The Noose is Tightening

We've had a lot of our attention focused on the topic of Silver lately, but we are still watching the real estate bubble very closely and await the April statistics for a measure of where we currently stand.

One thing is for certain, however.

The larger periphery around the Village on the Edge of the Rainforest is NOT selling at all and we do not expect the April data to change that trend in any way.

When the month end of March statistics came out, the local blog Vancouver RE noted that in the final two weeks of the month (after the new mortgage rules came into place) the outskirts of the Lower Mainland were sucking wind.

On the Sunshine Coast, 6 detached residential units sold out of 517.

Squamish had 4 sales out of 196.

Whistler had 0 sales out of  178 detached listings and 2 condos sold out of 279 on the market!

In the Gulf Islands only 3 residential detached units have sold since January 1, 2011 out of 136 listed.

In the Central Okanagan, sales were down 25% year over year (YOY) with months of inventory (MOI) at a staggering 23 months.

In the Northern Okanagan, sales are down 15% YOY with 23 MOI.

The Sushwap sales are down 30% YOY with a staggering 39 MOI!!

And last week the Victoria Times Colonist summarised conditions best when they said "The first quarter of 2011 has proven to be a tale of two real estate markets in B.C. - the Lower Mainland and everyone else."

In Victoria sales were down 18.1% and the average price fell 2.8% to $491,336.

The rest of Vancouver Island did not fare much better with sales down 12.2% and average price falling slightly to $318,199.

Carol Crabb, president elect of the Victoria Real Estate Board, said it best by noting, "There's nothing to push prices up because there's so many properties and there's nothing to push buyers into making a decision as there's lots to choose from and lots of time to make decisions."

The Vancouver real estate bubble remains, but it is clear the noose is tightening.

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The battle intensifies...

Quick post for you as it is a busy couple of days for me.

Another interesting day for silver.

On a day when Gold surged $30 per ounce, Silver goes into the weekend down $0.54?

Even more contrary is the fact that in the after market hours Silver was pounded down $0.60 in less than 3 minutes and is down a total of $0.80 in the GLOBEX.

It is clear that the Cartel spent the day doing everything they could to keep Silver restrained.  For many analyst's it is all about surviving the May settlement in Silver.

How else to explain that, for the second time in less than 48 hours, the CME has raised margins on Silver trading. First it was for 9%, the second for 10%... in just one week!!

Following up on this, MF Global (run by former Goldman CEO Jon Corzine) has joined the fray and has hiked its silver margin to $25,397.

That's a hefty margin.  The CME margin is $14,513, or about 6% of the contract value of $241,750 if you assume a silver price of $48.35. That means MF Global's margin is 175% of the CME!

Meanwhile the media over the last two days is filled with a plethora of articles trying to tell you that silver has topped.  At the same time sell side analysts continue to raise or even maintain year end price estimates. This is important because year end estimates are critical to the calculation of miner share price forecasts.

What we are witnessing is truly an epic battle over Silver.

As analyst Turd Ferguson notes, "this 'topcalling nonsense' is just that. Since when has any market topped while everyone was telling you to sell. I'll tell you when...NEVER! Markets 'top' when the last buyer has bought... when there is no fear and no perception of risk. Is that today's silver market? Hardly! The fact that so many douchebags are trying to convince you to sell your silver is simply a sign that silver will trade even higher. 'Climbing the wall of worry', as they say."

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COMEX loses 20% of it's Silver

A stunning story is developing wherein it appears the COMEX has 'lost' 20% of it's Silver, a story which has played a large part in Silver's price gaining over $3 yesterday.

First of all a refresher on what the COMEX is.

There used to be two exchanges in New York. The New York Mercantile Exchange and the Commodity Exchange, Inc (COMEX). In 2006 these two exchanged merged and became one. It is now the New York Mercantile Exchange (NYMEX) but is divided into two parts, the NYMEX Division upon which is traded such commodities as oil, gas, palladium and platinum and so forth, and the COMEX Division on which gold, silver copper and aluminum is traded. On this exchange are traded 'Future Contracts' of gold and silver.

For a detailed explanation of the COMEX, please read this post from February 21st.

The evolving big news started when our own Scotia Bank, Canada's largest bullion depository (and one of five total), reclassified a whopping 5.2 million ounces of silver from Registered to Eligible status.

Scotia Bank precious metals division (Scotia Mocatta) transfered 25% of the silver it possessed from the "registered" category (or deliverable physical) to the "eligible" category (or "undefined").

What is the distinction between the two categories?

Some like to say that basically "registered" is real silver and "eligible" is somewhat questionable silver.

The registered category of COMEX warehouse bullion stocks generally refers to gold and silver bars against which COMEX warehouse receipts are outstanding. The registered stocks are held for investment and not for commercial purposes. The registered category is the total pool of gold and silver available at any time to meet delivery requirements under expiring futures contracts or to establish initial futures contract positions through a transaction called exchange-for-physicals.

In comparison, the eligible category of COMEX warehouse bullion stocks generally refers to bullion held in the warehouses that meets the specifications of an acceptable COMEX bar (proper weight, size, purity and refiner) but does not have a COMEX warehouse receipt issued against it. For example, an investor might purchase several 1,000 oz. bars of silver from a dealer and then deliver the bars for allocated storage at a COMEX warehouse. This is a private arrangement and has nothing to do with the COMEX. Unless these bars are officially registered (the easiest way to do this is through the aforementioned exchange-for-physicals), they will remain in the eligible category until withdrawn from the warehouse by the investor.

Thus, the appropriate way to treat eligible COMEX warehouse bullion stocks is that they represent metal that could potentially be registered at some point in the future but cannot presently be used to make delivery under a short futures contract.

