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Tuesday November 4, 2014
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holterThe Holter Report
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Bill Holter

Silver Fraud?

November 3, 2014

 

Thursday and Friday were very bad days for gold, silver and the shares.  The explanation on Wednesday afternoon and Thursday was because the Fed discontinued QE 3.  Along came Friday and guess what, the QE baton was passed to Japan as they announced an increase in their QE operation to roughly the round number of $1 trillion per year.  With this amount of QE, the Bank of Japan will now be purchasing every single bond issued and then some.  Outright monetization has arrived in Japan!

 

This was seen all around the world as "good" for stock markets as they rallied to new highs (Japan rallied to 7 year highs)!  ...but bad for precious metals?  Yes I understand, this is "good" for the dollar on a relative basis to other fiat currencies (especially the yen) but how is the news of outright and full on monetization in the 3rd largest (and Western) economy bad for "stuff"?  The answer to this question is "it's not ...but it has to be seen this way."  

 

THE worst performing market (excluding the ruble) was silver, down some 7% or so after the Fed announcement from Wednesday afternoon to Friday's close.  We have seen this before in late 2008, April of 2011 and 2013.  Maybe someone can rationally explain to me "why" silver would do this with the current backdrop?  

 

We know the cost of production for silver is north of $20 per ounce, one big producer, First Majestic even announced they are withholding nearly 1 million ounces of production due to current prices ($19 when they made the announcement).  I bring this point up because it is not like all of a sudden the supply increased and a producer or producers had "extra" millions of ounces to unload.  

 

Over just the last two weeks, the physical silver market has clearly tightened.  As the price was dropping, our suppliers went from no "wait" to a waiting period of 1-2 weeks on many products from generics to Maple Leafs... and this was as of Friday morning, let's see what happens this week with the further push down in prices, will the delivery periods extend further?  I would also add that premiums demanded for physical silver product had been rising slightly prior to Wednesday and jumped markedly on Friday, will we again see a $9 COMEX price yet none to be had physically at $15?   

 

Why is the supply tight you might ask?  The answer is simple, because demand has increased (coaxed by lower prices) and is now outstripping the supply and ability to fabricate enough supply.  An example of this would be Silver Eagle sales for October, the mint sold more Silver Eagles than any other "non January" month in its history!  They sold 5,790,000 in October, higher than the 5.35 million ounces sold in March of this year, annual sales for the year look like they'll be a record.  

 

 

 

We know what happened on Thursday and await Monday afternoon to learn of Friday's open interest action.  On Thursday the open interest in COMEX silver ROSE 3,164 contracts, this represents 15.8 million ounces.  The all-important December contract rose by 4,588 contracts or roughly 23 million ounces!  23 million ounces is the equivalent to 12 days of global silver production.  Let me explain this a little further, total volume for the day was 466 million ounces, open interest for Dec. with just one month left before first notice day for delivery stands at 616 million ounces.  The entire world (excluding China because they do not sell their production) only produces 700 million ounces of silver per year, yet the COMEX in one day trades two thirds of all production on the planet and has contracts outstanding with only 1 month left for nearly 90% of all global production.  

 

So the open interest rose by 15 million ounces in just one day, what does this mean?  Did someone have an extra 15 million ounces that they just "HAD" to sell at four year low prices?  Did someone suddenly come in to an extra 23 million ounces that they would like to deliver in December?  No, of course not, what happened is "contracts" that did not exist on Wednesday morning were "opened" and the trade initiated by sellers.  Do they have to actually have the silver?  No, anyone who has the money to put up as margin can sell as many contracts as they wish.  No product necessary, just cash as collateral for margin and in the case of the December contract, they can sell an additional 12 days of global supply.  Please understand that when silver, real silver enters the physical market place ...it is used.  It is used in jewelry, it is used in industrial processes like high tech gadgets, solar panels and the like, and it is even used for many medical purposes also.  Oh, and let's not forget "coins" and bars, the U.S. mint alone will use maybe 8% of global production for Silver Eagles and the Royal Canadian mint about the same ...so right here we are talking about 15%+ of total global production being spoken for!  

 

My point is this, if real silver was being sold by panicked investors we would see a glut of product.  Silver would be sloshing around everywhere and falling off of trees like autumn leaves, it's not.  Again the silver market has gotten tight and there are "wait" times for delivery.  This is not explainable in any way possible if the price of silver (and gold) were truly "made" or set by a free market, they are not.  I was always taught that if you sold something you did not have and could not obtain to settle the deal, it was fraud.  In my opinion this is exactly what you are seeing in silver.  More silver is "promised" than actually exists.  If you look at the COMEX and their own numbers, they claim to have 1/10th the amount of registered and deliverable silver than is promised just one month out!  I believe we are now at a critical price point where if the paper shorts push any further, they will unleash a tsunami of demand which actually breaks the casino and shows whether it is real or fraudulent.

