Is a Silver Market Corner Underway?

March 1, 2002

In my opinion, the answer is a "YES."   The bubble peak could reach $200/oz in January/February 2003.  However, the bubble peak might be as late as  2004.   In my opinion, early signs of a silver market corner are appearing.   At this time, I have no conclusive proof to substantiate a silver market corner is  underway.    This essay is my attempt to determine how a successful silver market corner would be carried out.   

A market corner is the control of any market for manipulation of prices,  political agendas, and other objectives.    Historically,  most corners are of the bubble type where prices are briefly at extreme historical highs.  This type of corner is usually caused by a demand for delivery of a commodity which can't be delivered.  Grain markets  through futures contracts were cornered in the early 1900's.   Another type of corner is that similar to the diamond trade.  De Beers is well known.  DeBeers acting as a monopoly controls  the diamond supplies  in the marketplace.  An "Oil Cartel" is another type of corner.  Cartels do not  work well, because of  frequent disagreements and lack of  cooperation.    

A successful market corner attempt is something that is planned in advance.  A plan has objectives, a strategy,  tactics,  and an exit.   Objectives are specifically identifiable things that one wants to accomplish.  Strategy is the planning for  working around or avoiding obstacles.  Tactics are short term methods to achieve  short term objectives.  The "Sting" in the market corner is the time of the dramatic price rise.

Successful market corners involve deception and perception.   Deception is the misleading of one's intent.  Perception is that which is viewed by non insider participants.  Corners take advantage of greed and fear psychology.   Sometimes vengeance and patriotic emotions are factors. 

Sometimes market corners are an expression of a desire for increased power over others  in addition to profits.   Political control of a market is sometimes more important than ownership of the commodity.   Politics is about the taking of wealth and redistributing the wealth via power over others.    If JPMorganChase goes into bankruptcy,  could it be that profits from silver would be used to buy up bank assets at bargain basement prices and thereby increase one's power over many debtors.   

Borrowers become lenders' slaves.  Proverbs

To own a man's debt is to the own the man.  Charles Dickens

Real wealth is not created in a market corner.  However,  transfer of wealth takes place in a market corner.   With wealth goes power.  There is a power shift.

In my opinion profits from a successful market corner  should be used for opportunities where real wealth is created.    Now is the time for  seeking out and preparing for those opportunities. 

Most small investors participate in a market corner  because there is belief in a future.  Ten reasons for thinking about a future are: 

Ten Reasons to Think About the Future.

To succeed in your career       To prepare for change               To choose your future

To make better decisions        To expand your horizons           To prevent or avoid disasters

To seize opportunities             To understand today's world      To develop self confidence

To help your children and grandchildren

For some that future is:  God, family/friends, guns, and silver in that order.   Following the previous in equal importance is having knowledge, tools, good physical & mental health, nutritious food,  clean water,  and human energy. 

I have tried to put my mind into a  mind set of  people who have the  power to attempt a silver corner.  This is just an  initial plan which requires further refining.   This is my starting point for determining how I might profitably participate in such a corner.     Ethics and morality  issues are not addressed  in this essay.     No doubt in my mind, the actual silver corner will  differ in numerous ways than the  following scenario of  what the silver "bubble" corner might look like. 

A  Silver Market Corner Scenario for 2002-2003

Step one "Determining If a Corner is Feasible" 

Gathering information

In this step,  evaluation of  Strengths, Weaknesses, Opportunities and Threats  (SWOT) of the market, stakeholders,  and players are determined.   The corner objectives are carefully defined.      

The web site www.silver-institute.org  provides a variety of  general information on silver mining production.  One collects a list of useful web sites about the silver market(s), public (media)  opinions and so forth.  Then someone  is assigned to monitor and record these web postings as a means of feedback for revising tactics.  The premier web site for current silver market information and links to other sites is http://www.gold-eagle.com/silver_section.html .    

A crude estimate of the amount of money required to corner the silver market is as follows.

CREATING A PRELIMINARY BUDGET

Establishing Objectives

The following objectives are the ones I would focus on.   The actual corner will include objectives that I am unaware of. 

  • Drive the silver price from the current $5/oz range to a peak near $200/oz.    
  • Have available the Eleven billion dollars needed  to carry out the silver corner and to return about 100 billion U.S. dollars profit  within a  12 to 18 months period.     
  • Retain the silver profits without paying significant taxes to any country.   
  • Create new financial allies or partnerships.  Some allies may be willing or unwitting. 
  • Avoid creating unnecessary future enemies
  • Avoid hassles and interference in  business ventures of allies and one's own other business ventures by various governments or opposing financial institutions.

