Ahead of the World Economic Forum at Davos we have seen gold and silver under pressure. One trader out of London commented, “It appears certain interests are trying to give the appearance of technical weakness, so all of the banks have sold. That tells me we are at a bottom because they are always wrong in their call. Remember they are telling their clients to sell here, and they are on the other side of the trade.”
“On the 17th of January as an example, Lloyds Bank told all of their clients to sell gold based on a head and should pattern. Lloyds first target was said to be $1,148, then below that $841 to $875, and I have never seen that from them.
What is a big sign of weakness is that these operations creating the appearance of technical damage are being done in the thinly traded access market when the majority of traders in the UK and Asia are not even in the market.
The technical watchers are so myopic, they see this pattern that is being orchestrated and go on the sell side of the market. The banks are bidding on the other side of the trade buying.
Meanwhile physical demand is incredibly robust from the eastern hemisphere creating a floor on the downside preventing a further breakdown. There are certain banking interests which have been making an effort to keep a lid on prices of gold and silver, and as I mentioned they are being met by intense Asian demand as well as savvy traders lining up to buy this drawdown in both gold and silver.
Big money is lining up to buy into any attempts to flush the price lower in both metals.”
Ahead of Fed meetings we are used to seeing gold and silver under attack. It makes sense that on the eve of the World Economic Forum in Davos we would see similar pressure on precious metals. It sounds like large interests are taking advantage of the markdown in prices.
Two investment tools for silver – coin sales and exchange-traded funds – are showing a divergence in investment activity this January as coin sales reach record levels and ETFs show significant outflows.
While the divergence is obvious, trying to get a sense of what this bifurcation may mean for the larger market is a little more difficult to map. Some market watchers said the division doesn’t matter because the one does not influence the other. Others said it’s important to keep an eye out because changes in these patterns could affect prices, while still others said it might be a sign the physical market could be growing in importance in contrast to the derivative, or “paper” market.
As of early Monday afternoon, the U.S. Mint’s Web site showed that 4,724,000 one-ounce coins have been sold far this month. This is higher than the previously monthly record of 4,260,000 set back in November, said Mint spokesman Michael White.
Sales for 2010 are listed at 34,662,500 ounces, which the Mint said is a record. This tally is more than triple the 9,887,000 sales from 2007, when precious-metals were already well into a decade-long bull market.
On the other hand, silver ETFs are seeing heavy outflows. As of Friday, Barclays Capital said another 132 metric tons came out of ETFs, bringing the monthly outflow to 497 tons, which would make January one of the weakest months for the funds.
The heavy ETF selling has put pressure on silver prices this month. This year prices peaked on Jan. 3, with March silver futures on the Comex division of the New York Mercantile Exchange reaching an intraday high of $31.275 an ounce and settling that day at $31.125. Since then prices have declined 12%.
Suki Cooper, precious metals analyst at Barclays, said last year when silver prices were at multi-decade highs last year, it was a combination of strong coin sales and heavy ETF inflows that lifted values. Last year, total ETF holdings for the eight products they track reached a record high of 15,265 tons and they estimated coin sales were 2,675 tons.
Total ETF holdings ended December at 15,188 tons and have fallen from that level with this month’s outflows, she said. The last time ETF outflows were this heavy was in April 2010, she said.
Right now, she said, the coins sales are putting a floor under silver prices, which is the main support for values. “If we look at the supply and demand balance for the past four years, supply is outpacing demand, so the fundamental balance is weak. Silver is very dependent on investment demand to drive the price higher,” Cooper said.
So, investors need to eye the pace of coin sales, especially if ETF holdings continue to soften. “If the mint sales and exchange-traded product sales slow, as well, prices will fall dramatically because of the poor fundamentals. Investment demand is key,” Cooper said.
Coin Sales Mostly Retail-Based, ETFs Appeal To Broader Class
Most market analysts said while the funds have both retail and institutional investors in them, coin sales are almost always retail-based. Because of that, trying to use one to infer what might happen in the other isn’t always realistic.
