Short Squeeze in Silver - How to Profit

Silver chat rooms are ablaze with talk of a short squeeze that will send the price of silver back above $20 in short order. I believe it is only a matter of time and not so much a question of if, but when it will occur. The price of silver is far below fundamental supply/demand would dictate and there are plenty of signs of manipulation taking place. But whether you agree with the manipulation argument or not, it is easy to see that the current gold/silver ratio is way out of whack at 72. Historically, the ratio averages closer to 15 and even further from the current ratio is the production ratio around 9 and the geological ratio around 7.

What does it all mean? One reasonable assumption would be that the silver price has some catching up to do in order to return to its equilibrium or more natural price relationship to gold. Using the most conservative of estimates, the price of silver should be fetching around $60 per ounce! Even if you believe the price of gold is overvalued and should be closer to $750, that still gives us a silver price of $50. Any way that you look at it, silver is way undervalued versus gold.

These abnormalities are typically caused by some form of artificial interference and always have a way of working their way out and returning to levels dictated by free market economic forces. From the current price of $12.71, silver would enjoy a 372% price increase to reach $60. While this sounds a bit far-fetched, it could happen more rapidly than you can imagine. Paper short positions in silver (up to 800 million ounces) are several times larger than all of the annual physical investor demand for silver (50-100 million ounces). And the majority of these paper shorts are held by only a few investment banks, with JP Morgan being the principal culprit. So, if investors start to demand delivery and paper shorts scramble to cover, $60 silver is suddenly not such a far-fetched theory. I will direct you to the archives of Jason Hommel or Ted Butler if you want to dive deeper into the numbers. And be sure to check out GATA for a wealth of information and documentation supporting the manipulation argument.

Another bullish indicator for silver is the current backwardation that has been running for nearly 40 days. That means that the price for immediate delivery has been consistently higher than the price for future delivery. Gold and silver occasionally slip into backwardation, but rarely for this long. Two articles referenced in the following paragraphs provide more information on backwardation and why it is bullish for precious metal prices.

So we have an extremely out of whack gold/silver ratio, paper short positions that cannot be sustained or delivered upon and backwardation running for nearly 40 days in a row. The manipulators are simply holding down a spring and the more hands (paper promises) that join in attempting to hold down the spring, the stronger the reaction will be when they are finally overwhelmed. It creates the potential for a truly explosive move in silver that will provide little warning and little time to jump onboard. You need to be positioned before the spring pops or kettle explodes as the volatile nature of the silver market will not provide a gradual ride that you can simply jump aboard at your leisure.

James Turk reports on the extraordinary amount of stress in the silver market, saying:.

No one is stepping in to sell physical silver in exchange for future delivery, so there is only one possible conclusion. There is not sufficient physical silver available at current prices to meet demand. So unless the shorts can somehow come up with the physical silver they need to meet their obligations to deliver and thereby relieve the backwardation, the price of silver needs to climb higher. It needs to rise high enough to induce holders of physical silver to sell their metal, which the shorts need to buy to meet their obligations to deliver.

Ted Butler, who I had the opportunity to hear speak recently, also wrote an article a few days ago suggesting that it was crunch time for silver.

Allow me to summarize what all these micro and macro signs of wholesale shortage mean to silver investors. Quite simply, it means that the price of silver should explode soon. If the short-term signs I see, both micro and macro, are true representations of what is occurring with supply and demand, then it may be crunch time in silver. If that’s the case, buckle up and get ready for the ride of your life.

I sincerely believe fortunes are going to be made by those holding silver mining stocks over the next two years. The kettle is about to blow the top off and it has been a long time coming.

But enough of the underlying reasons that the silver price is headed much higher. If you are reading this article, you are probably already bullish on silver and convinced of its investment potential. What you really want to know is the best way to profit from the upcoming price explosion.

First off, it is recommended that you hold a foundation of physical silver. You can buy rounds on Ebay (EBAY) or from Jason Hommel and others at SeekBullion. You can also buy directly from the silver producer First Majestic at their website.

Once you have some physical silver in your possession, you can move on to other investment vehicles. First off are ETFs such as SLV. I would stay clear of SLV, as they don’t allow independent audits, your silver can be leased out, it is not segregated, allocated and carries plenty of counter-party risk. You can read more about the risks of GLD and SLV here. Instead, I recommend the Central Fund of Canada (CEF). It is located outside the United States, carries significantly less counter-party risk and outperforms other ETFs to boot. Check out my earlier article entitled Central Fund of Canada CEF - Safest Way to Own Gold.

Moving up the risk/reward ladder, you could invest in major producers such as SSRI and PAAS. Or mid-tier producers that have been battered down lately, such as HL or CDE. Hecla (HL) is probably my favorite prospect amongst this group as I believe they will emerge from the financial difficulties and capitalize on the largest silver reserve/resource increase in company history.

