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- COT Silver Report - March 11, 2011
- All These Indicators Suggest Gold & Silver Fireworks About to Begin
- February Update of Gold & Silver Warrants Index Constituents
- Inflation Scorecard: A Volatile Week
- The Pimco Treasury Sale Conundrum…Or Is It?
- Patience Needed For Commodity Traders
- Silver Dip Buying Evident
- Disinformation and Silver Confiscation
- Gold & Silver Thoughts From NFTRH126
- shops buying @ higher prices/premiums?
- Silver Toppings 2
- Global Macro Notes: Did PIMCO Mark a Bottom in Treasuries?
- Japan Megaquake and Tsunami - Gold Mixed as Yen Surges against All Currencies
- Day of Rage
- Top precious metals CEO confirms: We don't have enough silver
- The world's greatest silver stock could soon be even better
- Approved, gold and silver money bill goes to Utah's governor
- Gold market will get ever more violent, Sinclair tells King World News
- With gold market outlawed, Vietnam bans dollar market
- Europes Turn Again
- Why Sweden’s central banker was beheaded [1719 AD] Scandinavian copper money
- Double Jeopardy
- Tsunami In The Bond Market
- Important Vulture Update, Gold-Silver Ratio “Only” 28 Year Low
- Time to Get Precious Metals Out of Storage in London?
| COT Silver Report - March 11, 2011 Posted: 11 Mar 2011 06:32 AM PST COT Silver Report - March 11, 2011 |
| All These Indicators Suggest Gold & Silver Fireworks About to Begin Posted: 11 Mar 2011 05:59 AM PST The gold bull is now on the verge of launching the most spectacular up-leg of this 10 year bull market. This spring we should see the final parabolic rally of the massive C-wave advance that began in April `09...[taking gold up a further 15% or so to approx. $1650, silver up a further 40-45% to as high as $50 and the HUI up to somewhere between 800 and 900 (i.e. +40-60%). Let me explain the specifics:] Words: 1216 |
| February Update of Gold & Silver Warrants Index Constituents Posted: 11 Mar 2011 05:59 AM PST The galaxy of warrants consists of only 146 stars (i.e. constituents) of which only 33 are associated with 30 commodity-related stocks that have sufficient brightness (i.e. 24+ months duration) to warrant (the pun is intended!) the attention of earthly investors. Words: 1530 |
| Inflation Scorecard: A Volatile Week Posted: 11 Mar 2011 05:17 AM PST Hard Assets Investor submits: By Brad Zigler Gold reversed course Thursday, along with a broad spectrum of commodities, paring the gains scored earlier against the reserve currencies. Still, bullion managed to eke out a 0.7 percent advance vs. the yen and moved ahead 0.6 percent against sterling. The Swiss franc gave up 0.2 percent to gold, while the euro gained 0.1 percent. U.S. dollar-denominated assets traded in a slightly inflationary direction this week.
Complete Story » |
| The Pimco Treasury Sale Conundrum…Or Is It? Posted: 11 Mar 2011 05:13 AM PST By now everyone knows that Bill Gross/Pimco has sold down his/its Treasury exposure to zero. Rather than ask "why," quite frankly, my question has been "why did it take so long?" In other words, anyone who knows anything about the bond market knows that it would be sheer stupidity to own Treasury bonds in a rising interest rate, inflationary and dollar devaluation environment. Furthermore, there's way too many "analysts" out there reading way too much into the decision. And speculation that Gross has some kind of insight into whether or not the Fed will move onto QE3 is absurd. I even laughed at the letter from the former Pimco employee posted on zerohedge.com explaining how serious and complicated this decision was. That commentary was grandiosity at its epitome. Again, as a total rate of return fund manager and a former junk bond trader in The Show on Wall Street, the decision to own a big position or to not own a particular position is nothing more than making a decision as to whether or not that position has better return/risk potential vs. every other alternative or vs. holding just cash. Please keep in mind that the flagship Pimco fund is a "total rate of return" fund, which means that the objective is to maximize return and minimize risk in the context of managing fixed income investment risk. In order to achieve the first objective, total rate of return, it requires having concentrated positions – i.e. big bets – vs. having a highly diversified portfolio. I've never believed in having diversified holdings unless you just want to achieve average returns, and below average after all the fund managers and brokers take their cut. Diversification does nothing more than diversify away total rate of return and any potential to outperform. Any fund manager who manages for return will "tilt" – or overweight – his holdings at any given time within the context of the asset class objective of the fund. Over time, Gross will shift the weightings in his fund largely between mortgages and Treasuries, overweighting one vs. the other depending on his