The Other Side Of The Gold And Silver Coin

Tyler Durden's picture




 

We have long-discussed the currency debasement, fiat-fiasco thesis for owning hard assets and only last night noted the discussion between Biderman and Sprott on the practicalities of this plan. What we found interesting was this week we have seen a number of quite bearish articles on the precious metals - most notably Bloomberg's chart-of-the-day has had two notes citing inventory build for Silver's imminent demise and lagging futures open interest as a sign of investor's losing conviction in gold. Given that we are fair-and-balanced we thought it worth sharing these technical insights and perhaps reflecting on what Eric Sprott noted (and Dylan Grice has previously highlighted) as the only thing that could break his 'hard asset' thesis - that the political and banker elite "come to their financial senses".

 

4/18/12. Bloomberg. Silver-Inventory Surge Means Decline In Prices (no link - reporter here)

The CHART OF THE DAY shows silver futures are down 2.5 percent in April, trimming this year’s rally to 13 percent, as the inventories on the Comex in New York climbed 2 percent this month, touching 141.59 million ounces on April 13, the highest since September 1997. The price may slip to $29.90 an ounce from yesterday’s close of $31.674, according to Melek.

 

“This clearly shows that there is no ready market for the metal as investment and electronic demand are declining,” said Melek, the head of commodity strategy in Toronto and the second-most accurate price forecaster tracked by Bloomberg during the eight quarters through March 31. “We could see a downward pressure on silver.”

 

Even though inventories were rising, commodities climbed higher as there was optimism in the market,” Melek said. “But now, with fear of a China hard-landing and the European crisis coming back to the forefront, people are going to take notice that the data is telling them something.”

4/20. Jesse's Cafe Americain. Comex Silver Inventory Watch - Heading Into May-July Delivery Period

The long term decline in deliverable supply at this price level could become quite interesting.

 

The only ways to obtain more deliverable inventory to meet a bulge in demand is to game the rules on the ability to take physical delivery or let the price rise by buying on the open market.

 

The push by the CFTC for position limits may tighten the ability to take delivery from 1,500 to 1,000 contracts, but hedgers will be exempt from position limits on the short side.  And the big silver short JPM claims to be a hedger.

 

I keep hearing stories of negotiated prices above the public quotes to buy off large delivery claims.  I would be interested to know if anyone has proof of this.  We know there are large agreements being conducted around the publicly quoted prices all the time. The FX pit traders walked out in protest over a recent occurrence.  It does not take an economist to understand what this does to price discovery and market efficiency.

 

The estimates I have seen of how much silver is real and how much is conflicting paper claims (leverage of unallocated claims) is up to 100:1.   Some of those claims are reported to be covered by 'inventory in the ground' which is not readily available for delivery.

 

One can only wonder how well confidence in the Comex would receive another 'stolen assets' scandal like the confiscation of gold and silver that happened to customers of MF Global.

 

The central banks have long ago dispersed their caches of silver to the market, so they are not available to supply ready inventory at leased rates.   One might look to SLV and wonder who audits its custodial integrity of unencumbered physical bars and how often.

 

As I recall the sponsor of the ETF is Blackrock, but the custodian and keeper of the vault holding the physical silver backing the ETF is JP Morgan.  As you may recall, JPM is holding a massive short position on the silver futures, as best we can determine.

 

JPM claims they are a hedge on behalf of other parties.   If they are using the SLV inventory as collateral in any way, then someone needs to be paid a visit by the SEC and CFTC because the owners of the shares have a superior claim to the metal.   That smells like 'hypothecation' in the manner of MF Global.  But I suspect that rather than blaming Edith O'Brien one might blame Bear Stearns.

 

I am not saying this is 'illegal' but it certainly warrants disclosure if it is occurring.  And if the CFTC knows this and is sitting on the information in their four year old and still unreleased silver manipulation report, then Gary Gensler needs to appear before the Congress and answer some very tough questions about conflicts of interest and withholding of key market information.

 

Of course the prudential time to ask those questions and obtain the answers is now, and not after the carnage of a commercial failure devastates investors, global industry, and market confidence.

 

Will anyone listen to this?   Did anyone listen to Harry Markopolos before Madoff's fund blew up?

