBowdens (200 km northwest/240 km west of Sydney, Australia in NSW) was sold on August 1, 2011 (offer accepted not closed) to gold mining company, Kingsgate Consolidated for US$ 75 million in cash considerations/shares. Bowdens, which has measured/indicated resources of 79.5 million ounces and another 17.6 million ounces inferred, has a mine life of 10 years.
http://www.wikinvest.com/stock/Silver_Standard_Resources_%28SSRI%29#Silv...
Why stop with Silver Miners? Doesn't the arguement hold true for ANY business, individual, government who has large cash holdings?
@ Trading troll - this is a good point about silver in the ground being cheap , but if silver on the futures is leveraged 1000 to 1 and this action of the producers breaks the paper price and reprices physical to its "correct"free market price, then your point is moot and actually supports the actions of Sprott. All depends on how you evaluate the impact of the paper vs Physical in the futures. Moreover, if holding 20% of earnings into silver has this effect , then it is a no brainer. As for the 1000 to 1 figures, articles by Tyler showing the massive leverage in the shadow banking system should make you consider this a possibility.
Bloomberg: Lithium, Cobalt Among Minerals Facing Chronic Shortage, PwC Says
http://sufiy.blogspot.com/2011/12/bloomberg-lithium-cobalt-among-minerals.html#
As an investor I hire management to do their job. If its a silver producer, then producer silver.
If assets are available to be allocated to the hoarding function, then so be it. An ETF can do that job. Management of an ETF and of a silver producer are different skill sets.
I dont see why it is the job of the silver producers to trigger price discovery in silver. That is not the best utility of their skills, their company and the investments madeby shareholders in the company. I agree that futhers may be leveraged 1000:1, but why does Sprott say the producers have to do that. The opunces of silver at an ETF are far more vast. If ETFs cant do it why would you expect a few producers to do it. The solution tot he problem doenst make sense, and even if silver is undervalued, at 80 cents per ounce in the ground why did Silver Standard sell so cheap? Hoarding exploration resources is better than hoarding produced ounces. Take a page from the Saudis who decided to leave the oil in the ground so it can appreciate. Gold at $1700 retail usually yields $150/oz inside a resource company, as a resource. Thats about 9%. So using 9%, why did Silver Standard sell so cheap, 9% x $32 = $2.80. Thats 3.5x what Silver Standard sold Bowdens for. Ask yourself, which would you rather have silver in the ground properly valued or your silver producer hoarding. I would rather have the silver resources stay in the ground like the Saudis are doing with their oil.
Isnt this better for price discovery? As resources drop then value should rise as mine lives decrease.
Saudis Stop New Oil Exploration to Prolong Petroleum Supply for Future Generations: King Abdullahhttp://www.treehugger.com/corporate-responsibility/saudis-stop-new-oil-e...
We have been here before already and now we know what happen to Gold and Silver.
US Dollar Collapse: Video: JP Morgan Silver Manipulation Explained
http://sufiy.blogspot.com/2010/12/us-dollar-collapse-video-jp-morgan.html#
I think this is one of the more sane ideas i have ever heard, why not as a miner diversify yourself with the very product you produce, diversify from the fiat paper that will continue to get printed. This will only attract more interest to mining shares, just like tying divideneds to the price of silver/gold.
Jon Nadler sells gold for $850 an oz,and silver for $12 cuz he think's thats a fair price.
Call him at Kitco,cuz he's got lots waiting, just for you.
He says a guy named Benny sells it to him for $42.50 an oz for gold and gives him silver for dirt cheap too.
Chicom's industrial silver usage double's every 10 years alone. Be your own central bullion bank, keep stacking.
And they are just now aspiring to be a technological society and get everyone on the grid. It's intense, they will need megatons of this metal.
(not to mention copper, rebar, cement, power poles, turbines, transformers, conduit, and so on)
Royal Canadian Mint stay tuned ....... Sprott a Bill Five, a producer cartel at the margin, blow me Blythe