Reason # 5 The Silver Noose is Tightening
Trapped Like Rats
As prices continue their descent for both gold and silver, I feel it’s more important than ever to keep a clear focus on the implications of this price action, not just for investors like us(which are obvious), but also for those trying to orchestrate it.
It’s all a game of ounces in the end, for these banks, after all. They must bring enough physical metal to deliver on their exchanges, both to investors, and to the industrial users. There’s no “Plan B”.
Since both sources of demand won’t back off from their record level purchases, the bullion banks realize that they simply have to bring even more product to market. Their backs are against the wall here. The moment the metal is not delivered to some large customer in size, is the precise moment the end to this game will begin. That’s the Catch 22 of the situation though: the banks want lower silver prices, yet the lower the price goes, the more threatened their constant source of supply becomes.
We’ve already seen how miners are hitting a wall, concerning the silver supply they can bring to market at these prices. Yet, other sources are quite sensitive to price drops as well, some of which the average silver investor may not even know about.
Sources like silver “scrap” and recycling are particularly vulnerable in this respect. In fact, last year alone, the amount of silver that was produced due to recycling dropped by an enormous 60 million ounces, a drop of over 23% from the previous year. Via the Silver Institute below, you can see just how large this drop was. It was such an immediate difference, that it became one of the chief reasons for last year’s deficit.
Visible Supply of Silver to the Market
|…of which scrap||252.6||191.8|
|…of which hedging supply||–||–|
|…of which ETF drawdown||–||–|
|…of which Government Sales||7.4||7.9|
|Total Visible Supply||1,052.3||1,019.4|
In light of the relentless plunge in silver prices, the plummeting amount of scrap silver that refiners were willing and able to source caused an overall reduction in silver supply of over 33 million ounces. This is in spite of the mining industry bringing a record number of ounces out of the earth last year!
The really crazy part about that reduction in recycling is that this all occurred at an average silver price in 2013 of $23.79! Barring any huge price spike, from now until December, this year’s average price will be much lower than $23, considering the high price for silver all year was a short spike up to roughly $21.60.
2014 Scrap Reduction?
Can you imagine what effect this will have on silver scrap supplies this year? Remember, everyone wants the best bang for their buck in this process. There is a base level cost to refiners to even process the silver scrap, and turn it into industrial grade bars. If the costs of the process cannot be met or justified by silver’s price, then silver scrap won’t be turned into new silver product. It’s that simple.
The same goes as well though, for owners of silver jewelry or scrap. If you had old family jewelry sitting around, do you think you’d feel terribly motivated to go drive out to your local “cash for silver” store, and pawn your silver to them at the lowest price in 4 years?
Remember that these “cash for silver” stores only pay you a fraction of what the spot price happens to be. So you won’t be getting anywhere near the $19 per ounce that silver’s currently resting at. You’re likely only to get between 50 to 80% of that $19 price! The market, both the refineries, and the silver owners at large, are acting very rationally by recycling alot less silver during ridiculous price collapses, like the one being engineered right now.
So, unless you’re like this lady below:
Who, for inexplicable reasons, treats these:
As if they’re this:
Then chances are, you’re just not gonna feel that compelled to go down to your local “cash for metal” store and get hosed. That’s exactly what millions of others are doing as well: they’re waiting for sunnier days before bringing their silver to market.
By the way, I wonder: what would a dollar-scented air-freshener smell like?
Hmm. Narcotics, maybe?
Yeah, maybe that’s why no one’s made one yet…
The Mindset Driving the Shortage
It may not appear like it at all, brother, but momentum is on our side right now.
What am I talking about?
For one thing, I’m talking about the psychology behind huge price declines. An enormous price decline puts a great deal more pressure on those doing the supplying, than those doing the buying. For those such as us, who know what’s really going on, we’re not afraid of what is happening right now. In fact, I’ve been personally preparing for weeks to make another purchase, but I haven’t just yet. I’m waiting to see if JP Morgan can at least plumb the depths from the summer of 2013($18.18). Since we’re only 2% away from that magic number, I’ll sit tight just a bit longer.
Why? Because I can!
You see that? We’re the ones who can wait. Most of you are able to wait as well. This is a buyer’s dream, and a seller’s nightmare. This great luxury of being able to sit, and buy at our leisure is our greatest weapon. Time is our ally here! We’ve got nothing but time in this equation, but please understand right now, these bullion banks do not!
With the average price in 2014 being somewhere in the $19 range, a whole $4 less than last year(when scrap reduced by 60 million ounces), I’d be willing to wager a decent sum that this year’s scrap offering will be even less. It could be substantially less.
Think about all the trouble that Scotia Bank, JP Morgan, HSBC and friends, are experiencing in getting these refiners and miners to bring enough precious silver ounces to market?
That’s just too bad, ya know? Let me also say at this juncture, that these guys doing the supplying are panicking right now.
I don’t think so, I know it. Let me tell you why.
Frantic Silver Movements
Ted Butler is one of the original men who discovered this fraud in silver, and by the way, if you aren’t familiar with him, I highly recommend that you bookmark his site, and read some of his older materials. You’ll learn more from him in a few hours than you will from other places in months.
