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Silver Vigilante provides analysis of precious metals, economics and lifestyle from an anarchist lens.
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  • Silver 2012: A Year In Review

    If silver's performance in 2012 could be summarized in one period, then 12/18-12/20 is it. After months of coordinated attacks on silver, sometimes brutal beatings throughout entire trading days, the poor man's gold nose-dived 7.5% in the 3 days preceding 12/20/12, its biggest drop in more than a year. It wasn't the only poor day silver had on the year. Late in the year, silver joined numerous assets from copper to the FX in a liquidation in the paper markets. As has been the case for over a decade, nothing has fundamentally changed in asset markets, given currency devaluation and increased central bank gold purchases. Silver stacks up against all other global financial assets, through 2012, finishing in the top ten for the year.

    After a monstrous 2011 breakout, the silver price spent 2012 more than consolidating. Despite a silver price that ended the year well below $35, after its run towards $50 in April 2011, 2012 annual sales of 2012 American Silver Eagle bullion coins reached its third highest price in the silver coin's 26 years of mintage. The US Mint declared it had sold out of 2012 inventory.

    Top Five Annual Sales of American Silver Eagle Bullion Coins

    RankYearSales Total*
    1201139,868,500
    2201034,662,500
    3201233,742,500
    4200928,766,500
    5200819,583,500

    2012 Monthly Sales of American Eagle Silver Bullion Coins

    RankMonthSales
    1January6,107,000
    2September3,255,000
    3November3,159,500
    4October3,153,000
    5May2,875,000
    6August2,870,000
    7June2,858,000
    8March2,542,000
    9July2,278,000
    10December1,635,000
    11April1,520,000
    12February1,490,000

    In December, Eric Sprott noted the unsustainable rate at which silver was flying out the door of the US Mint. From the perspective of a miner, silver flew out of the ground in 2012 much quicker than gold. From Eric Sprott:

    the US Mint showing gold and silver sales in ounces:

    (click to enlarge)
    Source: US Mint (www.usmint.gov)

    As you can see, investors are choosing to buy silver at a ratio to gold that is well above what is available. This uptrend doesn't show any signs of slowing either. The ratio of the physical silver to gold is both rising and extraordinarily above the availability ratio of 3:1.

    We can also use other data such as the most recent issues of the Sprott Physical Gold and Silver Trusts. The last Gold Trust issue in September 2012 raised US$393 million and the last Silver Trust issue raised US$310 million. On the basis of prices for each metal at the time of issue, we could purchase ~213 thousand ounces of gold and ~9.1 million ounces of silver. This represents a purchase ratio of 43:1.

    If we examine ETF holdings in both gold and silver, we note that in the period from 2007 to 2012, the increase in silver holdings amounted to 12,000 tonnes, compared to 1,200 tonnes of gold - meaning, investors purchased ten times more silver than gold.

    December saw a NY judge dismiss the class-action litigation suit brought against JP Morgan regarding silver market rigging. HSBC was originally listed. This decision came on the heels of the CFTC admitting they hadn't found any evidence for silver rigging. The SEC in November claimed that ETPs did not affect the spot price of commodities...

    Having reached a record in November of 18,854 tons, investment in silver-backed exchange-traded products joins overall silver holdings of around $19.2 billion.

    Silver had by mid-December, on a good day, increased 12 percent in 2012, and, as we headed into the year's end, it seemed there was a plot afoot to ensure an unimpressive December close. To compare, gold gained 6.6 percent and platinum 14 percent 2012. Since the end of June, hedge funds and large speculators have increased their long positions to a net 34,862 futures and options, according to the CTFC, which is about 50 percent higher than the average in the past five years, though, during that period, speculators remained bullish throughout. Investors in Equity's have also bet on higher silver prices, as shares of Mexico City-based Fresnillo Plc (OTC:FRES), the biggest main silver producer, rose 25 percent in 2012. The company will report a 22 percent gain in net income to a record $927.1 million in 2013, according to some estimates.

    November held yet another volatile month for one of the most volatile assets in the world. Silver began the month of November - deeply embedded within a depressed year for silver - at about $32.50 or so, only to be yanked below $31.00, and then catapulted to just shy of $34.50.

    Silver obtained the price it held at the beginning of October before tumbling back down to $31.50, which had served as pretty good support in recent history.

    In September, silver had some time in the limelight via the film "Looper."

    Per the movie's plot, since it is nearly impossible to dispose of a body in the future, murder victims get sent back into the past so that they might be disposed. A crime syndicate evidently owns all of the silver bullion, and illegally transports their victims back to their looper's in order to be rid of the evidence.

    Lots of sexy images of lots of silver in that film.

