1, 2, 3, 4... I declare a paper war (Updated 2)

For almost two weeks now, I have have told you to expect a great deal of volatility in Silver and that we would be in for a wild roller coaster ride.

Closer to home I have cautioned many colleagues that I expected a huge beat-down of Silver at some point which could see the price brought down as much as $15 - $30 per ounce. Is this that beat-down?

I was convinced that event wouldn't come until the broader investment community started to move significantly into Silver. 

That hasn't happened yet.

Has it come early because the short squeeze on the COMEX is even greater than we think?

Or is this, as the naysayers are trumpeting, simply a bursting of bubble conditions in the precious metals?

The fact of the matter is that Silver is down dramatically this week.  From almost $49.80, the shiny metal is now hovering around $39.35 after dropping to almost $39.

So is the bubble bursting? Or is there another, definitive reason that Silver has dropped so dramatically in price?

If you have any doubts about what's going on, ask yourself two key questions:

1. Why did you originally believe Silver was going to rise exponentially in value?
2. Have those reasons changed?

Let's look at them.

Silver was going to rise exponentially in value because of increased demand as a result of Sovereign Debt. Have the answers to any of these issues changed?

• Has the US suddenly resolved their deficit woes? 
• Has the US federal government found a way to avoid raising the debt ceiling of $14.3 Trillion?
• Has the U.S. government discovered spending restraint and move toward a balanced budget?
• Have the individual US States resolved their massive debt funding issues? Are California, Illinois, New York, Michigan and about 30 other states suddenly solvent and prosperous?
•  Has the US found a way to fund the outstanding liabilities of Social Security, medicare, etc which bring the actual debt totals to over $70 Trillion?
• Has the massive derivative problem been solved?
•  Did the too big to fail banks suddenly become solvent, their CDOs and loan portfolios truly valued at par?
• Has Europe become solvent or have Portugal, Iceland, Ireland, Greece and Spain suddenly resolved their severe debt problems?
• Is China suddenly buying US Treasuries again?
• Are the world's Central Banks buying up more US dollars or are they still dumping US dollars to buy Gold?
• Has the COMEX suddenly sourced 1 billion ounces of physical silver, tested and ready for immediate delivery (because they sold that many paper contracts on Monday)?

NOTHING has changed.  None of these conditions have been altered.

If fact, conditions are quite the opposite.  Reuters is reporting that the US Treasury wants a $2 trillion debt cap raise just to keep government operations going until the end of 2012. Meanwhile the budget deficit hasn't been resolved, so government revenue can't operate on the cash that is coming in... therefore that debt can only be added to after 2012.

Unemployment remains stubbornly high. Various budget constraints have limited the scope for easy solutions, even if these were desirable. The debt and deficit dynamics are bad and deteriorating at both state and federal levels. A major rating agency, Standard & Poor's, has already taken the previously unthinkable step of placing the US's AAA credit rating on negative outlook.

There there is this Bloomberg report that came out today reporting that Mexico, Russia and Thailand added gold now valued at about $6 billion to their reserves in February and March as the dollar weakened and Treasuries lost investors money.

Which brings us to the main contradiction... if the bubble is bursting in Gold and Silver, why isn't the US dollar rising?

The fact of the matter is that Silver isn't dropping in price because the underlying support for it's dramatic rise has collapsed.

Silver is dropping in price because an all out paper war has been launched against it in a desperate attempt to suppress it's value and support the US dollar.

We have already talked about how, in the last week of April, the COMEX attempted to engineer a liquidation of silver holdings by those who trade with highly leveraged positions.

And you need to understand that this represents a significant amount of trading.

During that week the COMEX raised margins on Silver traders twice... first by 9%, then by another 10%... in just one week!!

Unable to meet margin requirements when trading opened on Sunday night, delinquent accounts were liquidated. It just so happened that trading in London was closed for a local May 2nd holiday... which meant trading volume was very low. In about four minutes, Silver plummeted $6.10.

This was followed on Monday by MF Global raising their silver trading margin to 175% of the COMEX margin.  More liquidation's were triggered.

On Tuesday the paper war intensified as Interactive Brokers warned traders of a yet unknown (but certainly scary) looming margin increase:

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To NYMEX,NYSELIFFE traders:

Wed May 4 10:50:37 2011 EST

Margin Increase: Silver Derivatives

In light of the recent unprecedented volatility in silver markets, the exchanges that offer trading in silver derivative contracts are increasing the margin requirements on these products. In an effort to adequately address the inherent risk resulting from this volatility, we are increasing margin requirements on silver derivative contracts to a level exceeding that which the exchanges are implementing.

You will be notified as more information becomes available.

Please monitor and manage your risk accordingly.

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What the margin hike's have done is it has forced all the newcomers to the game to have to liquidate their positions or ante up the new margin. Given that most trade futures on margin, liquidation is the only option. For long time Gold/Silver investors, these tactics are reminiscent of the actions taken to suppress Gold/Silver in the late 1970s.

You have to keep this in perspective. No asset has risen so sharply so quickly without meaningful and necessary pauses in price to establish a new base. Even gold, during its run paused now and then to allow for normal ebbs and flows to take place, new bases to form and new launching pads to be built.

Silver didn’t do that. It shot straight up like a rocket. That rocket, thanks in large part to the CME margin hikes has now run out of fuel for a spell.  Will Silver crumble? No way. The fundamentals as to why it ran haven’t changed. The reality is that it just ran too fast with everyone scrambling to try to buy physical or find a vehicle to play the game with.

