Friday, July 25, 2008

Yes we have no silver today- revisited

Months ago just after the price collapsed in silver and we all ran out to stock up , we came to the shocking revelation that despite all the bluster about growing inventories at the Comex there was indeed a retail silver shortage. Since that time we have seen Jason Hommel and his pissing contest with the Perth mint over delivery delays (on straight sales, and redemption of certificates into physical bullion) and if they mean they don’t have the all silver they Claim. Being a mere peasant in the big scheme of things I will take no stance on the issue as I don’t need to get sued. I will however state that we do know is that some companies have made it a practice to sell metal certificates and not back them, not only that they have the cojones to charge their clients storage on these invisible bullion bars. We also know that Morgan Stanely stated that charging storage on nothing is a widespread industry practice.

Next up was Mr Butler's belief that there is a large and growing shortfall in silver backing for the silver ETF based on the amount of short selling in SLV which dilutes the silver backing of the ETF because short sellers don’t contribute silver to the fund. The entire short position can be considered a silver shortage in the ETF and therefore a default in his estimation of 25-50 million ounces. The ETF as envisioned is a great tool for silver investment for those unable or unwilling to buy, carry and store silver but what started as a way to encourage demand is now diverting demand from real silver which would tighten the supply and make us profits. If the markets are allowed short SLV is has become a tool of silver manipulation and a failed experiment.

In the same shortage trend the U.S. mint is rationing Silver Eagles to dealers because after already beating last years sales volume they cannot access a large enough supply of silver blanks to maintain production at today’s level of demand. I’m rather surprised that the mint would not manufacture it’s own blanks and supply private mints rather than depending on outside supply?
What do I know!
At this point collectors, vendors and the Silver Institute have all called on the mint to meet its mandated obligation to fill the markets demand for the coin.

Locally we’ve had a dry spell for Maple Leaf silver coins which at least at Scotia Bank in Toronto has been cleared up with a recent deliver of 6000 ounces. The girl at the counter seemed to think this was an excessive amount but when this is the only silver they have in stock I don’t doubt the cupboard will be bare again within a week. The clerk told me they did have a 100 oz, 3x10 oz and a single old 20 oz on hand first thing in the morning but they were already gone yesterday by 2:00.

On a side note they must also be moving a large amount of small gold in the last couple of years encouraging Scotia to commission brand new Scotia bars in sizes from 1-20 oz as well as ¼, ½ , and 1oz rounds. You usually sell your old stock first so I have to assume that all the old Johnson and Matthey, and the newer Royal Canadian Mint bars they use to flog are gone. I need to get my act in gear and round up a little extra cash, I’ve always wanted a few Sovereigns and it looks like I’d best buy them soon before they too are all gone. Of course I’ll get those mail order form B.C. to avoid Ontario PST.

If you do buy gold for possible future transactions don’t buy 1 big bar, stick to 1 oz, fractionals if you can stomach the premium, Sovereigns or those cute little Mexican 2, 2.5 and 5 peso coins which are probably the cheapest way to get small denomination gold. Eagles, Maples, etc in fractional sizes cost to damn much.

What this comes down to is people are buying heavily into silver when they can find it. Despite all the claims and promises it’s quite obvious that there is no where near enough physical silver to cover all the paper obligations and the time to accumlate is soon to end. If each Silver investor can find just one more person and convince them that silver is the commodity opportunity of the century, we will have the buying power to bring this real but hidden silver shortage to the public’s notice and when that happens all hell will break loose. There may be a problem however, I think small silver is actually being pulled in and converted back to delivery bars. This allows the Comex to show healthy deposits and at the same time it pulls the appropriate sized bars for small investors off the market thwarting our demand and consumption.

It seems all we can do is scramble around and seize what supply we can, place orders, wait and see if they will get filled, but in the end if you cannot find enough silver DO BUY SOMETHING!, add a little gold to the mix. While many (including me) don’t believe gold has the same potential as silver it certainly is better than the fiat toilet paper world Governments are passing off as money.

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