“These are two different markets; it’s like comparing apples to oranges. Coin market is mostly retail. The ETFs are the professionals. They don’t want to buy coins. They don’t want to buy anything that isn’t liquid. You can’t compare them, they’re totally different,” said George Gero, vice president and precious-metals strategist with RBC Capital Markets Global Futures.
Gijsbert Groenewegen, managing partner of Silver Arrow Capital Management, pointed out the coin purchases are suitable for someone who wants to buy and hold the metal, whereas ETFs are usually used as a short-term trading vehicle.
Plus, he said, the divergence between these two markets is the difference between the “paper” market and the physical market. “People want physical because there’s no counter-party risk,” he said.
ETFs are sometimes called “paper” silver because generally, no physical silver is traded between the fund and the investor, even though the ETF maybe be physically backed.
David Morgan, independent precious-metals analyst with Silver-Investor.com, said for a long time derivative silver markets have driven the price mechanism for the gray metal, but the separation between the coins and the ETF activity might be a sign that the physical market could start to drive prices.
“Both ETFs and coins have grown together, but there’s a day of reckoning. Someone somewhere will say hand over the product. And it’s getting harder and harder to meet demand. Some will take the substitute, some won’t…. I believe we’re close to having the physical trump the derivative. This could be the year. After, say, the summer months, someone may find it difficult to obtain physical silver in a time when there’s a real discrepancy. No one will default, but it could be timing or inventory issue,” Morgan said.
Morgan added that he’s not against ETF investing and added that it’s easier to click a mouse than deal with the added steps it takes to procure physical metal, but he said believes investors need physical metal first.
Both Morgan and Groenewegen said physical buyers could command a premium for their product versus ETFs if prices do fall. They point to the premium physical silver – and gold – commanded during 2008. When the financial markets fell sharply in the wake of the credit crisis, all markets fell, including precious metals. But they note there was a sizable discrepancy between prices shown in the futures market and where bullion was trading.
“The futures market was showing silver at $9. To buy silver rounds there was a 30% premium in the physical market. It’s the real thing that people will pay for,” Morgan said.
James Turk has alerted King World News that silver is in backwardation. Turk spoke with KWN saying, “Silver is in backwardation which is an extremely important development. Most are aware that when backwardation occurs, the spot price is higher than the futures price. Backwardation happens regularly in most commodities, but it is rare in the precious metals.”
“Silver is in backwardation not just in the short-term, this time it is extending twelve months forward!
The last time this happened Eric was in January of 2009. Over the next few weeks silver rose from about $10.50 to $14.50, a roughly a 40% move higher. The key to understanding backwardation is that the price must rise to entice holders of physical metal to sell and accept a national currency in return. I think we can expect a similar event to repeat over the next few weeks.
A similar type of move would clearly put silver well above its previous high. What this backwardation shows is that there is a disconnect between the physical and the paper markets in silver. As I said previously, the silver shorts simply cannot hold the paper price down here any longer without seriously discrediting the paper silver market as a price discovery mechanism.
Gold is not in backwardation, nevertheless the demand for physical gold is extremely intense. With the sentiment indicators at very low levels, it suggests we are about to see a stunning short covering rally in gold.”
Weakness in the metals can end as quickly as it began. When the metals turn, this next move should be breathtaking.
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There were reports out today that JP Morgan has now admitted to having their massive naked short position in silver and is taking steps to reduce it. According to the Financial Times in London, “JPMorgan has quietly reduced a large position in the US silver futures market which had been at the centre of a controversy about its impact on global prices for the precious metal.” According to a person familiar with the matter, “The decision by JPMorgan was an attempt to deflect public criticism of the bank’s dealings in silver.” JP Morgan said in a statement, “It is absolutely incorrect to say or imply that the Nymex, CFTC or any other exchange or regulator has instructed or asked us to reduce our position.”