So when Scotia Bank moved 25% of it's silver from 'registered' to 'eligible', it took that silver out of the COMEX pool that was available to be delivered.  And the 5.2 million ounces that ScotiaMocatta moved represents 5% of the previous COMEX supply of 44 million ounces.

The reason given last week was that: "due to a reporting reclassification, 5,287,142 t oz was moved from Registered to Eligible." It was explained that this does happen from time to time and was not unusual.

But the story does not end there.

In the past week two other depositories have done the same thing.  HSBC and the Delaware Depository have 'reclassified' silver reserves which means that the total "physical" silver across the entire Comex universe has now plunged by almost 20%, or from 41 million ounces to 33 million ounces.

In the span of one week the COMEX has lost 20% of it's deliverable physical silver!

This is big news.

The COMEX explains the adjustments here and advises that:

• the change has been made to reflect a change in the reporting of metal from the Registered category to the Eligible category. This change reflects paper warrants that have yet to be converted to electronic form. The metal represented by these paper warrants, which will now be reported in the Eligible category, will continue to remain eligible for delivery against COMEX futures contracts provided holders of the paper warrants convert them to electronic form.

It's possible that it is nothing more than an odd, last minute paper to electronic contract conversion.  And it is possible that it just so happened to mysteriously result in a 20% drop in the physical silver across the entire Comex universe.  And it's also possible that it's a coincidence that this all comes at a time when silver is within cents of breaking the all time nominal high.

But you have to wonder... how many more such "warrants" exist in the system?  There wouldn't happen to be enough that the COMEX would have to reclassify another 33,322,807 million ounces of registered silver, would it?

Could this be the real reason the COMEX struggled so much during the last delivery month to make good on silver contract deliveries of 4 million ounces when they supposedly had 41 million ounces in the system? Could it be that all of those 41 million ounces are nothing more than paper warrents?

The website FMXConnects has an interesting take on the whole situation.

FMX notes that Silver is the perfect product to buy if you genuinely think it is undervalued, want to de-dollarize your reserves, or just want to screw with the Banks who have become complacent over the years doing metals “carry trades” wherein they lease Silver, short it and take the proceeds to invest in something with a higher yield, betting they can get producers to sell to them when needing to cover.

If you have the money to do it, silver is the perfect product because:

1. One can control the Silver market with much less capital than gold.
2. Silver does not have currency status, gut Gold does. Every Central bank has gold in its reserves. None appears to have any have Silver, and 
3. Silver is consumed while gold is essentially not. It's hard to create a squeeze in something that every ounce that has ever been mined still is in existence.

FMX wonders if the reclassifications are just the beginning's of the the big banks starting to get out of the way because someone bigger that the usual investor community with deep pockets and a will deeper than all the Bullion Banks combined has decided to de-dollarize their FX reserves.

Someone like say... China?

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Wal Mart CEO: "Shoppers Are Running Out Of Money"; There Is "No Sign Of A Recovery"

About a month ago we wrote a post about Walmart's CEO warning American's to prepare for serious inflation.  You can see that post here.

Walmart's CEO Bill Simon said at the time that:

• "every single retailer has and is paying more for the items they sell, and retailers will be passing some of these costs along. Except for fuel costs, U.S. consumers haven't seen much in the way of inflation for almost a decade, so a broad-based increase in prices will be unprecedented in recent memory."

Well almost a month later, Simon is making news again on the inflation front and it comes a day after US Federal Reserve Chairman Ben Bernanke insisted that "the economic recovery was proceeding at a moderate pace, with little risk an inflationary psychology would take hold."

In an interview with USA Today, Simon says that consumers face "serious" inflation in the months ahead for clothing, food and other products and that "we're seeing cost increases starting to come through at a pretty rapid rate.".

John Long, a retail strategist, notes that labor costs in China and fuel costs for transportation are weighing heavily on retailers. He predicts prices will start increasing at all retailers in June.

"Every single retailer has and is paying more for the items they sell, and retailers will be passing some of these costs along," Long says. "Except for fuel costs, U.S. consumers haven't seen much in the way of inflation for almost a decade, so a broad-based increase in prices will be unprecedented in recent memory."

In another article, on CNN Money, Walmart noted that the store's core shoppers are running out of money much faster than a year ago due to rising gasoline prices, and the retail giant is worried.

• "We're seeing core consumers under a lot of pressure. There's no doubt that rising fuel prices are having an impact.  Wal-Mart shoppers, many of whom live paycheck to paycheck, typically shop in bulk at the beginning of the month when their paychecks come in. Lately, they're running out of money at a faster clip. Purchases are really dropping off by the end of the month even more than last year. This end-of-month [purchases] cycle is growing to be a concern."

To that end, Walmart says they are not seeing any signs of a recovery yet.

(Note: I hope to have the COMEX post I refered to yesterday for you later tonight)

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The ride back up and the Silver lease scam

Well... I told you Silver was in for a volatile period and it's not disappointing us.

Yesterday I wrote that Silver's 'correction' will probably end by Thursday (at the latest) and the metal will start a rally back towards $50.

Yesterday Silver was at $45.30. 

Today the US Federal Reserve Chairman held an unprecedented press conference.  And in anticipation Silver started climbing.

When Bernanke spoke, he made it was clear that the Federal Reserve was signalling it is in no rush to scale back its extensive support for the U.S. economy. The Chairman said the run-up in commodity prices that has dented growth should be fleeting (???).

Meanwhile the Fed's policy-setting Federal Open Market Committee said in a statement that it intends to complete its $600 billion bond buying program in June as scheduled and that despite some headwinds, it believed that the economic recovery was proceeding at a moderate pace, with little risk an inflationary psychology would take hold (????).

In other words... "inflation? what inflation?"

The response to this fairy tale outlook sent Silver soaring back up $3.08.  As this is written, Silver sits at $48.38...