market view. With that in mind, let's look at why Gross might have – or more like "likely has" - unloaded all of his Treasuries. Reasons 1-10 have to do with his view of the total rate of return potential of holding a big Treasury position. And this is why I was wondering why it took so long for him to dump everything. With rates where they are, the probabilty that rates will go lower are close to zero. This interest rate cycle has been in place since like 1990 or so. In a historical context, not only is the bull market in bonds (i.e. rates going lower) not only over, the probability is very high that interest rates are going to start moving a lot higher. This is pure cyanide for fixed income securities, since the price of a bond goes lower when interest rates rise. Even if you have a high coupon bond, the total rate of return for a bond in a rising rate environment is going to be negative. I would suggest that this simple determination was the primary reason Gross unloaded all of his Treasuries. To me this is a very obvious decision because clearly inflation is accelerating and with the Fed spending 100′s of billions to buy Treasuries, interest rates can not be held down – period. Why own any bond in this context? So the only sure thing we know about Gross' decision is that he thinks interest rates/inflation are headed higher. Doesn't take a rocket scientist to conclude that. Only an idiot would hold Treasuries in that case. I read with amusement on clusterstock.com that Gross is making a bet on a huge rally in the dollar because he's holding so much cash. That view is retarded. Right now I'm sure Gross is just happy to have maneuvered a big Treasury position to zero without the market knowing until it was disclosed and now he will take time to decide how to redeploy the cash in order to maximize return and minimize risk. Gross has actually publicly stated that he thinks the dollar is going a lot lower. Again, rocket science is not required to figure that out. So, if the dollar goes lower and inflation moves higher, that's a double-whammy for holding Treasuries vs. holding just cash (although holding dollars is not good either lol). But at least in that context, cash will outperform Treasuries since the price of Treasuries goes lower and you get less cash for them if you have to sell them before maturity vs. just holding cash now. Everyone got that concept? If not, think about owing a car that just sits in your garage vs. owning a car that you drive hard everyday. Time value will decay the value of the car that just sits, but time plus hard road usage will act on the car the same way higher rates and dollar devaluation acts on Treasuries. Finally, QE3. Let's keep this one simple. I'm sure Gross has his view on whether or not QE3 will happen. But to think that just because Greenspan is a paid advisor to Pimco gives Gross special insight to the Fed is ridiculous. Greenspan has proved to be a senile old man now with less than half a brain. Not that he had much of a brain as Fed Chairman, but he's gone off the deep-end in his old age. Regarding whether or not QE is to be or not to be, answer me this: if Pimco and the Chinese are not buying the 100′s of billions in new Treasuries that will be issued this year, and if the Fed stops buying them, then who the hell will buy all this new paper? Seriously. The Fed HAS to keep printing and buying Treasuries or our Government/system will financially collapse. It's absurd to think that the Government will let this happen as long as it has the ability to keep printing paper. So unless Bill Gross has some kind of insight into a conspiracy to let the our system collapse, I doubt he has any doubt about whether or not QE3 will occur. And more QE will hasten the devaluation of the dollar and accelerate inflation, thereby completely hammering bond prices – bonds of all flavors and credit risks. So the Gross/Pimco decision again circles back to the binomial decision of "rates higher or rates lower?" Again, to make a big bet on fixed income securities is nothing more complicated than deciding whether or not interest rates will be go higher or lower, especially since default risk with Treasuries is not in play for the reason I just gave (we will not include the complication of debating wether or not a determined, motivated currency devaluation constitutes a "de facto" default in order to keep this discussion focused on the binomial decision process of owning or not owning Treasuries). In fact, right about now I bet Gross is wishing that he had the abilty to buy a lot of physical gold and silver for his fund, because in this environment gold and silver will continue to provide the best total rate of return of any asset class. And I bet Gross also wished that mining companies were not throwing off so much cash flow right now and that they had to issue a lot of bonds in which he could throw that cash hoard into… Source: The Pimco Treasury Sale Conundrum…Or Is It?