 

These days it seems like the US financial markets are a train wreck happening in slow motion.  Or almost like watching a B horror movie.  You hear the music and you know what's coming, but there is no way to warn the campers.

4/11/12. Bloomberg. Gold Holdings Signal Slump

Reduced holdings of gold futures in New York are signaling a further decline for prices that already are headed for their first three-month slide in more than a decade, according to Credit Suisse Securities AG.

 

 

The CHART OF THE DAY shows a 3.6 percent drop this year in the open interest, or the number of contracts that have yet to be closed, liquidated or delivered.

 

That “lack of conviction” by investors may send gold down more than 8.1 percent in the next few months to below $1,525 an ounce on the Comex in New York, said Cilline Bain, a technical analyst at Credit Suisse.

 

"Investors are willing to stand on the sidelines expecting prices to drift lower,” Bain said in a telephone interview from London. “The interest is clearly not there.”

And lastly - as a reminder - Dylan Grice Explains When To Sell Gold.

In brief: "Eventually, there will be a crisis of such magnitude that the political winds change direction, and become blustering gales forcing us onto the course of fiscal sustainability. Until it does, the temptation to inflate will remain, as will economists with spurious mathematical rationalisations as to why such inflation will make everything OK. Until it does, the outlook will remain favorable for gold. But eventually, majority opinion will accept the painful contractionary medicine because it will have to. That will be the  time to sell gold."

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Fri, 04/20/2012 - 15:53 | 2362181 SheepDog-One
SheepDog-One's picture

'Time to sell gold'....for what? Worthless federal reserve notes? 

Fri, 04/20/2012 - 15:55 | 2362185 achmachat
achmachat's picture

sell gold... why not?! as long as the gold/silver ratio is at these levels, silver is a steal!

again... sell your gold!! buy silver ;-)

Fri, 04/20/2012 - 15:57 | 2362188 SheepDog-One
SheepDog-One's picture

Trade gold for silver....probably not a bad idea at all.

Fri, 04/20/2012 - 16:10 | 2362238 css1971
css1971's picture

Waiting for 55-60:1.

Fri, 04/20/2012 - 16:17 | 2362261 DoChenRollingBearing
DoChenRollingBearing's picture

"Gold: Basic Facts for the 99%"

"Basic Facts: Platinum and Platinum Metals Group"

"Marginal Utility and Gold"

Above articles for anyone interested.  Google them or gmail me.

Fri, 04/20/2012 - 16:30 | 2362285 LowProfile
LowProfile's picture

Inventory surge?!

WAITAMINUTE

http://jessescrossroadscafe.blogspot.com/2012/04/comex-silver-inventory-...

THOSE CHARTS TELL AN ENTIRELY DIFFERENT STORY.

Maybe it's registered vs. unregistered?!

Fri, 04/20/2012 - 16:38 | 2362316 NotApplicable
NotApplicable's picture

Their "physical" inventory is likely SLV baskets full Comex receipts.

As for declining open interest, well, you can thank that MFG Corzine for that.

Fri, 04/20/2012 - 17:29 | 2362453 donsluck
donsluck's picture

OK, thank you MFG. Now turn yourself in (MFG). Too true, MFG has shaken my faith in my IRA custodian Charles Schwab, but someone has to be the custodian.

Fri, 04/20/2012 - 22:37 | 2363023 MrSteve
MrSteve's picture

You might as well hold paper gold as physical gold in an IRA. The custodians will not let you ever take possession of physical gold. You'll have to rinse it into the fiat 1099-R reporting system when you want to withdraw. Holding eagles and buffaloes in a custodian account is like not holding physical, so why pay the storage and handling fees, etc? Hold the good stuff outside of financial institutions for real self-insurance.

Fri, 04/20/2012 - 23:55 | 2363160 BoNeSxxx
BoNeSxxx's picture

Not so... you can set up an Open Opportunity IRA and, as manager of your own LLC, you can dictate how and where the gold is stored.

I'm not telling where mine is but it's very physical, very safe, and (for now) very legal.  Oh yea, and I don't charge myself storage fees -- that may not meet the self-dealing standard anyway :-)

Fri, 04/20/2012 - 17:33 | 2362469 goldfreak
goldfreak's picture

who would believe these gangsters at the Crimex anyway?

