Silver-coin shortage shows bright side of precious metal collapse

This CNBC reporter correctly exposes the severe shortage in physical silver but incorrectly attributes it to soaring demand from "mom and pop" investors, as if we're somehow unsophisticated, misguided hayseeds who fell off the turnip truck.  She knows nothing of the bifurcation of COMEX paper silver prices and physical silver pricing, which are carrying huge premiums above spot price.  There is a reason why premiums are soaring.  Get a clue, Marcy.

Or maybe she does know what's going on, but is paid to publish misinformation.

http://www.cnbc.com/2015/09/30/reuters-america-silver-coin-shortage-shows-bright-side-of-precious-metal-collapse.html?ref=yfp

The Rise In Gold Because Of A Shortage Will Be Spectacular

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/7/19_The_Rise_In_Gold_Because_Of_A_Shortage_Will_Be_Spectacular.html

“Since the April smackdown in COMEX gold, physical metal has been pouring out of recognized warehouses and stockpiles as investors all over the world rush to perfect ownership of an asset that, when owned, unlevered, outside the banking system provides the ultimate hedge against market dislocations.

It is incredibly rare to see the price of something falling so precipitously at the same time people are queuing around the block to buy it so what is going on?

The huge decline in the gold price coincides almost perfectly with the request by the Bundesbank to have 300 tonnes of gold held at the NY Fed returned to Germany - an operation which we are told will take seven years.

For years the Central Banks have been leasing out their gold to bullion banks at essentially zero interest to fund the ultimate establishment-endorsed carry trade but now that trade seems to have run its course and bullion banks are going to have to come up with potentially hundreds of tonnes of gold.

Fortunately for them, the structure of the market and the disconnect between the Gold price (the price quoted for a paper futures contract on the COMEX that is effectively merely a claim on physical metal) and the price of Gold (which is far more important as it represents what a buyer has to pay to actually own an ounce of physical gold free and clear) enables them to shake out enough loose holders of the metal via the ETF to make a dent in their shortfall - but only up to a point.

Almost 30% of the total holdings of gold ETFs has been withdrawn since the beginning of the year and this is incorrectly reported as a very bearish development but it's the ultimate destination of that gold that's interesting.

For every seller of the GLD ETF there is a buyer - both parties transacting in paper - not gold.  The only way to convert shares of GLD shares into physical gold is to buy 100,000 of them (roughly $13 million at current prices) and then present them to any one of the Authorized Participants who will redeem the gold on your behalf and deliver it to you.  Supposedly.  There is plenty of anecdotal evidence that not all redemption requests are being met but that is a story for another day.

Roughly 600 tonnes of gold has been sucked out of the various ETFs since their holdings peaked in Q1 but, due to the mechanics of the ETFs, virtually every ounce of that has to pass through the hands of the bullion banks - the same bullion banks who are in a bind over supplying physical metal to meet redemption/repatriation requests.  It's a perfect mechanism to ensure that control of physical bullion is safely in the hands of the bullion banks.

BUT...

After the quiet default by ABN Amro in early April, 'smart money' has been adding to the problem facing the bullion banks by withdrawing their physical gold from the COMEX warehouses in droves and moving it to private storage facilities outside the banking system which leaves an even smaller pool of available gold to meet an increasing number of delivery requests.

As soon as we get an 'event' which demands people own gold in a hurry (think; Cyprus-style bail-in, overt declaration that the Taper is off the table, more QE etc.) the massive outflows in physical gold over the last few months will become apparent and, as hard as gold has fallen, it has fallen predicated purely on an oversupply of paper.  A rise driven by a shortage of the physical metal itself will be far more spectacular.”

 

Turk - Something Shocking Has Occurred In The Gold Market

I tweeted this back in June 3, 2013:

Anybody else notice 10-year Treasury yields have climbed from 1.7 to 2.1%? Um, that's not supposed to happen with QE. Fed losing control?
— Gregory Nguyen (@dakyne) June 4, 2013

Since then, 10-year Treasury yields have reached as high as 2.74%. 

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/7/8_Turk_-_Something_Shocking_Has_Occurred_In_The_Gold_Market.html

Yet the Fed continues to purchase more government debt, as its balance sheet last week reaching another new record high with total assets of $3.49 trillion.  The Fed is not tightening monetary policy, so why are interest rates rising even though the economy is weak and the Fed continues to purchase debt for its QE program?

