Funzies In The Silver Market

From Numismaster:

London Squeeze Raises Silver Price (by Patrick A. Heller, 9-4-12)

When the price of silver topped $30 about 10 days ago, demand on this exchange surged. The best information I have is that at least two purchases were made then, each in the range of 5-10 million ounces of silver. The sellers simply did not have that much physical silver immediately available to fulfill these contracts. However, the LBMA insisted that delivery of physical silver must be made on the exchange rather than by possible chicanery that could happen if the contracts were settled outside of the exchange.

The latest reports I have received is that there is basically no physical silver available for immediate delivery in London. In fact, the estimated time for delivery is further into the future than some traders have ever experienced.

Silver is now at about $33.50. That’s another ten percent rise. Here’s what I expect (this is not investment advice, seek professional advice before making investment decisions, etc): Many stock market analysts have been predicting a significant selloff in the stock market indices (DOW, S&P 500, etc) sometime in the near future. “Crazy Mario” Draghi at the European Central Bank (ECB) has announced “Unlimited” buying of government bonds by the ECB (Bernard Condon & Matthew Craft, AP, 9-7-12). This, of course, is rampant money-printing = currency debasement, and urges precious metals higher. This should also urge stocks higher (since debased money must be used to price stocks, stock prices go up, just like bread).

At a long-awaited meeting Thursday, Mario Draghi, the president of the European Central Bank, unveiled a new program to buy government bonds from the region’s struggling countries with the aim of lowering their borrowing costs. Draghi said the program will have no set limit on how much it can buy.

All markets are now firmly in the hands of the central banks; remember, there are no markets, there are only interventions. Global central banks rely on the “wealth effect” of rising stock (and, hopefully, house) prices to make people feel rich so they will resume their once-seemingly-endless shopping spree for Chinese consumer-grade junk, container-loads of which are now the subject of reality TV shows where storage units are bought (because the renters couldn’t afford to keep up the rent) and sold off.

70% or more of stock trading on any given day is now reported to be due to computerized high frequency trading. By and large, the retail investor fled the stock market a long time ago. The computers can make the market go up, down, sideways, or into orbit if they like.

Many large investors and traders use leverage; that is, they borrow money and invest on “margin.” The last time precious metals went on a rampage, the central banks pulled the plug on the markets. Falling markets resulted in margin calls, and traders were forced to liquidate (sell) any positions they had which hadn’t gone bust in order to raise cash and post margin. What did they sell? Gold and silver contracts. Gold and silver then fell, making the fiat USD look like it was strong. It is not known to what extent this tactic would still work, given that the computers now move the markets. Though, there is no reason a HFT system can’t make margin decisions.

Silverbugs have been bemoaning JPM’s silver short position (price suppression) for more than a decade. We have seen silver “shortages” before, but only in the smaller denominations (1 ounce coins, small bars that individual investors like to buy). If the 1,000 ounce bars are becoming hard to get, this could be a game-changer, and I’d expect the central banks to respond with another stock selloff to instigate margin selling of gold and silver positions. The problem is, many larger investors seem to have woken up to precious metals and are taking delivery. Lower prices will look to them like the “SALE!” sign which is always posted outside of women’s clothing stores in the mall. Reports are already coming in of “buyers in size” in the physical silver markets having trouble taking delivery, and after several months’ delay, they get brand new bars which have obviously just come from a refinery.

Oh, one more thing:

Turkey’s gold imports almost triple on year in January–July

(Prime Business News Agency, 8-3-12)
Turkey’s gold imports surged to 99.12 tonnes in January–July from 33.77 tonnes in the same period of 2011, the Istanbul Gold Exchange said in a statement.

In July, the country imported 34.99 tonnes of gold, up from 10.46 tonnes in July 2011.

In January–July, Turkey also imported 84.08 tonnes of silver, up from 29.3 tonnes in corresponding period of 2011. In July, Turkey’s silver imports totaled 4.59 tonnes.