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Archive for March, 2011

All That Glitters Is Silver

By: The Gold Report

With industrial demand almost exclusively driving the price of silver for years, investing in the white metal used to be simpler. Now investment demand is competing with practical demand to push silver prices ever higher. Investor interest in silver from large U.S. funds could result in as many as 60 new silver plays entering the market this year. These are heady days for silver with a lot of upside in the cards—if played right. Find out how in this Gold Report exclusive.

Times are good for silver juniors.

Andrew Thomson, president and CEO of silver explorer Soltoro Ltd., estimates there could be another 60 silver companies trading on North American bourses by the end of 2011 and says that’s due to cash-rich U.S. funds seeking northern exposure.

“U.S. players are starting to look at value propositions. They just want to be in silver, and they don’t want the physical metal; they want equity because they want to be able to trade it,” Thomson says. “It’s similar to what happened a few years ago when Chinese, Korean and Vietnamese investors came [to Canada] looking for hard assets. In this case, it’s the U.S. funds that are starting to look at our natural resources. It’s kind of ironic that it takes a strong Canadian dollar for them to start investing in our economy.”

But not all big U.S. funds are making the pilgrimage north or, if they are, the journey is often short-lived. On March 15, Barron’s blogger Murray Coleman reported that U.S. hedge fund managers were buying silver. A week later, however, he told readers “hedge funds in the past week were unloading positions in gold, silver, copper, platinum and palladium.”

“There’s a lot of confusion out there. There are funds that are dumping silver and there are funds that are buying silver. The funds tend to react to the news, and then become the news themselves when they dump large positions. If you watch those big funds’ positions, all you’re going to really see is a bobbing cork. I think net their positions are accumulative,” says James West, editor of the Midas Letter.

David Keating, managing director of equity capital research with Mackie Research Capital, a sizeable Bay Street player in junior mining financings, says the 60 companies figure is likely on the high side but that Thomson’s number is in the ballpark.

“Sixty sounds like a big number but it doesn’t strike me as outrageous,” says Keating. “There’s certainly lots of demand in the market for silver stories.”

Keating notes he’s getting more calls about silver and is currently looking to finance as many as five silver plays. “You’ve got U.S. funds and international funds looking at getting direct toeholds in some of these plays and they are prepared to put up the $5, $10 or even $15 million to get the exploration going. We’ve definitely seen that in the silver names and in the gold names,” he explains.

Keating explains that when you get sustained upward price movement in the underlying commodities, a lot of assets that wouldn’t have earned a second look at lower prices suddenly become attractive at higher prices. He adds, “Companies these days are able to raise capital, so exploration budgets are going up and you’re getting more and more exploration and development. And some of the assets that aren’t getting attention can be spun off into cleaner, pure plays.”

West, until recently, owned a stake in a precious metals mine in Peru and is connected to junior mining plays all over the world, especially those in Latin and South America. He often gets calls from the “who’s who” of Toronto merchant banks and brokerages seeking exploration-worthy assets for capital pool companies (CPCs) or corporate shells.

Brokerages source assets from people like West and—after filing a prospectus and raising seed capital—CPCs buy the assets via a “qualifying transaction,” which is needed to get a listing on the TSX Venture Exchange. It’s often a well-rehearsed dance between brokers and companies.

“If you look at any of the CEOs on the TSX Venture Exchange who have a track record of value creation in public companies, generally, you’ll find them aligned with one or two brokers with whom they do all their business. Usually these groups make money together and they tend to move forward under that arrangement until something goes sideways on a deal, somebody retires, somebody gets sued by their wife. . .whatever,” West explains.

When it comes to silver exploration plays, West says, it’s a seller’s market. “The (property) vendors are demanding a higher price and are willing to sit with their asset on the sidelines, confident that the price is only going to go up. And with every uptick in the silver price, people are willing to pay higher prices for these silver assets,” he says.

Leading the Charge

Two years ago, on March 24, 2009, silver closed at $13.44/oz. And two years later, the white metal finished the day at $37.42/oz. on the NYMEX—a gain of 178%.

West believes we will see $40/oz. silver by the end Q211 and that the white metal could hit $50/oz. by year-end based on not only the typical industrial and investment demand drivers, but also what he refers to as “smart money” entering the space.

By “smart money,” West means the cash behind the big players like Toronto-based Sprott Asset Management. Eric Sprott, the firm’s bearish leader and chief investment officer, is staking his reputation on precious metals. He’s telling anyone willing to listen that gold will see strong resistance above $2,000/oz. and that, during this current bull market in precious metals, the silver:gold ratio—or the number of silver ounces it takes to buy 1 ounce of gold—will return to its historical norm of less than 20:1, perhaps even as low as 10: 1.

Others aren’t quite so bullish.

Riding the Ratio

“[Eric Sprott] is indicating that silver will go to $2,000/oz. I’m not in that camp, but there is a squeeze going on. There’s a lot of new equity traded funds and funds getting into the silver space that are drying up [silver] production, in terms of the delivery of actual physical silver, and that’s what’s driving the price up. It’s a bit of a manipulation from the perspective that it’s the investors who are stepping into [the silver space] and squeezing the supply for the end users. I think that’s very real and that’s why the [silver:gold] ratio is changing,” Thomson says.

