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Copper Catcher
Administrator
USA
2092 Posts |
 Posted - 06/22/2010 : 17:31:56
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Friday, June 18, 2010
Silver: Is A Physical Squeeze Starting To Bubble Up?
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The Comex had two large silver withdrawals this week. Yesterday's warehouse stock report showed 1.2mm ounces were removed, 900k of it from the "eligible" inventory, which is the investor inventory being "safekept" at Comex depositories but not available to be delivered. 480k of that 900k was removed from Scotia. With all the discussion and unrefuted (by Scotia) accusations about Scotia's depository safekeeping methodologies, it wouldn't surprise me to see even more gold and silver going forward being taken out of Scotia's customer inventory.
But here's an even more glaring issue: as of last Friday, the net commercial short position in silver, as per the COT report, was 55,329 contracts. At 5,000 ozs/contract, that's 276,645,000 ounces of silver sold short by the big bullion banks (Mostly JP Morgan, HSBC and BNS - and mostly JPM at that). What's the problem? The total silver inventory being reported by the Comex is 118 million ounces. But of that, 66 million is customer inventory not available for delivery, leaving 52 million ounces of silver that can be delivered vs. 276 million of short paper silver.
Let's break it down to just July silver. The July silver open interest is 47,921, which means that there is 239 million ounces of silver that has been shorted for July vs. the 52 million available for delivery. See the problem? Historically JPM could count on the longs to sell their position before first notice of delivery day or tender for cash. If the Comex silver longs start correlating with the trend in the actual physical market, the Comex will default on silver deliveries...
A reader related to me yesterday that he had a silver bar delivery problem with the Comex about three months ago that had to be resolved using his broker's lawyer. Our fund has experienced several delays in getting silver delivered from the Comex - with HSBC as the counterparty - over the past year. This includes last year, when our April silver was not delivered until June 20th (7 weeks past contractual last delivery day).
Furthermore, I know that my friend who is a bullion trader here in Denver is having a hard time sourcing any kind of real supply of silver bullion on the "bid side" of the market, which means he's having a hard time finding retail sellers in any kind of size AND his buyers want silver right now. He was definitely postured as a much better buyer and was beating me up to sell him some silver eagles.
That the physical market in gold and silver is getting tight is not new news. But the above withdrawals from the Comex customer silver inventories this week, in the context of the anectdotal events as described above, can only lead one to believe that an enormous amount of pressure is being created by the trend of big investors demanding physical delivery into private depositories that are trustworthy and not connected to the bullion banks, who are likely leasing out some portion of the bullion in their depositories.
One more interesting development has to do with scrap supplies of gold. In the past, when gold breaks out to new highs, European bullion dealers report the emergence of a large supplies of scrap selling that hits the market. Last January (2009) the flow of scrap into the market was credited with causing the subsequent pullback in price. So far in this latest move, very little scrap supply is being reported.
GATA has maintained for over 11 years that eventually the physical market demand would completely overwhelm the ability of the paper short interest to satisfy delivery demands. I would argue that the market is starting to transition into that process and it will lead to much higher prices. In fact, I believe all but the most knowledgeable gold investors will be stunned by coming price movements. What will be even more shocking to many is the premium over spot that the market will pay for deliverable physical bullion.
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Nickelless
Administrator
USA
5580 Posts |
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PennyPauper
Penny Collector Member
USA
395 Posts |
Posted - 06/22/2010 : 18:49:31
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What happens to the big banks that are short if they cannot deliver?
Fines,penalities? What would happen if a average investor couldn't deliver? I hope the bigs have to eat their shorts |
Available again! $100 of Copper Lincoln Memorials for $145 shipped. |
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fb101
Administrator
USA
2856 Posts |
Posted - 06/22/2010 : 19:09:22
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quote:
Originally posted by PennyPauper
What happens to the big banks that are short if they cannot deliver?
Fines,penalities? What would happen if a average investor couldn't deliver? I hope the bigs have to eat their shorts
Does "too big to fail" ring a bell?
what happens? reach into your wallet, take out all the cash and send it to the IRS so they can buy the bank and give it to a corporation the commies like. (You did know unions are corporations, right) -
You know Hoffa etc.... |
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Nickelless
Administrator
USA
5580 Posts |
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PennyPauper
Penny Collector Member
USA
395 Posts |
Posted - 06/22/2010 : 20:18:36
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I know corporations exsist in theory to allow investors to be sheilded from being held personally responsible in case of lawsuits and such.And they are one of the reasons the U.S. was able to be so productive.But I have a problem with the fact that no one is held responsible(jail time)when these big corps break laws.The heads of these companys make all the big bucks and get off scott free with millions while they ruin these companys and our ecomomy.
The boards of corporations and ceo's should be forced to take on some personal risk when the actions of the company are proved to be criminal.They have been getting a free ride for too long.
Unions started out as a good idea too,but as with corp law they have been twisted to serve other intrests.Most of them against the people they were ment to protect. |
Available again! $100 of Copper Lincoln Memorials for $145 shipped. |
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PennyPauper
Penny Collector Member
USA
395 Posts |
Posted - 06/23/2010 : 00:34:36
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Ok say the squeeze is on! JPM is flooding the market,along with the other players,just like Madoff and the fed,desperate to keep the game moving forward.At which point does anyone see capitulation,or the unraveling happening.$20,$23,$25 silver? What will it take to break it? If they put into play 5x the amount of deliverable silver now,will they put 1 billion ounces(which they don't have) up for sale?
Please tell me if I'm wrong. |
Available again! $100 of Copper Lincoln Memorials for $145 shipped. |
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Copper Catcher
Administrator
USA
2092 Posts |
Posted - 06/23/2010 : 06:02:52
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Someone else jump in and help explain how shorts are settled, please!!
I have heard that "cash settlement" is considered valid as delivery of the metal. Is this correct? Hence, while you hear people tout Comex is in default you never see it in the media. What say you?? |
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Lemon Thrower
1000+ Penny Miser Member
USA
1588 Posts |
Posted - 06/23/2010 : 08:46:39
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| not sure how much stock i would put in this article. when people talk about a short sqeeze, they are talking about silver available for delivery on the comex, which are 1000 oz bars i believe. that is not what your local bullion dealer deals with. comex bars have been tight for a few years now and there has not been any explosion. coin and small bullion premiums are low and holding steady. if you want to see tight, look for some fractional u.s. gold. |
Buying:
Peace/Morgan G+ at $15.00
copper cents at 1.3X
wheat pennies at 3X
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Silver Is A Physical Squeeze Starting To Bubble Up
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