Identifying Obstacles

  • Obstacles are barriers to achieving desired objectives.   Some obstacles take a physical form.  Other obstacles are people or group oppositions. The focus will be on major players. Some obstacles are: 
  • The U.S. government does not like market corners and through legislation opposes them.  If the corner is to the detriment of government interests, the government enforces those laws with a vengeance.    Some, but not all foreign governments may have similar laws and activities. 
  • Competition from other entities who would like to corner the market for different objectives
  • Adequate available cash on hand might be an obstacle. 
  • The COMEX and TOCOM commodity exchanges oppose market corners as it threatens their livelihood and power.   Banks leasing out silver/gold or have derivatives oppose market corners since they could suffer crippling losses. 
  • Public apathy toward purchase and physical delivery of silver is a current obstacle.  This is in part due to government spin doctoring (propaganda machinery) of recent years, and no obvious immediate physical shortages.       
  • Some producing silver mines may not want to withhold physical silver deliveriesduring a major price rise to help push silver prices higher.  Some silver mining companies have hedged silver.

Analyzing the information

YES,  a global silver market corner is within the financial reach of  more than 1,000 entities worldwide.  These entities include  private individuals,  mutual funds,  large corporations,  or political/governmental organizations.    All these entities are susceptible to "greed."  

A planning of a corner tries to take advantage of market direction and other major international events  that is likely to occur during the corner attempt.   Future major events are important in changing perceptions or for providing needed distractions.    Such events in 2002 and 2003 might be political scandals,  major military confrontations,  natural disasters or major economic upheavals. 

The timing of the corner attempt should take into consideration the current annual shortfall of 120  million oz of silver per year projected in 2002 and 2003.  This represents 10 million ounces each month of declining silver stockpiles.   Waiting too long will allow natural market forces to drive the silver price up higher which might make the corner unfeasible.   

In my opinion, with a little luck and a few allies, the corner could be successful with less than five billion dollars instead of the preliminary estimate of  eleven billion dollars.      

The objective of silver reaching $200 appears possible.  A gold/silver ratio of ten would imply gold selling at $2,000/oz.  (now $300/oz)  and for silver selling  at $200/oz. (now $4.40/oz).  The 1980 silver bubble had a gold/silver ratio of sixteen.  Gold was $850/oz. and silver was $50/oz.  Is the gold/ silver ratio valid?  

Gold reaching  $2,000/oz.  and the DJIA stock market declining to 4,000 still keeps the DJIA/Gold ratio at two.  The current DJIA/Gold  ratio is now equal to  32 = 9,800/300.  The DJIA/Gold ratio was one during the 1980 gold/silver bubble.   A doubling of prices from inflation since 1980 would put the next gold bubble peak near $1,700/oz., if  the 1980 bubble peak of $850/oz is a guide. 

Could it be there are underlying forces that could drive Gold prices to $2,000/oz.?     In my opinion, a "Japanese banking panic"  by itself  could cause this to happen by perceptions of many Japanese savers/investors  expressing "fear." Japanese savers have 10,000 billion of current equivalent U.S.  dollars on deposit.  One percent of these deposits  being used to purchase silver is 10 billion dollars.  Many Japanese speculators will begin buying silver upon seeing rising silver prices and silver shortages.  Japanese speculators will turn from investments in Yen, Equities, and Bonds when they begin showing declining purchasing power.  

The current capitalization of all the gold mining stocks (which probably includes silver mining companies) is less than 40 billion dollars according to John Hathaway of TocquevilleGold Fund.  I suspect that the major silver producing mines have a capitalization of less than one billion dollars.   Further research has to be done on this aspect.

Step Two  "Formulating a Strategy"

Strategies  I would base a corner attempt on are:   

Form willing allies with existing coin & bullion dealers.   The strategy is to increase demand for physical silver at lowest cost.     The dealers provide marketing of  silver for physical delivery.  They could be assisted  with advertising and with help in  procuring silver  in 10 and 100-oz bar size.  This would be based on the dealer selling silver in these quantities  with no more than 15% mark up over spot price.     A small profit of  3% to 5% on a dealers increased sales might be realizable in exchange for advertising and silver supplies.

Increase physical silver demand by a media advertisement  campaign.  This advertising campaign is planned for message contents at various times and situations.  The target markets are defined.  Poor countries would not be targeted for advertisements.    This would exclude most South  American,  Central America, and African countries.    Advertising planning focuses on how to make cost-effective media messages in the target markets.    The media advertising  in some cases would be in conjunction with existing gold/silver dealer advertisers. 

