(Would you like paper or
metal?)
Silver Stock Report
by
Jason Hommel, September 10, 2008
When it comes time to talk about silver, most people first ask,
"What's the price?" I can no longer say.
My programmer summarizes the situation:
"I just got off the phone with Jason.
1. Industrial users are seeing longer lead times, and
higher prepayments
2. Retail bullion is tightening and always 1 week of inventory
away from default
3. Huge paper silver defaults
imminent (Kitco, Perth,
Barclays, etc all reporting major problems)
4. If prices go up, investment demand will skyrocket
5. If prices stay low, defaults
are imminent
6. If prices shoot up and down, businesses will break from
volatility
7. The system has no where to run, it is at it's
final cliff (after 37 years, from 1971.)."
The Mints are swamped, and operating at maximum capacity, or not at all, so the shortages will not end anytime soon.
A: Sunshine mint, who make blanks for U.S.
Mint's Silver Eagles, says all new orders have an estimated lead time of 5
months, out to February.
B: NWT Mint, has lead times of 4-6 months.
C: Johnson Matthey refinery stopped taking orders for 100 oz. bars, as we know.
D: Perth Mint remains a joke, claiming to have $880 million in gold and
silver in "working inventory"; but more than half is leased out to
their 40% owned AGR Matthey, which is closing offices during a time of record
demand from the public. I mentioned that to the mint master of the
Sunshine, and he laughed, and was flabbergasted,
knowing what he could do with that.
Even if the mints are at maximum capacity, the market is demanding far
more than they can produce. So, product shortages will continue for
months, even if there is no 1000
oz. bar shortage (but I think there is a shortage of 1000 oz. bars.) Further,
they are not raising prices, nor will they allocate product to higher
bidders.
The Paper silver price is going down faster than the physical silver price.
So, people who own paper silver are losing more money than people who
own real silver.
Premiums for physical are growing, and will likely continue to go up
for the next 6 months, or perhaps indefinitely.
Dealers who have hedged in paper, are falling behind, and do not want
to bid higher for real metal. They are hoping that premiums, the price
paid over spot for physical silver, will come down. It probably will
not.
That's the biggest reason why many dealers "can't find
silver"; because they are
unwilling to pay the growing premiums.
If they don't pay it, they won't have any silver for their business,
and they will be out of business. So, at some point, they will
"get it" and pay for it.
If you don't pay it, you won't have any silver to preserve your
capital, and you will be out of capital.
Most people don't want to watch their paper go all the way to zero, so
at some point, most people who own paper money or paper silver will "get
it" and pay for it.
Examples of real silver selling for more than paper silver:
Example 1
My programmer, Shelby Moore, notes:
I bought Maples from apmex for $14.40 ($1.49 over spot) on that first
big drop from $15 to below $13.
Today in same quantities (500+) Maples at apmex are $14.31 ($2.79 over
spot).
Yet paper silver owners have lost -11% of their value since then. My
net worth in Maples has not declined at all in the same time.
Example 2
I've repeatedly warned my readers about the Perth Mint, because they have had far too many complaints about
not being able to deliver allocated silver in a timely manner over the
years. This means they are either scraping the bottom of the barrel, or
are technically bankrupt, but insolvency to silver investors is rarely
something that causes a
foreclosure or bankruptcy. It just causes
physical prices to rise more than paper.
One of my readers reports that premiums for physical silver from the
Perth Mint are out of control. It can cost 30-40% more for physical,
and that's the "penalty" or "premium" for exchanging a
Perth Mint silver certificate for real silver. It was reported this
week to me by one of my readers that Perth was charging over $200
Australian for a 10 oz.
silver bar, which is $20/oz.
Has anyone been able to cash in their Perth Mint certificates for cash?
Or are you trapped?
Example 3
As late as 1964, a
US silver certificate paper dollar and a silver dollar were the same price.
Today, as everyone knows, a silver dollar is worth about ten times
more than a paper dollar.
So, in the past bull market for silver, real silver became more
valuable than paper silver.
The same thing is happening today, and just like then, most holders of
paper silver are in denial and don't understand.
What is paper silver? Anything where the metal is not in your
hot little hands. If the metal is held by someone else's cold clammy
hands, held for you, then it's paper silver, because it's their liability to you.