Silver Wheaton (SLW) offers a unique way to get leverage to the price of silver. They have developed a proven formula of buying and selling byproduct silver production from base metal mines and recently acquired imitator Silverstone Resources Corp.. Silver Wheaton has long term contracts to purchase all or a portion of the silver production from mines in Mexico, Sweden, Peru, Greece and the United States, at a low fixed cost. The stock has a history of offering exceptional leverage to the advance in silver prices.

Finally we come to the junior producers or near-term producers. These companies have been absolutely smashed with the 2008 correction in precious metals, although many have started to recover. They are likely to offer the greatest leverage to the price of silver and could actually be the “5-baggers” or “10-baggers” that so many investors chase. They are largely unknown in the investment community but could produce explosive moves when they announce a new discovery, move a mine into production or get acquired by one of the majors. As always, with the potential for more reward, comes more risk. Still, I believe junior miners deserve a small allocation within any diversified portfolio and feel that the following companies are on the short list of those with the best chances of becoming proverbial “home runs.”

Great Panther (TSE: GPR) Market Cap: $36 Million

The Company is one of the fastest growing silver producers in the industry, having grown from a modest 313,000 oz in 2006, its first year of silver production, through 801,000 oz in 2007 to 1.21 million oz in 2008.

During 2008, Great Panther reported a 35% increase in total annual production to 1,809,720 silver equivalent ounces (Ag eq oz) from 1,336,629 Ag eq oz for the same period in 2007. They also reported a 45% increase in mineral sales revenues to $22.4 million and a 214% increase in net earnings from mining operations (excluding amortization and depletion) to $4.3 million.

Other highlights include a 47% decrease in cash cost per silver ounce, net of by-products, for the fourth quarter 2008 to $7.58 from $14.39 in the third quarter 2008 and an 8% decrease to $10.25 for the full year 2008 from $11.14 for the full year 2007. The new NI 43-101 mineral resource estimate for the Topia Mine comprises Measured & Indicated Mineral Resources of 153,373 tons at 501g/t silver.

Website

First Majestic (FRMSF.PK) Market Cap: $133 Million

First Majestic is a pure silver company with 3 producing silver mines including La Parrilla Silver Mine, San Martin Silver Mine and La Encantada Silver Mine in Mexico. They recently closed financing after increasing reserves at La Parilla by 20% to 88.75 million equivalent ounces of silver (Proven & Probable Reserves of 5.25 million ounces, Measured and Indicated Resources of 30.70 million ounces and Inferred Resources of 52.80 million ounces).

First Majestic produced 4.25 million ounces in 2008 and forecasts 6 million ounce in 2009. Their production costs have declined from $10 in 2006 to just $5.50 in 2009.

Website

U.S. Gold Corp (AMEX: UXG) Market Cap: $193 Million

Not a pure silver company, but they recently intercepted very high grade silver veins at their El Gallo project in Sinaloa State, Mexico. U.S. Gold Corp is an exploration company that has measured and indicated resources of 2.4 million ounces of gold and 8.5 million ounces of silver. Their properties are in Nevada and Mexico and the company is run by Rob McEwen, founder and former Chairman and CEO of Goldcorp (GG). During his tenure at Goldcorp, McEwen transformed the company from a collection of small companies into a mining powerhouse, growing its market capitalization from US $50 million to approximately $8 billion.

The most significant hole intersected 31.6 opt silver (1,082.4 gpt silver) over 104.0 ft (31.7 m), including 176.3 opt silver (6,046.1 gpt silver) over 14.9 ft (4.6 m) and including 305.1 opt silver (10,461.0 gpt silver) over 3.9 ft (1.2 m) expanding the strike length of the mineralization by 165.0 ft (50.0 m) to the west of the previous drilling. It is important to note US Gold controls 550,000 acres immediately around El Gallo, which could be key if they continue producing such high-grade drill results.

Website

Endeavor Silver (AMEX:EXK) Market Cap: $75 Million
The Company operates two mining projects and is in the process of acquiring other mineral projects. It produces silver-gold from its underground mines at Guanacevi and Guanajuato in Mexico.

In 2008, Endeavour achieved two important milestones in its silver mining operations: the Company recorded its fourth consecutive year of growing silver production, up 9% from 2007 to 2.3 million ounces (oz) silver; and Endeavour posted its fourth consecutive quarter of falling cash costs of production, from US$11.09 per oz silver in the fourth quarter, 2007 to an estimated US$7.50 per oz silver in Q4, 2008. They recently closed a $14 million private placement and are forecast a 20% increase in production for 2009. Many people believe Endeavour to be an undiscovered and over-looked junior miner.

Website

All of these junior miners are significantly off their 2008 highs and would need to double or triple in price to return to previous levels. The potential returns are enormous for those with the foresight and willingness to get in before the herd.

Disclosure: I own shares of UXG and SLW, but have not been compensated by any of these companies in any way.