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| Patience Needed For Commodity Traders Posted: 11 Mar 2011 04:51 AM PST The LFB submits: Global commodity markets are holding lower, after price action moves this week saw profit-taking of recent gains that had paid strong dividends over the course of 2011 in the precious metal and oil markets. Banking of profits should not be confused with the building of long-term short positions, as recent moves are not as yet providing any signals to indicate that a new short mid-term trend will be sustainable. Complete Story » |
| Posted: 11 Mar 2011 04:07 AM PST HOUSTON – One of the things we traders look for, simply speaking, is how a market or an issue reacts to news. Not just the knee-jerk action immediately following an important news event, but whether or not that knee-jerk action is sustained right afterwards. Looking at the silver market this morning, we cannot help but notice that the weakness of yesterday (likely ahead of the Saudi "Day of Rage") and the knee-jerk sell-down this morning owing to the huge earthquake in Japan has not seen any follow-on selling. Indeed, silver seems to be showing the classic signs of aggressive dip buying instead. Just below is a very short term chart of iShares Silver Trust (NYSE-AMEX: SLV). Quickly note that both of the recent harsh knee-jerk sell-downs (in the blue circles) have been treated by the general market as buying ops. ... |
| Disinformation and Silver Confiscation Posted: 11 Mar 2011 04:04 AM PST There have been two trends in precious metals markets in recent weeks which I find very alarming. On the one hand, we see the large "shorts" (JP Morgan and HSBC) in the bullion market ratcheting-up their short positions again. Understand that these short positions are tremendously underwater, and once the 100:1 paper-leverage of these financial terrorists is factored in, their short positions already represent large enough losses to ensure the bankruptcy of both of these vampires. Thus the fact that these 'life-threatening' short positions are increasing (and being allowed to increase) tells us two things. First, it is confirmation that the hopelessly corrupt U.S. Commodity Futures Trading Commission is simply going to defy the law, which requires these banker-slaves to institute "position limits" against the very Oligarchs they have dedicated their careers to serving. It is also apparent that JP Morgan and HSBC are now openly charging toward their own bullion-Armageddon: default events in the silver market (and possibly the gold market as well) which would lead to their financial annihilation – in the absence of any government intervention. Obviously the key phrase in that paragraph is "in the absence of government intervention". I will return to that point later. The other recent trend which I find equally disturbing is the sudden explosion of rhetorical rants on the internet, which specifically revolve around the battle-cry of "taking down JP Morgan" or even the entire U.S. financial system. As a silver bull, there are many reasons for me to be dismayed by this rabid and incessant rhetoric. For one thing, it adds nothing to the "debate" about silver manipulation, nor does it do anything to inform investors – most especially the new investors streaming into this sector. Indeed, the emotional excesses of these writers are likely only to frighten new arrivals to this sector, who were looking for an "investment", not a "war". In addition, this totally misrepresents how and why the original investors came to this sector: it was not to "attack" the rapacious U.S. Banker Oligarchs, it was to protect ourselves from them. Silver isn't (to use the term coined by Warren Buffet) a "financial weapon of mass destruction", like the $1.5 quadrillion paper time-bomb which these Oligarchs have created in their derivatives market. It is a "suit of armor" – to make us invulnerable to banker blood-sucking. Thus the rabid-ranters are in no way representative of the vast majority of silver investors. The bankers are doing a perfectly fine job of destroying themselves – and they need no "assistance" from us to finish their greed-induced suicide. In fact, I am convinced that most of these "mouths that roar" are in fact paid tools of the bankers, performing an invaluable service for them: demonizing silver investors in the eyes of the (ignorant) general public. Readers must realize that among any even semi-informed individuals, "precious metals manipulation" no longer represents a "question mark". It is an obvious reality, which has been documented by many (including myself). It includes not only obvious statistical evidence of manipulation, but a plethora of confessions from various "insiders", and (somewhat more recently) a bona fide "whistleblower" (Andrew Maguire) with decades of experience in bullion-trading. However, with respect to the general public (i.e. the sheep) "manipulation" represents just another "conspiracy theory" – which the sheep have been carefully programmed to automatically ignore. This last fact is of utmost importance to the Banker Oligarchs, because as long as the sheep remain oblivious to the decades of banker-manipulation in the precious metals markets, they remain receptive to more banker lies. The new lies of the bankers are now fully visible to any who are watching for them. |
| Gold & Silver Thoughts From NFTRH126 Posted: 11 Mar 2011 03:28 AM PST Ah, here we revisit my personal Waterloo, gold and its relation to silver. NFTRH still The weekly chart of silver shows a hysterical over bought situation and yet poor man's I do not want to downplay the fierce momentum and in fact, had I done this chart in Silver bugs needle me in blog comments and possibly some may be glad to shut me up in  In an early NFTRH edition, when the precious metals were decimated in 2008, I Which is why I like silver okay, but prefer the calm of real money and its relative under  Which chart looks more sustainable?
