Silver Breaks Out From Price Manipulation, the Gains Will be Breathtaking

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A love affair
with silver is so natural. The fundamentals are astoundingly positive
and bullish in price prospects. My basic argument has been repeated
many times. Industry has countless uses for silver, significant
demand. But industry has only miniscule isolated uses for gold,
in trivial demand. So silver wins on the Demand side of the equation.
Central banks own a huge amount of gold. They frequently sell it,
even through their slippery surrogate the Intl Monetary Fund. Central
banks own zero silver. So silver wins on the Supply side of the
equation.

My motto is
that gold fights the major political and financial war, but silver
will ride in on a shiny white horse and take much larger spoils.
That effect has already begun. Since the significant game changing
FOMC meeting on September 21st, where the telegraph message delivered
to the world financial markets was made by megaphone, the impact
has been clear and stark. Compared to closing prices on September
21st versus October 29th, just five weeks, the silver price had
risen from $20.64 to $24.56, up 19.0%. During the same timespan,
the gold price had risen from $1274.30 to $1357.60, up 6.5%. My
claim, a loose forecast often repeated, has been that the silver
breakout gains would be at least double and possible triple the
gold gains. We have seen exactly that in recent weeks.

An extremely
fuzzy factor is the CFTC attention. The Commodity Futures Trading
Commission is supposedly investigating the Big Four Banks for gigantic
concentrated short positions in the silver market, for naked shorting
of silver, and for collusion with other banks. Commissioner Bart
Chilton has made a lot of noise, but has done next to nothing. Some
find encouragement, an absurd notion in my view. Let me know when
court injunctions are slapped at JPMorgan. Several class action
lawsuits against JPMorgan have begun, also encouraging, but unclear
on substance. They crop up every couple weeks, the latest citing
a RICO aspect. Let me know when the full force of the USGovt regulatory
bodies order JPMorgan, Goldman Sachs, Citigroup, and Bank of America
to liquidate even 10–20% of their short positions. Unless and
until such action occurs, the CFTC chirping is just that, noise
from the managerie of obedient pets who work on short leashes at
the behest of bankers. Mail room clerks do not give orders or make
demands to the executive suites, not now, not ever. The regulatory
chiefs are mere squires to the bankers, and will follow orders,
not give them. By the way, the Big Four positions are naked short
positions in all likelihood. They are immune from posting collateral,
as required by the metals exchanges. So they routinely sell a stack
of silver whenever the price moves have been made, like in the wee
hours this Wednesday and very early at the New York open. Good Morning
New York resulted in almost a full $1.00 drop in the silver price,
undoubtedly another naked short raid before the QE decision by the
US Federal Reserve and its statement. The full impact of the ambush
decline was reversed by afternoon. Right before important events
deemed negative nasty to the USDollar, the Big Four go wild with
naked shorts, called ambushes. The evidence, the trails, the fingerprints
are easily seen except by blind men, official gold industry wonks,
and USGovt regulators.

SUPPLY &
DEMAND BASICS

Silver total
demand was essentially flat in 2009 versus 2008, as the world
adjusted to a mammoth meltdown late in 2008. During the extraordinary
disruptions, disturbances, and sudden insolvencies, JPMorgan liquidated
much of the inherited (commandeered) precious metals accounts from
Bear Stearns and Lehman Brothers. In the case of Bear Stearns, a
solid argument can be made that they were targeted for kill due
to their long gold account. In the case of Lehman, they were targeted
fro kill in order to consolidate the power structure in the twin
monoliths at JPMorgan and Goldman Sachs. On silver demand, the bulk
of the 11.9% decline in the 2009 fabrication demand was primarily
driven by the global financial crises. The reduced drop in industrial
requirements was the lowest level since 2003. Total fabrication
demand totaled 729.8 million oz and industrial demand was 352.2
moz in consumption. Much of the decline in factory demand was attributed
to the car industry.

Implied net
silver investment increased by a staggering 184% to 136.9 million
oz last year, reaching its highest level in 20 years. Overall jewelry
demand fell slightly by 1.1% in 2009 to 156.6 moz, a testament to
the historical norm. It falls with a bull market, not to contradict
it, but to confirm it!! That is the opposite message, contrary to
what the official gold industry propaganda preaches. In fact, India
and China posted increases in jewelry demand last year, outside
the global trend. Silverware demand rose by a decent 4.6% to 59.5
moz, largely due to a surge in Indian fabrication. Their middle
class grows impressively.