Fri, 04/20/2012 - 16:38 | 2362323 Manthong
Manthong's picture

Yeah, we’re just swimming in all of that worthless silver.

If my math is correct, some 150 million ounces (more than the Comex) equates to less than ½ ounce per man, woman, child and illegal in the United States (~330 million) or about 3/4 of a gram of silver for every person on earth.

Yep.. plenty to go around.. they might as well give it away.

Fri, 04/20/2012 - 16:54 | 2362362 Likstane
Likstane's picture

At 32 FRN's per ozt., they pretty much are giving it away!

Fri, 04/20/2012 - 16:55 | 2362363 Beam Me Up Scotty
Beam Me Up Scotty's picture

Take it down to $8 bucks an ounce.  I don't care.  I'll keep buying it on the way down.  I'll be able to by more every month.  I've got the rest of my life to wait for it to go up.  I already have an Ipad, I don't need another one, I'd rather have some silver.  They will print eventually of that you can be certain.

Fri, 04/20/2012 - 23:40 | 2363135 Nukular Freedum
Nukular Freedum's picture

Problem with the freegold hypothesis of fofoa is that it requires suspension of Fractional reserve banking which isnt going to happen. Thus the paper gold market may experience deft manipulation indefinitely.
I have a one paragraph definition of the whole Freegold thesis (from Fofoa himself) together with an indepth description of the underlying fallacy of Freegold here:

http://pearlsforswine.wordpress.com/2012/04/18/and-people-heres-the-kicker/

In addition I have read Do Chens article on marginal utility and gold. It too is based on a fallacious understanding of economics emanating from Fofoas blog, notably a misinterpretation of what marginal value is (it is not something alonside fair or intrinsic value, there is ONLY marginal value, that is it) and its application to gold.
Gold does not have an unchanging marginal utility, a person with a million bars of gold does not append the same marginal value to an extra unit that he might have done when he only had ten units. Thus marginal utility diminishes with each unit, as according to the theory. However (and this IS interesting) the marginal utility of gold/money only approaches zero asymptotically, it never becomes zero or negative. Perhaps this is what Do Chen/ Fofoa are dimly intuiting?

Sat, 04/21/2012 - 00:32 | 2363201 DoChenRollingBearing
DoChenRollingBearing's picture

I left two comments (nothing nasty) there at your blog.  I would agree that each new oz for someone who already has 1000 oz does not get as big a bang for his buck as a guy with only 5 oz.  I think the total utility as your gold pile gets larger would more closely follow the "y = ln(x)" curve at my article.  But that's just my best guess.

Stay in touch.  NO ONE knows everything.

Fri, 04/20/2012 - 16:19 | 2362269 Pladizow
Pladizow's picture

Before anything, this guys past silver forecasts should be investigated!

What was he saying 1, 3, 5, 10 years ago about silver?

Fri, 04/20/2012 - 21:44 | 2362947 DosZap
DosZap's picture

Trade Gold for Silver, cause the CB's are grabbing all they can..............not.Wonder why?.

Good idea really to hold  ( and not for the feint of heart) to have a 50/40/10 Mix of the Big 3.

Aug is the metal of heart attacks.

IF you have the stones, go fer it.And you bought it WAY back when it was really cheap.

Fri, 04/20/2012 - 16:06 | 2362229 Spider
Spider's picture

Yeah traders at the NYMEX may not be buying it but if I were a sovereign regime with a lot of reserves (think Asia) with the mindset to one day establish my own currency as a world standard i'd be buying it.  What other options are there?

The biggest bubble is in sovereign bonds and creditor central bankers know it...

Fri, 04/20/2012 - 15:57 | 2362195 Dr. Engali
Dr. Engali's picture

No but I might exchange some for a 50 cal sniper rifle and some rounds.

Fri, 04/20/2012 - 16:27 | 2362287 Dr. Richard Head
Dr. Richard Head's picture

I'm getting me some Columbian Secret Service Hookers. 