Comments

[gca1:]

I agree, silver will outperform. Reversion to the mean is a powerful force. I like your choice of stocks. Other silver stocks to consider are Argentix AGXM, Fresnillo FRPF, Hecla HL, Mines Management MGN, and Silver corp SVM.

Mar 19 07:42 AM

[robert99:]

I hold positions in HL, CDE, UXG, SLW, and a small position in SLV. All of those shares were purchased at or near the 52 week lows. If silver doubled, I would be ecstatic.

Mar 19 08:23 AM

[HonestMoney:]

i say screw the manipulators. get physical only or CEF in canada. NO slv or gld. goldmoney.com and bullionvault.com look good too.

if you got deep pockets, take delivery from comex according to jsmineset.com

To HE** with the unscrupulous shorts in COMEX.

Mar 19 09:02 AM

[EE:]

Got EXK & leaps on CDE. Have a look at ITRO, PEZ or its USA version PEZGF for a home run play on home run silver. Any one with COMEX silver better start taking delivery or hope their broker can cover the coming defaults on silver & maybe gold futures contracts. If I had the cash, I'd follow Jim Rogers short idea on JPM with leap puts.

Mar 19 09:59 AM

[EE:]

Also have a couple 100 oz silver bars, maple leafs,eagles,and morgans. Yep, I'm all in and just waiting. Want a gold home run? Look up FFGO and the details of the very soon to be extraordinary 2 year restricted dividend. Buy FFGO at 0.0002 get dividend valued at 0.0234. Do you like a 1000 to 1 in a gold ,platinum, copper start up play?

Mar 19 10:18 AM

[Gumpwine:]

Any reason why you shouldn't just buy silver futures? The central clearing house pretty much guarantees delivery if that is what you want, or you can roll into a further away month as your contract expires. And it is certainly more liquid than anything else out there - ETFs may trade more shares but when you factor in the amount of money needed for each instrument the futures hold about a 20:1 ratio.

Mar 19 11:27 AM

[jimmy46:]

The gold silver ratio has been "out of whack" for most of the last 30 years.
1. Tell us something new
2. Anyone but a fool would realize that gold & silver don't have a high correlation.

I have some silver, but it's been a doggy performer for 20 years and I don't have an expectation that it will "soar" now.

Mar 19 02:34 PM

[silver-bug:]

Good article, Jason. The only reason silver has been so low and out of wack in gold/silver price correlation is because of price manipulation and public ignorance.

And to answer to jimmy46, I am convinced Silver is going to "soar" in the next 3-6 months and going into year 2010. (Soar = $20+/ounce) I have SLV that I took positions in near the bottom, and it's already giving me more than 25% returns, which is much higher than most stocks.


On Mar 19 02:34 PM jimmy46 wrote:

> The gold silver ratio has been "out of whack" for most of the last
> 30 years.
> 1. Tell us something new
> 2. Anyone but a fool would realize that gold & silver don't have
> a high correlation.
>
> I have some silver, but it's been a doggy performer for 20 years
> and I don't have an expectation that it will "soar" now.

Mar 19 02:45 PM

[Marc Courtenay:]

Good reporting Jason and good sources to quote. It wouldn't surprise me to at least see silver test its 2008 high of around $21. Thanks for your article.

Mar 19 04:37 PM

[ace99:]

ECU Silver Mining should also be on this list. It's an extremely undervalued exploration company with significant measured and inferred resources. The company will be cash flow positive and self-sustaining by the middle of 2009.

www.ecu.ca/s/Home.asp

Mar 19 04:49 PM

[Mike L:]

The problem I have with the short squeeze theory, is as follows;

1) Rather than 'piling on' more paper short interest to hold the price down as the author implies, the short interest and open interest has been dropping for months.

2) The 'retail shortage' has gone away and physical premiums have come way down.

3) The 'supply/demand' fundamentals the author alludes to re Ted Butler and Hommel, are false in that those authors claim a 'deficit' exists between physical industrial demand vs annual supply...but they IGNORE reclamation in their supply figures! Reclamation has to be included as it has always been a huge part of annual 'production' of silver, and when it is included there is 'surplus' supply /demand to teh tune of 50 million to 150 million ounces annually as to production vs consumption. That surplus has been absorbed by strong investment demand, primarily from the very ETF (SLV) which the author bashes.

Also, the author states SLV does not allow independant audit of its silver but of course this is simply false as they are indeed independently audited and also publish a full inventory list of their silver bars, available on their website.

Not a bad article overall, but I hate to see the false and misleading deceptions of the 'industrial deficit, misinformation so commonly spread, and the 'short conspiracy theory' school of investing, taking such a prominant role.

I am very bullish on silver, due to future emerging market demands, investment demand, global financial instability, and a 'too high' Gold/silver ratio, but I don't like to see bogus argument used to bolster silver's case.

Mar 19 07:47 PM

[5142152-337:]

Mike L: I believe you are punishing Hommel and Butler needlessly. If your "reclamation theory" is even remotely accurate, I have one question for you to ponder: Is current silver usage matching current silver production?