The contents of advertising messages in later steps would correspond to the "perceptions" of potential buyers.   One content might appeal to "fear" of banking failure or  currency devaluation.   A second content might appeal to  "greed" as there being a shortage since everyone else is buying.   A third content might appeal to "patriotism or  vengeance" emotions.    All the previous contents would contain emotions of urgency and importance of "physical delivery" to prospective silver purchasers.   A few messages may well be used to counter critics of buying silver.  On tactic might be suggesting critics are using "deception"  or no longer credible.

Willing allies might be others with a similar plan.   The "old boys club" networks are used where cooperation can be achieved  so all corner participants can benefit.  This cooperation can even be used for even greater gains with less risk than by a single entity doing the corner.  However, undesired information leaks will cause problems. 

Small buyers of  silver who take physical delivery are important willing allies.  They serve to intensify the physical silver shortage.    Many will profit greatly.  "Do not oppose those who are not against you."

Include unwitting allies who will benefit but are unaware that a corner is actually taking place.    This might include political/industrial/corporate  leaders who receive campaign money, financial favors, directorships, perks or other sweetheart deals.  They would tend to remain silent due to adverse publicity on them in the political arena if the silver market corner becomes a media/political issue. 

Have the ability to reduce mined and recycled physical silver supplies.  The top  20 silver producing countries in the year 2000  had a total combined output of  572.8 million ounces.  The top nine silver producing countries (total output of  507 million oz.)  with production in "millions of ounces"  were:  

Mexico             88.2        Australia   66.2        China   48.2        Canada   37.7        Peru   78.4

United States   63.3        C.I.S.        51.3        Chile    37.6        Poland    36.7

The strategy here is to find means to block or delay the  physical delivery of  100 to 200 million oz  of silver  for a period of  three to nine months before and during the "sting" phase of the market corner.   Some countries  or mining operations within the countries will participate (with incentives)  and some may not.   One means of cutting production might be to purchase a significant ownership via stocks which allows some control of production schedules.  Mining company  deals which hedge their silver output for such a period might be a possible situation. Governments  (through exchange of money, perks or sweetheart deals  to the right officials or their agents), might cooperate in arrangements whereby the silver produced could not be exported.   Of course letting owners in on a possible corner just might give cooperation at no cost, but increases the likelihood of undesirable media leaks.   

A corner player probably would not invest in exploratory mining firms or properties that cannot be brought into production for a year or more after the bubble peak.     This is simply because they do not pose a threat, and would tie up corner money that could be used elsewhere

U.S. & other Governmental legal, tax,  and privacy obstacles can be dealt with by use of multiple offshore financial banking centers and companies to:

  • Avoid confrontation with the U.S. government or other governments.
  • Reduce unwanted public media attention at various crucial times
  • Retain privacy and secrecy  needed to keep the corner from unfolding prematurely.

Profits are retained by using countries  where tax rates are very low.

Avoiding unnecessary future enemies will include tactics of:  placing blame elsewhere; carefully  choosing  allies and meet all agreement obligations;   weakening enemies economically which threaten you; and  "not to oppose those who do not oppose you. [Sun Tsu, 'Art of War'] "    

Step Three "Taking the Positions Needed"

"Taking the Positions Needed"  is the buying up of  paper assets representing physical silver delivery commitments or for control of  physical silver.

The major strategy  here is to take up the various silver positions without driving the price of silver significantly up and without revealing your future plans.      

Initially positions (where possible and practical) are taken in mining stocks  which produce large amounts of silver.  The primary purpose is  so that before and during the "sting" step of the corner,  control of the company can be achieved to curtail physical silver  from entering the market.     A side benefit is that the stocks being leveraged will go up dramatically and significantly large profits can be made.   Indications of this happening might be reflected in large block trades,  higher stock trading volumes, and listings of  new major shareholders (often indicated by shares held by a bank for someone else).

If  control of mine production is unlikely,  then alternatively, one might invest in silver refiners.   A significant position in stock holdings of a silver refiner could be used to manipulate the refiner into stopping  mined or recycled silver output from entering the silver market during the "sting."    

This would be followed by direct purchases of silver with physical delivery taken.  This silver would be purchased be directly from mines or refiners of silver.  The silver would be shipped and stored outside the U.S. and other countries to places more friendly but secure.  Such places  might include Luxembourg, Switzerland, and/ or Cayman Islands. 

Some futures contracts would be purchased during this step with additional purchases in  the following steps.   Purchases of  call options would be delayed until just prior to the "sting."