Fri, 04/20/2012 - 18:58 | 2362530 Manthong
Manthong's picture

yep

Fri, 04/20/2012 - 16:31 | 2362290 easypoints
easypoints's picture

Yeah, eventually.

http://forensicstatistician.files.wordpress.com/2011/05/ltg.jpg

But the .50 is a bit much. You don't usually need to defend yourself from a mile away, and those rounds are heavy and hard to find.

Fri, 04/20/2012 - 18:05 | 2362562 Maos Dog
Maos Dog's picture

 

50 cal is the poor mans field artillery, with the right hand-loads it can punch through 1/4 thick steel plates, effective against light armored vechiles and low flying helicopters.

Fri, 04/20/2012 - 20:16 | 2362798 UP Forester
UP Forester's picture

So are .30-06 AP rounds.  Cheaper, too.

Fri, 04/20/2012 - 17:02 | 2362376 MaggieL
MaggieL's picture

Easypoints is right...honestly, you don't want a .50 cal. You want somethng you can carry and point at an attacker.

 

A .45ACP pistol should be plenty at closer ranges, a rifle shooting .223 or 7.62 to reach out and touch someone. 

Fri, 04/20/2012 - 18:41 | 2362634 Dr. Engali
Dr. Engali's picture

I had all of that before an unfortunate smelting accident.

Fri, 04/20/2012 - 17:08 | 2362394 BandGap
BandGap's picture

How about three .243 caliber rifles and all the rounds you want? Make some friends, give two away and have a shooting party.

The 50 cal is too big, loud and the ammunition too expensive. It's a bitch to fire and to get good with it will cost a lot of time and money (not to mention a sore shoulder). So unless you're trying to take out a wall or a light armored vehicle best to get a useful weapon.

Fri, 04/20/2012 - 18:40 | 2362630 Dr. Engali
Dr. Engali's picture

I already have a .270,.223,and a 308. Have you ever watched sons of guns? They modified a .50 cal by making it quieter and gave it less kick. It was pretty cool.

Fri, 04/20/2012 - 20:32 | 2362832 engineertheeconomy
engineertheeconomy's picture

Ground to air rocket launchers and flame throwers. 2nd amendment says right to bear ARMS, not whimpy guns...

Sat, 04/21/2012 - 08:58 | 2363458 spentCartridge
spentCartridge's picture

All lightweight stuff so far.

What you want ... http://www.anzioironworks.com/20MM-TAKE-DOWN-RIFLE.htm

 

.50 are for pussies.

Fri, 04/20/2012 - 16:26 | 2362279 SRSrocco
SRSrocco's picture

THE SILVER CHART ABOVE IS MISLEADING

While is it true that silver is being added to the COMEX inventories, to make a case that the price is heading lower because of this.... doesn't fly. 

First... if you look at the big takedownof $10 in SEPT 2011, you will notice that the inventories did not build.

Second... if you look from JAN to the end of FEB 2012, you will see a rise in price of silver along with the rise of inventories.

Thrid... anyone who makes a case that silver is falling due to inventory builds has to throw out the move between JAN-FEB... which means their theory is worthless.

MY ASSUMPTION OF WHAT IS TAKING PLACE

Silver has been taken down by NAKED SHORT SELLING of the bullion banks.  They use paper leverage to move the price.  Since May of 2011... there have been several large attacks, the last being on FEB 29, 2012.

They have done what they intended.... and that is to DESTROY the ability of speculators to trade silver on the COMEX from the MF GLOBAL bankruptcy as well as KILL the motivation of investors to buy the physical bullion.

Now we get HACKS coming out with this sort of NONSENSE and I have to be honest and say... JEEESHHH... can't you do any better than this sort of RUBBISH??  This is typical 5th grade mentality crap.

Again the intent of those in control of the FIAT REGIME have destroyed the market psychology for GOLD and SILVER at the moment.  This will not last as they have not solved any problems whatsoever.

Lastly... I would like to remind the reader-precious metal investor that the total RETIREMENT ASSETS of the USA are presently $17 trillion.  Zombies are still putting their money in US Treasuries and into the RETIREMENT MARKET.  This is a bubble.... not gold and silver.

We just have to be patient.

Fri, 04/20/2012 - 16:29 | 2362294 Dr. Richard Head
Dr. Richard Head's picture

The louder the chorus  becomes that gold/silver is about to decline is just another verse that sings out a bottom.