If you think silver production is EXCEEDING silver usage (in any form) including physical accumulation by investors/accumulators you need professional assistance.

Mar 19 08:17 PM

[Trace Mayer:]

"Gold and silver occasionally slip into backwardation, but rarely for this long."

Good article. This sentence seems to be a little inaccurate so here is an example of a correction: "Gold and silver [very rarely] slip into backwardation, but [never] for this long."

With such long consecutive silver backwardation it will be interesting to see how this issue is resolved. With nickel the LME punished the longs. The resolution will likely be with serious pain and may be inflicted on the long investors who settle for either futures like Gumpwine asks about or SLV.

With the counter-party risk escalating because of the instability of the owner is it any wonder SLV may be on the market for sale? Make no mistake; SLV is not silver and it is silver that individuals want in their possession and are willing to pay a significant premium for (backwardation).

While markets can usually stay irrational longer than investors can remain liquid the physical commodities are different. Those that own completely and possess physical silver can stay liquid longer than those who are required by contract to deliver. I wonder if Congress will pass a silver bailout?

Mar 19 09:29 PM

[Jason Hamlin:]

Mike L,

PricewaterhouseCoopers audits the financial statements, not their inventory. I can't find any physical count of the metal, nor any recording of serial numbers. If you can point us to this "full inventory list" of physical bars, with weights and serial numbers, I would be happy to retract my statement.

Even if a bar list is produced, the bigger issue is whether SLV really owns them free and clear or are they encumbered, leased out or otherwise compromised.

Trace,
Thanks for the correction regarding the extent of the backwardation. I enjoyed your speech at the Cambridge House conference.

Mar 19 11:02 PM

[mac.barron:]

True enough, silver is off from its typical value ratio to gold. A correction will likely take place but I have difficult time seeing silver hit $ 60.00/ounce any time soon. $ 17.00 to $ 20.00/ounce by 2010 is my bet, still not a bad return. If you want the physical metal you can still get 500 ounces of silver for around $ 7,500.00 which I doubt is out of reach of most people on this site. It's a nice little hedge and you stand a very good chance of the value appreciating. Don't pay too much over spot, the people you sell it back to in the end will not give you any premium for a name brand bar (J&M, Engelhard) over a random less well known fabricator (Academy for example).

As for SLW I'm up around 120% so far and it is one of a few remaining U.S. stocks that I haven't liquidated yet. That day is coming though, even with a huge run up in the price of silver I doubt that the stock will be able to stay ahead of inflation over the next few years. I'd love to be wrong about that but I doubt that I will be.

Mar 19 11:10 PM

[Jason Hamlin:]

Another concern regarding SLW is that they will lose their silver "production" as the base metal miners that provide them silver begin to shut down. I image base metals will correct to some extent, but a prolonged recession or depression doesn't bode well for industrial commodities. Any thoughts on what this will do to SLW stock price?

Mar 19 11:33 PM

[User 379670:]

Silver bulls make me laugh. Silver was in vogue when "film" was in vogue. It's all digital now. They don't prize silver like gold in India so you won't get the run you're looking for. Money better spent shorting the Euro.

Mar 20 01:47 AM

[Analyste de...:]

AGQ is ProShares Ultra Silver ETF. If speculative paper plays are what you need.

Mar 20 02:16 AM

[User 238172:]

The best pure silver play is actually Itronics ITRO.OB. Priced at less than 1x sales. sale ramping up 100% per year++ and fanstastic new technology/"green" silver techniques-ITRO.OB is a potential 10 or 100 bagger

Mar 20 03:13 AM

[optionsgirl:]

If you take possession of a Mini-silver contract (1000 troy ounces) that is another way to keep your costs down. There are costs for delivery and conversion, but not as high as the premiums for coins right now.

Mar 20 09:11 AM

[Allan Frain:]

Default. And not the kind the government steps in and make good on.


On Mar 19 11:27 AM Gumpwine wrote:

> Any reason why you shouldn't just buy silver futures? The central
> clearing house pretty much guarantees delivery if that is what you
> want, or you can roll into a further away month as your contract
> expires. And it is certainly more liquid than anything else out there
> - ETFs may trade more shares but when you factor in the amount of
> money needed for each instrument the futures hold about a 20:1 ratio.

Mar 20 11:52 AM

[Adam Hayes:]

Silver is reacting to the weakening dollar as the fed announced this week it would buy treasuries and MBS... silver and gold have always been and will currently be inflation hedges. As the dollar devalues further expect to see silver (and gold) reach new highs. There need not be a fundamental or technical reason except that of the money supply.

Mar 20 01:49 PM

[Mike L:]

Jason,

re your comment;

".. I can't find any physical count of the metal, nor any recording of serial numbers. If you can point us to this "full inventory list" of physical bars, with weights and serial numbers, I would be happy to retract my statement..."

OK, if you take the few seconds it takes to pull up the SLV ETF's website front page, and click on the link on the left there that says 'Silver bar list', you will find the inventory.

us.ishares.com/product...

