questions from a thread on my shortage interview at
silverstackers.com forum, cut and paste below:
In that interview I was sort of covering the material in this discussion.
The summary text "invest large amounts of capital towards ramping up
production" I think got mixed up, what I was saying was WHILE production
has been expanded, it is not enough.
When push comes to shove, Depository clients will get preferential supply for
collection requests as we have a legal obligation to make delivery whereas we
don't have a legal obligation to sell coins to someone off the street, so to
And yet, even though there were two month delivery lead times, it didn't move
the price of silver at all in 2008/09. there was no
price spike to reflect the demand pressures in the investment market and the
apparently constrained supply. It was very interesting as an investor
participating and not at all what one would expect. But then the reason was
it wasn't the raw material that was in short supply, only the blanks for
coins. Although I recall delays on bars as well.
So is the point here that there may be physical delays, but don't necessarily
interpret that as a resource availability issue? But if the price does move,
what would it mean? Does the price just come down to the paper markets and
the manipulations of it by TPTB?
The thing about rationing or high premiums is that it takes pressure off the
underlying wholesale market. For example if people are paying 40% premiums
for silver coins when the normal is 10% premium, then $30 out of every $140
spent is going to retailers/mints as extra profits rather than buying more
silver. If mints were able to keep up then of that $140, $130 would be going
to buying (or bidding up the price) of silver.
Excess premiums, whether it is in coins or say PSLV, just means less ounces
are being bought. That is why I don't think high premiums are anything to
The price is driven by both the physical market and paper market, which is more dominant changes over time.
Would you not agree tho that paper is the dominant
market? Say for example just as a thought exercise that just silver alone was
for some unexpected reason deemed only acceptable in it's
physical form as a means of trade and that all the phantom paper Silver disappeared
overnight due to some sort of black swan event.
People who have an PMDS for example cant
just pick up the phone and buy X amount instantly and those sorts with
unallocated accounts etc cant
just use their phone to "say" they actually own it, they have to
physically produce it.
Certainly paper often has the upper hand, but many desk-based commentators
who aren't in the markets don't realise how much
physical is also traded. Blogger FOFOA has a theory that since bullion bank
unallocated accounts are fractionally backed bullion bankers are particularly
concerned when the physical market starts to suck out metal, draining their
reserves (which if left unchecked could take too much physical and result in
a bullion bank run). His theory is they push the price UP (not down) as that
means the same dollars buy LESS ounces, taking
pressure off their reserves. I hope this gives one example of how complex the
physical vs paper dynamics can be.
Not sure I understand your point about PMDS. If we went to a physical only
market then we would only sell to a PMDS client if we could get/had physical
Now I know it's a far flung what if and an extreme example, and I am not by
any means saying that the Perth Mint itself is selling more Silver on paper
than what it physically holds, but there are many examples around the world
of paper precious metals magically teleporting from or too certain vaults
with nothing more than the push of a keyboard and a few typed lines of
evidence to say that they actually exist. Literally millions of ounces that
would need a convoy of armoured car's and associated security personnel to
transport that don't actually happen in the real physical world.
It is a common misunderstanding that the ETF allocations involve physical
movement. As most of them store their metal in London, all that is happening
is that silver already in the vault (which belonged to someone else who sold
it to a bullion bank) is just sold to the ETF authorised
participant and they just change a computer record saying that bar in the
vault now belongs to the ETF AP (who then transfers title to the ETF trust).
Q: Would you as a personal investor in precious metals trust anyone else
apart from the Perth Mint if you invested solely in paper or unallocated
Precious Metals ?
It all comes down to the custodian. You either trust them or not. If you
don't then not even allocated will be safe. Regarding unallocated, I don't
think apart from ourselves and Kitco that there are
many who explicitly state that their unallocated is 100% backed, and that is
really only possible for businesses which have physical as part of their
business. If you are buying unallocated from a bank, then very high chance it
is being lent in some form as that is what banks do.
Sorry Bron two questions actually, And this one
go's back to the statement I quoted of yours above. Q: Do you think the paper
market is manipulated by able bodied self interested
parties? Again I ask this with no reflection on the Perth Mint as they are
not a Bank or associated with the rise and fall of the stock market etc just on your statement on the physical and paper
I would not be surprised if the metals markets are manipulated, but as we are
not traders in the big paper markets (eg COMEX) we
don't have any evidence one way or the other. However I don't believe the
metals markets are suppressed, which I distinguish from manipulation (which
is short term). Suppressed means the price is kept lower over a number of
years. Those who think this way don't appreciate (or is that respect) the
power of the physical market, by which I mean to suppress you ultimately have
to supply physical to the market and there is only so much above ground in
the hands of the central bankers.
Yes, all metal is NOT held physically at PM... all
explained in goldchat.
To clarify, unallocated is backed by physical in our operations in Perth, but
also by some physical in transit and temporarily sitting in overseas
warehouses on its way to distributors, and by a bit of unallocated held with
bullion banks (which is converted to physical on a regular basis). If you're
not comfortable with the unallocated business model then go with allocated.
85% of Depository clients (by ounces) hold unallocated, the rest allocated.
who's in charge of strategy for the famed Perth Mint, is warning all precious
metals investors that the next crisis will lead to heightened precious metals
demand so expect shortages and mint rationing. This is exactly what happened
in 2008, and the next crisis could very well be worse." Curious
statement. In 2008 the ass fell out of silver while there was a supposed
physical shortage? Defies logic and economic norms.
You're confused because you're not using precise terminology. Restated:
"In 2008 the ass fell out of silver due to selling by leveraged paper
players needing cash to pay for other losses, while there was a physical
shortage of RETAIL sized coins and bars." In fact, the leveraged paper
selling, because of arbitrage, would have resulted in associated physical
wholesale sized silver (ie 1000oz) bars coming into
the market. This is why we didn't have any problem getting hold of 1000oz
bars out of London during 2008 even while we were maxed out in the factory