... wheeeeeee!!!! And the roller coaster starts it's climb upward again.

They will try and beat the price back down again, but we are probably going to see Silver go to between $50-$52 in the next couple of weeks.

Yesterday I referenced this excellent article over on Seeking Alpha.  It talked about a Silver storage scam that is an important part of the Fractional Reserve Silver system being practiced by the banking cartel as part of their Silver price suppression scheme.

The public is finally becoming aware of this storage scam as a result of a couple of important lawsuits.

The first involved Michigan resident Laurin Ramsey.

In 1984, Ramsey purchased ten 100 ounce pure silver bars from the Swiss bank UBS (or its Paine Webber subsidiary). Since that purchase, he had paid $25 per month for storage fees to UBS to keep the silver.

A few years ago, he tired of paying the storage fees and contacted the bank to arrange delivery.

Instead of delivery, Ramsey only got the runaround. When he finally asked to be given the serial numbers on the bars and the location of the vault where they were stored, he was told that the bars did not have serial numbers (which wasn't true!).

At one point, the bank said his only option was to sell the bars back to the bank for cash... he could not take delivery of his silver bars. But Mr Ramsey did not want to close out his position.

On February 23, 2011, the Ramsey Personal Trust, by Laurin D. Ramsey was the lead plaintiff in a suit filed in the Federal District of Southern New York against UBS Financial Services, Inc., et al. The charges are that UBS had never purchased, segregated, or stored the silver, then had illegally charged storage fees for the phantom silver.

The lawsuit can be found here.

Seeking Alpha detailed the significance of the suit:

• "According to the lawsuit, customers were charged storage fees every month, even though the bank was not actually storing anything. It never purchased any physical silver. Instead, the bank allegedly used customer cash for its own purposes. In effect, customers ended up buying a non-interest bearing silver bond. Such bonds, based on a promise of repayment in precious metals, were typically issued in the late 19th and early 20th century. Back then, they bore a nice interest rate, payable in gold or silver. Today’s version of the precious metal bond is unallocated storage, which takes money from investors but pays them nothing at all."

S.A notes that a very similar lawsuit was filed in 2007 against Morgan Stanley.

In that case, small investors were also claiming they had been defrauded into participating in unallocated metals storage. The bank defended itself by alleging, among other defenses, that it was simply following standard industry practices.

In other words, the amount of information given to customers, the unallocated nature of the scheme, as well as the charging of “storage fees” for imaginary metal were “standard industry practices”.

In light of what we now know, maybe they were telling the truth. Morgan Stanley did eventually settle for a multi-million dollar payout, but it continued to deny liability.

UBS has not yet answered the allegations put forward by Ramsey. We don’t know yet what their response may be. The law firm representing Ramsey is Schoengold & Sporn, P.C. The individual attorney handling the case is Samuel E. Sporn and Sporn was the attorney who won the $4.4 million judgment in 2007 against Morgan Stanley.

But it begs the question... what happened to the silver that was supposed to be in storage?  If it is "standard industry practice", what have they been doing with the silver that was 'supposedly' stored?

It is clear to any rational person that the leasing scam has been an important component of the fractional reserve silver system that the banking cartel has been employing for years.

The cartel has been taking that silver that many depositors believe is being stored on their behalf and has been using that silver elsewhere to deliver on paper shorts they have issued on the COMEX.

The key element here is that the whole system is starting to unravel.

The collapse of Lehman Bros, the 2008 financial crisis, and the massive money-printing under Quantitative Easing has triggered a rush into precious metals which is intensifying with each passing month.

Central Banks around the world are now net buyers of Gold and Silver, not net sellers.

Individual investors are starting to pour into Gold and Silver in unprecedented numbers.

And intense upward pressure is being placed on silver prices because physical silver is being purchased as never before and actual physical silver is becoming incredibly difficult to source. The fractional reserve silver system has sold out paper silver at a 100-1 ratio to physical silver.

Upward pressure is not stemming from trading on COMEX. In fact, deliveries at COMEX have been relatively small for several months. The process that is now ongoing is one that no performance bond committee can stop... an overwhelming demand for the delivery of the actual metal. COMEX could declare liquidation-only, as they did in 1980 to stop the Hunt Brothers, but the only result would be to catapult the demand for the price of physical silver even higher.

COMEX is now irrelevant except as a way for banks to bankrupt themselves if they continue to try to reduce the price of physical silver by manipulating futures prices and taking on more short paper positions to do it. They can crash the paper futures price as much as they wish. It won't stop buyers from demanding physical silver in the real market outside COMEX.

The price of silver for the past 40+ years were a result of a naive market, overwhelming short positions at the futures exchanges, manipulative trading techniques and a deceitful unallocated storage arrangement.

The current silver pricing surge may look like a typical short squeeze, but it is nothing of the kind. It represents a permanent change in market perceptions. That is not to say that silver prices cannot fall, but the pressure to buy physical silver will continue to mount.

When silver prices finally reach equilibrium, the bellwether level of $50 per ounce will be the floor, rather than the ceiling.

Tomorrow we will look at another evolving story of the COMEX suddenly losing over 20% of it's "registered" silver over the past week.

Was it actually there? Or is the short squeeze  and the demand for physical silver forcing the COMEX to admit that much of the 'supposed' silver they have in their vaults is nothing more than a paper entry and isn't actually there?

More tomorrow.

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Should I bail? (Updated)

Yesterday I wrote how we would probably see Silver, as options expired today, drop to $45.50 or even $45.00.

That prediction played itself out and Silver even dipped into the $44.80 region.

The high prices achieved over the weekend were nominal highs. Gold reached $1,518.30 per troy ounce, a nominal record, while silver climbed to $49.79 per ounce, its highest nominal level since the short term parabolic spike in 1980.