This is the problem I have with folks who follow Butler/Hommel et all's 'conspiracy theory' based school of investment strategy. There just seems to be not the tiniest bit of factual research involved before all kinds of inferences, allusions, accusations, skepticism, etc is lobbed at the ETF, without even a minutes worth of actual valid research, or established FACT involved.

Butler's endless accusations for example about silver loans and such are completely 'fact free'. An analyst should write articles based on verifiable data, not baseless meandering speculative accusations.

Ditto the situation with silver industrial 'supply/demand' fundamentals. All these 'analysts' who have NO IDEA what the supply demand actual numbers are, are constantly making statements about there being a fundamental silver deficit 'shortage', when in fact there has been a surplus for years. They use the very deceptive and invalid technique as I stated before, of counting annual mine production, and ignoring annual reclamation production. So they for example, count an industrial silver demand of 100 million ounces for photography as a full demand number of 'used up' and gone silver, and ignore that 75% of that silver will be reclaimed/recycled and added back to supply! You can't trust ANYTHING that comes from an 'analyst' who uses such a fraudulently invalid methodology.

Here is a handy and well referenced summary of said fundamentals for silver.

www.virtualmetals.co.u...

Though the Fortis report is far from perfect or complete due to the nature of the silver market itself, I have been searching for years and have not found a better web based, more thorough, more comprehensive snapshot summary, and incidentally, it also agrees in the 'main' with the 'Silver Institute', 'CPM group' etc. as to deficit vs surplus silver.

I think investors should be very cautious about ever accepting any premise by 'analysts' as Ted Butler.

When a guy like Butler for example states that 'above ground' gold is far more plentiful then silver..and then you find out his methodology is grossly deceptive, and you see this kind of fraudulent thinking and methodology routinely from him, (i.e. he counts all the estimated GOLD jewelry and artifacts as 'above ground' gold, but FAILS to count all the SILVER jewelry, silverware, artifacts, et al .....which numbers in the BILLIONS of ounces.....in his above ground silver number!)..then you can count Butler and his offshoots out completely as to having any genuine credibility.

Again, we don't know what the total above ground numbers are, but rather than just lying to people as Ted Butler does, there are those who have actually done some research on the topic, like this silver bull here below, who at least has done some good research and used some data from which to draw inferences.

www.gold-eagle.com/edi...

www.safehaven.com/arti...

www.financialsense.com...

I don't mean to be harshly critical. But making false and spurious skeptic claims about the single most important new demand segment of the entire silver market, i.e. the SLV ETF, is destructive to silver investors. Butler and his ilk do so because he is PAID to make these kinds of claims by IRI, a physical bullion dealer, trying to capture investment money away from the ETF. Yet most of the important ETF demand, comes from investors unlikely to buy substantive physical bullion in any other form.

I am a silver LONG and will be for years to come,.... I own physical bullion in several forms (bars, Eagles, Numismatic), and I own SLV ETF, SLW, CDE, and SSRI. But I really hate to see the parroting of fraudulent nonsense by guys like Butler who give a black eye to the entire silver analysis and silver investment sector.

They are no friends to silver investors.

Mar 20 03:36 PM

[Mike L:]

User 514512xxx whatever..

You said;

"Mike L: I believe you are punishing Hommel and Butler needlessly. If your "reclamation theory" is even remotely accurate, I have one question for you to ponder: Is current silver usage matching current silver production?.."

My answer is no they don't match. Current silver consumption is substantially LESS than silver production/mining/recl... See ANY valid reference on the topic which uses the actual industry data including the Fortis link I posted.

I am bullish on silver ,..but not because of a phony and fraudulent 'deficit' story from Butler and Hommel. I am bullish because I believe that;

a) Investment demand will continue to grow and will more than absorb the surplus silver, via vehicles such as the SLV ETF, the most important single new demand side in years, ironically bashed by Butler and co., and

b) as the global economy improves, emerging market demand for silver will increase, and

c) 'easy' low cost mine production sources will eventually dwindle, and

d) Silver is a very important 'safe haven' PM worldwide as we see clearly currently.


Re your comment;
"..If you think silver production is EXCEEDING silver usage (in any form) including physical accumulation by investors/accumulators you need professional assistance..."

Of course that is not what I said and your comment there is pointless and irrelevant. Even is silver was produced in numbers of a BILLION surplus excess ounces a year, SOMEone, SOMEwhere, would be happy to accumulate it at SOME price. It would not be tossed in a garbage heap and buried just because it was industrial excess, so it is a pointless exercise to pretend that if anyone would be willing to buy it at ANY price then there is 'deficit' silver production vs consumption. By that definition, deficit silver is never possible, unless the silver price is ZERO 0.0 and remains ZERO 0.0 It is a totally illogical and pointless premise.