The last time the silver:gold ratio closed the gap that much was in 1980 when brothers William and Nelson Hunt attempted to corner the silver market. The ratio peaked at 17:1 before the silver price collapsed on the ill-fated Silver Thursday, which occurred in late March, 31 years ago.

In 2003, when the current bull market in precious metals really started rolling, the silver:gold ratio was roughly 83:1. With silver now approaching $40/oz., the gap has closed to about 38:1 and is steadily narrowing.

“When you’ve got guys like Eric Sprott and Frank Holmes [CEO and CIO of U.S. Global Investors]—guys that are really recognized as ‘thought leaders’ in the space—predicting much higher silver prices, that in itself becomes a fundamental driver for the price,” West says.

Liquid Silver

Sprott put his money where his mouth was and further boosted silver demand by launching the Sprott Physical Silver Trust in November 2010 at $10 per unit. It closed at $17.38 on March 24 with a market cap of $869 million. The trust trades at a premium to net asset value (NAV) and its silver bullion is tucked away safely in a Canadian vault, a task that took longer than expected. In November, the trust had contracted to purchase 22,298,525 ounces (22.3 Moz.) of silver bullion but by the end of 2010 had taken possession of roughly 21 Moz. The remaining 1.4 Moz. or so did not arrive until well into 2011. The delivery delay clearly demonstrated the tightness in the physical silver market.

“Frankly, we are concerned about the illiquidity in the physical silver market. We believe the delays involved in the delivery of physical silver to the trust highlight the disconnect that exists between the paper and physical markets for silver,” Sprott said in a January press release.

Sprott’s main competition, the iShares Silver Trust (ETF), has been trading in unprecedented volumes. On March 24, 27 million shares changed hands for a close at $36.12. The $13.2 billion trust is up 121% year-over-year (YOY) from its March 24 close of $16.29.

The Sprott Physical Silver Trust is just one prong in Sprott’s multipronged approach to precious metals investing. Sources close to the situation say he’s buying equity in just about every silver play coming to market and can’t write the checks fast enough. They estimate Sprott’s total bet on silver, including the trust, approaches $1 billion.

David Morgan, editor of the Morgan Report, a silver-focused newsletter, provided Sprott with some names to help him source his silver bullion. Morgan was in the market when silver’s last bull market ended in 1980. He knows what it’s like when the music stops, and he recommends caution.

“The problem with the gold-silver cycle is that it’s such an emotional market because the people who are in it—the gold and silver bugs—have an attachment to [gold and silver] being money. All markets that have a bull market go from undervalued, to fair valued to overvalued; and nothing gets to the extreme overvaluation level, at least in the last bull market, that gold and silver do. What happens at the top of the market—and we’re far from that now, mind you—is that anything with silver in the name of it will go sky high regardless of its merit,” says Morgan.

Thomson agrees but says good assets are good assets in bull and bear markets.

“I think it’s like anything. The museum-quality assets are going to rise to the top, and the stuff that’s smoke and mirrors will always be smoke and mirrors. And, at some point when the market falls apart, the quality will persist and the crap will fall by the wayside,” Thomson says.

Gold, Silver, Economy + More

By: Bob Chapman, The International Forecaster

The US dollar continues under acute pressure, as the world seeks an alternative reserve currency. The days and years of manipulation, fraud and criminal behavior are fast coming to an end. New alliances are evolving, as are outspoken advocates of a new world reserve currency. As a result more and more foreigners are bypassing Treasury and Agency bonds, as well as other US dollar denominated investments. We watch as other major nations accumulate gold and cannot help but think that the new world reserve currency will be gold backed.

Over the past 11 years the Fed and other central banks have increased money and credit by several devices and in the last three years more aggressively by purchasing bonds and via using swaps. QE1’s monetary creation has now begun to affect costs and the entire price structure. As wages lay stagnant the resultant inflation will eventually destroy the middle class, the structure that holds American society together. As the taxpayer saves the financial institutions the middle class is being destroyed. They are funding their own demise. We believe inflation is currently 8% and should be 14% by yearend. That is the result of QE1 and stimulus 1. Next year the US economy will be impacted by QE2 and stimulus 2. If we get QE3 and stimulus 3, 2013 will be impacted. Inflation could range from 25% to 50%, or more, dependent upon what the elitists have in store for us. While this transpires unemployment will rise and government revenues will fall increasing the already colossal debt. That means consumption will fall as a percentage of GDP from 70% to perhaps 64.5%, the long term mean, by the end of 2013 if we get QE3 and stimulus 3. People will only be able to spend on basics. That also means corporate profits will fall, as well as share prices. That, of course, will depend on whether the “Working Group on Financial Markets” is able to hold the markets up and keep them from falling. Deficits will spiral completely out of control, as will personal and corporate insolvencies. That means education will be cut to the bare bones. Instead of 18 to 21 children in a class you will see 36 to 42. Social services and welfare will be cut in half. Extended unemployment will be phased out and no new projects will be funded.  It is not surprising that the Fed has to buy 80% of US debt. Few others are willing to purchase it. Most of the foreign buyers are from England and the Cayman Islands. Is this the Fed buying, which we have suspected for years, or is this real buying? We don’t know, but if rep. Ron Paul is successful we could find out, along with all kinds of other law breaking. Don’t forget the result of all the things the Fed has been doing translates into a tax increase on every American. This is another effort to bring the consumer to his knees, so he will be softened up to accept world government. In addition, the dollar is about to approach new depths and a chance exists that it could soon break 71.18, the old all time low and fall to 40 to 55 on the USDX. Many of the items purchased by consumers, that presently represent 70% of GDP, could rise more than 100% in costs, which will cut deeply into consumption. This at this juncture could be in the elitist plan for the destruction of America, as we have known it. Can Weimar or Zimbabwe be far away?