By dropping over $5, Silver has suffered a 10% correction and has people asking, "Is it time to bail?"

The fear, of course, is that Silver will quickly collapse in the same fashion it did after it's dramatic run-up in 1980.

But as I said to two colleagues last night, 2011 is not 1980.

In 1980, Silver's rising price was the result of the Hunt brothers manipulating the price upward.  When their ability to manipulate the price ended... Silver collapsed.

In 2011, Silver isn't being manipulated upward.

Quite the opposite.

In 2011 Silver's price is being manipulated downward via the price manipulations of JP Morgan and their unbacked paper silver contracts (their massive silver short position is a situation unparalleled in any commodity).

When the ability to manipulate the price ends, Silver will explode upwards not collapse.  And the pressures on that manipulation are so great that the price is rising dramatically despite the shorts.

As analyst Dan Norcini has said,  "Nothing will unnerve the paper shorts more quickly and do more to undercut their confidence than to strip them of the real metal and force them to come up with more hard bullion to make good on deliveries."

And it's the demand for the physical metal which is the key here.

Should you bail on Silver right now?

Ask yourself what, if anything, has changed to stem the demand for physical metal? 

• Has the United States resolved it's massive debt situation?
• Are China et al prepared to buy huge amounts of US Treasuries again?
• Have the PIIGS (Portugal, Ireland, Iceland, Greece, Spain) resolved their debt issues?

The answer, of course, is NO!

All that has happened is that unbacked paper short contracts to the tune of almost 10 years worth of worldwide annual mining production have been dumped on the market in the last week.  This has been combined with a hiking of margin requirements on those who use leverage to trade large amounts of Silver, forcing them to close out positions because they suddenly don't have the cash to meet the margin requirements foisted on them in the midst of a trading day.

It's a desperate, albeit temporarily successful, attempt to keep the price of Silver down. But has it stemmed the demand for physical Silver?

Consider Bill Gross's observations this week (Gross is pictured above).  The world's biggest bond manager (PIMCO) came out with these stunning comments:

• "Just as Charles Ponzi needed donuts to turn back a suspicious crowd of investors, the Fed needs “donuts” in order to fill the bellies of the literally millions of investors worldwide who worry about the alarmingly large U.S. budget deficit and the impact that the U.S. debt dilemma could have on their Treasury holdings...Their collective buying has created what we believe to be a profit illusion with many investors mistakenly believing they can continuously reap profits from perpetually falling bond yields and rising bond prices, just as they have had opportunity to do over the past 30 years, amid the great secular bull market for Treasuries and the bond market more generally...For many reasons, this “duration tailwind” for Treasuries can’t last, particularly because the United States has reached the Keynesian Endpoint, where the last balance sheet has been tapped."

Gross's comments come from his latest report, The End of QEII: It’s Time to Make the Donuts and it is an absolute 'must read'.

As I have said ad nausem, the financial earthquake we suffered in 2008 was of such breadth and depth that we still do not fully understand, nor appreciate, what has happened.

There is still many acts left to play out.

The foundation for the belief that Silver and Gold will continue to rise are still intact.  But it is going to be a wild roller coaster ride.

Silver's 'correction' will probably end by Thursday (at the latest) and the metals will start a rally that will probably carry on until Friday of next week when Silver will trade back near $50.

Then it will be gut-check time again. 

Many analysts think the metals will roll-over again and you will probably see Silver drop back to today's level of $45.

Everyone will be screaming that we have hit some sort of double-top and the rally is over and that YOU need to get out.

But the critical question will remain: what has changed on the debt front?

Until something does, worldwide demand for Silver as an investment will continue to surge and the price will be forced higher from the simply supply/demand dynamics we have outlined at lengths in other posts.

UPDATE

From COMEX analyst Harvey Organ:

• The total silver COMEX Open Interest surprised everyone, rising from 149,899 to 152,945 for a huge gain of 3046 contracts despite Part A of the raid. Part B was today... The options to purchase a silver contract went off the board tonight. The estimated volume today was very heavy, it came in at a huge 250,247. The confirmed volume yesterday was a monstrous 319,204 contracts. [Note: each contract represents 5,000 ounces of Silver.] This is an all time record volume at the silver comex. If the total Open Interest standing tomorrow is around the same number as today, the bankers will assemble for more [intervention]. They are getting quite exasperated.  

You should also take time to check out this article on Seeking Alpha.

Some excerpts:

• It was only a matter of time. Now the talk of silver price conspiracies has shifted from long buyers to those on the other side of the fence.
• [While] order was reestablished among the short side conspirators [when] the COMEX trading floor opened on Monday morning. After silver prices had temporarily risen to over $49 per ounce during Asian trading, they were beaten down again to about $47 in a flood of newly opened short positions.
• In practical terms, however, the only thing they will have accomplished is to cause a few speculators to lose money while helping well-financed market vigilantes to buy more bars of physical silver for the same money.
• The massive losses that short sellers have been taken has naturally led to some new urban myths. Some now claim that "evil" long side billionaires are out to "ruin" the market. Yet, even the Financial Times article points out the ridiculously paranoid nature of this theory. The author notes that silver prices were rising even as speculative positions at COMEX were reduced by 8.4%. This illustrates that the COMEX is now just a sideshow. A lot of people are simply buying physical silver.
• The silver buyers do include some billionaires, undoubtedly, but most of them are simply folks who realize The banks were ostensibly "selling" and then "storing" so-called "unallocated silver bars" for silver investors. In reality, they seem to have been maintaining a fractional banking system in which only one physical ounce is really purchased for every 100 ounces they supposedly sell.