Fri, 04/20/2012 - 16:46 | 2362338 resurger
resurger's picture

HOW ON FUCKING HELL, YOU STACK OR BUILD YOUR INVENTORY AND THE PRICE DROPS!!!!!!! CAN SOMEONE EXPLAIN THIS TO ME PLEASE, PLEASE!!!

 

IS THIS SILVER ECONOMY OF SCALE OR WHAT?!!!

 

GOD!

Fri, 04/20/2012 - 20:39 | 2362845 engineertheeconomy
engineertheeconomy's picture

The tide comes up, the tide goes out, the tide comes up...

Take a vacation, you'll get it

Sat, 04/21/2012 - 00:13 | 2363179 Quinvarius
Quinvarius's picture

The silver that is not deliverable, but is claimed as inventory, is silver the COMEX owes to people.  When you realize that is what is being reported in that chart, it paints a different picture.

Sat, 04/21/2012 - 07:09 | 2363391 Dr.Engineer
Dr.Engineer's picture

Quin, please explain a little more. The mechanics of this great virtual blob of commodities (Crimex) is opaque to me.

Sat, 04/21/2012 - 07:24 | 2363398 Quinvarius
Quinvarius's picture

Registered is available for delivery silver.  It is in the big shared pool.

Eligable is the silver people are storing at the COMEX.  It is silver that the CME says they are holding specifically for other people.  Hence, the COMEX owes it to them--Much like they owed the MF Global people silver.  It s the stuff JPM and other banks claim is in their vaults.

The numbers should not diverge like that.

Fri, 04/20/2012 - 16:35 | 2362306 Debugas
Debugas's picture

federal reserve notes are not worthless - lots of jobless people are more than willing to provide services to you for those notes .

 

because of the huge debts the bankers can play both ways now - inflationary (which is always possible with fiat) and deflationary (only possible when there is huge indebtness)

Sat, 04/21/2012 - 09:17 | 2363469 BW
BW's picture

Sounds like we are close to a bottom.

Fri, 04/20/2012 - 15:55 | 2362182 dow2000
dow2000's picture

First...KEEP STACKING!

Fri, 04/20/2012 - 15:55 | 2362186 SheepDog-One
SheepDog-One's picture

'Eventually a crisis of such magnitude will force us onto a course of fiscal sustainability'....yea, sure....that'll happen.

Fri, 04/20/2012 - 16:27 | 2362288 Spacemoose
Spacemoose's picture

try as i may, i just cannot bring myself to believe that 5, 10 or 15 years out, that it is more probable that the purchasing power of $1,640 of fiat will be greater than the purchasing power of one oz of gold. i just cannot see that as a rational outcome of the current situation.  possible yes, but highly improbable.

 

Fri, 04/20/2012 - 20:41 | 2362853 engineertheeconomy
engineertheeconomy's picture

You're too generous. I'd say that we have 2 yrs tops before they'll be sweeping that useless paper off the streets. Hell, we're almost there now...

Fri, 04/20/2012 - 18:27 | 2362616 seek
seek's picture

It really will happen. I have no doubts about this. But it'll be a post-war, post-collapse, or post-revolutionary government that achieves this fiscal sustainability.

And they probably won't be using fiat, which makes the point moot.

Fri, 04/20/2012 - 15:58 | 2362193 schoolsout
schoolsout's picture

I thought silver inventories at COMEX were at another low point

Fri, 04/20/2012 - 16:03 | 2362211 Spider
Spider's picture

No inventories are over 130 million ozs (last April they were around 100 million) but registered silver is actually pretty low at 36 million (last April it was 41 million - a much larger % of total metal).  Registered is available for sale while eligible simply means it meets COMEX standards

Now I'm not sure the significance of thise disparity but it does seem important I would love to have somone enlighten me...

Fri, 04/20/2012 - 16:14 | 2362242 hack3434
hack3434's picture

Also the stockpile stats are a bit misleading. 

 

Long term COMEX silver stock http://static.seekingalpha.com/uploads/2012/4/19/saupload_untitled.png

 

 

Sat, 04/21/2012 - 00:12 | 2363186 Quinvarius
Quinvarius's picture

I wonder how much MF global had to do with all this.

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