Today In Silver

BarbarianWho asks:

Up till this year the price managers and their friends had been content to manage a controlled stair step increase in PMs. The implied message being they understood that gold and silver need to rise gradually to maintain some monetary stability and keep the debasing of paper money under the public radar.

Now we have systemic crisis and what started out as an orchestrated takedown in commodities and PMs has subsequently snowballed into across-the-board fund liquidations. I would imagine the money interests are thinking ?mission accomplished in this department, now what??

One thought that MUST be on their minds is ?how far do we let this thing go before it backfires. Can we manage a steady PM uptrend again from here or will we lose control on the upside??

Regarding the management of inflation ?expectations?, do they really want to lose the COMEX? Already open interest and the physical markets are passing a kind of judgment on precious metal price discovery via the futures market. How much damage to the COMEX are they willing to incur?

Do they really believe they can hold down PMs indefinitely without a destabilizing ?tsunami? reversal and COMEX slide into irrelevancy?

I would think the PM paper market is already devastated, sentiment ruined, paper buyers scared off, prices sufficiently brought down, inflation ?expectations? curbed. Again, ?mission accomplished.? This international liquidation has rallied the Dollar. Now the table is set for massive inflation of money under the radar for awhile.

The further down PMs go and longer any relief rallies are suppressed this coiled spring will launch into someone?s eye. They must certainly see that, right?

Right?

Are the covering of a few more shorts worth the risk to these guys?

If we see any more engineered takedowns in PMs it had better be quick. It might also be an indication of absolute loss of control over the thugs &/or utter stupidity.

I would like to add,

1. Can a COMEX rally between now and expiration(s) present much of a disincentive to stand for delivery?

2. If this is indeed a secular bull market in precious metals and we?re witnessing simply an ugly set up for the next upleg, then I would suggest we have obviously seen the first smart-money ?stealth? phase. I suppose one could argue we?ve seen the second institutional money phase. But we have certainly NOT seen any public mania third phase yet.

My question is, how could that third phase play out with no physical on the shelves? Obviously there will need to be a surrogate market for the public. Perhaps the paper markets have a ways to go. If so, they will by definition have to rise.

I don?t think we?ll see a new world monetary scheme yet that can shut down gold. Too many loose ends still.

SILVERAXIS answers:

I’m already on record as recommending, along with Professor Antal Fekete, that the U.S. Department of the Treasury “liberate” the U.S. Gold Reserves in order?to remonetize the financial system with a stable form of money (gold). If this happens, we will see the world’s governments instantly going from “enemies” of gold to “friends” of gold. Under these circumstances they will not want to control the gradual?rise of gold but instead they will repeg gold at higher and higher prices until the value of the gold held by governments and central banks is sufficient to monetize all troubled assets worldwide. I haven’t done it in a while, but it should be fairly straightforward to determine what the price of gold would have to be in order to do this. Whatever it might be, the gold price would be?stated in current dollars such that its?appreciation would represent an increase in real purchasing power. In other words, if the calculated gold price is $5,000 (a 525% increase), it wouldn’t mean?the consumer price index would also be 525% higher but rather that consumer prices?would stay the same as measured in gold. In other words, if an ounce of gold buys?1?nicely equipped tricycle?today, it would buy 6.25 tricycles in the future.

With respect to the COMEX, I don’t believe it will default and go away. I’ve got an essay in the works that explains why this would be a bad thing. I do believe that COMEX margin rates may increase sufficiently at some point to drive most speculation out of the monetary metals but there would still be important reasons for both long and short positions. At the same time?that speculative margins?might be?raised, the COMEX would probably give an offset credit to the margin of?those traders who can prove they have offsetting positions in the physical market.

Deliveries of gold and silver on the COMEX tend to increase with rising prices. One reason for this is that the unrealized gain on the expiring futures contract can be translated to a realized gain in the form of equity in physical gold and silver. Professional traders can then?use this equity in the physical metal to engage in various hedging and trading strategies.

The secular bull market in gold and silver are actually just now reaching the end of the?”first smart money stealth phase”. In terms of historical paradigm, we are currently in 1975. We really haven’t seen a major institutional move into gold and silver — the money they’ve thrown at the monetary metals is peanuts compared to their overall portfolios. And as a percentage of commodity-themed investments, gold and silver have been merely footnotes so far. Here is another thing. Despite the across-the-board liquidation in the commodity sector, the metal ETFs have seen very little outflows. I believe one reason for this is the fact that both gold and silver have real value and they will not fall 75%, 90% or 100% as almost all other investments are capable of doing. Perhaps more importantly, gold and silver have something that most other “hard assets” do not: marketability in both the large and the small. To understand what this means, please read the works of Professor Antal Fekete. In addition,?gold and silver?are among the easiest materials to transport, store and hoard.

So, if we are not entering the third phase of the secular bull market in gold and silver but rather just the second, let’s?look at?how the second phase will play out. The answer is actually quite easy: there will be systematic buying of physical gold and silver on the wholesale bullion market until there is a bona fide shortage. That, not retail buying, will probably drive the price during the next phase. And what about the third phase, how can retail investors participate when the bullion dealers’ shelves are empty? The answer to that question is that gold and silver prices will be so high by then that the early “smart money” like us will be selling to those late-comers. In other words, retail supply will increase because the price will get high enough that many early investors will be taking profits. Also, keep in mind that demand will be easier to satiate if and when gold and silver prices have risen by a multiple of the current price since at that point each dollar (or whatever fiat currency is used) will buy much less in terms of ounces.