The Warren Buffet tactics for purchasing mining stock, and futures contracts would be used prior to the "sting."  The Warren Buffer tactics are:  not buying on new highs, while accumulation takes place; and  accumulate the position over time to avoid attracting attention by other investors, potential investors,  media,  or government regulatory agencies.   An additional tactic would be to make the purchases appear from multiple different sources.

Timing for this step is thought to be about six months long beginning in November 2001 and ending approximately in May 2002. 

Media advertisements are limited in scope and are directed to supporting any news media coverage suggesting or projecting a downturn in silver prices.     During this step, a some advertisements would be used to discourage competition from other silver purchasers while the position is being taken.

Recruiting additional  willing allies, or unwitting allies and begin the corner.  This tactic occurs during the last part of the "Taking the Positions Needed" step.     This activity is kept quiet from the media, attention of  governments,  and others opposed to a silver market corner.  At this point two things will happen

  • In the U.S. it is giving of political contributions  to both major political parties.  These contributions are called bribes or other terms in most other countries.   This is really an insurance fee in case something goes wrong.  These contributions reduce the risks of prosecution and governmental interferences.
  • Disinformation (deception) is used and distributed as needed to disguise the real intent.  

Step Four  "The Squeeze"

The strategy in this step is driving the price of the commodity (silver in this case) up somewhat to increase one's  financial position.    As the value of one's assets (from the price going up, one can borrow money from the assets for additional purchases.  This is the equivalent of  buying stocks on margin.

The squeeze is achieved on a short term basis by  increasing silver demand and at the same time reducing silver physical supplies available to the market. 

One tactic is to reduce physical mined and/or recycled silver supplies  by  influencing mining companies or silver refiners  in which you are a stockholder.    One might cut silver production for a short period for a variety of reasons.  These reasons might be portrayed as planning  modernization of facilities,  reducing costs by only mining the higher grade ore,  or labor problems. Another tactic might be bribery of India govt. to make smuggling of silver out of India more difficult and riskier.

One tactic to increase demand is through making it easy to purchase smaller amounts of  silver for physical delivery at  not more than 20% of the spot price.  This might include arranging for financing of such silver purchases by taking mortgages (home equity loans?),  use of  debit cards, or credit cards.  One might work with a refiner to ramp up production of 10 and 100-oz silver bars  to supply the small investor markets.

Media advertising would be intense during this period of time in the target markets.   Advertising will focus on silver fundamentals, why people should buy silver,  where local silver dealers are located, and how & why  to take  physical delivery.   Content will include appeals to greed, fear, vengeance, and patriotism.

TIMING for this step is probably four to six months long.  This period would  most likely begin in April 2002 and end near December 2002.  

Step Five  "The Shut-Out"

The "silver market" is a manipulated market.  The "shut-out"  is a deliberate shake out of weak players by temporarily driving the silver price down at times forcing margin calls.   This is to create short term new buying opportunities that last at most two to four weeks. The "shut-out" is accomplished by big players,  agents for them, or  market trader specialists who deliberately manipulate the price down.  This technique in its simplest form is for one large player to place  a large block sell order at a lower price about 10 minutes before the closing bell.  The other large player makes the purchase at the lower price.   The seller and buyer then reverse roles a few days or weeks later.  Neither makes a profit, but forces out weak players.   If weak players exit,  the price declines further allowing for buying opportunities.

Timing of the "Shut-out" is difficult to project.  There will be more than one "shut-out."   The most obvious time for a "shut-out" will be in September 2002 or October 2002.     This is the time period when a U.S. stock market panic has a high probability of Indexes declining more than 10% in a two week period.   Causes of the stock market decline will be attributed to a weak economy, unexpected reports showing  lower earnings, or higher losses, economic events abroad such as a Japan banking panic/failure, and more U.S. scandals.   Silver demand tends to fall briefly in sympathy to U.S. Stock prices and a projected weak economy. 

Step Six "The Sting"

The "Sting" is where physical silver supply is suddenly decreased by 30% or more and  physical demand for delivery is increased by 50% or more.  This dramatic price rise will most likely a eight to ten week period. Paper silver is placed in the dire situation of default status.  Silver prices will soar to unheard of highs.  

Small investors who hold physical silver are unlikely to part with it seeing every increasing price. This keeps their physical supplies from reaching  the silver market.  These small ownersunwittingly participate in the physical silver shortage. 