NIA, along with the Gold Anti-Trust Action Committee (GATA), has been at the forefront of helping expose JP Morgan’s silver price suppression scheme. Over a year ago on December 11th, 2009, NIA declared silver the best investment for the next decade at $17.40 per ounce. NIA said in its December 11th article, “It’s not a coincidence that the day silver reached its multi-decade high of over $21 per ounce in March of 2008, was the same day Bear Stearns failed. Bear Stearns was a holder of a massive short position in silver.”
NIA went on to say, “The reason why we believe the Federal Reserve was so eager to orchestrate a bailout of Bear Stearns, is because Bear Stearns was on the verge of being forced to cover their silver short position.” NIA then said, “JP Morgan still holds the silver short position they inherited from Bear Stearns” and “JP Morgan will have to cover this short position or it could jeopardize their existence.”
On February 5th, 2010, JP Morgan was successful at manipulating the price of silver down to below $15 per ounce. On February 7th, NIA wrote an article entitled, “NIA Bets Big on Silver Price Recovery” in which it said, “NIA is betting big that this past week’s short-term decline in the paper price of silver was just a temporary wash out, before a huge surge in silver prices later in 2010. One of NIA’s co-founders purchased on Friday, 1,300 January 2011 $20 SLV call options at a price of $0.89.” These call options that NIA suggested went on to rise as much as 1,024% to a high this month of $10.
On March 25th, 2010, the CFTC held a hearing on position limits in precious metals. Bill Murphy of GATA (see NIA’s video page for an interview we conducted with Mr. Murphy on Thursday) was allowed to speak (within a five-minute time constraint). Right at the beginning of Murphy’s speech, there was a technical failure of the live television broadcast, which was mysteriously fixed as soon as he was done speaking. This did not stop Murphy, who was brave enough to present the evidence of Andrew Maguire, a former Goldman Sachs precious metals trader who on February 3rd became a whistleblower when he wrote to Eliud Ramirez, a senior investigator for the CFTC’s Enforcement Division, giving him the “heads up” for a “manipulative event” signaled for February 5th. Maguire described to the CFTC in February 3rd emails, exactly what would happen on February 5th (which did occur exactly like predicted), yet the CFTC refused to take any action against JP Morgan or the other conspirators.
Murphy was scheduled for several mainstream media television interviews after the CFTC hearings, but they were all abruptly cancelled at once. In the weeks that followed, Murphy’s car was stolen, his web site was hacked, and he was punched with brass knuckles and knocked out cold less than two blocks from his house. As for Maguire, a couple of days after the CFTC hearings, he and his wife were involved in a bizarre hit-and-run car accident in London where a second car coming out of a side street struck their vehicle. The hit-and-run suspect then hit two more vehicles when he desperately attempted to flee, which resulted in a police chase with helicopters. The suspect was nabbed, yet surprisingly, his name was never released and it was never made known if charges were filed.
On April 3rd, 2010, with silver at $17.89 per ounce, NIA wrote an article entitled, “Silver Short Squeeze Could Be Imminent”. In this article, NIA said, “With the spotlight now on JP Morgan, NIA believes they will be less likely to naked short silver at these levels and manipulate the price down like in February. With the mainstream media blackout, it is important for NIA members to work harder than ever to spread the word and help expose what could be the largest fraud in the history of the world.”
On May 13th, 2010, NIA released its critically acclaimed documentary ‘Meltup’, which featured our in-depth research on JP Morgan’s silver price suppression scheme. Thanks to the help of tens of thousands of NIA members who worked tirelessly to spread the word about ‘Meltup’, nearly 1 million people saw the documentary and became educated to the truth about JP Morgan’s silver manipulation. Without the hard work of NIA members, JP Morgan would have went on naked shorting silver for years and the topic would have never become mainstream.