We have seen a rally in bonds due to a recent fall in the stock market from a high yield of 3.74% to 3.23% on the 10-year T-note. If you consider the uproar with Middle East and problems in Japan there are not going to be many foreigners in the market for Treasuries – in fact, they may be sellers. These events will put unbearable pressure on the Fed and force it into QE3. If QE3 does not happen real interest rates will rise, first to 4% to 4-1/2% and then to 5-1/2%. While this transpires in 2011 the municipal bond market will be under tremendous pressure. At the same time the events in Japan and in the Middle East could collapse both bond markets. Even now it is almost impossible to find a decent bid in the muni market, if any bid at all. We would call this a fine kettle of fish.

The budget deficit will run 10% of GDP or $1.6 trillion. This is the third successive year of these horrible deficits, as the President, House and Senate refuse to cut spending. Eventually the result of such profligacy will be an end to the US as world leader. China and Germany in this process are vying for that leadership yet both have serious problems. China has almost hyperinflation, massive unemployment, a weakening stock market, a real estate bubble and yes, $1.17 trillion in US dollar denominated securities. We’ll get into Germany and Europe a little later and the problems in the Eurozone. Japan is out of the running having 20 years of depression, debt to GDP that is enormous, although domestically held, like everyone else, they will have fading exports and they now have to deal with a natural disaster.

We would expect the next natural step would be for the US to erect trade barriers and impose tariffs on goods and services. That would be interpreted as isolationism, as America’s commitments internationally, such as wars, would no longer be affordable or acceptable due to its debt burden. When that will take place remains to be seen, but it is a major possibility. Adversaries will call it protectionism, but the US has allowed the world for years total access to its economy and deliberate currency manipulation and the employment of virtual slave labor, which has undercut the US economy. Over the last 11 years it has lost 8.7 million good paying jobs and 42,500 businesses. The longer America waits to institute tariffs the worse it will be. The same goes for budget cuts.

The answer politically has been the same thus far from both parties. You saw the $862 billion stimulus package passed in December. Another defiance of reality. We have seen two years of boondoggles and ever increasing military spending for the military industrial complex and dreadful domestic policies.

That leads us to Germany and Europe. Germany has changed over the last 50 years. One of the cities we lived in for quite some time had changed so much we actually got lost and had to ask for directions. Germany paid a terrible price to reunify and has finally overcome those difficulties, but at a great price. Again, Germany is about to reassert itself as Europe’s leader and perhaps the world’s leader. In recent years with middle of the road policies they are in part abandoning Keynesianism and probably in the nick of time.

That leads us to the problems of Southern Europe, which are nowhere near solved. They are being covered by the Middle East smokescreen, as are US financial and economic problems; the elitists received a bonus when disaster struck Japan. They all have rolling debt crises and with the exception of Greece and Ireland the rest of the nations say they have no problems, or at least none that would justify intervention. They all will have to be bailed out or they’ll all go under taking the euro with them. Economically the rest, in this order, are on the list to receive aid or fail: Greece, Ireland, Portugal, Belgium, Spain and Italy. Their problems are similar to those in the US. A preponderance of public employees, a semi-or-uncompetitive economy, outrageously low interest rates, low savings, low productivity, perpetually large budget deficits and banks that are virtually bankrupt due to poor real estate loans. In the case of banking, interest rates must eventually rise and when they do the cost of loan servicing become unbearable.



These conditions cut off deposits and bond issuance for banks that are then left with little capital. The temporary solution as we see today are loans by the ECB and the Fed with funds created out of thin air, in order to keep the banking Ponzi scheme in tact. The countries involved are paying bond yields of 5% to 12%. What happens when rates more 2% higher? They cannot service their debt, never mind principal. European banks have lent these six sovereign states more than $2 trillion, which, of course, was in part created out of thin air. That is how we knew log ago it would take $3 to $5 trillion to clean up the mess and that such figures were simply unobtainable without bankrupting the banks and the central banks of these countries. Underwriting part of the debt, as the solvent European countries have thus far chosen to do, just won’t work. They have bought time for a failing system. Eventually the borrowers have to collapse into insolvency, or the lenders will as well. What should have been done was that the lenders should have accepted payment, over time, of 50%, which they were offered, but refused. In the future they’ll at best get 30%, and perhaps nothing at all. The commitment by solvent states in the euro zone has been about $1 trillion, which as we have pointed out, will only impair their own credit.  Germans, French, Dutch and Austrian citizens get to pay all the bills. All for the insane dream of one currency for all and eventually world government – it simply won’t work. Greece and Ireland are basket cases and if they survive financially, it will take at least 50 years of poverty to pay off bank debt that was created out of thin air. The bailouts of these two countries have restored little confidence. Anyone who understands what is being done knows it won’t work. Sure, these two insolvent sovereigns have sold debt, but it was sold to countries that had to buy it, or the euro would have collapsed. As an aside the euro is now trading in the above $1.41 range with these terrible problems versus the dollar. That shows you the scale of the US dollar’s problems. Remember as well, that for 11 years the US dollar has fallen close to 20% annually versus gold and for 11 years more than 24% versus silver. The euro has fallen close to 17% versus gold annually and 22% versus silver. These figures tell you gold and silver are in strong long-term bull markets versus all these fiat currencies, and you do not want to be in any currency except for operating purposes. All of your investible funds should be in gold and silver related assets. Once one of the countries goes under the game is over. That is when there will be another big meeting of nations to revalue and devalue currencies, have multilateral debt default and to set a world reserve currency based on 25% gold backing.

