Update (June-2016)
Actually… that old headline above is not quite accurate.
However, the implications have not changed - and could be playing out as I
write this.
(Silver, despite bearish COMEX positioning, has broken out of a key moving
average and seems to be accelerating…)
Samsung, the giant electronics conglomerate, formed an agreement with
Avino Silver and Gold Mines Ltd. in July 2015.
As of September, Avino
has been delivering concentrates as per the original deal.
While silver prices have remained under the exclusive control of the big 8
commercial traders on the world’s largest and most important exchange, things
may now be in flux.
Market corners, by nature, (and with or without regulation or
enforcement), are unsustainable.
And now we’ve crossed the rubicon, where a major commercial user is forced
to source metal away from the exchange rather disrupt prices to the point of
systemic disaster.
Taking delivery of silver futures contracts from the COMEX is hard enough
of as it is.
And once the light of awareness illuminates the precariousness of this,
COMEX will cease to be the primary source of price discovery.
“And we just might be there yet!”
**********
Cluff Gold (now
Amaro), a gold mining concern focused on West African assets, recently
signed a Memorandum of Understanding with Samsung. Under the unusual
agreement, the huge Seoul, South Korea based industrial company will be
offering substantial funding to the mining concern to help develop its mining
portfolio in the initial form of a $20 million unhedged loan facility.
This is the very first financing deal of its kind, where a non-mining
concern has shown an interest in a mining company to help provide it with a
reliable supply of bullion over the longer term.
For whatever reason, capital from outside the mining industry is now
starting to become available to it. Interestingly, the well-known shorts in
the mining shares could well be in trouble, although the fact that Samsung is
buying into a gold miner highlights the fact that it is probably too late to
do the same for silver.
Silver Miners are Spread Thin and at the Mercy of the Banks
Although a desperate need for consolidation exists in the silver mining sector,
the capital to do so seems quite hard to come by since miners are typically
viewed as risky borrowers by funding banks. This situation creates
significant problems for the supply of silver going forward.
If a tech company announced a similar joint venture with a silver miner,
it would very likely create an industrial panic and see the price of silver
push sharply higher. This move could be large enough to break the global
financial system, especially if the famously short bullion banks are not as
hedged by offsetting transactions in the OTC sector as they claim to be.
Basically, the worldwide surge in investment demand for silver is
competing with constant industrial demand for a metal that is universally
believed to be vastly more ubiquitous than it is due to years of extreme
price distortion.
Furthermore, silver’s monetary history ties it to gold, even though they
have different intrinsic values. Nevertheless, no central banks own silver in
comparable quantities to their gold holdings.
Impact of the Samsung/Cluff Gold Deal
Overall, as noted by many, including the legendary gold mining CEO, Jim
Sinclair, the story is a major game changer that demonstrates substantial
international corporate investment in a monetary metal.
It also highlights the persistent undervaluation in the sector, and the
desire by industrial concerns to secure their long term supply of a precious
metal.
Furthermore, the creative financing deal demonstrates the recognition of
the facts that:
(1) Gold mines mine money,
(2) The supply of gold is dwindling and
(3) Gold plays an important role in the high tech industry, which is actually
quite minimal compared with silver’s broader industrial importance.
The deal also indicates that the precious metals bear market inflicted by
widespread hedging of gold shares is now coming to a close. Just think about
it, if Samsung or another large tech company tried to source silver in this
way, it could very well trigger a spreading crisis.
Precious Metals in the Rehypothecation Era
The Samsung/Cluff Gold deal also comes in the era of rehypothecation,
which involves a broker pledging as collateral for a bank loan the securities
in customer margin accounts.
Basically, the rehypothecation of assets, which infinitely dilutes claims
on real assets, can and will ultimately lead to total losses even for
investors who thought that they had strong collateral backing.
Furthermore, the inventory of the world's credible assets is literally
evaporating in absence of CapEx spending, which is also one of the reasons
behind the ECB's seemingly endless lowering of its collateral requirements.
Why Buy Silver?
Within this investing and supply environment for silver, a substantial
buying interest could well have a remarkable upwards impact on the price of
silver for the following reasons:
(1) Not much silver left. This is the same reason that central banks are
not buying silver. Basically, silver has been dis-hoarded and any major buyer
would immediately induce a short covering panic that would end all panics.
(2) Silver miners are spread thin. The supply of silver is largely a
byproduct of the mining of other metals because the primary silver producers
are still viewed as risky. They also often have trouble finding funding for
their mining operations and exploration activities.
(3) Strategic threat. No one wants to be the one that blows the silver market
sky high with large purchases, so gradual accumulation often seems a more
prudent investment strategy in the relatively thin silver market.
Although Samsung may not be buying silver — yet — this innovative deal
with Cluff Gold indicates that conditions are favorable for more “finance for
supply” transactions of this type over the years to come.
http://www.silver-coin-investor.com/