 

I wrote an article two months back entitled "Kill Switch?" that hypothesized it might be China or Chinese proxies who are the "longs" standing so tall in the December silver contract.  We only have 1 month left to find out.  By then, we will have gone through the U.S. elections and the Swiss gold referendum.  Are our markets being "held up" in the hopes of swaying voters to "stay the course" with a Democratic rule in the Senate?  Is gold being pushed down to scare the Swiss into believing gold is a "bad thing" and a weak portfolio sister?  Is a low oil price being used as electoral propaganda?  Maybe, maybe not, in my opinion they are both linked as weak gold allows or "helps" promote stronger paper asset prices.  

 

As I have written before, I believe the Chinese are the ones long in COMEX silver who refuse to leave, sell or exit.  The losses to the longs are well in excess of $20 billion, over $1 billion on Thursday and Friday alone. Who has the pockets deep enough to sustain losses like this?  Who has pockets deep enough to post the margin calls ...just from Thursday's action alone?  Let alone absorb another 12 days of added global production ...even if it's just on paper.

 

To finish, I will repeat my thoughts of the last several months.  I believe China is fully aware of the bankruptcy of the West's financial system.  I believed China had accumulated at least 8,000 tons of gold (I may be way low on this per Alisdair Macleod, more on this in my previous article), they have built out infrastructure to the point of even building ghost cities with their own functional but not used (yet) airports.  They have accumulated zinc, nickel, copper, oil, you name it, in amounts far more than they currently need.  They have bought assets all over the world and have spent dollars to do it.  They have been on a mission since 2008 to turn dollars into "stuff" wherever they could, because they know.  They know the dollar is toxic and if they don't exchange them prior to the bankruptcy becoming public, they will be left holding a worthless asset.  

 

As for the situation in silver, if I am correct and it is the Chinese who are record long the December contract, do the Chinese really believe they will receive silver?  Of course not, they can see the published inventories are not even close to sufficient, they may not even believe the published figures.  I still believe this position is only a switch they can flip when and if they wish or even the leverage as a threat to flip it.  We will find out soon enough but the open interest rising to such heights with the price dropping to such depths has never happened before in any market that I know of, something very very different is happening and it looks like December is the focal point!  We will see. 

 

 

hoffmanAndy Hoffman's Daily Thoughts

Too Much Horror to Focus on Just One Thing

November 3, 2014

 

Normally, I'm able to put a disproportionate focus on one particular concept on any given day. However, this morning I am besieged by nearly a half-dozen items of equal "horror value" - and of course, precious metal bullishness.

 

Let start with the obvious - i.e., the Bank of Japan's utterly insane "unexpected" announcement Friday morning. In August's "decision time," we wrote that both the ECB and BOJ were on the verge of major money printing expansions - in the former case, as the European economy collapses; and in the latter, as the miserably failed "Abenomics" approached its official termination date. Even we were shocked when the ECB expanded its NIRP policy; and political dithering aside, now that PIIGS bond yields are again rising (in Greece's case, alarmingly so), it's only a matter of time before the current, modest monetization rate - at least, what they tell us they're monetizing - explodes higher. Which of course, it certainly will, in response to Japan's watershed announcement. This is exactly what we wrote of in January 2013's "final currency war" - which care of the BOJ and ECB is on the verge of going nuclear.  

 

And don't forget the Fed, which supposedly "ended" QE last week - LOL. To that end, this article by Eric Sprott demonstrates, as our December 2013 article "proof of the tapering mirage" did, that the Fed can't even hide its own lies. Goldman Sachs themselves just lowered their 4Q GDP growth estimate from 3.0% to 2.2% due to a confluence of negative events - including the "recent appreciation of the dollar," confirming exactly what we averred in last month's "single most precious metal bullish factor imaginable." To wit, whilst Japan's announcement crossed the tape Friday morning, it was not the BOJ the Fed initially attacked but the ECB - in its fear of the aforementioned ramifications of a "strengthening dollar" against the collapsing Euro. Apparently, in a comment that should be nominated for the irony Hall of Fame, the Fed warned the ECB not to push the Euro's devaluation "too far" - which of course it and the Fed will do so now that the BOJ has taken the global currency war to another level.

 

Also prominent in Goldman's GDP estimate reduction reasoning was last week's weak personal income and spending data, as well as its "recent downgrades of rest-of-world growth forecasts." In other words, what the Miles Franklin Blog has been saying for some time. But have no fear, the U.S. government's "island of lies" economic reporting is in full force ahead of tomorrow's elections as it attempts to "paint the tape" for incumbents. To wit, only in America can the aforementioned personal spending data suggest the biggest contraction in five years, whilst government-published "consumer confidence" surveys depict the "most confident" American outlook since the real estate bubble top in 2007. The fact, by the way, that the entirety of the survey's strength was in "future expectations" (i.e., hope), as opposed to the "current situation" (i.e., reality) - which declined; should tell you all you need to know. Incredibly, the U.S. propagandists continue to purport a "decoupling" with the rest of the global economy (such as here) that does not and cannot exist. Which is all the more comical, given that true measures of economic activity state otherwise - such as the fact that since QE commenced in 2008, U.S. children living in poverty has risen by 26 million, whilst the number of billionaires has doubled. And oh yeah, last week's durable goods order decline and today's construction spending decline.