Europe is going in exactly the wrong direction, as is the US. In Europe they are calling for loan expansion to the crippled nations, greater integration and common fiscal policy, so they can all drown simultaneously. Sensibly Germany does not want to do that and German citizens certainly don’t want to get any closer to the losers in Southern Europe. In fact, more than 2/3rd’s of Germans want out of the euro zone, never mind getting closer. They do not want to commit to lending and guaranteeing the largest part of an additional $1 trillion or a total of $2 trillion. This is a commitment for the furtherance of one-world government not a bailout of insolvent partners. It is the funding of an insane dream of the mega-rich and the powerful to totally control the world and subject the world population to perpetual servitude. The whole exercise is perverse and deceitful.

Failure of a second $1 trillion tranche of funds for the insolvent would lead to the breakup of the euro as these six nations collapsed into default. You should be mindful as well that $2 trillion won’t solve the problem and will eventually destroy the lenders, mainly Germany. Germans do not want world government, so why should they subject themselves to such commitments. In fact, more than 2/3rd’s of German do not want the euro. They just want to be left alone. The European Stability Mechanism, ESM, is an effort by European bureaucrats to override Germany’s rejection of endless support of insolvent sovereigns. The bureaucrats even have made the ESM an amendment to the Lisbon Treaty, or at least it is in the formative process. This is defying Germany, which is being told you will do what we want you to do. That is being accompanied by collective action causes, which forces lenders to out of hand accept losses no matter how steep on bond issues. This is the most insane financial procedure ever. Lenders are totally at the mercy of debtors and if the debtors do not or cannot repay the debt they just walk away. Policies like this show you how out of their minds the new world order crowd really is.

It is recognition that the debt will never be paid and the lending nations will continue to fool buyers. It buys a couple of years, but lays the plans for future default. There is no way Greece and Ireland will financially survive and they will leave the euro. Portugal and Belgium will probably follow and there won’t be enough funds to bailout Spain and Italy. This could happen by the end of the year. The timing is anyone’s guess. Five of the six of these nations have $500 plus billion debts coming due this year that has to be rolled over plus new debt. Private and corporate debt that has to be replaced is $1.2 trillion. Now we ask you does it look like they’ll all get refunded? We do not believe so, and that means more trouble before the year is over. That also means low to no growth, higher unemployment and perhaps default. Couple these problems with those in the UK and US and you can see why the events in the Middle East had to happen in part as a diversion. We said this from the very beginning and we still believe that was the main reason the region is undergoing major changes. Yes, the powers behind government obviously wanted changes in Tunisia, Egypt and Libya and other countries, plus turmoil in the region, as in all probability, as they set up to invade Iran with Israel’s help.

Debt service will deeply affect Europe’s economic performance and that means exports into Europe will be affected, particularly on reference to China and the US. China’s currency is undervalued by 35% and if Europe has problems China will not revalue its currency, as it should. At the same time US dollar denominated exports will be more competitive with a far cheaper dollar. Both are not good for Europe in European markets, as well as foreign markets. China aggressively has bought some bonds from European nations in trouble by selling US Treasuries to do so. These developments, along with new Japanese problems, will severely disrupt economies and financial markets. That will in turn affect debt rollover and service. That means economies will not perform well. It means more quantitative easing in Europe, the UK and US, which are trapped in a plan of their own making. Such situations will renew pressure on all three economies, as they are bombarded by higher inflation or an aside, to show you what trouble the US dollar is in, the euro has traded up to $1.42 and the dollar has fallen to 75.45, while the euro zone pumps out all this bad news.

Problems in the US, UK and particularly Europe, have been deliberately covered up by planned events in the Middle East and thus far by unplanned events in Japan. The present proposals to increase bailout funds haven’t been accepted particularly by Germany. What isn’t talked about by lenders and the media is that the lenders have their own debt problems. Debt ratios are: France 92%; Germany 80%; Spain 72% and Italy 131%. Their balance sheets are not healthy at all. If markets lose faith in the bailout operations even an enlarged $2 trillion bailout wouldn’t work. It is in our viewpoint inevitable that the six nations will default and the euro will become history. That would precipitate a world-banking crisis. All this is the result of the fractional banking system and the unbridled greed of bankers and their lust to control everyone and everything. A massive welfare system financed by debt didn’t help and the euro and the bankers are to blame. One interest rate cannot fit all. The euro has not promoted prosperity and political unity. Europe is very tribal and can never be amalgamated. Low interest rates for undeserving countries encouraged unsustainable booms and housing bubbles in Greece, Ireland and Spain. There you have it. A road ahead loaded with insolvable problems. That is why you should be out of currencies and in gold and silver related assets.

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John Embry – We are on our way to $40 in silver!