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| shops buying @ higher prices/premiums? Posted: 11 Mar 2011 03:19 AM PST At my local shop I've noticed just recently that they've gone from -$.50 spot on silver rounds and +$.1.25 on ASE to -$.15 and +$1.75 buy prices. Of course their sell prices have gone up correspondingly. Trouble getting product? Anyone else noticing this anywhere else? |
| Posted: 11 Mar 2011 03:10 AM PST After soaring 35% in just 6 weeks, silver has driven trader enthusiasm to a fever pitch. Naturally after such a magnificent surge to new multi-decade highs, silver bullishness is off the charts. Expectations for continuing near-parabolic gains are nearly universal, with ebullient commentators coming out of the woodwork to predict spectacular near-term price targets. |
| Global Macro Notes: Did PIMCO Mark a Bottom in Treasuries? Posted: 11 Mar 2011 02:39 AM PST
In a very news-heavy week, a notable item was PIMCO's decision to purge U.S. government debt from its flagship fund.
Gross, the original "bond king," has taken up the cause of the vigilantes in his monthly investment outlooks. He has warned repeatedly that debt levels are too high, and has openly wondered who will keep buying USTs when the Fed finally stops. Now PIMCO has put its money where its mouth is. But is this "alarming sign" (as many have deemed it) really a harbinger of looming armageddon for Treasuries? Or is it the mark of a medium-term bottom? Quite possibly it is neither, of course, but the "bottom" case is intriguing…
Two Kinds of Volume First note the general importance of volume. Surges in volume tend to mark the beginnings and endings of a move, for reasons that are easy to grasp. A major volume increase can signal forward thrust ushering in a powerful a new trend… or it can be a sign of exhaustion, as the firepower of an existing move is spent in one final blast of sentiment. Another type of "volume" — the type associated with people talking loudly, and betting loudly — tends to mark contrarian turning points. High profile moves telegraph conviction, capitulation, or media saturation, depending on the circumstance. A recent example of this was value investor Whitney Tilson publicly covering his Netflix short near the top of the hype cycle. Today's example may be PIMCO dumping USTs in the trough of a "risk on" equity run. What evidence for a near term bottom in bonds? From a chart perspective, we have a T-bond low registering in February, as viewable in both the futures and TLT, the Lehman long bond ETF. How ironic that this price action lines up with PIMCO finishing its selling… In addition to the near-term price action, we have the multi-year chart as shown at the beginning of this piece. The bond bull, which is not just years old but decades old, still has its long-term (VERY long-term) trendline intact. Now back to the "volume" issue — the public pronouncement kind. The bond vigilante case is powerful and solid. It has been echoed by not just Gross, but many other clear-eyed, risk-aware observers — like Nassim Taleb, who said roughly a year ago that "Every human should short U.S. Treasuries." (Leaving whom to take the other side?) From a trading perspective, isn't this widespread consensus part of the problem? If everyone knows that U.S. Treasuries are an obvious disaster, then who is left to sell them? Can one really say, at this late date, that firm opinions on America's dire financial straits have not yet been "priced in?" In that respect, news of PIMCO's government debt blowout feels more like a piece de resistance — a final blast, rather than an opening salvo.  Knowns and Unknowns Now let's look at the debt question from another angle. There are "known knowns, known unknowns, and unknown unknowns," as the accidental poet Donald Rumsfeld liked to say. And most all of Gross and PIMCO's objections — at least as recounted in the monthly investment outlooks — are of the "known knowns" variety. In other words, we know the case against USTs — the "known knowns." But what about the factors that counter that?' Here are some off-the-cuff examples of "known unknowns" that quickly spring to mind:
This is not meant to be a table-pounding case for buying Treasuries. We are not long USTs, nor chomping at the bit to become so. (And for those who want to shout about how fiscally irresponsible America is — we know. We have argued much the same.) And yet the PIMCO blowout, taken by so many pundits as an omen of U.S. debt apocalypse, seems more likely a different kind of sign… a sign that Treasuries may be "sold out" for now. It would not be extraordinary to see USTs rise from here, at least in the medium term. JS |
| Japan Megaquake and Tsunami - Gold Mixed as Yen Surges against All Currencies Posted: 11 Mar 2011 01:29 AM PST |
