Ignoring the Free Market Causes Shortages
Ignoring the Manipulated Market Causes Success
Silver Stock Report
August 23rd, 2008
Today, Ted Butler released an article, title, "The Smoking Gun", where he revealed that two banks sold 27,000 paper contracts for about 139 million ounces of silver, from July 1 to August 5th, which depressed the paper price at the COMEX. Many are saying this is Ted's greatest article, as it is better proof of market manipulation than any other evidence we've ever seen.
Coin shops should take note. Silver miners should take note. Refineries should take note.
Was 139 million ounces of real silver actually sold? What evidence exists that any silver was sold? I believe those were only paper promises. I'm sure many coin shops and refineries bought some of those contracts, as hedging is a common business practice.
How's that working out, as paper prices drop below physical prices? And if it's not working, maybe they should stop buying paper to hedge positions.
All the evidence is that no real silver was sold, and that real silver was being purchased by investors hand over fist during the price drop. Those who bought paper contracts to "hedge" the sales of real silver are now losing money, as real silver price premiums rise faster than the value of paper silver promises.
The same thing happened to paper money, when it was printed to excess back in 1968. Eventually, paper dollars were no longer worth the price of a silver dollar, which went much higher than paper money.
The second major free market infraction is the standard business practice of Johnson Matthey. JM recently had an 8-10 week delay if you ordered 100 ounce silver bars, and now, they are no longer taking orders. Those are not free market processes. That's first come, first served, yes, but forcing people to wait in line, and running out, and refusing orders is telling. The shortage of product is evidence of price fixing too low, below the market price.
People want to pay more, to get to the front of the line, but they can't, because JM won't let them. JM is standing in the way of the free market price clearing mechanism where product goes to the highest bidder, because JM is selling product based on the COMEX price-rigged price that does not provide real silver.
It is a violation of the most basic free market principles to ration product by making people wait in lines, rather than rationing product by price. To ration product by price, JM needs to auction off the product to the highest bidder, daily. That would allow the market to clear, daily, and avoid the long wait, and there would be no shortage. That would get JM the highest possible price. That would create the incentive for JM to make more, the profits that they are denying themselves, by locking in low prices that can cause them losses, lines, and turning away orders.
I learned that JM has a top manufacturing capacity of 300 to 400 bars per week. That's barely over 2 million ounces of silver per year. But the investors in silver want at least 60 million ounces of silver per year, or maybe over 100 million ounces this year.
So, that means that only about 100 ounces, out of 5000 ounces purchased by investors, will likely be a JM bar. That seems like the 100 ounce bars will remain rather rare, and thus, should command a significant premium.
So, clearly, there will continue to be a shortage of JM bars until JM begins to sell bars on a daily basis to the highest bidder. There will still not be enough for investors, but at least those who are most desperate to get fancy, neat, accurately measured and weighed, compact, easily handled, 6.8 pound, 100 oz. bars will be able to afford them.
The third free market violation comes from the U.S. Mint. The U.S. Mint has outsourced the making of coin blanks to other vendors. To my knowledge, they do not do this for coin blanks for other coins, such as pennies, nickels, dimes, quarters, or other coinage.
Thus, they place themselves at the mercy of private businesses that have to operate in a rigged fantasy market of highly variable prices, where no actual increased silver product is made available to turn into blanks at lower prices. This thwarts the intention of the U.S. Silver Eagle program, which is to make silver available to the market at all times at market prices.
The U.S. Mint is on target to make about 20 million Silver Eagles this year, about ten times as much silver as JM will make into 100 ounce bars. Thus, again, the bars might end up selling for more than the Eagles.
The paper selling of silver futures contracts, rather than real silver, also is thwarting the free market process, since real silver is not provided to people who want it.
These three major free market violations have collided to create a monumental shortage of physical silver for investment, exactly at the time that the price is the most optimal to buy.
Several well connected and well informed people tell me that there is no shortage of real silver, just a shortage of 100 oz. bars, 10 ounce bars, 1 ounce Silver Eagles, 1 ounce rounds, and such. OOOOHHHH-KAAAYYY!
Fine and dandy, ok, I agree. I understand that only 7-10% of the silver in the market each year is purchased by investors, and the rest goes to industry and jewelry markets, and thus, there is plenty of silver around, and that investors are comparatively few in the silver market. That's my entire point! That's what I've been saying for years! That there is no significant way that investment demand can increase for silver, in a market with rigged paper prices, without there being shortages, as we already are seeing. I've predicted this, the conditions that we are seeing today.
It's not rocket science to predict that when prices are too low, shelves get cleaned out! That's basic 101 free market common sense.
Besides, if 9 out of 10 bakery shops have no bread, that's called a shortage of bread, even if there is plenty of grain available. Silver itself may be "abundant," but not in the form that we investors want to buy, which is defined as a shortage.
The only way that these shortages can be ended is if investors refuse to wait in 8-10 week long lines, and refuse to buy paper futures contracts, and if they buy product that is available today, such as is advertised at places like APMEX.com and ebay.com.
Fortunately, there is no active hindrance to the free market. There is no ban on minting bars or coins; anyone can do this, and the profit incentive to turn 1000 oz. COMEX bars into products desired by investors, is growing.
Ebay is an area of the free market that is working the best for silver right now, as there are no shortages of silver on ebay. However, prices are higher on ebay. And you rarely find large amounts of silver at ebay, only a few 100 oz. bars per day. I believe ebay will increasingly be a better indicator of the real price of real silver. Despite all the disadvantages of ebay, they do not allow people to sell what they do not have, unlike today's futures markets, and some shady coin shops.
I do not believe the futures market needs to be "regulated" or "sued" or "legislated" out of existence. It simply needs to be ignored by the market, and it appears that is what is happening, and thus, it will become increasingly irrelevant.
The paper manipulators will ignore the free market at their peril, and we will ignore their rigged market to our success.
Be very, very careful about ordering silver right now. Demand to know exactly when they can deliver. If they can't guarantee delivery within a week or your full money back, then consider that they probably don't have it!
In fact, now might be a good time to meet up other Silver Stock Report readers at YOUR LOCAL COIN SHOP.
Usually, I might visit my local coin shop once a month. Usually, there are 0-2 other people in the shop, at most. Suppose if all buyers during a month show up all at once? Clearly, the shop will be sold out immediately, if it isn't already. I think that would leave an impression on the owner.
This will serve several purposes:
1. You will find out that you are not alone.
2. You will impress upon your dealer the amount of demand for silver.
3. The coin shop owner will be more confident and more likely to raise his bids to get silver for everyone, so it's in your own best long term interests to show up.
4. Be sure to tell him about good sources, such as fidelitrade.com, amark.com ($50,000 minimum), wexfordcoin.com ($10,000 minimum) and others where he can buy in bulk, cheaply, if he needs to.
I suggest that everyone visit their favorite local coin shop on September 2, at 2PM. That's Tuesday after next. (TWO's-Day) Easy to remember!
For the price of just a few ounces of silver per month, you can look at my silver stock portfolio. Once a month, at the end/beginning of the month, around the 31st or 1st, for paying subscribers, I update the stocks I own and the percent of each stock or position in my portfolio. It's very simple. Very revealing. Very useful. It's not trading advice. It's not a model portfolio. It's my portfolio. Sign up here:
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