SRSrocco asks:

Tom??you may get your $8 price TODAY. What do you think now?.maybe you might have to get your TECHNICIANS to find a LOWER PRICE maybe $1.50? Only kidding?.but this is quite interesting to see GOLD get SMACKED $60 right along with Silver.

So the TRADERS are selling because of MARGIN CALLS and the the WORLD HAS ENDED?.no one is going to BUY THINGS EVER AGAIN?? LOLOL. Gold comes down to JEWELRY DEMAND and DENTAL FILLINGS.

Okay?..you got the COPPER PLAY right?.but I believe this is called SILVERAXIS. What are your thoughts about the price of SILVER in the short term (6 months) and long term 18 months or more?

And, lastly, does any analyst really know anything anymore? As most are just as SURPRISED as the rest. Peter Schiff is kind of surprised that Commodities have gotten wacked this much. Are you in the camp now that MANIPULATION has been a controlling hand?

Because for HEAVENS SAKE?.the IEA, International Energy Agency state that even though OIL DEMAND will drop next year?.IT IS STILL a POSITIVE GROWTH of 0.5%.

SILVERAXIS answers:

It doesn’t look like the $8 tag is in the cards for silver today as currently the white monetary metal is trying to make a noble stand at the $9.60 level that was previously identified by technical analysis as a line in the sand. At the same time, gold seems determined to hold the $800 level. If $800 is decidedly broken on a closing basis, however, there is a very good chance that?it will quickly head back to test the September lows in the $830 range. Presumably this would happen?at the same time as?oil makes a final stab at the $60 level, the CRB commodity index at the $325 level and copper at the $1.60 level. If those levels are broken by a substantial amount, I think we can pretty much kiss the financial world goodbye and seriously start thinking about gathering up our 6-gauge tinfoil hats and 12-gauge shotguns and heading for a cave. Oh yeah, don’t forget to take along?that silver — it will be very useful for clubbing intruders who don’t quite present a mortal threat (after all, silver unlike shotgun shells is a reusable weapon).

Wither the price of silver? I think it’s up in 6 months and I think it’s up in 18 months. Heck, I think it’s up the rest of this year. This is not “silverbug” talk either. The fact is that silver is the cheapest it has ever been in real terms but it also has the largest investment demand it has ever had. Visible stockpiles are still growing but they are small in historic terms. I don’t believe?we are looking at?things quite right when see say, “Wow, look at all that?silver the world’s biggest silver ETF, the Barclays silver?iShares, has gobbled up!”. The truth is that the 220 million ounces or so that is held by this ETF along with the 100 million or so ounces held by other ETFs and silver investment vehicles is?a drop in the bucket. These 320 million ounces?are worth?less than $3.2 billion at current prices. That is less than the average market cap of the almost 4,000 companies listed on the New York Stock Exchange, even after the recent crash in stock prices. In other words, each of the 4,000 NYSE-listed companies, on average,?has a larger market cap than the market cap of all the publicly-traded silver investment vehicles combined.

Can silver get even more undervalued? Sure it can, but value investing is not about picking bottoms. Personally, I believed silver would be a good short-term investment at $15 or under and I stated as much on Friday, August 18. Back then you could still buy retail bullion at reasonable premiums. The next week silver traded between $12 and $14 with most of that being closer to $12. Interestingly, with silver now over $2 lower, retail investors today cannot find silver bullion products for much cheaper than they could today. One glaring example other than silver Eages and 100 ounce bars (which have always traded at a moderate premium to spot) is a favorite of mine, the junk bags of 90% U.S. silver coins. Tulving?is currently selling these at $5 per ounce over spot. Back at the beginning of August you could still buy these at, or even a bit below, spot.?Indeed, on August 7 I stated:

“What isn’t free or even cheap is the premiums on bullion products as Gene Arensberg points out, but the stuff being hocked on www.tulving.com and a few other online destinations don’t seem that particularly bad. A premium of $1.75 over spot on silver Eagles is about the same as it’s been the past couple of years. On the other hand, both the JM/Engelhard 100 oz. bars and 1 oz. generic rounds are about two bits higher than they have been offered prior to this year. Meanwhile, junk bags of 90% U.S. silver coins are selling at spot and so they remain the outstanding bargains of the PM universe.”

I agree with you that most analysts don’t know anything anymore (if they ever did). I certainly don’t know as much today as I though I knew three months ago. But here is one thing that I do know: silver is not going to drop by 75%, 90% or 100%. If it drops some more from here, I expect investors to buy more and more physical metal. When the drop finally does stop, there will not be a lot of metal left (retail or wholesale)?sitting around for people to buy. Or perhaps it should be the reverse: when there is not a lot of metal left (retail or wholesale)?sitting around for people to buy, the drop will finally stop. If?manipulation of paper silver and gold is behind these price drops, it is the best thing ever for silver and gold investors because it is allowing for more metal to be bought up using fewer and fewer paper dollars. As a result, the wait for the day of reckoning has just gotten that much shorter.

silverax Windbag Wisdom