    August was a laughable month as the FT reported that the CFTC would drop its four year investigation into silver manipulation since "US regulators failed to find enough evidence to support a legal case, according to three people familiar with the situation." Silver Vigilante wanted to know more, so I, to no avail, called the CFTC myself:

    The CFTC hadn't yet returned my phone inquiry from last week. So, I called Bart. No answer. I left a voicemail. I called Gensler. No answer, voicemail. I called Mathew Hunter, Deputy Director of the Market and Trade Practice Surveillance branch. No answer, voicemail. Hello! Hunter! Have you spied on the high-speed algo bots? Have you tapped the phones in JPMorgan's upper offices? "Blythe Masters." That sounds suspicious. How about that line? Jamie Dimon? Surely, of the 11+ agencies investigating JPMorgan, someone is already tapped into that line. What are you surveying exactly? Granted, my message was surely more reserved. Didn't want it getting passed onto the Ministry of Love where I'd certainly renounce my lover under a fiat shower.

    I proceeded. I called Nancy Markowitz, the Deputy Director of the Exchange and Data Repository Branch. I suspected that perhaps this branch, something akin to the Records Department at the Ministry of Truth, where Winston Smith decayed daily at his desk, might have some documents so far spared the incinerator. No answer, voicemail.

    Startled secretaries answered some of my phone calls. "Hello, How are you? I have a question," I would say. Fumbling over their switchboard, they would connect me always to a different office, although they would always refer to this office as "Enforcement."

    "Um, yes sir. Let me forward you onto…enforcement." Line forwarded.

    "You have reached the main office." No answer, voicemail.

    "You have reached Examinations." No answer, voicemail.

    Then, a returned phone call!

    "Hello?"

    "Yes, hello." This is Peterson in Bart Chilton's office returning your phone call."

    "Thank you," I said.

    "Commission Chilton is traveling today, I don't know if you're in a hurry."

    "No," I thought. "No hurry at The End of the Monetary System As We Know It."

    Peterson continued:

    "If you email me your question, I can forward it onto Commissioner Chilton."

    I thought about The E-mail. The E-mail countless have already received from Bart Chilton:

    …The Financial Times report related to silver is not only premature, but inaccurate in several respects.
    Whenever the CFTC does take an action or actions related to our silver investigation, I am hopeful that we will do so in a fulsome and transparent manner. That will certainly be my desire in anything we do…
    B'

    "I got that E-mail," I thought.

    Can't anybody else at the CFTC confirm Chilton's statement? Anybody at all? I asked Peterson:

    "My question is regarding the status of the CFTC silver probe. I was wondering if it was still being investigated by the CFTC? Do you know about that?"

    "Well, um…not anything that I could say, I would have to talk to Commissioner Chilton about that…"

    The bootlicking, oh the bootlicking! The poor man has no voice when it comes to a high-profile fraud investigation about the poor man's gold.

    Commissioner Chilton responded:

    There has been no such decision. I've been on the blower with some reporters saying what I can about the inaccuracies. Hopefully there will be a story or two that contains some of this.

    In general, what I've said is this:

    The Financial Times report related to silver is not only premature, but inaccurate in several respects.

    Whenever the CFTC does take an action or actions related to our silver investigation, I am hopeful that we will do so in a fulsome and transparent manner. That will certainly be my desire in anything we do.

    I continue to believe, consistent with my previous statements to which you referred, and based upon information from the public, that there have been devious efforts related to moving the price of silver. Incidentally, I also believe there have been silver and gold market anomalies outside of the silver investigate window that have raised, and continue to raise, market concerns.

    Perhaps there will be more coverage on this matter soon.

    In a roundabout way, the US government made its position on silver manipulation clear by November. The position was not enunciated by the CFTC, as if to avoid headlines, but instead by the SEC. As I wrote recently:

    Last month the SEC announced that it did not believe that "asset flows" in-and-out of exchange-traded products do not significantly affect the price of the commodity. The SEC looked into the affect of ETF asset-flows on commodity prices as part of an investigation to determine whether or not to approve a proposal by NYSE Arca Inc. to list JPM XF Physical Copper Trust, a Nov. 6 SEC filing displayed.

    The division that looked into the question, the SEC's Division of Risk, Strategy and Financial Innovation examined the relationship between spot-metal prices and asset flows for funds backed by commodities such as gold, silver, platinum, palladium and copper. And so the SEC has determined that there is no evidence that ETF funding affects commodity prices.

    "It's difficult to imagine how the SEC economists could conclude that removing as much as 180,000 metric tons of copper from LME warehouses holding a little more than 200,000 tons globally will have no impact," said Robert Bernstein, a lawyer at New York-based Vandenberg & Feliu, who represents a group of industrial copper consumers including AmRod Corp., Southwire Co. and Encore Wire Corp. He spoke in a telephone interview.