• Let's go over that again...because once you understand the particulars, the reaction of the price of silver becomes perfectly understandable. 1) Bank sells silver, a very precious item, for big money; 2) Bank doesn't buy the silver it sells, or, if it does buy it, leases out or sells 99 ounces for every 1 ounce in the vault; 3) Bank gets paid "storage fees" from all its customers, even though their silver is not in the vault; 4) Bank profits are equal to 99 times what it sells initially, and then, the value of the stream of storage fees after that. Nice work if you can get it.
• But, then there's the downside. 1) The market might discover your scam and you'll need to deal with investigations; 2) Leverage so high that, if discovered, it is a recipe for disaster; 3) Courts may deem the arrangement a fraud, in spite of disclaimers that say otherwise, and whereby customers waive liability for fraud; 4) the market will inevitably punish you severely with heavy losses after discovery of the scam. 

As Seeking Alpha notes,  "Had the worldwide silver scam remained a secret, suppression of precious metals prices might have gone on forever. But the genie is now out of the bottle and mortal men, not even those who run casino-banks, cannot hope to put him back in. Once it became clear that the bullion banks were leveraged 100 to 1 in a silver based fractional banking scheme, it was only a matter of time before the market clobbered them. That is what is happening."

And that's what why this blog has been telling you. The scam has been revealed and, as a result, Silver has been such a great investment opportunity.

And it's another reason why you shouldn't bail on your Silver position.

Tomorrow I will outline details of that Silver storage scam mentioned in this Seeking Alpha story and how it is that this fraud has become public knowledge.

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What a ride!!! (Updated)

If you were up last night, Silver took you on an incredible ride.

Action on the overnight GLOBEX was nothing short of astonishing.  At it's high point last night Silver had soared an amazing $3.18/ounce to hit $49.79.

Profit taking brought Silver down a few notches but by the time the action closed for the night the gains were stunning.

With the London markets closed today, Silver took a break before the action started in New York.

I spoke with a work colleague who had purchased his first physical silver just last week (and was looking at gains of 20% for the week) and warned him that today would be highly volatile... both to the upside and to the downside.

The markets didn't disappoint.

In a desperate attempt to cool the market, the CME hiked margin requirements again. Initial and maintenance margins were hiked by about 9%, the third such hike in as many months.

Just like in the previous two months, Silver suffered a big sell-off just before the announcement as the Cartel clearly gave notice to those closely connected. 

So when the markets opened in New York, silver was clawed back to a low of $47.80 in the morning and has been pounded lower throughout the day. We've seen this countless times since August. Many analysts predict Silver to drop down again tonight and tomorrow and possibly even drop near $45.50 or $45. 

IF that happens, look for aggressive buying and a move $50 or even $52 by late next week.

Before long swings of $5.00 a day will occur regularly and this may well become your coffee mug of choice...

Update

COMEX analyst Harvey Organ has come out with his analysis for the day.

As expected, Organ is reviewing the day's trading numbers which confirms the New York trading day was rocked by massive volume orchestrated by the bankers.

• "The total OI on Thursday night was 144,301 and today it was reported that the OI rose quite dramatically to 149,899 for a gain of 5598 contracts. That is absolutely humongous as the JPMorgue dug their heels and heroically supplied the massive non backed paper with reckless abandon....The next data was unbelievable: the estimated volume at the silver comex today was 279,844. No doubt we had some switches but that volume was unbelievable. "

Remember each of these contracts represents 5,000 ounces of silver. So a volume of 279,944 contracts in a day represents  1,399,720,000 ounces of silver traded today.

In analysing the Commitment of Traders Report Organ notes:

• "What have we learned? In silver: the bankers are not covering yet which is a big surprise as they are still adding to their short position. The large specs continue to pile it on hoping for the end game to be played out. The game is between the large specs vs the commercial bankers. The large specs have enormous amounts of dollars to play long. The bankers have enormous amounts of lent dollars from the Fed placed for collateral against billions of paper losses. Without a doubt there will be an epic battle on this front."

Wheee!!!!!

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Global Silver trading opens...

Global trading in Gold and Silver for Monday has started and after an hour Silver is up over $1.00 per ounce (Gold over $10).

Is it catch-up with Friday's sparse, limited holiday Friday trading where Silver was over $1 in some European markets? Or is this reaction to China's announced thoughts on what it should do with foreign-reserves (see post below)?

Will the banking cabal launch massive volumes of Gold/Silver paper contracts at the GLOBEX tonight and the COMEX tomorrow in a desperate attempt to mute the reaction to the US dollar?

Monday will be a tremendously volatile day in Silver and Gold.

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China proposes dumping $2 Trillion US dollars

Big international news on this Easter Sunday.

Last Friday, deep in the body of the post on Silver, I mentioned that mainstream media had been slow to comment on the latest statement from the Peoples Bank of China (PBoC) wherein China's central bank Governor Zhou Xiaochuan spoke of the need to reduce foreign-reserves.

After a speech at Tsinghua University in Beijing on Wednesday, Zhou spoke of the need to reduce an excessive accumulation of foreign-reserves as those 'reserves' have exceeded a “reasonable” level and the management and diversification of the holdings should be improved.

This is the way you diplomatically say “we are sick of the US Dollar and will be taking steps to lower our holdings.”

Remember, the US Dollar is China’s largest single holding. And China has already begun dumping Treasuries (US Debt).  At the same time China (along with Russia) has started to trade in their own currencies, NOT the US Dollar.

When you add in the numerous warnings Chinese politicians have been issuing to the US over the last 24 months, Zhou's statement last week makes it very clear that China is done playing nice and is now actively moving out of US Dollar denominated assets.

Well... today we found out just how much China feels they need to 'reduce'.

China is proposing to cut two thirds of it's $3 Trillion in US dollar holdings.

The $2 Trillion China proposes to dump is equal to the amount of dollars the US Federal Reserve has been printing during QE.

