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 Posted - 01/11/2011 : 16:47:12
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SILVER: What happens when...
By: Bix Weir
-- Posted 11 January, 2011 | Share this article| Discuss This Article - Comments: 0 Source: SilverSeek.com
Whether or not you believe in the silver conspiracy stories there is one fact that all silver investors are in agreement with...SILVER is an amazing investment opportunity from any angle you choose to analyze it. From the industrial angle silver is as indispensable to manufacturing as oxygen is to humans with new uses gobbling up silver faster than Mrs. Packman gobbles up those little yellow dots. From the monetary angle silver is visibility reasserting itself in its rightful roll as #2 on the hard money honor roll (just behind gold) in a world where the electronic printing presses have become "self aware" and now seem to create money without any human input at all.
From the supply angle the world's silver mines still chug along at the same rate of growth as they have for the past 100 years with historical output increasing at a slovenly growth pace never more than 6% per year. Hardly able to support the ever increasing industrial applications or consumption and nowhere close to the exponential growth in investment demand.
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In the mid 1950's the official holdings of silver in a monetary form was estimated to be around 50B ounces which was mostly used as coinage and as Government reserves around the world. Since that time silver has been "demonetized" by the banking powers of the world and gobbled up to support the electronic industrialization boom for our high tech, disposable economy. All this silver was gobbled up and digested in little tiny bits in the form of cell phones, flat screen TV's and micro processors NEVER to return in the form of scrap silver. There are now NO COUNTRIES that hold any substantial silver stockpiles.
But most of this information is "common knowledge" to a serious silver investor.
So let's talk about what happens when all the physical silver runs out and the very next silver investor wants to get their hands on a few ounces of the shiny white metal.
The first thing that we will notice is that delivery time frames on the COMEX will start to increase as the paper silver market riggers scramble to either fill orders or payoff in premiums to forgo deliveries. This is currently taking place as revealed by Sprott Asset Management in an update to share holders in the Sprott Physical Silver Trust.
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"Frankly, we are concerned about the illiquidity in the physical silver market," said Eric Sprott, Chief Investment Officer of Sprott Asset Management. "We believe the delays involved in the delivery of physical silver to the Trust highlight the disconnect that exists between the paper and physical markets for silver."
We are also hearing that the Perth Mint is having problems supplying gold to customers because of the high demand. I'm sure that this problem is even doubled with their silver supply as the Perth Mint runs quite a large paper gold and silver operation with their unallocated pooled accounts and metal leasing operations.
Here's the latest from the Perth Mint:
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"At the moment demand is such that we cannot meet all the enquiries that we are getting," said Nigel Moffatt, Treasurer of the Perth Mint, one of the world's largest gold refiners and distributors.
Ted Butler has written extensively about the risk of "pooled accounts" in both the allocated and unallocated forms and I agree 100% with his conclusions. The business model is massively flawed because the offering entity doesn't even charge enough to cover obvious expenses like insuring metal, storing physical metal, tracking, collecting, administration, etc. The Perth Mint justifies this by stating:
"The Mint realized that if it took deposits directly from investors, it could cut out the intermediary and create a win-win situation: the Mint wins by obtaining free funding for its inventory and investors win by getting free 100% backed storage."
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The Perth Mint goes on to claim:
Clients worried about potential delays in collecting metal in extreme circumstances, but with concerns about the cost of allocated storage, usually take a staged approach:
1. While the world environment is benign, they hold unallocated. They do not incur ongoing storage costs and fabrication charges.
2. When the environment becomes uncertain and risky, they convert to allocated.
3. When the world is at a crisis point, they take delivery of their physical metal.
BUT WAIT! Now Nigel Moffatt, Treasurer of the Perth Mint, is saying "At the moment demand is such that we cannot meet all the enquiries that we are getting,"
WHAT ABOUT THAT INVENTORY THAT IS PLEDGED TO THE UNALLOCATED POOLED ACCOUNTS?!
We might be at #2 above but their customers CANNOT CONVERT according to Mr. Moffett. And what about #3 which is an absolutely ridiculous statement considering they can't even live up to #2!
THE END RESULT: According to the Treasurer of the Perth Mint both #2 and #3 cannot be fulfilled for unallocated account holders! Cash settlement may be the only option. Is there any greater reason to get out of Pooled Accounts?!
The next thing we should see is extreme volatility in the price of silver as the market riggers try to wiggle out of their large concentrated short position while at the same time delivering physical...most likely leased from the large iShares Silver ETF(SLV). Whether it is leased or withdrawn the physical silver will still have to be delivered into the market to fulfill the demand from industrial users and silver investors who are getting smarter and smarter by the day about the difference between paper silver and the real thing.
What follows will be what silver investors have been patiently waiting for since the early 1980s...the official DEFAULT on the paper silver contracts and the physical silver price moonshot.
BUT this is not the first time that silver market riggers been perched on the cliff staring into the abyss.
At least twice in the last 20 years the paper market riggers have been able to keep the silver wolves at bay by using secret stashes of silver that were kept on the down-low. The first being the Manhattan Project silver (470M oz) in the early 1990's...
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And recently, there have been more accusations of silver market shenanigans with a silver insider alleging that Clinton and his gang of market riggers got a hold of 300M oz of physical silver from China around the same time that the Silver ETF(SLV) came into existence...
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I believe this to be true considering that the Clinton Administration is accused of many market rigging operations including coating tungsten bars with gold, instituting the "strong dollar policy" which many, like GATA, believe was implemented by rigging the gold price lower and dismantling one of the greatest national security facilities (Y12) ever built for its physical silver content.
So here we are again with the silver market riggers feet dangling off the cliff staring into the abyss. Will "THEY" come up with another scam to avoid the silver price explosion or will we finally witness the a silver moonshot? And what about that "SLING SHOT" effect I talked about a while back:
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Could "the system" stay in place long enough for people to get wise to the REAL silver manipulation story and try to move all their worthless paper silver into the REAL thing?
Truthfully, I don't think there is enough time as THE ENTIRE GLOBAL FINANCIAL SYSTEM sits right next to the silver riggers on the brink of the ABYSS!
Have you ever heard the term "PRICE IS NO OBJECT"?
SOON YOU WILL HEAR THAT ABOUT A MERE OUNCE OF SILVER!
May the Road you choose be the Right Road.
Bix Weir
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-- Posted 11 January, 2011
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SILVER: What happens when...
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