As for supply,
the silver mine production rose by 4.0% to 709.6 moz in 2009. Gains
came both from primary silver mines and output from mining by-product.
The strongest growth came from Latin America, where silver output
increased by a hefty 8%, the biggest gains logged in Argentina and
Bolivia. Again Peru was the world leader in silver production in
2009, followed by Mexico, China, Australia, and Bolivia. All of
these countries saw increases last year except for Australia, where
output was dragged down from the lead/zinc sector, with the by-product
impact. Some mines are devoted solely to silver targets, called
primary silver projects. Global primary silver output saw a 7% increase
in 2009, accounting for 30% of total mine production last year.
The cash operating costs for primary silver mines remained relatively
stable, rising by less than 1% to $5.23/oz in 2009. The big story
is the huge decline in net silver supply from above ground inventory
stocks, which were reduced by 86% to 20.2 moz in 2009. The drawdown
was driven mostly by the surge in net investment, higher de-hedging
(the active reduction in forward sale contracts), lower government
sales (like official mints), and a drop in scrap supply. The scrap
supply came down by 6% from 2008, enough to register a 13-year low
of 165.7 moz. It was the third consecutive year of losses in the
scrap category. Government stocks of silver, the feeder in official
coin mint programs, fell by an estimated 13.7 moz last year, to
reach their lowest levels in more than a decade. Data was supplied
by the Silver Institute (SEE LINK).

IMPACT OF
Q.E. CANCER

The big event
on the horizon has been the US Midterm Elections, just completed.
Its outcome was close to poll expectations. Many decisions have
been delayed. Much detail has been withheld. Unfortunate pauses
have come as a result. A palpable dread can be identified and pointed
to. Difficult unpopular decisions will now be made. Some of the
decisions will involve continued bank sector welfare after failed
fiduciary responsibility. Some of the next programs or legislation
will involve devious political and legal cover for criminal bond
fraud related to the mortgage industry, which is fully in the open
for dissection, outcry, and acrimonious debate. Basically, the bank
sector will see great maneuvers to be supported, protected, with
escape routes, now that the consequences of voter backlash are out
of the picture. Furthermore is the issue of political partisan gridlock.
Only dim bulbs would call the gridlock constructive or a good thing
in the current setting. When a nation is mired in a financial crisis,
requires leadership, demands restructure, and urgently needs reform,
any inaction from gridlock is like fighting over the steering wheel
on a big tractor trailer truck unable to manage a winding road,
certain to careen over the cliff. Some analysts use the term public
serpents to describe public servants, which seems spot on. Activists
should demand that private bank accounts be investigated of committee
heads, or even past Secretary of State (Colin Powell), or joint
chiefs of staff at the Pentagon, or past SEC and CFTC heads. While
at it, check the bank accounts of past presidents too.

The most reliable
and expert sources within my contacts mention a specific point,
with consistency. When the US elections are over, and after the
USFed gives some guidance on the QE2 Launch for monetized debt,
the system will experience tremendous added strains and will gradually
show signs of breakdown again, in accelerated mode. This time, unlike
September 2008, efforts to stabilize will not be possible. The system
will degrade, as supports, pylons, control cables, levers, guy wires,
and buttresses will be removed in the coming weeks. The Midterm
Elections served at the roadblock event, the beacon on the horizon,
the gate factor, the delayed lit fuse. The actions taken in November
will involve both the US captains and foreign entities. The US brass
can act without as much concern of voter backlash. The foreign financial
decision makers can act with knowledge that the USGovt, the USFed,
and Wall Street will not make a single solitary move toward bank
system reform, toward bank debt restructure, or toward debt liquidation
on the balance sheets. Instead, the US will redouble the magnitude
of what failed, their habit, their engrained failure in policy,
their legacy.

The main worry
by the USFed and USDept Treasury will center on foreign creditors
and abandonment. US bank leaders will ramp up the monetization under
the QE2 banner with added motivation. Trade war stokes the fires
of hostility, angst, and rebuke. Foreign creditors are worried that
their debt security paper is being diluted. Its value will be diminished,
but later in time. Expect a new European Dollar Swap Facility to
be announced soon, but with less delay than the last one. They must
match and offset the power of the QE2 initiative. It could be urgently
declared by EU in next several weeks. They must defend against a
rising Euro currency. Do not be trapped into thinking a USTreasury
Bond rally means a USDollar coincident rise. The USTBonds are from
the Printing Pre$$, which means no source of funds to convert. The
Jackass still believes 2.0% is an important 10-year USTreasury yield
target. All hell breaks loose after the target is hit, as the USTBond
bubble is likely to give off massive greenhouse gas afterwards.

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the rest of the article

November
5, 2010

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