    In 2012, government made it clear: silver manipulation is a psychosis. Vacation heavy August in 2012, despite an overall dismal year for silver, held soft corporate top lines and silver and gold as the best performing asset classes, "despite offering no dividends, and despite having not a single earnings call or forecast revision between them. Or perhaps in spite of." This month, with the political excitement of "investigation" and the firming silver prices was a breath of fresh air for the growing poor man's gold buyers.

    Prior to silver's August run, to be sure, there was not much brewing, and silver had a year unlike any other since 2006. On July 31, 2012, silver finally closed in the green for four straight days in a row:

    fut_image.ashx

    Silver had not had 4 positive, green closes like it has the last 4 days since 1/16-1/23 2012, when it had 6 consecutive positive, green days. Before then, it had, from 1/9-1/13, 4 consecutive green days. During this period, silver enjoyed a moon-rocket from $26 on 12/29 to $37.58 on 2/29. Those four days late in July were some of the most positive action silver had seen in weeks. On the 31st of July alone, silver was good for nearly 3% in green moves.

    Platinum was not the only metal to suffer from political turmoil in 2012. The entire metal's sector is a prime target for powerful transnational corporations and states to limit the supply available to the public-at-large. In July, as anyone long silver miner South American Silver Corp remembers, nationalization rocked the silver market. Bolivian President Evo Morales, on the heels of causing substantial increases in the silver price due to comments regarding the nationalization of various silver mines, announced he was making moved towards nationalizing SAC.TO's Malku Khota property, which the company advertised as "one of the world's largest undeveloped silver, indium and gallium deposits," and which El Pais continues "is considered one of the largest undeveloped silver deposits, with reserves estimated at 230 million ounces, and at least 2,000 tons of indium, gallium and gold as well." Thus, in 2012, much of the supply was eviscerated, for better or worse. For mining and extraction companies such as South American Silver, definitely for the worse. That company, after all, stands to lose multiple properties in a wave of nationalization. SAC.TO was down in on July 9 27%+.

    Earlier in July, CNBC had admitted nonchalantly that the silver markets were manipulated:

    Whalen: None of its [JPM's CIO losses] are acceptable, but see the whole point is Jamie got entangled in the media. (He got caught lying and gambling with customer money - Jesse) If this had just been a reported loss with a lot of other numbers we wouldn't be talking about it. It's a trivial number in the grand scheme of things.
    Sorkin: What may be less trivial is this situation, this scandal involving LIBOR.

    Whalen: Ah well, welcome to the banking industry. Come on, uh, you know… (wink wink, nod nod)

    Sorkin: You hear about these things…

    Whalen: Foreign exchange, Libor…

    Sorkin: You used to think these were conspiracy theories. Right? You hear this about people manipulating LIBOR, you hear about people manipulating the silver market…

    Michelle: And they are!

    Days prior, by the end of the day on June 28, 2012, silver had crossed below its 19-month of bottom of $26.25. As Silver Vigilante reported on that rainy day for silver:

    [Silver] broke through this on the bid before 11:30 AM Pacific Standard Time on 28 June, west coast United States. Therefore, expect possible further weakness tonight on the Globex. Silver fell quickly down to $26.13 for a spike-low that might be the bringer of warning for the future. Calls are being made for a weaker euro, such as is covered here. More pressure is being put on the United States financials, and thus the stock market, as $9 billion is reported loss at JPMorgan. Both of these signal bearish for precious metals, including silver.

    fut_imagfe.ashx By this time, silver had been traded on the Shanghai Silver Exchange for just over forty days. The exchange is to act in competition with western exchanges of the same nature, and not coordinate with them on the silver price mechanism. This, due to the new counterbalance to western banking silver suppression, will send silver prices higher. Now, about forty days after the exchange was opened, midway 2012, the silver price trend remained a waterfall. The price has ranged from shy of $31 to the 22nd's low of $26.75. This is a continuation of the downward trend embarked upon in March, when silver was still the best performing asset year-to-date.

    In the ten days before the 22nd's volatility, so the 12th through the 22nd of June 2012, the silver price had barely moved. It' s range from June 11 to June 21 was $28-29, which is quite narrow for silver. For the rest of the year, it is clear that, even with the SSE, silver remained an asset dominated by the paper market. Reports at this point in 2012 whirled around the globe about JP Morgan's financial relationship with MF Global, their custodian of first resort status, and a whole host of other suspicious "circumstances," some relating directly to silver.

