20 Cents for Gas Shows the Power of Silver - 2 August 2011

http://goldnews.bullionvault.com/silver_price_gas_prices_080220115

Go to any bank right now and hand them $100 and ask for nickels. The teller will gleefully give you back about $135 in metal (as of this writing). We suggest you do this as regularly as you can.

No, you can't take advantage of that now by turning around and selling these cupronickel pieces ("nickels" are actually only 25% nickel and 75% copper) for an immediate 35% gain. Not yet. But that time is coming. It could take years, but we doubt it will be that long this time around. The pace of debasement is accelerating over time.

Revisiting registered silver in COMEX depositories

There are approximately 32 million ounces of registered silver in COMEX warehouses.  Each futures contract controls 5,000 ounces of silver.  Which means there is enough deliverable silver for 6,400 COMEX contracts.

The open interest was 123,000 contracts as of today.  126,000 contracts traded last Friday.

Normally, most COMEX contracts are settled via cash (rumor is that cash settlement premiums are up to 80% due to the shortage of physical silver).  However, if enough longs stand for physical delivery, the shorts don't have the inventory and the COMEX would have to default.  That can't be good for an exchange.

The supply/demand dynamic is already strained, and the price of physical silver is starting to bifurcate from the manipulated spot price.  A default would send physical prices soaring above the paper prices.

A default on silver or gold has never occurred at a major exchange.  There was a default on nickel at the LME in London in 2006, at which point nickel prices spiked.  The same thing will happen to silver if there is a delivery default at the COMEX.

Coinflation

Save your nickels.  They're worth almost 7 cents, based on today's metal value.  That's a 40% return.

http://www.coinflation.com/

Description		Denomination	Metal Value	Metal % of Denomination
	1909-1982 Cent (95% copper) *	$0.01	$0.0284205	284.20%
	1946-2011 Nickel	$0.05	$0.0697883	139.57%
	1982-2011 Cent (97.5% zinc) *	$0.01	$0.0063804	63.80%
	1965-2011 Dime	$0.10	$0.0249049	24.90%
	1965-2011 Quarter	$0.25	$0.0622646	24.90%
	1971-2011 Half Dollar	$0.50	$0.1245305	24.90%
	1971-1978 Eisenhower Dollar	$1.00	$0.2490624	24.90%
	1979-1981, 1999 SBA Dollar	$1.00	$0.0889498	8.89%
	2000-2011 Sacagawea Dollar	$1.00	$0.0747294	7.47%
	2007-2011 Presidential Dollar	$1.00	$0.0747294	7.47%

First Nickel, Then Silver?

Does anybody think a default at the COMEX can't happen?  Read on.  Note:  The LME, unlike the COMEX, fixes daily prices for physical metals.  And yet, there was still a default.

http://news.silverseek.com/TedButler/1156198042.php

To see how prices reacted after the default in nickel in 2006:

http://www.kitcometals.com/charts/nickel_historical_large.html#5years

Note to self:  buy the physical bullion, not the paper futures contracts.

Save your nickels

At current price levels, their melt value is $0.06. If inflation gets worse, nickel and copper prices will rise further, and the melt value will rise accordingly. If deflation sets in, the nickel still has a face value of $0.05.

http://www.coinflation.com/coins/1946-2007-Jefferson-Nickel-Value.html

COMEX December gold and silver options

COMEX December gold and silver options expire tomorrow, Monday, November 23, which usually means the commercial shorts will go into overdrive to manipulate the price down. However, given the physical shortage, gold has been gapping up in anticipation of this date. Combined with the backwardation of gold as I blogged last Friday here, the price of gold is increasing this evening (in Asian Monday morning trading).

Should rumors of COMEX defaults on gold and silver actually occur, the exchange may just retroactively invalidate all delivery contracts, and merely slap a fine on short sellers who settle via cash. Physical buyers will be stiffed, despite receiving a cash premium.

To those who believe a COMEX default will never occur, refer to the London Metals Exchange default on nickel in 2006. Buyers did NOT receive the physical inventory, and short sellers merely had to pay a 10% fine above spot price.

http://www.lme.com/4670.asp

Should such a default occur with gold or silver, the price of physical gold and silver will soar, as will paper certificates allegedly backed by the precious metals. There will be huge dislocations in financial markets worldwide should such a default on COMEX occur. Gold bugs ridiculed for their conspiracy theories will have the last laugh.

The CFTC is also reviewing enforcement of position size limits in the energy and precious metals pits, which would force bullion banks to drastically reduce their concentrated permanent short positions. This will also catalyze gold and silver price spikes.