Rules will change on COMEX futures center and options markets.   Big traders expecting delivery need not worry.    They are financially able to take delivery and will insist on delivery.  Attempts will be made to force physical delivery of silver stored in COMEX vaults or TOCOM vaults.  Many silver holders will not even lease out the silver they own because of  fear.   The entity attempting the silver market corner will need to have silver on hand to deliver, once the silver bubble price peak has passed.   The entity may  sell physical silver  via futures contracts with delivery dates years out to take advantage of  making money on  "put options" or silver price declines in the months following price benefit. 

Just before silver price bubble peak,  the objective will be to unload silver  holdings for a good profit.  If the option market is still intact "Put Options" are purchased to catch the downside of the bubble collapse.

Media advertisements  would be scaled back or ended. 

The Internet media would be widely used due to low cost and greater anonymity.   The focus here would be to find all articles on silver including those of tabloid variety and make sure they are redistributed to as many participants including small investors holding physical.  Tabloid headline examples might be:

  • Yen , Euro & other devaluating fiat money switch to silver to retain purchasing power.
  • 20% non performing loans in Japanese banks encourage physical silver in hand. 
  • Patriotism and cultural teachings encourages small investors to take home physical silver
  • Buying up physical silver is Jihad (holy war) new tactic to weaken infidels economies
  • Chinese citizenry ownership of  physical silver increases Chinese political clout.   
  • Problems arise from 300 billion dollars of fiat chasing one billion oz. of silver.
  • Converting more than 10% of savings into physical gold/silver will cause world shortages!
  • Tangible gold/silver in your possession  if military clash appears impending?
  • U.S. faces shortage of silver for military effort.

Effort is made to credit all the writers with their stories on silver.  This is to deflect blame and suspicion of a silver corner.    Some writers  may even be paid for their efforts.

Patriotism announcements to deflect suspicion might include selling small amounts of  silver to the U.S. government or other governments at a discounted price  of  $180/oz instead of a market price of  $200/oz.

Mining stocks are sold at a profit preferably before the silver peak price (probably about $180/oz). 

There would be encouragement of banks {short in silver}  to buy the mining stocks in order to replace physical silver from mine output to cover their silver paper.   

Related to the "Sting" are  "sweetheart deals"  between banks which have leased silver out and customers who leased the silver.   Sweetheart deals are shotgun weddings whereby one party engages in transactions and agreements not in their best interest and that  they would not ordinarily do.  Lessees do this to avoid immediate unpleasant consequences such as default on their lease agreements, burdensome legal bills,  and/or asset forfeiture.   

Characteristics of the "Sting" will include all of the following: 

  • COMEX for silver will have shortened trading hours.  This happens when delivery problems arise.
  • There are problems in people taking delivery of physical silver.  Coins shops are out. There is a shortage.
  • Silver futures contracts will be in backwardization.   The prices of futures contracts one year out will be cheaper  than contracts three months out. 
  • Lease rates for silver are more than  100%/year. 

TIMING of the "Sting"  is yet to be determined, but is very important.  Most likely time period would be in December 2002 to February 2003.     The silver price bubble peak in 1980 was in a January month. Gold prices should have a corresponding high.  Ideally, the "sting" would take place during a period when a major crisis is grabbing headlines.  Mainstream media should be focused on the crisis which  distracts attention from the silver price bubble.     

Step Seven "The Exit"

The exit is the withdrawal of the major players cornering the market.  Most silver investment positions are quietly liquidated.  

Once the silver price bubble collapse begins,  physical is sold through future contracts  to reestablish the futures market and accelerate the silver price downturn.  The silver price retracement should be about the Fibonacci number  0.38 of the bubble peak.   A bubble peak of $200/oz  would indicate a retracement to $76/oz.   The time period for the retracement is thought to be about three to four  months.  Big players exercise their  silver "put options" if the options market still exists when the retracement is 0.5  ($100/oz) of the bubble peak.  Yes,  you can make money in a declining market!

The proceeds are then used for other business opportunities or markets for financial gain. The leaves the small buyer or unwitting companies with silver purchased at excessively high prices.  Leaving the market  reduces exposure to governmental interventions, hassles, and seizures.   

The companies created  to do the corner are simply shut down and cease to exist.  Bonuses are given to employees in the separation package to maintain goodwill and silence.   Most accounting records of course are conveniently lost or shredded.  All final payouts should be completed to those with agreements.   One does not want unnecessary future enemies.  This reduces risk of  finger pointing by public media on behalf of governments and greedy trial lawyers.   Financial contributions continue to a few officials/governments for the purpose of delaying or canceling investigations until the silver corner  is pretty much forgotten.  

The average human body contains 0.2 mg of gold with the bone containing .016 ppm and the liver .0004 ppm.