    JP Morgan & Chase was facing further legal action against it over this particular unfolding. This legal action could be bring to light the banks unconscionable position in the silver market as it comes to light the bank inherited gold and silver from MF Global after customer accounts were settled in cash and closed out at, basically, the market price of MF Global and JPMorgan's choosing. James Giddens, the trustee liquidating MF Global's broker-dealer unit, has published a 275-285 page report in which he stated he might bring civil claims against former CEO Corzine and other top MF Global executives for negligence and breach of duties to customers. Giddens also stated he was prepared to sue JPMorgan Chase, if he and the bank could not settle within 60 days claims that the bank played a role in the disappearance of customer funds. In other words, customers at MF Global were forced to cashout precious metals positions, thus avoiding the problem of physical delivery...for the time being.

    fut_image.ashx

    On May 17, silver had gone down 12 of the previous 13 days.

    The first quarter of the year was not dominated by some news that SV found interesting. The thesis is that Kodak's chapter 11 bankruptcy is big news, for Kodak is among the largest consumers of silver. The photography industry is the second largest consumer of silver behind industry, using annually about 50 million ounces of silver. According to Bloomberg, the 131-year-old company consumes about 8.5 million ounces or $300 million worth of silver each year for its manufactured goods and supplies. According to Bloomberg News, Eastman Kodak consumes approximately 8.5 million ounces or $300 million worth of silver each year for its manufactured goods and supplies. This is a sufficient amount of silver to put pressure on the silver market considering inventories at the COMEX are purported to be around 35 million ounces of unallocated silver.

    SV wrote 6 April:

    Sprott Asset Management had communicated with investors just days before the Kodak bankruptcy informing them Sprott's Fund has raised enough money to take delivery of ten million ounces of silver. The big question is, from where would they take this silver delivery? The Kodak bankruptcy will be handled by a specialist from FTI consulting, Dominic Di Napoli, who has worked for JP Morgan and Goldman Sachs. The silver investor understands the irony in a former JP Morgan employee handling the bankruptcy of a company who not only demands many ounces of silver for their products on a annually basis, but also one which very likely has stockpiles of the metal considering ten years + of rising prices. Could JPMorgan get lucky again, in the wake of MF Global, by inheriting Kodak's silver? The firm is already lucky to be alleviated of Kodak's silver demand, to be sure.

    Around May, the JP Morgan stock had seen a double-top, in the wake of all the bad publicity the bank had received.

    Alongside that last top in the JP Morgan stock price, we saw explosive action in silver. As further resistance is piled on the JP Morgan stock price as increasing amounts of top executives begin to defect amid a flood of negative news for the bank, I suspect we will start seeing strength in silver. JP Morgan will be forced into cash and they will not be able to throw as many shorts at silver as they need in order to keep the price at down.

    Unlike last time around when silver had to rise in price considerably before the JP Morgan stock price had the silver price conflated, this time around the silver price did not need to move much in order to take out the JP Morgan stock price.

    March was the month in which silver lost its best performer YTD status. At the beginning of 2012, after a dismal end to 2011 with the April drive-by, silver and gold were doing quite well. March had something different in mind:

    January and February held different stories for silver. Instead, the precious metal appeared to rebounding from its 2011 takedown. The charts below are extremely positive for the metal, and it is one of the best performers YTD for much of the first three months. The metal would still have a great year with April 2011 taken out of the chart. Indeed, in January, silver surged 21%.

    So, let's forget about the USD for a second. Let's look at silver, throughout 2012, just in terms of the other precious metals. At the beginning of the year, the silver/gold ratio was 55.35:1. By year's end it was approximately 54.78:1. Not much changed in correlation to the two metals. At the mid-point of the year, SV wrote in June:

    With a big pop on Friday afternoon in the metals market, it is time to reevaluate our precious metals' ratios. The most significant highlight rests in the gold-silver ratio, which currently sits at 57 ounces of silver to 1 ounce of gold. In April of last year, this ratio got near 30 ounces of silver to 1 ounce of gold and we expect such an occurrence to happen again inside a year. Currently, as we discussed yesterday, it takes one ounce of platinum will get you .89 ounce of gold. We believe that this ratio will return to a 1:1 ratio, although it might take some time before this point is once more reached. After that, it very well could creep towards a 1.5 ounces of gold to 1 ounce of platinum ratio in the long-term, which is more standard for these markets. And so, the ratio, in terms of gold to platinum, is 1.12 ounces of gold per one ounce of platinum. It is still an attractive time to buy platinum with gold, but only if you have a significant position in gold. The palladium-silver ratio is resting currently at around 21.5 ounces of silver to 1 ounce of palladium. Palladium is relatively cheap considering a late 2011 run-up to around $700, but then again so is silver, as the devil's metal sits below $30.

    Without the 2011 run up in silver, silver has had a fairly stable recent two years. Before silver ran to $49 and change, it was clearly trading around $30 before that $20 run up. It has only been about 600 days. The Silver Liberation Army certainly looks forward to a 2013 in which the fundamentals do look stronger for silver. Early in the year for 2013, silver is down nearly 2%.

    Jan 06 1:28 AM | Link | Comment!
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