In ‘Meltup’, NIA’s President Gerard Adams stated, “The current gold/silver ratio of 64 wouldn’t be possible unless silver prices were being held artificially low through manipulation. I don’t believe it is possible for the silver that JP Morgan is short to be backed by physical silver. Most likely, JP Morgan has been naked shorting silver, by selling paper silver that doesn’t physically exist.” Since the release of ‘Meltup’, the gold/silver ratio has fallen by a shocking 27% down to 47. Within the next few years, NIA expects the gold/silver ratio to at least fall to 16, which will mean another three times increase in the purchasing power of those who own silver. In fact, because silver prices have been held artificially low for so long by JP Morgan’s manipulation, there is a chance the gold/silver ratio will over swing to the downside and decline to 10 or lower this decade.
Throughout world history, there have been 46 billion ounces of silver produced compared to 5 billion ounces of gold. Although gold gets all of the headlines in the mainstream media, silver shares all of the same monetary qualities as gold. Based on historical production ratios, a gold/silver ratio of 10 down the road could certainly be realistic. In fact, considering that most of the silver ever produced has been consumed by manufacturing, a gold/silver ratio of much less than 10 is possible. Worldwide inventories of silver have declined 90% since 1940 from 10 billion ounces down to approximately 1 billion ounces today. NIA believes that a major shortage of physical silver is in the process of developing.
On September 9th, 2010, NIA released an article entitled, “Is JP Morgan’s Silver Manipulation Over?”. In this article, we discussed how JP Morgan was winding down their proprietary trading desks, which we felt were responsible for the silver manipulation. We stated that we were “hopeful but skeptical that the manipulation is coming to an end” and “cautiously optimistic at this time”. Since September 9th, the price of silver has gained over 50% and is holding strong near $30 per ounce. There have been no noticeable manipulative takedown attempts by JP Morgan.
NIA estimates that over the past 30 days, JP Morgan has covered approximately 4,000 silver contracts, which has corresponded with about a $4 per ounce upward move in the price of silver. We estimate JP Morgan to still be short approximately 26,000 silver contracts or 130 million ounces of silver, which equals about 18% of worldwide annual silver production from mining of 709.6 million ounces. If JP Morgan covers their entire silver short position and the price of silver was to continue rising by $1 for every 1,000 silver contracts that JP Morgan covers, silver would rise to $56 per ounce.
JP Morgan appears to be covering its shorts in a very managed and orderly way. We are not yet seeing anything that resembles a short squeeze, although one could occur at any time. If we see a major silver shortage and a real short squeeze, silver could literally rise to hundreds of dollars per ounce overnight. Silver’s all time high of $49.45 per ounce adjusted to the CPI equals $139 per ounce in today’s dollars. As all NIA members know, the CPI understates inflation through geometric weighting and hedonics. The real inflation adjusted all time high for silver is over $400 per ounce.
With almost everybody who has ever purchased silver being up on silver in terms of dollars, it is possible we could see silver prices take a breather in the short-term. NIA is hoping for a short-term pullback, but with so many investors waiting to buy on dips, there is a chance that a large short-term pullback will never occur. NIA is very pleased that for the first time in many years, silver prices appear to be trading based on free market forces and not the manipulation of JP Morgan.
A crisis looms. Supplies of silver are quickly disappearing as the worldwide market demand continues to grow. New high-tech uses for silver and the demand outpacing the annual production every year since 1990 is causing the depletion of silver’s above-ground stockpiles.
Once the largest stockpile of silver in the world, the US government dumped multiple billions of ounces of silver over the years into the world market thereby depressing silver prices. With no stockpile, the US is now purchasing silver at current rates.
The silver market generally managed to hold above the Friday closing value in the Monday trade.
Silver seemed to garner some lift from a reversal in the Dollar and strength in energy and grain
Over the last decade, silver jumped 569 percent, copper 430 percent, gold 419 percent, platinum 192 percent and palladium fell 15 percent. Today, we want to know which metal you think will be most precious over the next 10 years — which one will increase more in value?
A $10,000 investment: your returns with Silver and stocks
Had you invested $10,000 in Silver bullion in 2000, your initial investment would have grown to $56,900 by 12/31/10 – an amazing 569% percent increase.
That same $10,000 investment in stocks of the S & P index would have lost $1,400. That’s a 14% loss.
Where will you be investing for next 10 years – Vote Now!!