• China should reduce its excessive foreign exchange reserves and further diversify its holdings, Tang Shuangning, chairman of China Everbright Group, said on Saturday.
• The amount of foreign exchange reserves should be restricted to between 800 billion to 1.3 trillion U.S. dollars, Tang told a forum in Beijing, saying that the current reserve amount is too high.
• Tang's remarks echoed the stance of Zhou Xiaochuan, governor of China's central bank, who said on Monday that China's foreign exchange reserves "exceed our reasonable requirement" and that the government should upgrade and diversify its foreign exchange management using the excessive reserves.
• Tang also said that China should further diversify its foreign exchange holdings. He suggested five channels for using the reserves, including replenishing state-owned capital in key sectors and enterprises, purchasing strategic resources, expanding overseas investment, issuing foreign bonds and improving national welfare in areas like education and health.
• However, these strategies can only treat the symptoms but not the root cause, he said, noting that the key is to reform the mechanism of how the reserves are generated and managed.

This is huge news.

It brings to mind this highly sensationalized, fictitious account of how a US dollar collapse might play out.

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Happy Easter!

To all who stop by this blog today, I wish you all a Happy Easter!

I may have a post for you later this evening.

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Who laments for Haileybury House?

On Thursday we heard from our buddy, Cam Good.

Cam told us about the flood of hot Asian money (HAM) from China flowing into the Vancouver and Toronto Real Estate Markets:

• "In the last two months, we’ve sold over 700 condos in Toronto. Sixty per cent went to Mainland Chinese buyers. In meccas like Richmond, 98 per cent of the hundreds of homes we’ve sold are to buyers who are Chinese... Buyers from Mainland China are a driving force in our real estate market. The staggering truth is we’ve seen just the tip of the iceberg… A recent story in the Wall Street Journal reported that Chinese are 'stampeding to Vancouver and Toronto."

High end real estate is supposedly being snapped up left and right by the red wave. Don't tell that to Peter Grant, tho.

For those who don't recognize the name, Peter Grant was the head of Grant Forest Products, a Canadian forest industy company that at it's peak employed nearly 600 people in Ontario alone, and 715 across Canada.

The Company operated six mills – two in Ontario, one in Alberta and two in South Carolina – and was North America’s third-largest maker of oriented strand board (OSB), a product similar to plywood that’s used to build walls, floors and roofs.

Grant's success prompted him to branch out.

He started building a golf course in nearby Earlton, Ont., acquired a 65-foot yacht made partly made out of OSB, and snapped up acres of land around Timmins, Ontario.

In 2005 he started work on the Haileybury House, which was to be used as an office complex, living quarters and a showcase for Grant products. Located in Haileybury Ontario (which is about 140 kilometres north of North Bay, Ont.), the 65,000 square foot house would sit on the shores of Lake Temiskaming.

Once completed it would be a monster-home that dwarfed everything else in the area .  The massive mansion was supposed to come complete with a small golf course in the surrounding acreage,  an art gallery, office area, swimming pool, squash court, two elevators, a giant hot tub, a small gym, a boathouse and 43 acres of land.

But the key phrase here is... 'once completed'.

The strong downturn in the global economy in 2007 hit Grant Forest Products hard. 

When the housing market in the United States began to collapse, it dragged down OSB prices and forced Grant to cut production. Within two years, OSB prices had fallen by two-thirds and Grant’s sales had dropped from $500-million to $184-million. Even worse, the downturn came just after the company had launched a costly expansion project at two mills.

The company tried to keep going but by June, 2009, it succumbed and filed for court protection from creditors, citing nearly $600-million in debt. The mills have since been sold by the monitor, Ernst & Young, and all remaining assets are up for sale... including Haileybury House.

Grant was forced to abandon construction on the Haileybury project in 2008 so it hasn't been completed yet, leaving a partly finished relic. At the very least, the property will require $1 million in upgrades to make the house liveable.

As part of the liquidation process for Grant Forest Products, the house has been on the multiple listing service for about a year now at an asking price of $25-million.

There have not been any decent offers. 

Now the firm trying to unload the unfinished mansion plan to run ads in several newspapers in an attempt to drum up interest. Ernst & Young Inc., the court-appointed monitor handling the sale, are advising that potential bidders have until June 24 to submit an offer, with a 15% deposit.

It's unclear if they are going to accept the highest offer, regardless of what it is.

I wonder if anyone has told Cam Good?

Because it seems HAM isn't prepared to rush in and overbid on all overpriced real estate in our country, particularly in Haileybury. Could it be that, outside the inner cities of Vancouver and Toronto, the real estate collapse has started in earnest?

Hmmm... if you had $25 million, would you invest it in an asset that will almost assuredly collapse in value by 70% or would you invest it in something like Silver, which knowledgeable investors believe will rise by 400% or more in the immediate future?

The folly in Haileybury may be a bellweather of what lies ahead.

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We have liftoff...

If you click on the above image to enlarge it, you will see a side by side comparison for the closing price of silver over the past three weeks.  The first is on Friday April 8th ($40.01),  the second is on Thursday April 14th ($42.09) and finally you have closing price yesterday, Thursday, April 21st ($46.61).

What can you say other than... "Wow!" 

Last Thursday's close came after an impressive climb and this week Silver's charge continued unabated with a stunning gain for the week of more than $4.50.

But on the heels of such impressive and dynamic gains I would suggest, dear reader, that you haven't seen anything yet.

Last week I was having coffee with two colleagues in a local Tim Horton's (famous Canadian coffee/donut franchise), when our silver conversation was interupted by a patron sitting at the table next to us.  He enthusiastically gushed about the prospects for silver and gold.

