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Silver Lining

Economics deals with society's fundamental problems; it concerns everyone and belongs to all. It is the main and proper study of every citizen. Ludwig von Mises

In the first week of January, US Dollar denominated precious metals prices were forced downwards by an onrush of shorting in the futures markets. Since then, the price falls have continued as an increase in margin requirements has been added to discourage any "bargain hunting" by the smaller investors. Gold and Silver prices continue to reflect the dire situation in US debt markets by doing the opposite of what one would "expect". The "reverse barometer" price aspect is typical. ©2011 - The Privateer http://www.the-privateer.com capt@the-privateer.com (reproduced with permission)

Ain’t that the truth? The reverse barometer price is typical.

Backwardation of a commodity is definitely a signal that a shortage exists and a price rally is likely. It’s serious for Au & Ag of course, yet different, and the challenge is trying to figure out just what that difference will mean. While you can’t burry crude oil or wheat in the backyard, you can gold and silver. And I suspect that these understated commodity/monetary differences have an affect on basis, backwardation, and contango in subtle ways.

Ted Butler has done so much to shed a light on this subject that I have nothing but praise for the man and his work. Still, I give consideration to unpopular and unproven theories (i.e. Fekete) that there may well be private stockpiles of silver that have been cleverly deployed. So some control over the market may continue to appear when we least expect it.

Having said that, silver is verifiably undervalued and that undervaluation contributes to the unnecessary waste of a valuable, strategic resource. Supply is strained while the dollar is devalued, a powerful synergy is at work. I was hoping for a 2011 January ‘correction’ down to 25 or even 22; figuring that silver could use the footing as it necessarily climbs a steep wall. Whatever happens, extreme volatility should be expected.

For my time, Le Metroploe Café remains an indispensable resource for following to shenanigans in the precious metals. This latest theory of China assisting in the silver price control has legs and Jesse’s interpretation is hilarious – be sure to read to the end.
An Interpretation of the China Silver Short Theory and Fractional Reserve Bullion

Adrian Douglas does outstanding and very original work at Market force Analysis. This recent article is a good example. Strong Indications of Gold & Silver Shortages

JW’s summary of Adrian’s observation -

The Game Over signals have begun on the COMEX. The cartel of major US and London banks desperately need to cover their short positions. The market will not permit them to do so. A remarkable effect is apparent in silver, and soon perhaps in gold. The Open Interest (OI) versus the Silver Price has a clear slight negative correlation, whereas in the past it had a clear moderate positive correlation. Jim Willie

Zero Hedge keeps cranking out important market info -
US Mint Reports Unprecedented Buying Spree Of Physical Silver
BullionVault.com Runs Out Of Silver In Germany

Adam Hamilton does some solid market analysis work with a regular posting of free articles; but access to Zeal’s charts is worth the subscription fee. He avoids incorporating officially sanctioned fraud into his analysis, but that just makes the assumptions all the more conservative. Hamilton’s aversion to “manipulation” is similar to Kunstler’s loathing of “conspiracy theories” – even so, the perspectives of both are illuminating and germane.  
Silver/Gold Ratio Reversion 4; December 17, 2010 
Real Silver Highs 3; January 7, 2011

Willie sums up many of my thoughts in these two excerpts from his latest report.

Here is what might be occurring, a great crosswind, a great collision, working toward climax. The global monetary system is crumbling and fracturing in unmistakable manner. The reaction has been to seek protection with monetary hedges in the form of commodities. The leading pair are Gold (for financial purposes) and Crude Oil (for commercial purposes). The many other commodities are legitimate but secondary in their effective role to hedge against currency debasement. However, an inflationary depression is well underway. Economic activity is sliding backwards, as most claimed growth is actually mislabeled price inflation. Prices are rising, as activity is falling, and confusion reigns. The stockpiles of commodities have been growing for over a year in reaction to the ongoing endless global financial crisis. The crisis is so engrained and such a fixture that GFC is understood as an acronym to describe it in the financial press. My belief is that the stockpiling has finished an important phase, whereby storage facilities are largely full. Even China has announced it is nearly finished storing silver concentrate. But Gold and Crude Oil are different entities, special as major currency hedges. So perhaps is farmland, since it produces food. Perhaps also forest land, since it produces lumber. In an inflationary depression, cash is king. But in the current environment, great debate has been churning to decide what is money. The events in the US, Europe, and UK provide a stark spectacle that demonstrates how the USDollar, the Euro, and the Pound Sterling are not money at all, but actually denominated debt. Their governments are debasing those currencies (mandated legal tender), proving that the rising debt supply has a coincident rising money supply.