This is another reason why junior mining stocks have not taken flight like the price of Silver. Rather than being a bad thing, the juniors have been a shield from the recent volatility and risk of the futures market.

In truth, these margin actions are ultimately beneficial to the ability of Silver to push higher and higher.

In the meantime you are being presented with an outstanding buying opportunity.

Remember... the key question to ask yourself is: what has changed?

It isn't the Sovereign Debt issue, that's for sure. Which means this take down can only reverse sharply when it's done.  And that is going to present us with a gift-wrapped buying opportunity.

UPDATE

The paper war continues.  The CME has just announced that margins have been raised for the 4th time in 8 days.  This latest hike is 17%!!!

UPDATE 2

Not only has the CME hiked margins for the 4th time in 8 days, but closer inspection of their announcement (see above) reveals that there are actually TWO rate hikes in the announcement.  Rate hike #4 is effective May 5th and rate hike #5 is effective May 9th.

Two concurrent margin hikes are a move never implimented before.

The paper war continues.

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My level of concern about today's events in Silver

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The Panic is palpable... but not from physical Silver owners

As trading in Asia opened on the Globex on Sunday night, Silver was hammered.

In about four minutes, Silver plummeted $6.10.

On Friday we talked about how the COMEX has raised margins twice on Silver trading last week. 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) join the fray and has hiked its silver trading margin to $25,397. That's a hefty margin increase. 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!

These two events had the desired effect.

Unable to meet margin requirements when trading opened on Sunday night... delinquent accounts were liquidated at a time when volume was very low.

Supply and demand.  Lots of product, few buyers, price plummets.

This came after the manipulation last week beat down a price surge that almost hit $50 not once... but twice.

For chartist (investors who follow charts like a religion) this action had painted a 'double top'.  In the chartist world, 'double-tops' are indicative of an imminent price plunge. 

Last week, when Silver was originally touching $50, a host of stories started popping up in the media warning the Silver was due for a crash.  Then the 'double top' was painted on the charts.  Finally liquidation of delinquent margin accounts at market opening Sunday night would complete the scenario.

Silver plunged over $6.00 per ounce in about four minutes. 

Que the panic selling..............

One small problem.  Where was the fear? Where was the panic? Much to the horror of the Cabal, buyers surged into the overnight market and Silver climbed back above $47.00! 

And with what is a clear sign of how palpable the panic is becoming, the COMEX took further action today and raised margins for the third time in past 7 days; this time adding an additional 12% the to maintenance and initial margins.

You can see the result above, it has temporarily pushed Silver down again.  Will we see panic or will it be treated as a fire sale yet again? Either way, it is clear what is being attempted here.

If Silver surges over $50, the broader investment market will start pouring into it... which is why we are seeing such desperate attempts to prevent the price of Silver moving up any more.  Think about what we have seen the past two weeks.  Unprecedented paper contracts being dumped on the market, repeated margin hikes, a coordinated media campaign calling this the 'top' in Gold/Silver and the painting of a double chart top.

I promised you the short term Silver ride would be a roller coaster and it is not disappointing us. Can you smell the desperation? The fear?

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COT report on Silver (Updated)

Some interesting developments in this week's Commitment of Traders (COT) report for Silver.

For those who aren't aware, the COT report is issued by the COMEX and provides information about whether speculators are long or short on paper silver contracts.

At the close of business each Tuesday (although the report itself is released on Friday), the COT report records the long and short positions of three categories of market-user: commercials, non-commercials and non-reportables.

When you look at these reports you will see that 8 or less large traders hold a net short position equal to 227.9 million troy ounces of silver.  The report also breaks down the totals for 4 or less large traders and the '4 or less' traders is now 212.7 million ounces.

As we have detailed before, the '4 or less' category is completely dominated by JP Morgan.

The big news is this weeks report is that when you compare this report to last weeks report, the '4-or-less' category is down 50.8 million ounces.

Yes... you read that correctly. The Commercial net short position in this report shrank by a whopping 10,158 contracts which represents 50.8 million ounces. This is possibly the biggest one-week decline in open interest in silver, ever !!

This is huge news.

If you extrapolate the 10,000 or so contract decline in silver's open interest that's been reported in the daily reports for Wednesday and Thursday (after the period covered by this latest report)... it's obvious that JPMorgan et al are running for the hills with their short position on Silver.

And when you consider that the price of Silver is almost at it's highest levels in history, this will be costing JP Morgan a fortune.

Which raises an interesting question which you may wish to ponder if you are having doubts about where the price of Silver is going.

If Silver has 'topped' and can only fall in value from this point, why would JP Morgan scramble madly to cover a record breaking number of shorts when Silver is near it's highest price in almost 5,000 years?

(The same thing occurred in Gold this week)

If you are JP Morgan and you know the price of Silver and Gold is going to be going down, why cover record numbers of contracts at these high prices?

It doesn't take a Ph.D to analyse this. It only make sense to cover massive amounts of short contracts (... and let's emphasize that we just had the biggest one week decline in open interest EVER!) if you are worried the price of Silver and Gold is about to shoot much, much higher.

May is going to be an interesting month.

Update

If you haven't noticed, Silver (and Gold) have opened on the GLOBEX with dramatic drops.

Have the fundamentals changed?  Has Soverign Debt been resolved?  Or are desperate bankers taking desperate measures to crush the paper price of Silver? 

Let's see if Silver is on sale in North America by morning.



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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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