With upside moves in gold and silver, today King World News interviewed John Embry Chief Investment Strategist at Sprott Asset Management.  When asked about the action in gold and silver Embry stated, “Well my first thought is what took so long?  We know what took so long, basically there has been a lot of activity by the bullion banks and their sponsors.  But I mean to me it’s a very a simple equation, you can screw around with the paper market for a considerable period of time, but as the physical market gets tighter and tighter and this is really demonstrable in silver, I mean that is going to be what sets the price.  What goes on in the physical market, when that takes over the prices are going much, much higher than they are today.”

John Embry continues:

“We are on our way to $40 in silver and then I’m sure they’ll fight around the round number for a bit, but I think the upside potential in silver is many, many tens of dollars higher from here.”

When asked if gold was finally ready to take off Embry replied, “Yeah I think it is, I think the next move will take us to $1,500 in the near-term.  By and large I just think we are moving higher, the question is whether we are going to get a breakaway move, a really big move like hundreds of dollars?

I’m on record as saying there will come a day when the gold price will move over $100 in a day.  To date the cartel has been very effective in keeping daily gains to no more than 1%.  You can see it when the gold price is up 1%, the unseen hand comes in and a lot of selling shows up.

When that breaks, and it will break, then I think you are going to see moves that will shock the people who don’t understand the true nature of the market.”

When asked about mining shares Embry responded, “I’ve seen a target on the HUI (Gold Bugs Index) of 880.  Based on where we are now that would be a move of just over 50%, I could easily see that.  I can see that for a simple reason, when you look at the market cap of the big cap gold stocks and compare it to the amount of money around that’s invested in other things, it would take very little movement of money to have an outsized impact on the overall gold sector.

That will happen, it’s just a matter of whether it happens next week or next month or five months from now.  It’s not a matter of whether it’s going to happen, it’s wether it’s going to be very quick or take a few months to unfold.

We haven’t seen inflows into gold funds, we are still seeing outflows from a lot of dedicated gold funds.  So if you start to see the public moving money into these funds, I mean the funds have to invest so they are going to have to buy these stocks.  It comes quickly when it happens, as Richard Russell says, there is no fever like gold fever.”

When asked about oil Embry remarked, “I happen to share Jim Sinclair’s view that some of the stuff that is going on in the Middle-East is extremely anti-west.  And if that continues and I believe it will, I think the crude oil price is heading to $150 to $200.  And if that happens I think the economic implications are pretty horrifying actually.”

John Embry has been in the business for 48 years.  At the beginning of the secular bull market in gold, John was the only mainstream (RBC Capital at the time) institutional individual to proclaim the bull market in gold.  RBC was saying that’s not the message of the bank, so John was taking a lot of heat for his stance.  Fortunately for all of us Eric Sprott hired John out of the mainstream and the rest is history.

Eric King
Source

KingWorldNews.com

Silver Shocker

By: Theodore Butler
The big surprise was in the silver COT, where the big 4 increased their net short position by 3000 contracts on the previously mentioned reduction of 1300 contracts in the total commercial net short position. This increase in the big four’s short position broke the pattern of a reduction in the concentrated short silver position that had been in force for months. The increase in the concentrated short silver position was so unexpected by me that I thought, at first, it must have been a mistake. Since the Bank Participation Report was released late yesterday, an hour or two after the COT, my first thought in the interim was that it would not be JPMorgan increasing its concentrated short position, but most likely the other three entities in the big four. After all, with all the negative attention (and losses) accruing to JPMorgan and its big silver short position, there would be no way JPM would have accounted for the 3000 contract increase in the COT for the big four.
If the silver COT was a surprise, then the Bank Participation Report was a shocker. There was a net increase in the US bank category of 6000 contracts to 25,000 held net short in silver. JPMorgan’s net silver short position, which had decreased by 11,000 contracts over the preceding three months to 19,000, had suddenly ballooned to 25,000 contracts (125 million ounces). From my reading of both these reports, it appears that the big increase in silver short selling by JPM took place during the last COT reporting week, even for the BP Report. Before I continue, let me explain that I consider JPMorgan to effectively account for all or the bulk of the entire US bank category in the Bank Participation Report for a variety of mathematical reasons. However, it matters little if there is another US bank also holding a significant net short position in COMEX silver, as all that would mean is that two US banks are colluding to manipulate the price of silver and not just one bank acting alone.

Two and a half years ago, I had a very similar experience of shock over a Bank Participation Report. This was before anyone knew that the Bank Participation Report even existed. The August 2008 Report caused me to write a series of articles that started with “The Smoking Gun” in the fall of that year. http://news.silverseek.com/TedButler/1219417468.php  In turn, my analysis and writing led to the current CFTC silver investigation (still unresolved) and the revelation that JPMorgan was the big COMEX silver short by way of taking over Bear Stearns. I further believe that the revelation of the true size and nature of the concentrated silver short position has contributed to the current movement towards position limits by the CFTC.

As much as the August 2008 Bank Participation Report was shocking, the current one is even more so. That’s because we know so much more today than we did back then. We have waited two and half years to hear anyone legitimately explain how a US bank holding a short position equal to 25% of world production isn’t manipulation. No explanation has been forthcoming, nor is it likely to ever be offered. We know now that concentration is the prime requisite for manipulation. To witness the most concentrated participant suddenly increase its silver short position by more than 30% is something almost beyond comprehension.