Example 4
Ebay.com Silver Eagles in rolls of 20
have sold for over $400, which is $20/oz.
Example 5
My auction where 25 bars
were bid for $4.01 over spot.
Some people just do not understand markets. Some of my
readers have suggested that I was price gouging. But I did not set the price, it was set by the highest bidder in the auction market.
Some of my readers suggest that I simply "tell" people to
not sell silver below $50/oz, so that will become the price. But I do
tell. I can't command, obviously, I can only suggest that people not
sell. And for the most part, people are not selling, or if they do,
many more are buying. Also, remember, much silver is still coming to
market by the miners, far more than ever came from investors selling. Most
silver coming to market now is from the miners.
Example 6
90% junk is now $0.50 to $.70 over spot and 40% is sold out.
Junk was below spot before the paper price drop. So this is
another example of
paper silver holders falling behind physical holders.
Example 7
What if "THEY" told you that your silver was worth $2 per
ounce? Would you believe them? No? Then why believe them
today?
The purpose of manipulation has several goals:
1. To make the dollar look good by comparison.
2. To discourage silver investment. This time, the lower price is
failing to do that.
3. To encourage silver investors to sell. This time, the lower
price is failing to do that.
So, the manipulations are obviously failing, except it is making the
dollar look good. They had to hammer silver by over 40%, and only got
about a 10% increase in the dollar in overseas markets. Not bad for
"wasting" $2 billion on the silver market, so at least they got
some bang for their bucks. In fact, they probably made far more than $2
billion, just on the Forex markets, even though they
have not, and cannot cover their silver trade.
And the manipulations are now a blatant joke.
People wonder, "how long can this go on?" Be patient, it will
probably be over rather quickly now. The futures contracts that are not
backed by any silver may come due in perhaps in 3-6 months, or maybe within 2
years the COMEX will be gone. That will be bigger than the FNM and FRE
"conservatorship/bankruptcies".
What will happen next? It's anyone's guess. I have
one. Maybe the paper sellers will never cover. Maybe they plan to
default, while maintaining a low
price. After all, if you have to give out a "cash settlement"
because there is no silver, then
it's far better to default at $10
than at $100, right?
Some people assume there will be short covering. Not
necessarily. Debts that cannot be paid will not be paid. That's
what bankruptcy is all about. You cannot squeeze blood from a
stone, and you cannot conjure up silver from a short seller of silver who has
no silver and who cannot find any silver and who is bankrupt.
The silver debt might take down the entire Exchange. No, scratch
that, there is the 'paper payment' clause.
They will continue to sell paper silver in all forms (including the dollar)
until there are no more buyers.
It's a very profitable business selling paper. My dad sold "Da
Vinci" paper airplane packages for $1.50 that cost 80 cents to print up.
He used very high quality paper. He stopped when people stopped buying.
Something to think about: In Zimbabwe last year, when there was
runaway inflation, there was an official price of gold. The officials
needed gold, because their
currency could not be used to buy anything outside of the country. So,
the price of gold rose, officially, by 10 times in one day. Something
like that could happen here.
What if tomorrow, or next week, the price of silver was $50 or
$100/oz. That would not let any new speculators "get on
board" a new price rise. I expect something like that to happen
one day. Recent history shows that's how it can go.
If it does go that way, very few holders of "paper silver"
will benefit; most, if not all, will lose.
If paper silver bag holders start selling to save their skins, their
sunburn will start to sizzle, as their selling of paper will cause paper prices to go down further, and premiums
for physical silver to rise even more.
Something to think about:
If the silver investment market is $1 billion at around $13, then it's
about $7 billion at $100.
Question: How much is $7 billion in the grand scheme of things
financial? Peanuts, right?
People sometimes ask me, "Jason why not try to convince a
billionaire to buy silver?" Oh, but I am. It's you.
80,000 readers. Average net worth is about $100,000. That's an
asset base of $8 billion. Yes, I know many
of you are broke. But if there is one guy with $10 million for every
100 broke people reading, that's how it averages out.
It is already far too late for someone with $8 billion net worth, you
(collectively), to protect yourself with physical silver; especially if that
silver cannot be found.