Therefore, with silver in industrial surplus, what will drive the price higher in the near term? Quite obviously, investment demand in excess of whatever the current price level is. The key component from 2006-2008 to investment demand, was the huge demand from the ETFs. Without that ETF, the investment demand would have been far lower and silver's price would be far lower. Now in 2008, retail physical demand kicked in as well, and that helped, but it still remains a a small fraction of the ETF inevstment demand growth.

SLV now has approx 257 million ounces of physical silver. And though it is the biggest silver ETF, that doesn't count the other ETFs and investment vehicles.

Growing investment demand is critical to silver's upward price. It does no one any good to pretend that;

a) industrial demand is higher than supply, and/or
b) If any investor, anywhere, is willing to pay more than .1 cent for surplus silver, than there is a 'deficit' supply/demand in silver.





your comments spring from a woeful ignorance about silver supply/demand fundamentals. You should do some research starting with the links I provided above.

Mar 20 04:06 PM

[Mike L:]

In making the case why I am silver bullish, 'a,b,c,d..' I of course left out a very important 'e'..

Namely, the printing of a few Trillion dollars in the years ahead and the additional trillions required to pay for the hyper exploding deficit, can't help but be an inflationary pressure in the long run, current commodity and real estate price deflation collapses notwithstanding.

Mar 20 04:13 PM

[socphd71:]

Thanks for your comment, Ace99. I checked all stocks mentioned yesterday. All were up, most more than 10%. ECU wasn't. I looked at their web site and then bought some.

Mar 20 07:57 PM

[Jason Hamlin:]

Mike L,

Thanks for the link and I was wrong, they do publish a bar list via JPMorgan, for what its worth. That still does not guarantee that the metal itself is not leased out or otherwise encumbered. Correct?

This is something that sets CEF apart from the competition. The stated investment policy of the Board of Directors requires Central Fund to maintain a minimum of 90% of its net assets in gold and silver bullion of which at least 85% must be in physical form. On July 31, 2008, 97.6% of Central Fund’s net assets were invested in gold and silver bullion. Of this bullion, 99.3% was in physical form and 0.7% was in certificate form.

Central Fund’s bullion is stored on an allocated and fully segregated basis in the underground vaults of the Canadian Imperial Bank of Commerce. Bullion holdings and bank vault security are inspected twice annually by directors and/or officers of Central Fund. On every occasion, inspections are required to be performed in the presence of both Central Fund’s external auditors and bank personnel. Central Fund’s chief executive comments:

“Our bullion is stored in separate cages, with the name of the owner printed on the cage, and on top of each pallet of bullion it states Central Fund or Central Gold-Trust. This disables the bank from using the asset from any of their purposes. We also pay Lloyds of London for coverage of any possible loss.”

Clearly you can view CEF as a safer investment than SLV based on these differences, right? That was my entire point when bringing up SLV in my article.

In regards to your last point, since you are so disgusted by people throwing around claims that can't be factually verified, can you provide factual evidence that Ted Butler or Jason Hommel are "PAID to make these kinds of claims by IRI, a physical bullion dealer, trying to capture investment money away from the ETF," or are you propagating the same type of wild speculation that you criticize? These guys are both independently wealthy, so I find it hard to believe that they would put their reputation on the line for some payment from a bullion dealer. I've met them both and that assertion doesn't pass the sniff test or make much sense. But if you have some proof, I would be happy to be enlightened.

Lastly, both Butler and Hommel have an extremely wide reach and are constantly providing reasons that silver is a great investment. They have influenced countless investors to get out of paper instruments and into silver, so I don't quite follow your claim that "they are no friends to silver investors."

Respectfully,
Jason


On Mar 20 03:36 PM Mike L wrote:

> Jason,
>
> re your comment;
>
> ".. I can't find any physical count of the metal, nor any recording
> of serial numbers. If you can point us to this "full inventory list"
> of physical bars, with weights and serial numbers, I would be happy
> to retract my statement..."
>
> OK, if you take the few seconds it takes to pull up the SLV ETF's
> website front page, and click on the link on the left there that
> says 'Silver bar list', you will find the inventory.
>
> us.ishares.com/product...
>
> This is the problem I have with folks who follow Butler/Hommel et
> all's 'conspiracy theory' based school of investment strategy. There
> just seems to be not the tiniest bit of factual research involved
> before all kinds of inferences, allusions, accusations, skepticism,
> etc is lobbed at the ETF, without even a minutes worth of actual
> valid research, or established FACT involved.
>
> Butler's endless accusations for example about silver loans and such
> are completely 'fact free'. An analyst should write articles based
> on verifiable data, not baseless meandering speculative accusations.
>
>
> Ditto the situation with silver industrial 'supply/demand' fundamentals.
> All these 'analysts' who have NO IDEA what the supply demand actual
> numbers are, are constantly making statements about there being a
> fundamental silver deficit 'shortage', when in fact there has been
> a surplus for years. They use the very deceptive and invalid technique
> as I stated before, of counting annual mine production, and ignoring
> annual reclamation production. So they for example, count an industrial
> silver demand of 100 million ounces for photography as a full demand
> number of 'used up' and gone silver, and ignore that 75% of that
> silver will be reclaimed/recycled and added back to supply! You
> can't trust ANYTHING that comes from an 'analyst' who uses such a
> fraudulently invalid methodology.
>
> Here is a handy and well referenced summary of said fundamentals
> for silver.
>
> www.virtualmetals.co.u...
>
> Though the Fortis report is far from perfect or complete due to the
> nature of the silver market itself, I have been searching for years
> and have not found a better web based, more thorough, more comprehensive
> snapshot summary, and incidentally, it also agrees in the 'main'
> with the 'Silver Institute', 'CPM group' etc. as to deficit vs surplus
> silver.
>
> I think investors should be very cautious about ever accepting any
> premise by 'analysts' as Ted Butler.
>
> When a guy like Butler for example states that 'above ground' gold
> is far more plentiful then silver..and then you find out his methodology
> is grossly deceptive, and you see this kind of fraudulent thinking
> and methodology routinely from him, (i.e. he counts all the estimated
> GOLD jewelry and artifacts as 'above ground' gold, but FAILS to count
> all the SILVER jewelry, silverware, artifacts, et al .....which numbers
> in the BILLIONS of ounces.....in his above ground silver number!)..then
> you can count Butler and his offshoots out completely as to having
> any genuine credibility.
>
> Again, we don't know what the total above ground numbers are, but
> rather than just lying to people as Ted Butler does, there are those
> who have actually done some research on the topic, like this silver
> bull here below, who at least has done some good research and used
> some data from which to draw inferences.
>
> www.gold-eagle.com/edi...
>
> www.safehaven.com/arti...
>
> www.financialsense.com...
>
> I don't mean to be harshly critical. But making false and spurious
> skeptic claims about the single most important new demand segment
> of the entire silver market, i.e. the SLV ETF, is destructive to
> silver investors. Butler and his ilk do so because he is PAID to
> make these kinds of claims by IRI, a physical bullion dealer, trying
> to capture investment money away from the ETF. Yet most of the important
> ETF demand, comes from investors unlikely to buy substantive physical
> bullion in any other form.
>
> I am a silver LONG and will be for years to come,.... I own physical
> bullion in several forms (bars, Eagles, Numismatic), and I own SLV
> ETF, SLW, CDE, and SSRI. But I really hate to see the parroting
> of fraudulent nonsense by guys like Butler who give a black eye to
> the entire silver analysis and silver investment sector.
>
> They are no friends to silver investors.
>
>
>
>
>

Mar 20 08:28 PM

[obewon:]

<strong>@Jason Hamlin:</strong>

Thanks for your comprehensive commentary on the silver market; you've obviously done your homework.

One of the most audacious (oh, and most astounding, too!) facts about gold and silver futures trading on the COMEX is that the "custodians" of the now popular GLD and SLV ETFs are also the key perpetrators of gold and silver price suppression over the past 10+ years (because they also serve as "not-for-profit" agents for the US government's short selling of silver and gold).

I googled the word "custodian" because I wanted to verify to myself that it meant that the entity was "responsible for safeguarding the financial assets". Yep, that's what the definition is, BUT:

Here's something to think about:

Specifically:
1. GLD ETF:
- The "Custodian" is HSBC
- The 2 largest entities that hold over 90% of the gold short contracts: JP Morgan and HSBC
- These two gold "commercials" have not reported a net long position in gold to the CFTC since 2001 !!!

2. SLV ETF:
- The "Custodian" is JP Morgan
- The 2 largest entities that hold over 90% of the silver short contracts: JP Morgan and HSBC
- These two silver "commercials" have not reported a net long position in silver to the CFTC since 1986 !!!

On the positive side, both GLD and SLV have become so large that each of them are a force to be reckoned with. So in essence, both JP Morgan and HSBC are now getting on the "right" side of the trade, for those trades that are in their "own account" vs. the US government account which they manage. In essence, many of the commercial shorts may not be squeezed out because JP Morgan and HSBC are shorting with money covertly handed to them by the US government (i.e. the US government never intended to make a profit by all of their short selling in silver since 1986!!!).

Something to seriously think about.

Disclosure: I am long in both GLD and SLV, as well as gold and silver stocks.

Mar 21 12:42 PM

[socphd71:]

User 238172:

You have posted only three comments on SA. All you do is boost Itronics, a small company without profits, without a financial statement on their website, and shares selling for about $0.002. That is two-tenths of a cent per share. Is it reasonable for me to suspect that you are, in some way, connected to Itronics? If so, can you provide further information, such as a financial statement. Can you explain why the stock has declined from $0.06 (six cents) less than 3 years ago, a loss of over 97%?

I, and, I am sure, others, would appreciate a reply.

Mar 21 04:09 PM

[dawase@gmai...:]

Socphd71,

Actually, I just downgrade the comment (everywhere I see it) and move along without another thought.