I think there is only one logical answer, Eric:  Interest rates are rising because of QE.  We have reached a tipping point, meaning that QE can no longer keep interest rates from rising.  The market is now focusing on the dark-side of QE, which is the inflationary consequences of all this money printing.

Rising interest rates with QE ongoing means that we have reached the stage where the Fed has now lost control.  This result was inevitable because market forces always beat central planners and its groupies in the end.  Only the timing of this event could not be predicted.

Since the bailout of the financial system in the autumn of 2008, and the launch of QE in March 2009, desperate central planners had been hoping their crazy theories which try to create wealth by printing money would work.  But those theories never had a chance.  All one had to do was read monetary history to see that these schemes have always failed.

The key point is that the market is now responding to this central planning foolishness.  Capital is protecting itself by demanding higher interest rates, and as interest rates climb, the fallout will be immense.  This brings me to the second key event taking place:  Even the LBMA website now shows that gold is in backwardation.  The gold forward rate out to three months is negative.

U.S. cancer drugs shortage has doctors scrambling

Thanks to Kitty for finding this disturbing trend.

http://www.reuters.com/article/2011/06/07/us-cancer-drugs-shortages-idUSTRE75653V20110607

Paper vs. Physical Silver Prices

With silver prices plummeting at the COMEX, the price of physical silver hasn't dropped as much, creating a huge premium for physical bullion over spot price.  This is what silver bugs have predicting, as physical shortages don't follow the price manipulation of the paper markets.

Having said that, silver's stratospheric prices have encouraged scrap supply to come on-line.  Hence, prices for physical bullion (and coins) should drop relative to the COMEX futures prices over the next several weeks, shrinking the current premium over spot.  A period of consolidation to digest the incoming scrap supply is in order, with silver trading within a range, setting up for its next move above huge resistance at $50.  If it holds above the nominal all-time high, it's onward and upward with no meaningful resistance above $50.  Silver would then merely catch up to gold's record-breaking bull market.

See disclaimers in the side bar.

Disclosure:  long silver mining shares.

NATO Runs Short of Munitions in Libya

This is what happens when bankrupt countries mount a war.  But hey, we need the oil. 

http://defensenews.com/story.php?i=6254304&c=MID&s=AIR

NATO is running short of precision bombs and other munitions in its Libyan operation against the forces of Libyan leader Moammar Gadhafi, The Washington Post reported April 15.

Citing unnamed senior NATO and U.S. officials, the newspaper said the shortage highlights the limitations of Britain, France and other European countries in sustaining even a relatively small military action.

The shortage of European munitions, along with the limited number of aircraft available, has raised doubts among some officials about whether the United States can continue to avoid returning to the air campaign, the report said.

Commodities, basic metals, and precious metals

Here is a bullish case for basic metals and the increasing urbanization of the world's population, especially in emerging countries like China, India, and Brazil.

http://www.mineweb.com/mineweb/view/mineweb/en/page36?oid=96498&sn=Detail&pid=1

Here is an article on a shortage of physical silver coins.

http://www.coinnews.net/2010/01/24/us-mint-silver-eagle-sales-top-3-million-best-ever-january/

The shortage of physical silver due to investor demand is openly acknowledged, as coin dealers are buying at prices ABOVE the spot price, and selling at even higher premiums. The spot price and prices on the COMEX futures do not reflect this physical shortage--yet. That's because the bullion banks are artificially suppressing the price of silver by shorting paper certificates via the SLV ETF, and shorting COMEX futures contracts. This fundamental disconnect between the prices of silver in the futures contracts and available physical inventory of silver will eventually be resolved, resulting in a soaring price. Price manipulation can only work so long before basic economic laws of supply and demand eventually materialize.

Disclosure: long silver mining shares.

CFTC and position limits

http://www.reuters.com/article/idUSTRE5B10OV20100114

"The chairman of the Commodity Futures Trading Commission said that the agency's planned meeting in early March to discuss possible position limits on metal futures and options contracts will focus on gold and silver contracts."

Let's see if CFTC Chairman Gensler is serious this time.

This Reuters article does a decent job of capturing the CFTC's comments on concentrated position limits in the COMEX, but then lays an egg with this wrong conclusion:

"A review of possible position limits on the COMEX gold and silver market should not affect prices because of the vast physical spot gold market outside of the United States, traders said."

Um...reducing and enforcing position limits in the silver and gold market exchanges will cause prices on said precious metals to rise, as the bullion banks will no longer be able to execute their price suppression schemes. Regulating abusive price manipulation will expose the shortage of physical silver and gold bullion, as true market price transparency is achieved.