Let me walk you through the mechanics of what just took place and then I’ll speculate on the motivation of JPMorgan increasing its silver short position so dramatically. Over the past two COT reporting weeks, it has been primarily a commercial versus commercial type affair. The big technical funds have largely refrained from adding to their net long silver position, even though prices have climbed very sharply. Two weeks ago the raptors (the smaller commercials away from the big 8 ) increased their net short position to 4000 contracts, the highest level in four years. The raptors were selling to the smaller unreported category traders who were buying. This week, the raptors bolted from their entire short position, buying it back completely and leaving them flat (not net long or short). JPMorgan was the sole seller to the raptors’ buying, resulting in the big increase in JPM’s short position.

As far as the motivations behind this trading, the most plausible explanation for the raptors running from their newly initiated big short position is the stark reality that shorting silver has been a very bad deal. My guess is that the raptors did their homework on silver only after they put on the big short and started to lose money on rising prices. That homework persuaded them to get off the short side of silver pronto, which they did. JPMorgan’s motivation for suddenly and greatly increasing its silver short position is less clear and more troubling. My own guess is that the JPMorgan silver trader thought he had no choice but to sell many more contracts short in order to control the price and protect their existing short position. That’s because there was no one else left to sell. If JPMorgan didn’t sell, no one else would have (at prevailing prices). That’s the problem and it goes to the heart of the crime. The raptors didn’t want to sell, nor did the 5 thru 8 large traders. Ditto for basically all the other silver traders. That left JPMorgan as the sole silver seller, as the COT and Bank Participation Reports clearly document. Please think about this.

We know that concentration in any market is to be avoided. The whole thrust of commodity law goes towards preventing concentration. We know that the ideal profile of a free market is where a wide diversity of market participants competes on both the buy and sell sides of the market. We also know that the most extreme state of concentration possible is where there is, effectively, only one buyer or one seller. Therefore, what the latest COT and Bank Participation Reports just confirmed was that the most extreme form of concentration possible just occurred during the latest reporting week.

This is the key point – what would have happened if JPMorgan hadn’t sold short the additional 6,000 silver contracts (30 million oz) when they did? Asked differently, in the current market conditions, what price would have been required to induce other market participants to sell the 6,000 contracts if JPMorgan hadn’t sold? My guess is that would have taken a price over $40 or $50 to attract that much legitimate selling. The fact that JPMorgan was the sole seller is the clearest proof possible that silver has been manipulated.

So egregious was this latest increase in JPMorgan’s short position that I am inclined to think that it may have been done on an unauthorized or rogue trader basis. Perhaps JPM management and the CFTC are not yet aware of it, seeing how recently it occurred.  After all, the COT and Bank Participation Reports were only published less than 24 hours ago. (As is my custom, I will be sending this article to the Commission and JPMorgan and the CME Group).

I realize that I am making serious allegations of violations of commodity law, as there is no market crime more serious than manipulation. At the very least, this new government data release is so disturbing that it should be addressed immediately. Silence on the part of JPMorgan, the exchange and the CFTC is no longer constructive. If my accusations are off-base, then I should be set straight. I’m not out to cause trouble; I am trying to help correct what I see as a very serious market problem.

I can’t help but think that Chairman Gensler of the CFTC will be troubled by this recent action by JPMorgan to substantially increase its already concentrated silver short position. In recent speeches he has indicated his support for position limits to guard against concentration. Please scroll down to the section on position limits in this recent speech to see what I mean. http://www.cftc.gov/PressRoom/SpeechesTestimony/opagensler-71.html Chairman Gensler also solicits your public comments on this issue, as I have done previously. I found it interesting that he singled out position limits in this speech for encouraging you to comment. By the way, the number of public comments on position limits is now close to 3,000, a truly remarkable outpouring of public sentiment. http://comments.cftc.gov/PublicComments/CommentList.aspx?id=965

Please don’t assume that the sharp increase in short selling by JPMorgan is automatically bearish for the price of silver. Yes, such manipulative short selling in the past has led to sharp sell-offs and could again. But things do change and current conditions in silver are vastly different than they have been in the past. While we must be prepared for a sell-off (by not holding on margin), this situation could (and should) blow up in JPM’s face. They are increasingly isolated which makes them both dangerous and vulnerable. Most of you are holding silver from prices much below the current levels. This bestows on you a power that few newcomers to silver possess, namely, the power of a long term perspective and the ability to withstand short term price gyrations. You have a price cushion and the power of knowledge that should enable you to persevere against any short term manipulation. The proper approach is to hold silver to go much higher and not to lose your position, just as it has been all along.

That aside, you should be disturbed enough about the revelations in the new COT and Bank Participation Reports to rattle on the cages of JPM, the CME and the CFTC. Just as a head’s up, I may make portions of this report available in the public domain if I conclude it will benefit subscribers. Let me think about it a bit. In the interim, please contact these parties if you feel so inclined. You know I will.

Ted Butler

Happy St. Patrick’s Day

Japan Relief Campaign


The American Red Cross is offering assistance to the Japanese Red Cross following Friday?s magnitude 8.9 earthquake and resulting tsunami that left towns and villages in Japan devastated.

The earthquake triggered fires and caused severe damage to buildings, leaving five million households without electricity and 1 million without water. Early assessments indicate that more than 2,500 houses have collapsed completely, with 2,500 more damaged.

In addition, as part of preparations for the impact of the tsunami on Hawaii and the West Coast, the American Red Cross provided shelter and comfort to people forced to evacuate from their homes. Red Cross chapters in California, Oregon and Washington opened evacuation centers supporting more than 2,500 people seeking refuge from the tsunami waves. Warehouses and mobile feeding vehicles remain on alert in case they are needed.