Recently, Ted has been documenting something very peculiar in the silver market. In fact, he’s pinpointed an indicator that’s flashing warning signs that something is terribly wrong in global silver stockpiles, and the silver supply chain at large. It has to do with something called “Comex Inventory Turnover”. Let me explain.
Many of the world’s largest warehouses for silver are in the Comex warehousing and delivery system. These warehouses are located mostly in New York City, and a few other parts north. Ted has mentioned for years, that in the olden days, he’d rarely see more than one million ounces move in and out of these huge warehouses in a week’s time to make deliveries.
Yet now? Well, allow me to let Ted explain it as only he can. This was written to his subscribers back in April:
“For the past three years, I have commented on the turnover or movement in and out of the COMEX-approved silver warehouses. Prior to April 2011, I had noticed no particular pattern in these inventories. Since that time, there has been a noticeable pattern of large daily and weekly deposits and withdrawals of silver from COMEX warehouses. One of the most notable features is that it has been confined to silver and not gold or copper. On average, there has been a 3 million ounce weekly turnover in COMEX silver inventories over the past three years, or 150 million ounces on an annual basis. This week, the silver warehouse turnover hit over 8 million ounces, or 400 million ounces annualized, one of the largest in memory.
This silver warehouse turnover is no simple bookkeeping entry. It takes metal out of the warehouses and puts in on trucks, or takes it off trucks and puts it into the warehouse. It involves trucks, insurance, warehouses, auditors and assorted middlemen that track movements to the ounce. A typical truckload runs 600,000 ounces of silver or $12 million, an amount that would be closely accounted for every step of the way. And it certainly costs money to move this amount of metal every day. I can’t say exactly why the turnover is so high. My best guess is that some type of large physical demand requires the movement. Isn’t that the same as tightness and a pending shortage? If I am close to right as to why this COMEX silver warehouse turnover exists, there may be a pending physical shortage and a dramatic new price.” -Ted Butler
Amazing! We’ve gone from roughly 1 million ounces being shipped in and out per week, to three million ounces per week at that point, and in one particular week, we had 8 million ounces get moved around in 5 business days! Do you realize how many forklifts were required just to move that much silver?
“Well, Watchman, that silver turnover is definitely impressive, but, I guess I don’t understand. What does a quickening pace of silver turnover have to do with the bad guys being panicked? Why do they care about how fast silver is moving? They’re still making deliveries aren’t they?
Excellent question! Yes, they are still making timely deliveries, but the reason that the fast turnover rate of silver in these warehouses is such a big deal, is that it says, no, it screams, that deliverable silver is in dire shortage.
Think about it. If there was plenty of silver in the world to deliver, then many of those stockpiles would find a cozy home, as they did in days past, and just wait patiently to be delivered. These silver stockpiles are not at rest. They’re being shipped out as fast as they’re being shipped in. If there were a host of other warehouses who were bursting with silver to deliver, you would not be seeing this frantic movement of inventory.
All the silver within the Comex, is increasingly becoming all there is to deliver. Anywhere.
What’s even worse, is that “Uncle Ted”(as some of us know him) estimates that although the Comex warehouse inventory states they have 180 million ounces within their vaults, only about 30 million of them are probably available to deliver in a moment’s notice.
Please understand that this movement mentioned above is no outlier, either. This frenetic silver movement hasn’t slowed down since April. In fact, if the last few weeks are any indication, it seems to be getting even more frantic. Just 6 days ago(September 6th), Mr. Butler had this to say about the silver turnover rate at the Comex:
“Let me take another shot at trying to highlight why this COMEX physical turnover, unique to silver among all commodities, has captured my attention. There are six COMEX-approved silver warehouses—four in the vicinity of New York City and two not that far away in Delaware and Massachusetts. There is not a lot of silver mining or smelting occurring in this narrow area of the Northeastern US, although this is clearly a hub for distribution and transportation. This year some 900,000 oz of silver on average have moved into or out from these six warehouses on a daily basis.
Converting world annual silver mine production to the same five day work week as COMEX inventories are reported (800 million oz divided by 250 days), the daily world mine production of silver comes to 3.2 million oz each business day. The daily average movement of silver into and out from the COMEX silver warehouses at 900,000 oz is equal to 28% of total world daily mine production, even though the world mines and refines silver in areas far from the narrow area where the COMEX silver warehouses are located.” -Ted Butler
Did you get that? Over 1 in every 4 ounces of silver that planet earth will bring out of the ground this year, will be shuffled through the vast halls of Comex warehouses. Over 1 in 4. The Comex system has gone from moving perhaps 1 million ounces of silver per week, to moving nearly 1 million ounces…per day! In fact, in just the last two business days, the Comex has moved over a whopping 4 million ounces of silver!
The huge trouble in the mining industry, coupled with a cratering supply of silver in the recycling world, is a deadly combination for those who wish to keep this silver suppression game going.
Demand for this amazing metal continues to grow exponentially, from both silver investors, as well as those who need silver for their industrial products.
At what point will it end? Will it end when daily Comex silver deliveries hit 2 million? 3 million? 5 million ounces? Beats the heck outta me! All I know is that there’s a mathematically guaranteed end to this malevolent scam.
When it comes you’ll either be one of the heroes who held the line, and growing richer by the hour, or you’ll be cursing yourself for being cut down by these banks, and tricked into selling out so close to payday.
Be the hero!
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