The conclusion is that today's money is actually debt, and if we are to survive this calamity, we must find true money. It is clearly Gold, and for commercial purposes, effective protection is offered by Crude Oil. The climax events will usher in hyper-inflation. With rising commodity costs and foodstuff costs, the entire USEconomy and global economy will suffer a gradually worsening cost shock. In the United States particularly, they will call it all growth, since they commit monumental lies on what is price inflation. A giant cost squeeze is in progress, certain to intensify. It will make much more acute the current economic recession. The galloping effect will be global. Higher costs squeeze corporate profits and household budgets, which remove investable and spendable income, thereby reducing employment. A powerful global recession is here, much more noticeable and aggravating by next year. As no solution is pursued, as no reform or debt restructure is pursued, as the responsible maestros are not pursued for prosecution, the system continues to hurl out more phony money, issue more debt, redeem more failure, and pressure the entire limits of the system. The reward will be hyper-inflation, since it is the requisite event from all the futile actions. The spillover has begun. If price structures within the economies do not rise, then businesses will shut down. The system is breaking. The ultimate climax event is the USTreasury default, the UKGilt default, and the EuroBond default. They will come like night follows day. Jim Willie

Simply stated, the price of Gold & Silver will rise when the Chinese are ready and willing to increase their bids and volume of accumulation. My expectation is for the consolidation to resolve with an upward breakout move, due to the uncontrollable deficits and ruin of money, along with the Chinese motive to build Gold & Silver reserves. The COMEX exchange is virtually empty, deliveries expedited by urgent means and rushed shipments. The bankers are scrambling in desperation. The global shortage is becoming acute. The disconnect between the physical bullion market and paper futures market is growing worse. Opposing patterns of behavior with rising and falling Open Interest in the COMEX indicates an explosive conclusion comes, unsure when. The Big Four US banks are not being given any opportunity to exit their outsized uneconomical illicit short positions. The consolidation in both Gold & Silver is creating a very firm foundation for the next huge steps upward in price. To be honest, the price charts tell only 10% to 20% of the story. A war is raging as the global monetary system is dying and horrible death. Nations will be lucky to avoid a world war. Jim Willie

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$ilver bump

$ilver bump

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"Backwardation of a commodity is definitely a signal that the cost structure should be rising."

That makes no sense at all. Markets do not respect any moral imperative of what they "should" do. And what the heck is "cost structure"?

"Backwardation" describes a relationship between markets, namely the market for silver "right now" (spot) and the market for silver to be paid for and claimed later (futures). To the extent that it says anything about expectations, backwardation indicates the markets anticipate that the price of silver will fall in coming months. Thus, the future price is less (today) than the present price, if ever-so slightly.

Once again there is a strong market for silver coins. That demand increases when the price of silver goes down. (It became extreme when silver fell to 8.50 in '09.) To deliver silver coins, a seller must have silver "right now." The demand for "right now" silver can drive the "right now" price higher relative to the "sometime later" price in the futures market, regardless of whether spot silver rises or falls in price.

Ĵīɣȩ Ɖåđşŏń

"Fully half the quotations found on the internet are either mis-attributed, or outright fabrications." - Abraham Lincoln

the strangerr's picture

the expenses

The cost structures are rising, that’s part of the problem. But you’re right, I should have written ‘price’ in that statement.  And using the term 'should' tends to suggest a moral bias – so, you’re right again.

I used the word should by accident, I actually wasn’t thinking of the moral aspect. But now that you made me think about it -

- the role that silver price suppression has played in masking currency devaluation, and the economic damage that hiding this truth has enabled, probably meets the definition of moral hazard - actually, it likely exceeds it.

cost structure - the expenses that a firm must take into account when manufacturing a product or providing a service

PS – in an attempt for clarity, I made the following edit. “Backwardation of a commodity is definitely a signal that a shortage exists and a price rally is likely.” Thanks for pointing it out the error.

I don't have any idea what

I don't have any idea what you saying.. or what point you are trying to make.

This guy has a different take then you.

good posts deserve bumps

Thanks for posting.

LL on Twitter: http://twitter.com/LibertyPoet
sometimes LL can suck & sometimes LL rocks!
Love won! Deliverance from Tyranny is on the way! Col. 2:13-15


btw, I love your signature. Is there any meaning to it?


lots of meaning...

enjoy your evening!


LL on Twitter: http://twitter.com/LibertyPoet
sometimes LL can suck & sometimes LL rocks!
Love won! Deliverance from Tyranny is on the way! Col. 2:13-15