Straightsilver -HONEST MONEY has decided to contribute to these efforts by donating $1.00 to American Red Cross for each order that we receive for the following 2 products PRAYING HANDS & PANDA RABBIT until stock is depleted for these items. We will accumulate the sum of these orders and will make the donation to American Red Cross upon depletion of these 2 pure .999 Silver Coins on behalf of Straightsilver customer’s.

Utah Considers Return to Gold, Silver Coins

It’s been nearly 80 years since the U.S. stopped using gold coins as legal currency, and nearly 40 since the world abandoned the gold standard, but the precious metal could be making a comeback in the United States — beginning in Utah.

The Utah House was to vote as early as Thursday on legislation that would recognize gold and silver coins issued by the federal government as legal currency in the state. The coins would not replace the current paper currency but would be used and accepted voluntarily as an alternative.

The legislation, which has 12 co-sponsors, would let Utahans pay their taxes with gold and also calls for a committee to study alternative currencies for the state. It would also exempt the sale of gold from the state capital gains tax.

The bill cleared a state legislative committee on Wednesday, the first of 13 similar bills in statehouses across the country to do so. If the bill clears the House, it would have to pass the Senate before the governor could sign it into law.

Attorney and Tea Party activist Larry Hilton, author of the original bill, said he doesn’t foresee any roadblocks.

“There’s enough uneasiness going on in the economy to trigger people to feel that, hey, having a little Plan B, kind of a backup system, is not a bad idea,” he told FoxNews.com.

The U.S. used some version of the gold standard from 1873 until 1933, when President Franklin D. Roosevelt outlawed the private ownership of gold amid the Great Depression. An international monetary system based on a gold-exchange standard continued until 1971 when President Richard Nixon stopped the U.S. from redeeming dollars for gold altogether.

Critics of the gold standard say it limits countries’ control over its monetary policy and leaves them vulnerable to financial shocks, such as the Great Depression. But supporters argue that the current financial system’s dependence on the Federal Reserve exposes the value of U.S. money to the threat of inflation.

Rep. Ron Paul, a longtime critic of the Federal Reserve who has called on a return to the gold standard, has praised Hilton’s efforts.

“Efforts such as yours in states around the country highlight the importantance of returning to sound money,” Paul wrote in a letter to Hilton. “Even if such efforts fail to achieve legislative success on their first try, their importance lies in bringing to the public’s attention the problem of the ever-weakening dollar and the necessity of returning to a sound monetary system.”

Hilton said the bill before the House doesn’t go as far as his original draft, which was more sweeping, including recognizing more than just U.S. minted coins and more details on specific tax treatment. But he said he’s willing to take it step-by step.

He also said he’s not pushing to restore the gold standard in the U.S.

Federal Reserve Chairman Ben Bernanke this week dismissed the notion of the gold standard returning to the U.S.

“It did deliver price stability over long periods of time, but over shorter periods of time it caused wide swings in prices related to changes in demand or supply of gold,” he told the Senate Banking Committee. “So I don’t think it’s a panacea.”

Bernanke also said that gold couldn’t return as the world standard because there’s not enough gold in the world to effectively support the U.S. money supply.

Hilton said he’s taking a positive approach to the issue.

“This is not an anti-dollar issue at all,” he said. “We want to strengthen the dollar. We think by introducing gold and silver of our nation’s history, by injecting that into the debate is very healthy for our policymakers.”

Jeff Bell, a policy director for the Washington-based American Principles in Action (APPIA), which helped shape the Utah bill, told FoxNews.com that passage of the bill would send a message to Washington and other states.

“People sense that in the era of quantitative easing and zero interest rates, something has gone haywire with our monetary policy. But people are afraid to say it,” said Bell, who was an adviser to Ronald Reagan’s 1976 and 1980 presidential campaigns. “If one state recognizes gold as a valid currency, I think it would embolden people not just in other states but in Washington.”

Bell credited Tea Party activists for advancing the legislation this far. Rep. Brad Galvez, who introduced the legislation, is a freshman legislator backed by the Tea Party.

“Saying we now recognize gold as money is a big step forward,” he said.

Twelve other states have offered similar proposals: Georgia, Montana, Missouri, Colorado, Indiana, Iowa, New Hampshire, South Carolina, Tennessee, Washington, Vermont and Oklahoma.

Written By: Stephen Clark

Eric Sprott: Silver Is Going To $100

Eric Sprott is probably the best known investor in natural resources in Canada. He saw gold as the best investment of the past decade and thinks silver is the best investment for the decade ahead.

The US Mint in January and February sold the same dollar value of silver and gold coins. Chinese demand is rising. Sprott’s silver trust found it difficult to actually buy a mere 15 million ounces. General demand to replace currency with silver is one thing but industrial demand is also growing.

Silver Outweighs Gold

In the world of precious metals, silver spends a lot of time in the shadow of its big brother gold.

Gold, with its high price-to-weight and distinctive yellow tint, has always occupied a special place in the human psyche. To many people across many ages, gold is simply the ultimate form of money – and, as a long-term, stable store of value for one’s personal wealth, I agree it’s hard to beat.

However, rare circumstances are aligning today that I believe will make silver the true champion of this bull run.