This marks the first time I have observed the general public keen to not only talk about the opportunities in silver, but have Joe Q. Public actually quote the current spot price of the metal.

The next day, one of those two colleagues was at the Vancouver Bullion Exchange at Granville & Broadway to buy some silver bullion.  Silver had just surged over $40 an ounce and he was keen to purchase some physical.  He couldn't get close as there was a line-up of over 100 people eager to do the same.

This growing public awareness comes on the heels of Bank of Montreal (BMO) issuing a report talking about the "New Paradigm in Silver", which we commmented on in this post.

The BMO reports outlines the reason both investment demand and industrial demand are surging. Understanding the twin demands are essential to understand what is happening in Silver right now.  As I have often suggested,  people should take a look at this youtube video clip that, while a bit sensational, outlines the silver case quite well.

Increased industrial demand is coupling with declining supplies of silver. Both factors are coming to a head with the surging investment demand resulting from concerns about sovereign debt.

It's the perfect storm, a confluence which the commentors in mainstream media and on Financial TV have simply failed to grasp and understand.

But that dynamic has not escaped the attention of Eric Sprott of Sprott Asset Management. In his latest 'Markets at a Glance' newsletter, these factors are articulated and laid out extremely well.

• The fact remains that most commentators have failed to grasp the monetary shifts that silver is signaling today, and in doing so they’ve failed to appreciate just how high it could actually go.  The financial media’s failure to grasp the benefits of precious metals ownership continues to perplex us, and it’s not just the commentators who are prone to perpetual disbelief. The sell side analysts are equally as irresolute. According to Bloomberg, the ‘expert’ consensus silver price forecast for 2011 is $29.50, representing a 31% discount from the current spot price. This same group of analysts also predicts prices will decline another 25% in 2012 and a further 9% in 2013 to $20 an ounce.  When you consider that the silver price has appreciated by over 21% annually over the past 10 years, these forecasts suggest a very dramatic change in the long-term trend. Will this reversal come true? Probably not. These were the same analysts who predicted that spot silver prices would average $18.65 this year - so they’ve missed the mark by over 100% thus far.

Sprott notes that many are evaluating Silver with financial models that dictate equity valuations but they are ignoring the most rudimentary of economic principles – supply and demand.

This phenomenon means that Financial TV is often providing backward-looking forecasts that completely miss the mark for the future of Silver.  As the greater investment community gradualy comes to appreciate what is happening, the herd will  follow behind in due course as forecasts get ratcheted higher.

Sprott outlines why he can be so confident that the price of silver will continue on its upward trajectory while 'the Street' continues to forecast a price collapse.

One of the key indicators is the gold/silver ratio.

The last time money was synonymous with defined amounts of gold and silver, the ratio was set at 16-to-one. For most of the past millennium, one ounce of gold would have been convertible to somewhere between 10 and 16 ounces of silver - an amount roughly in line with the relative occurrence of each mineral within the earth’s crust.

For the better part of the past century, due to the world’s abandonment of bimetallism and then the gold standard, the gold/silver ratio has fluctuated widely, twice reaching lows near the 15-to-one mark and a high of 100-to-one back in the early 1990’s.

The most recent high reached in the latter part of 2009 was nearly 80-to-one. Since then the ratio has been tumbling to where it stands now at 35-to-one.  Sprott believes this ratio will continue to move lower, driven by nothing more than basic supply/demand fundamentals.

One of those fundamentals is mine production. In 2010, the world mined approximately 736 million ounces of silver and 85 million ounces of gold. The world also produced an additional 215 million ounces of silver and 53 million ounces of gold from recycled scrap. When you add both together you have a ratio of production where only 9 ounces of silver are being produced for every 1 ounce of gold. 

Interestingly, this 9-to-one ratio is very similar to the ratio of available in-situ (on-site) silver and gold reserves. The U.S. Geological Survey estimates that there are current in-situ reserves of approximately 16.4 billion ounces of silver versus 1.6 billion ounces for gold, or about a 10-to-one ratio.

It all says that mining production is not keeping pace with consumption. And when you add in the industrial demand for silver, you begin to appreciate the huge supply/demand squeeze that in being placed on silver right now.

• Last year, non-investment demand for silver (which includes industrial, photographic, and silverware demand) totaled approximately 610 million ounces. This represents approximately 64% of primary supply, leaving approximately 341 million ounces to satisfy investment demand. On the gold side, industrial usage totaled 13 million ounces, or about 10% of primary supply, leaving approximately 125 million ounces left over for investment demand. So, after netting out the industrial usage the primary supply left over for investment demand is about 2.7 times that for gold. However, if we convert those ounces to dollars at current prices, we’re left with $15 billion worth of silver available for investment versus $186 billion worth of gold, or a one-to-13 ratio of silver to gold! This means that in terms of primary supply, silver only has 8% of the capacity for investment that gold does despite having equal if not more dollars flowing into it.

Some critics note that as the Silver spot prices rises, some investors will start selling thier physical silver back into the market. But even if all the silver/gold held by investors was suddenly sold back into the market as the price leaps higher and higher, there is a  one-to-63 ratio of silver to gold inventories in the investment community. Under these conditions, Silver still remains extremely scarce.

As Sprott asks, how then is silver still priced at a 35-to-one ratio with gold?! The answer is... it can't remain at this level. Demand is going to collapse that ratio.

Current investment statistics show that there is an equal amount of money being currently being invested in Silver as there is into Gold on a dollar for dollar basis.

This is placing MASSSIVE demand on Silver, causing Sprott to observe:

• Although the price ratio of silver to gold has fallen substantially since the highs of 2009, our analysis strongly suggests that this ratio must move lower to restore a fundamental balance between supply and demand. Only time will tell how much lower it will go, but we would not be surprised to see it hit single digits before settling into a more sustainable equilibrium. 