| Posted: 11 Mar 2011 12:39 AM PST No idea whats going on since HAARP just blasted Japan and the media is salivating over it. Blythe is happy today. Expect more swings today...we could see $33, and then back to $35 depending on how CNBC is positioned today. Oil still at $100 as I type this...do you think Japanese citizens today are second guessing if they should have stashed some silver maples instead of some Yen...? Dont |
| Top precious metals CEO confirms: We don't have enough silver Posted: 10 Mar 2011 11:30 PM PST From Casey Research: At the Casey Research Gold and Resource Summit, Bob Quartermain spoke about the constraints facing silver supply today, "Mine supply doesn't meet demand and in many of the new applications silver isn't being recycled, so it's not going to come back into the scrap supply chain... We'll have to go out and find new mines or new sources for silver; and that can only speak to higher prices." We've got the highlights of his speech in... Read full article (with video)... More on silver: Resource guru Sprott: There's no silver left Silver guru Morgan: Get ready for a major correction Where this rocket move in precious metals could end |
| The world's greatest silver stock could soon be even better Posted: 10 Mar 2011 11:19 PM PST From Mineweb: With silver prices expected to continue to rise over the next few years, Silver Wheaton (SLW.TO) sees the possibility of paying out around half its cash flow each year in dividends, its chief executive said. "I don't see any reason why in the future we couldn't be paying out 40, 50, or 60 percent of our cash flow every year in dividends," Peter Barnes said in an interview with Reuters on the sidelines of the PDAC prospectors and developers conference. "If we can take this company to cash flows of $2 billion or $3 billion a year," he added. "It'll be tough to spend that amount of money on new deals all the time." Silver Wheaton expects to have over... Read full article... More on precious metals stocks: Doug Casey: Get ready for the junior gold mania This silver miner could be starting a monumental rally An incredible development is taking place in gold mining stocks |
| Approved, gold and silver money bill goes to Utah's governor Posted: 10 Mar 2011 08:53 PM PST  Here's another story that was in a GATA release yesterday. I've borrowed Chris Powell's headline...but the headline in the Deseret News out of Salt Lake City reads "Lawmakers back recognizing gold and silver as currency". Utah might be one step closer to its own gold standard after the Senate approved a bill Thursday that would require the state to recognize gold and silver coins as legal tender. This is another must read...but it's not very long...and the link is here. |
| Gold market will get ever more violent, Sinclair tells King World News Posted: 10 Mar 2011 08:53 PM PST  Here's another GATA release that Chris Powell sent out late last night. Eric King headlined this blog "Jim Sinclair - Gold Explosion, Oil $150 to $200, Continued QE". It's definitely worth your time...and the link is here. |
| With gold market outlawed, Vietnam bans dollar market Posted: 10 Mar 2011 08:53 PM PST  My first real gold-related story is from a GATA release yesterday. It's a little something that was posted over at blogs.wsj.com. Vietnam shares ended higher, with buying across the board, after authorities intensified efforts to ban U.S. dollar trading in the free market, including the seizure of some individuals who were trading the dollar without permission. This is a very short must read story...and the link to the GATA release is here. |
| Posted: 10 Mar 2011 05:09 PM PST Dollar Collapse |
| Why Sweden’s central banker was beheaded [1719 AD] Scandinavian copper money Posted: 10 Mar 2011 04:45 PM PST Bullion Vault |
| Posted: 10 Mar 2011 04:00 PM PST Gold University |
| Posted: 10 Mar 2011 04:00 PM PST Gold University |
| Important Vulture Update, Gold-Silver Ratio “Only” 28 Year Low Posted: 10 Mar 2011 01:35 PM PST An overdue pullback/correction may be getting underway in multiple markets as we settle back into our "battle station" here at the ranch in relatively warm and sunny Texas. That's having left cold and snowy Toronto and the PDAC conference behind for the time being. We consider the conference as well worth the time, expense and distraction, but catching up will prove a daunting task this time, especially given two brim-full satchels of information and notes (culled down from even more) we decided were too important to leave behind in Canada. |