What’s Driving Precious Metals?

Gold and silver are both benefitting from a perfect storm in the sector.

Dollar devaluation means that much of the ‘gains’ we see are really just losses by people holding dollars. In other words, if your dollars lose 50% of their value, it’s going to take twice as many of them to buy the same ounce of gold.

But the rally is based on more than simple inflation. Precious metals are regaining their role as the ultimate reserve asset. That means many, many more people are buying and holding these metals than at any time in the last thirty years.

Another factor is the rise of emerging markets and decline of developed markets. As billions of poor Asians, Africans, and South Americans lift themselves out of poverty by embracing the free market, the US is plunging itself into poverty by rejecting it. This means there are a mind-boggling number of new customers for jewelry, savings, and industrial products that require precious metals – and that we are becoming less and less able to outbid them for these resources with our dollars.

Silver’s Driving Faster

If the world were going to hell in a hand-basket, then I would expect gold to outperform silver. However, it is only the developed economies that are on the rocks – and only the US that faces true catastrophe. Thus, we have seen silver outperform gold for the last eight years.

The market is telling us that while uncertainty reigns supreme, the global economy will prosper in the years ahead. While gold most effectively insures the investor against economic devastation, silver offers both a shield against monetary turmoil and exposure to market growth.

The Key: Industrial Demand

This is because silver is both a precious metal and an industrial metal. Gold is mostly precious, copper is mostly industrial, but silver strikes a fine balance between the two. And it seems as if this moment in history is perfectly suited to this balance. We are facing not only the prospect of the collapse of the international monetary order, but also the largest industrialization process the world has ever seen.

While in a past era, wood, steel, or oil would have been the most critical commodity, today silver is used in everything we hold dear: iPhones, flat-screen TVs, batteries, solar panels, etc. Asia – the new heart of the global economy – is accumulating gold, but they’re consuming silver. That makes both metals good bets, but likely gives silver the edge.

It’s safe to say the future depends on a steady supply of silver. This burgeoning demand is reflected in the latest figures: global demand for silver is about 890 million ounces a year, while global mine production is about 720 million ounces a year. We’re actually consuming scrap to make up the difference. And unlike gold, which tends to remain in a recoverable state as coins or jewelry, a large quantity of silver is ending up in trash dumps – where it is essentially lost forever.

As long as the emerging markets continue to trend toward freer markets, and consumers the world over continue to demand computers, electronics, and green tech, silver should only become more scarce – and thus more valuable. I think these assumptions are pretty safe to make.

Can the World Thrive Ex-US?

Of course, if everyone agreed with me, silver would already be worth hundreds of dollars an ounce and there wouldn’t be any profit to be made on the trade. Fortunately, there are a couple of bogeymen in the financial media scaring the majority of investors away from silver so far.

First, some analysts still believe – bless their hearts – that the US is really going to pull through this time into a sustainable recovery. After being duped by dot-coms and then housing, they are all aboard the Treasury Express back to Bubbletown. Unfortunately, as in the previous two cases, the current low interest rate environment is merely masking an underlying economy that is vastly more rotten than it was even a decade ago. The unemployment rate is a key signal that this time, Bernanke’s magic medicine won’t work.

A second cohort sees that the US is doomed, but still thinks we will drag the rest of the world down with us. This is the school that holds that despite our persistent current account deficits and monumental external debt, the world economy “needs” the US consumer to drive growth. As I alluded to in my book, How An Economy Grows And Why It Crashes, this is like a plantation master claiming his slaves need him around to consume the fruits of their labor, or else they wouldn’t have anything to do. Well, the results are in: after an initial panic rush into dollar-based assets, emerging markets are back at full sprint while the US is still limping along.

Silver in a Dollar Collapse

Just like a Hollywood celebrity, we in the US spent our time at the top of the world – and soon let our status get to our heads. And like a celebrity, our adoring fans the world over will be quick to forget us as we fall from the limelight and deal with our powerful addiction to partying and cheap money. To survive the next decade in America, you are going to want an asset that is in demand globally, but is also free from counterparty risk here at home.

I recently did an interview with a group that is making a film about living in America in the year 2019. The premise is that inflation is rampant, the economy is in shambles, and groups are springing up that do all their trading in silver rounds. While I think their timeline is quite generous, this is a fairly accurate picture of what lies ahead.

Not only does silver appreciate while sitting in your safe due to overseas demand, but it also comes in units that are ideal for use as a common trade unit. Two or three ounces of silver can buy you groceries for a week. By contrast, just try to eat an ounce of gold’s worth of vegetables before they spoil. There are fractional gold coins and bars, but they carry very high markups.

None of us have had to think about these things in our lifetimes, but it is not abnormal in history. Soon, understanding precious metals will be as much a survival skill as knowing how to change a car tire.

The Golden Ratio

I always say that every investor should have at least 5-10% of his portfolio in physical precious metals. Of that, the proportion allocated to gold vs. silver depends mainly on risk tolerance. Silver tends to be more volatile than gold, so silver investors must have the discipline not to liquidate their stash at the first sign of a correction.I generally advise a ratio of 2:1 gold-to-silver in the average portfolio. More aggressive investors can push it to 1.5:1 or beyond.

Year-to-date, silver is up 5 percentage points more than gold, and I expect that trend to continue. It’s important to understand that in this fast-changing world, silver is no longer runner-up.

Written By: Peter Shiff

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