Therefore, I stand by my call to buy silver at $21/oz. The
shortages started then, and have only gotten worse. Clearly, many of
you did listen, and it was good that you did! But the majority reading me have still not acted.
Fortunately, for those who can really listen and accept it, you
(individually), it might not be too late. Most of the people on my
list, over half, have been reading me for less than a year. It takes
the average person about a year of reading me before they start to act.
I know. I get the emails from appreciative readers. Some take
even longer, like 3 years, and then "buy their first silver".
You might want to decide to act sooner, especially since they are giving away
silver nearly for free right now, if you can find it.
Many are still reporting to me their shock that the coin shops are totally
sold out, and cannot find any silver. Even though I've been
reporting this for 5 months now. What? Do you think I'm
lying? No, for most people, it just sounds preposterous and against
everything they think they know. But it's completely fitting with
everything I've ever studied about silver.
You might want to speed up your "conversion" or
understanding by browsing my archive:
http://silverstockreport.com/ssrarchive.htm
My favorite dealer right now is www.apmex.com.
They recently sold out of over 800 bars of 100 oz. of silver in less
than a week. Amazing volume. Just in bars, that's 4 million oz./year, or nearly 10% of the net investment market in
silver, just in bars alone. Minimum order? $50.
My second favorite dealer (and sometimes favorite) now is www.tulving.com.
He has nearly 200,000
oz. of silver; mostly in Silver Eagles and Olympic
Maples. Premiums keep rising to $3-4 over spot. Minimum order is
500 rounds. He could sell out again in about 2 weeks or less.
Both of their premiums for real silver keep rising. Maybe that's
why they still have some to sell. Maybe they know something.
Something to think about:
It's reported, or theorized by at least two sources now, that JP
Morgan is one of the major banks who sold about 130 million ounces of silver
in a month, about $2 billion. JP Morgan is also the custodian for the
Silver ETF, SLV.
The SLV is "paper silver" of the worst kind, as it puts the
rat in charge of the cheese. Also, holders of the SLV are losing out,
as premiums for real silver rise. Investors in the SLV who bought an
equivalent of 100
ounces of silver cannot buy 100 ounces of real
silver for the same price anymore. Paper silver holders are falling
behind because they did not buy
the real thing.
So, what's the price of silver? Is it $11? $14?
$15? $20? Or more like "heading to $100?"
By the way, we used to "quote the price" at the main page of
silverstockreport.com in a neat little application that quoted a 5 minute
delayed average of 5 other precious metal price quotes. That always
bothered me, because I knew we
were not selling, so it's just a "re-quote". I finally took
it down. What's the point? It was wrong and misleading. So,
it had to go.
It was just numbers on a computer screen. Meaningless.
Think about it.
Example 8
It could be worse. What if you owned Lehman Brothers
stock? Stock went from $16-18 to $7.79 in two days. Or, you could
have owned FRE and FNM stocks and lost even more. Funny thing.
LEH lost over $7 billion in market cap in two days. There's not even $7
billion in silver in the world to buy! Not below $100/oz.!
Sincerely,
Jason Hommel
www.find-your-local-coin-shop.com
www.silverstockreport.com
www.miningpedia.com
www.bibleprophesy.org
I have 2 major resources
on mining stocks to offer to you.
First,
look at www.miningpedia.com It is a FREE comprehensive database of
mining stocks. Anyone can update or enter data, it's like
wikipedia.com. Miningpedia has replaced the
"silver stock report" in that it is doing the legwork on individual
stock analysis that I used to do manually. This frees me up to do what
I like best, which is to write commentary. My commentary
retains the name, "Silver Stock Report", but for individual stocks,
please see miningpedia.com.
Second,
I offer a "look at my portfolio" for $50/month; where I share a
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Please visit Silver Stock
Report for specific stock picks.
Information
contained herein is obtained from sources believed to be reliable, but its
accuracy cannot be guaranteed. It is not intended to constitute individual
investment advice and is not designed to meet your personal financial
situation. The opinions expressed herein are those of the author and are subject to change without notice.
The information herein may become outdated and there is no obligation to
update any such information. The author,
24hGold, entities in which they have an interest, family and associates may
from time to time have positions in the securities or commodities discussed.
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