| Time to Get Precious Metals Out of Storage in London? Posted: 10 Mar 2011 11:34 AM PST Time to Get Precious Metals Out of Storage in London? There are six primary players in the London based precious metals storage market. Generally speaking, these six are the ones who store and transfer a vast majority of all gold, silver, platinum and palladium traded on the London Bullion Market Association (LBMA) and the London Platinum and Palladium Market. In alphabetical order, they are Barclays Bank (BCS), Deutsche Bank (DB), HSBC (HBC.B), J.P. Morgan (JPM), Scotia Mocatta and UBS (UBS). Together, the "big six" have formed a corporate entity, named "London Precious Metals Clearing Limited" (LPMCL). It is the primary standards-setting entity for the alleged fractional banking scheme that is spoken about so much by the Gold Anti-Trust Association (GATA). GATA alleges, among other things, that this group of banks is promising to "store" gold, silver, platinum and palladium in what is known as "unallocated storage," while keeping almost no metal in their vaults. The issue was made infamous at hearings held by the Commodities Futures Trade Commission (CFTC) in America on March 25, 2010. Most interesting is the fact that the LPMCL clearly states how they define unallocated storage. Many people who store their metals with these banks, however, don't seem to understand the implications of what they are doing. According to the LPMCL, an unallocated account is "an account where specific bars are not set aside and the customer has a general entitlement to the metal. This is the most convenient, cheapest and most commonly used method of holding metal. The holder is an unsecured creditor."[i] The most important sentence is the last one. Most customers do not understand that they do not own the precious metals they are "storing." Many seem to think that they own the metal, and are just giving the banks the right to use it, on occasion, in case of need, after which it will be returned to the vault. That is completely incorrect. The metal may, in fact, never be placed in the vault, because it may never actually exist at all except as an accounting notation on paper. The actual metal doesn't necessarily need to exist, pursuant to the terms and conditions of the unallocated storage contract. Admittedly, complete insolvency of such huge banks is hard to imagine, given their close ties to central banks, and the willingness of so many in government to sell out taxpayers and savers in favor of making sure that such banks are "too big to fail." However, the past may not indicate the future, and a time may come when governments are no longer able to save big banks, no matter how influential or important the banks may be. Most people do not seem to understand that, in a case of a bank insolvency, they are likely to get nothing from an unallocated gold storage contract at LPMCL. People storing their metal in unallocated storage at LPMCL banks don't understand that they've bought a nothing more than a "gold bond," subject to couterparty risk. The unallocated accounts take people's money from them, and promise to redeem that money for precious metal, based upon the continued economic viability of the bank. In other words, precious metals depositors have to deal with counter-party risk. They are relying on the credit worthiness of whatever entity is promising to eventually return their metal. Yet, in exchange for this risk, they are receiving not one dime in interest payments. Instead, the banks accept the free cash, use it, pay no interest, are able to freely sell or lease any precious metals that might have been deposited. Their sole obligation is to return unspecified bars of metal to the unallocated storage. But, what if the account owner, requests the metal upon demand. If the storage agent sold or leased too much metal, and doesn't have enough to deliver bars to all requesting customers, no criminal penalties will apply. The person who thought he owned precious metal, and was storing them pursuant to an unallocated contract, never had title to the property. As a practical matter, the customers' gold, silver or platinum has disappeared. But, bank vault executives have not stolen anything. They will not be jailed. But, the customers have lost the "insurance against bad times" that they thought they were buying. The bank messed up its accounting underestimating the percentage of people who would be demanding delivery. That's all. The storage bank is not liable to the customer because they never really claimed to be storing anything.[ii] The depositors' lack of knowledge and understanding may cause them to lose their metal, not the way the banks conduct the storage agreement. The customer is a fool, duped by impressive names into depositing large sums of money, in exchange for nothing, not even any interest on his deposit. By signing an "unallocated storage" contract, customers willingly signed away their metal and their rights. They also facilitate the alchemic creation of fake precious metals, because, as the banks use these metals and settle trades with them, serially, the amounts of the trades far exceed the amount of real metal. By claiming to "store" metal that doesn't really exist, and providing "statements" to 100 customers, for example, giving them a claim on the same 1 ounce of precious metal, the banks are able to multiply the supply 100-fold and, thereby, reduce the price. If and when a lot of customers demand delivery from unallocated metal accounts held at