 

As for what impact tomorrow's mid-term elections will likely have on the future, Zero Hedge said it perfectly below. As we wrote two years back, America has essentially become a "one-party fascist" nation, in which even the line between which party offers more entitlements has been dulled. And speaking of the "U.S. banking syndicate," I'm sure it won't surprise you that Wall Street spent more lobbying this years' candidates - $169 million, to be exact - than in any proceeding mid-term election. And thus, as they say in France, "plus �a change, plus c'est la m�me chose."

 

The short answer, of course, is "nothing" - Congress, or the presidency, have been irrelevant ever since the Fed fully took over the US some time in late 2008. Since then, it has been the role of the central printer of the US, working on behalf of the US banking syndicate, to "get to work", and cover up the fact that Congress, its make up, or its decisions, are now inconsequential.

-Zero Hedge, November 2, 2014

 

Back to Japan, people need to understand just how suicidal their announcement was. As the great David Stockman noted in this must read piece, the increased QE announcement was actually part of a two-pronged approach to generating hyper-inflation "2% inflation," including Japanese government pension plans shedding 25% of their portfolios of low-yielding JGBs in lieu of wildly overpriced stocks. In other words, blatantly shunning their commitment to prudency - and likely, violating their fiduciary responsibility as well - in the name of political expediency. In other words, the BOJ will now monetize the equivalent of all JGB issuance, so that pension funds can offload this toxic junk - and at the same time, goose the stock market higher. Clearly, Japan - and the U.S. and Europe, for that matter - are on the verge of Argentine and/or Venezuelan style hyperinflation; which, as history tells us over and over again, requires very little "spark" to get started.

 

As for "the markets" reaction, all one needs to know is what Friday's wildly PM-bullish "top story" on Yahoo! Finance connotes. Yes, round-the-world out of control money-printing; which, as I write, has the Euro down to 1.247/dollar - and the Yen to 113.95/dollar down an astounding 5% since Friday morning. Heck, despite the vicious COMEX attacks of the past three days, Yen-priced gold is actually up during this period, less than 20% from its all-time high.

 



As in Japan, Western stock markets are surging on the prospects of additional QE - led by
the U.S., per this blatantly obvious chart of the S&P 500's stunning reversal since Fed Governor James Bullard called for additional QE two weeks ago. For all the hype and volatility, interest rates have barely budged, whilst crude oil remains at its lows below $80/bbl. Paper precious metal prices have of course been smashed - as not only is the Cartel eager to portray the "end of QE" as PM-negative, but it needs to keep gold's "danger signal" muted ahead of the elections; and of course, the November 30th Swiss referendum. However, a "funny thing occurred" whilst the Cartel was busy naked shorting; as late Friday afternoon, the U.S. Mint reported utterly astonishing Silver Eagle sales in the month's final two days, yielding its third-highest sales month ever; and equally impressive, its highest non-January month, as January is typically the best for sales due to the annual Mint shutdown in mid-December to gear up for the next year's issuance. And per the second chart, U.S. Mint (and likely Royal Canadian Mint as well) 2014 physical sales are on pace to exceed 2013's record levels - during a period when paper prices have been smashed by nearly 50%! For that matter, 2014 sales are on pace to exceed the levels of 2011 - when silver nearly exceeded $50/oz. twice; as it was then that TPTB passed the " point of no return," when they accelerated their money printing and market manipulation operations exponentially. Physical silver and gold demand have since surged to record levels - and as Andrew Maguire noted this weekend, last week's paper attacks yielded massive physical buying. Here at Miles Franklin, demand surged in the past two days and we have observed junk silver premiums start to creep higher. And for what it's worth, the COMEX silver open interest rose to a record high relative to the silver price creating further intrigue as to what entity could possibly be absorbing such losses, but continue to purchase more.

 



 

And I'm sorry but as a PM "manipulation specialist," I can't help but bring to your attention the blatancy of last night's 73rd "Sunday Night Sentiment" attack of the past 74 weeks - in which, with no other market budging, PMs were smashed; particularly silver, despite Friday night's bullish U.S. Mint sales data. It strongly reminded me of a similar silver raid in May 2013 - much less, the May 2011 "Sunday Night Paper Silver Massacre," when gold opened ultra-thin Globex trading down 1% and silver an astonishing 13%, with China closed for a holiday as it also was last night.   

  

  

 

In other words, Cartel desperation to paint PM's in a negative light - particularly ahead of the potentially world-changing Swiss gold referendum - has never been more obvious, nor gold and silver prices more undervalued. At this point, anything could destroy the fragile house of cards preventing financial Ebola from wiping out everything in its path. And thus, how one can NOT consider a least a modicum of protection from history's only proven money is beyond us.  

 

interviewInterview with Kerry Lutz

QE Gone Wild

November 4, 2014

 

Andy Hoffman joins Kerry Lutz of the Financial Survival Network to discuss Japan's QE announcement, Thursday's ECB meeting, U.S. economy weakening dramatically and record physical demand for gold and silver.  To listen to the interview, please click below.  

 

recapMarket Recap
Monday November 3, 2014




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