Mar 21 05:49 PM

[PeteK:]

HL & CDE, so far so good.
No complain.

Mar 22 01:51 AM

[Trace Mayer:]

Thank goodness it is JP Morgan and not Morgan Stanley & Co. as JP Morgan is so much more trustworthy!

"For example, in June 2007 Morgan Stanley & Co. settled a class action lawsuit for $4.4 million where the complaint alleged ‘that Morgan Stanley told clients it was selling them precious metals that they would own in full and that the company would store. But Morgan Stanley either made no investment specifically on behalf of those clients, or it made entirely different investments of lesser value and security.’ While the efficacy of the claim may still be at issue the Better Business Bureau-like complaint from unsatisfied customers who initiated litigation does not inspire confidence for those seeking to reduce risk."

seekingalpha.com/artic...

Gold is an extremely transparent asset, it is either in your hand or not, but as GATA proves the gold market is the world's most opaque.

On Mar 20 08:28 PM Jason Hamlin wrote:

> Mike L,
>
> Thanks for the link and I was wrong, they do publish a bar list via
> JPMorgan, for what its worth. That still does not guarantee that
> the metal itself is not leased out or otherwise encumbered.
> Correct?

Mar 22 03:36 AM

[Michael Hoeft:]

It's riskier to be in the Futures, but can be a terrific play since markets are highly leverage. RISK CAPITAL ONLY.


On Mar 19 11:27 AM Gumpwine wrote:

> Any reason why you shouldn't just buy silver futures? The central
> clearing house pretty much guarantees delivery if that is what you
> want, or you can roll into a further away month as your contract
> expires. And it is certainly more liquid than anything else out there
> - ETFs may trade more shares but when you factor in the amount of
> money needed for each instrument the futures hold about a 20:1 ratio.

Mar 22 07:01 AM

[praha1:]

Mike L.

Backwardation in silver as seen daily on the London Bullion Market Association's website is not fiction. It's been going on now continuously since January (i.e. over 60 days). Exactly what this portends is anyone's guess but it does not suggest that a current silver surplus exists in any way. There are those (i.e. Antal Fekete) that have even suggested (back in 2006) that this portends the end of our financial system. While I may not accept that somewhat extreme view, I might suggest that the portent does not lean towards the optimistic for anything financial (including the silver price BTW which the TPTB will keep down even if not one ounce of silver is available for purchase)

Mar 22 02:13 PM

[PeteK:]

obewon;
Thanks so much for the info.
Glad to know and really appreciated.

Mar 23 03:11 AM

[lance sjogren:]

I like silver, my main silver stock is Sabina Silver.

In my view they are the best choice if you prefer to invest in an exploration-only company that is sitting on a known deposit.

Their net cash position is a large portion of their market cap, if you back out the cash you are getting silver in the ground in a large deposit with a good grade of silver and other marketable minerals for something like $0.10 per ounce of silver equivalent. Plus, the deposit is in politically-safe Canada. It is in a remote area, however, so whoever eventually develops the deposit will have to incur major capital cost. But the deposit is big enough to be able to support such capital expenditures.

Mar 23 11:36 AM

[Scott Reeser:]

Why don't we all get together and file a suit against the CFTC, the US Treasury, JP Morgan and any other entity that is a part of this manipulation? Because there is no way to stop them. There is a conflict of interest with the CFTC watching the silver and gold commodities exchanges in that it is the government watching and protecting what the government is doing. The CFTC is not put in place to monitor and maintain a free market. They are in the position they are in for the very purpose of providing a protective means to allow the government to do what the government is doing. Don't you people get it? The CFTC is protecting the US Government for the very purpose of manipulating the precious metals markets.in order to keep the value of the dollar intact. If the government did not prop up the dollar by keeping the price of gold and silver where they are you would see the dollar become worthless. You would not be able to buy gold for $2500 an ounce. The government has so devalued the dollar by their inflationary economic tactics that if they don't manipulate the price of gold we would already have $2500 gold.

Apr 02 02:45 AM

[luckyone7:]

I disagree totally to the very misleading statement re Gold /Silver ratio ----" Historically, the ratio averages closer to 15 " That statement is totally misleading & is incorrect. It is annoying in the extreme to read such nonsense. It happened before at an extreme & may again --but it is NOT anywhere near an "average"

I have a very large position in "Physical" Silver as well as a very large position in Silver shares.So I'm a Bull & a believer in Silver & that it will go much higher but not in BS ! It is annoying that JH did NOT alter this "story" when he was warned & alerted that his 15-1 statement was pure crap. What's the agenda ?

Apr 03 10:29 PM

[AlphaDude:]

Bullish Gold : bullionvault.com allocated/excellant service

Bullish Silver : goldmoney.com allocated/excellant service

ETFS PHAG.LSE (silver etf) smallholding and hoping

Holding 90% physical (allocated)

May 19 06:09 AM