LPMCL banks, the banks will be unable to comply with their promise to allocate upon request, and the only recourse for the owner is to accept a paper settlement of the claim. After that happens, the precious metal holders' claims disappear. If the customer is an industrial user of silver, platinum or palladium, it is going to be forced to go out, a few days after receiving the fiat cash, to repurchase metal at a much higher price. The key to whether or not this unsavory event will ever happen is the leverage upon which storage banks are handling such accounts. The bigger the ratio of customers to real metal, the bigger the probability that the scheme will eventually collapse. In the past, most customers believed that the firms kept most bars on hand, for immediate delivery if needed, subject to occasional or emergency use in their business. People, for some reason, assumed that the bars would be returned to storage as soon as possible. How many would sign unallocated metals storage contracts if they recognized that the banks would have 99 parts of vault air for every 1 part metal. According to the testimony of Jeffrey Christian, a hostile witness with close ties to the bullion banks, at a CFTC hearing held on March 25, 2010, the precious metals trade is conducted in terms of so-called "financial assets"[iii], and are subject to a 100 to 1 fractional banking ratio, once you add up the derivatives and unallocated storage claims together. So, what is the ratio of metal to vault air in the storage schemes themselves, apart from the derivatives? No one knows, and the LPMCL banks aren't telling. Unlike the warehouse stock transparency at regulated exchanges in America, Japan and elsewhere, the LPMCL divisions of the various bullion banks are a secretive bunch. They do not publish the exact number of bars nor the number of customers wirh claims upon them. The fractional banking "leverage" may be lower or higher than 100 to 1. If it was significantly lower, we think that, given the public hue and cry, the banks would have disclosed the real ratio. Since they have not done so, we conclude that it is at least 100 to 1, if not higher. With only a small number of bars available to satisfy a large number of claims, the possibility of a default is very real. If a large number of customers, supposedly holding large quantities of unallocated gold, silver, platinum or palladium ever actually wanted it, the LPMCL storage scheme will quickly fall apart. That may be exactly what is now happening, and the collapsing scheme may be responsible for the soaring price of silver, as people demand possession of their property. Whether you buy metal at the LBMA, or the American futures exchanges or anywhere else, once you take delivery, make sure you do not get involved with an unallocated storage agreement. There are plenty of other options, including Via Mat, Brinks, and others. If you are an industrial user or a medium to large size insurer, bank, other financial institution, or government entity, you would be well advised to steer clear of unallocated storage schemes no matter who may be backing them. Other unallocated schemes, outside of London, exist at various Mints around the world, as well as at Kitco.[iv] Don't ever allow precious metals to be titled in anyone else's name but yours, except for the short periods in which you are buying and selling it. If you are now storing precious metals at an LPMCL bank, we believe there is no time better than now to get them out. The longer you wait, the more likely you will never get them at all. To assist you with understanding the unallocated storage contract, here is a link to a blank form contract from LPMCL. Notes: [i] LPMCL [ii] Unless, of course, the storage agent has attempted to use other markets, such as the regulated COMEX or NYMEX, to cover up a failure to act prudently before it defaults. Market manipulation to suppress prices, for example, might be the subject of civil liability for RICO based triple damages and/or punitive damages for fraud. They might also be prosecuted for COMEX/NYMEX related shenanigans, if there are any, so long as honest and forthright prosecuting attorneys can be found who have jurisdiction to do so. But, a mere default on the part of one or more bank members of the LPMCL would result in no further cost to the bank than reimbursing the stricken customer for the lost precious metal in fiat paper money. This can be easily obtained in the form of endlessly renewable near zero interest loans from various central banks such as the Federal Reserve, ECB and Bank of England, all of which have very close ties to the members of the LPMCL. [iii][iii] As opposed to a commodity. [iv] Kitco also now offers fully allocated storage, which is what you should choose if you want to store metals with them. Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. Long positions in silver. |
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