As the Silver to Gold ratio drops to around 10:1 or less, it means that Silver, assuming that Gold doesn't rise a single penny, will hit $150/ounce as that Silver/Gold ratio narrows (Gold currently sits at $1,504/ounce).

But as we have talked about constantly on this blog, Gold’s continued appreciation vis-à-vis every currency is assured because of the great flight from fiat currency that has only just begun.

And on that note, mainstream media has been slow to comment on the latest statement from China. If you missed it, China's central bank Governor Zhou Xiaochuan made a significant statment this week.

After a speech at Tsinghua University in Beijing on Wednesday, Zhou spoke of the need to reduce an excessive accumulation of foreign-reserves as those 'reserves' have exceeded a “reasonable” level and the management and diversification of the holdings should be improved.

This, btw, is the way you diplomatically say “we are sick of the US Dollar and will be taking steps to lower our holdings.”

Remember, the US Dollar is China’s largest single holding. And China has already begun dumping Treasuries (US Debt).

This comes on the heels of China deciding (along with Russia) to trade in their own currencies, NOT the US Dollar. Not to mention the numerous warnings Chinese politicians have been issuing to the US over the last 24 months.

In simple terms, China is done playing nice and is now actively moving out of US Dollar denominated assets.

It means Gold is about to soar and the price could easily go to $2,000 an ounce. With the Silver/Gold ratio collapsing, that means Silver will not only leap up to $150/ounce, but will blast through that as Gold leaps higher. If Gold hits $2,000/ounce, Silver could well hit $200/ounce or higher.

Like Gold, Silver nvestors are now buying Silver as protection from the ravages of fiat currency debasement. Bring all the factors together and Sprott observes why you will see Silver soar over the next few months:

• When compared to gold, it is silver that offers the most attractive value proposition by virtue of the gross mispricing of its scarcity, which, we might add, has existed for many years. Thus, in our opinion, as this new bimetallic standard takes root, silver investors will continue to be justly rewarded with marked outperformance. We truly believe that this is the investment opportunity of a lifetime, and increasingly so, others are taking heed. What is clear to us is that with equal investment dollars now flowing into silver and gold, the current 35-to-one ratio is unsustainable and has only one direction to go: lower.

At just under $47/ounce, Silver is still very cheap. And with the Gold/Silver ratio closing (and the fact that, on a doller-per-dollar basis, equal amounts of money are flowing into Silver as into Gold) Silver has a much higher upside potential than Gold does. It means the foundation is being laid for some dramatic gains in Silver in the coming months and all eyes are now keenly focused on the COMEX delivery month of May.

How long before the wider investment community realizes this huge upside advantage that exists if you invest in Silver over Gold? How long before investment money, on a dollar-per-dollar basis, start flowing primarily into Silver instead of Gold?

It could be that the gains of the last two weeks are nothing compared to what may happen next month.

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Is The Federal Reserve Illegally Selling Put Options On Treasury Bonds To Drive Down Yields?

This fast-paced, well-researched, youtube video about how the Federal Reserve is selling put options to suppress long-term treasury interest rates is worth a peek.

I'll have a post on Silver for you at midnight PDT.

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Realtor decries real estate protectionism... with a little 'buy now or be priced out forever' thrown in.

In the Vancouver Sun newspaper today there is an Op Ed piece written by Cam Good, president of a local real estate sales and marketing company.

Faithful readers will recall that Good received a certain amount of notoriety a few ago when he hosted a helicopter tour of the Vancouver suburb of White Rock for a select group of Vancouver based Chinese-speaking Realtors. Our friends at VREAA documented this back on February 11th, 2011.

Today Helicoter Cam returns to the media spotlight to comment on backlash to the reports of Hot Asian Money (HAM) flowing into the Village on the Edge of the Rainforest:

• “In the last two months, we’ve sold over 700 condos in Toronto. Sixty per cent went to Mainland Chinese buyers. In meccas like Richmond, 98 per cent of the hundreds of homes we’ve sold are to buyers who are Chinese... Buyers from Mainland China are a driving force in our real estate market. The staggering truth is we’ve seen just the tip of the iceberg… A recent story in the Wall Street Journal reported that Chinese are 'stampeding to Vancouver and Toronto, two of Canada’s hottest markets.' For that, we should be grateful. Chinese have made owning real estate in Canada more rewarding than any of us expected and they have made our society distinctly richer by bringing their values and culture to Canada and sharing them with us.… But instead of gratitude, I see growing fear and resentment that foreign buyers are inflating prices and pricing 'us' and 'our children' out of the market... Let’s look at what this global trend is doing to benefit us: It’s driving demand and creating a real estate industry that is the envy of the entire world. Our land, homes and businesses have become more valuable and Chinese investment is a big reason we weathered the global economic storm as well as we did”

Good wraps up his Op Ed lecture in true R/E sales fashion with a lecture to all those who may feel left out of the real estate boom...

• “If you suffer from real estate impotence, don’t blame Chinese people. Besides, getting all worked up about it will only make it worse. Have a glass of wine. Relax. Stop feeling sorry for yourself and pick up the phone to call a realtor or a mortgage broker, either of whom will be more than happy to show you how easy it can be to get your real estate groove on. Real estate is the best investment you’ll ever make, but don’t take my word for it. Ask any of the 70% of Canadians who are already owners. Or a Chinese person.”

The message, as always, is the same.  Real estate always go up to jump on the bandwagon, assume an $800,000 mortgage debt, and 'buy now or be priced out forever'.

As Cam says, call him because he is more than willing to show you 'how easy it is' to plunge yourself into debt and follow the herd with a financial decision which could well ruin you for life when you buy at the top of the market.

Although I suspect Cam will not like that way I spun that last part.

My bad.

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