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“The More Silver You Want, The More You Have To Pay”

by John Rubino on February 19, 2013 · 15 comments

In this week’s talk with National Numismatics’ Tom Cloud, we cover the debt ceiling negotiations, futures contract expirations and the activities of his biggest customers (they’re buying silver).

DollarCollapse: Hi Tom. It’s been an intense couple of weeks…

Tom Cloud: Yes, and it could get more intense. Short futures positions in silver are expiring and we’re waiting to see what JPMorgan Chase and Goldman Sachs do. If they take more short positions, silver could pierce support at $29.50/oz and fall another 3%-4%.

DC: The current silver short position in already at historic highs, isn’t it?

TC: It is extremely short. We’ve always known there are far more futures contracts outstanding for silver than there is physical silver. The commitment of traders (COT) numbers are certainly important, but they’re harder to use as an indicator because there’s so much deception going on. In the physical market there’s a shortage for sure. It hasn’t been this out-of-balance since 2008.

Yesterday, for instance, I made my biggest-ever sale, 116,800 ounces in 100-ounce Comex silver bars. That’s 1,168 bars worth about $3.5 million. It took me 8 or 9 days going back and forth while the price was moving. For an order this size you first go to the big boys and see what they have and start down the supply chain.

DC: Really? For a $3.5 million dollar order you can’t just make a phone call? That’s a pretty small amount of money in today’s world.

TC: No, you can’t. They can find 5,000 or 10,000 ounces, but more than that is hard. And suppliers want a bigger premium because you’re taking their inventory. It used to be that the bigger the order the deeper the volume discount but with silver in backwardation [where the spot price is above the 1-month futures price] they want a higher premium for an order this size. So the more you want the more you have to pay.

Just to be clear, these are Comex bars from the five major refineries, not from secondary refineries. These bars can be used to settle futures contracts so in a Comex default their premiums will soar, and as a result people are very interested in them. Even the biggest refineries don’t have millions of dollars of inventory sitting around.

DC: Meanwhile, the little guy is quiet.

TC: Orders in the $600 to $10,000 range have been really slow. Small buyers don’t want to go in when the market’s down, they want to wait. But the big players are active. Besides the huge order, we’ve had other very nice-size orders in the past few days.

DC: The main macro news on the horizon seems to be the debt ceiling debate.

TC: Conservative republicans are demanding spending cuts and democrats want tax increases. It’ll be a war for a while, but there’s no doubt that they’ll raise the debt ceiling by another $2 trillion. A higher debt ceiling has historically been great for gold, so the question is whether the reaction will be like 2011 when gold went up by $150 in three days. We know they’ll raise the debt ceiling, and we know that will be good for gold and silver. We just have to be patient.

For more information or to place an order, call 800-247-2812 or email Tom Cloud at tgcloud@bellsouth.net. Mention DollarCollapse.com for free shipping and insurance.

 

  • Bruce C.

    I think the real issue here, for whatever near term reason, is the non-divergence of the physical PM market and the paper market. Note the still necessary conflation between those markets: “We’ve always known there are far more futures contracts outstanding for silver than there is physical silver.” Yet the game continues because the “lenders” to the options players don’t give a damn about reality (a physical shortage of silver) because they believe that they will get their silver back (no matter what), plus a nice lending fee to boot. Maybe if they weren’t playing with the likes of Chase and Goldman they would be more nervous.

    Now, as far as “normal” market psychology is concerned, JR states, “The main macro news on the horizon seems to be the debt ceiling debate.”

    I disagree. I actually haven’t heard about the debt ceiling for some time. I think the “sequestration” of spending cuts are more on tap now, and important because it will show how deluded the financial markets still are (and by “financial markets” I’m including physical PM buyers and the paper PM market.) Based upon the behavior of the financial markets today (Mon. 2/19/13) I have to assume that the spending cuts due to begin on March 1st will not go through. Clearly, no one in Washington wants them – the President or the Congress- and nor do the financial markets (I’m assuming so far). If the cuts are postponed or watered down to nothing and the markets continue to react positively then say goodbye to the “debt ceiling” label. It will never really come up again and will simply go the way of the annual Presidential budgets (remember those?). That won’t be good for gold/silver either, because that would send the signal that the vast majority of investors will have capitulated, conceding that the central banking/fiat money system has prevailed once again. That may be why gold/silver is being shorted so much.

    We all may have to suffer another swipe from the powers that be.

    • PaperIsPoverty

      But if the vast majority of investors have capitulated on metals then that’s exactly when we would expect the next major leg up, is it not? Because all the weak hands are out? The opposite of market saturation.

      And widespread shorting usually means a market is ripe for a short squeeze, though in this case, if it’s the TBTF’s who are shorting, they can eat paper losses seemingly forever. At the same time, if the TBTF’s are pulling out the stops on placing their naked shorts, it means they’re having trouble keeping the metals down at these levels.

      I’m not predicting an imminent launch of the metals, and in fact I’m afraid that a stock crisis would lead to liquidation of everything as in 2008. I’m just pointing out the contrarian position (or trying to).

      • Bruce C.

        It all comes down to timing and degrees of absurdity. In the stock market the VIX has been falling below “historically bearish levels” for months and now is down to almost historical absolute lows and fell another 3% just yesterday. So do you really think the stock market is going to “correct” anytime soon? I have no idea at this point. I can only assume that “investors” are so convinced that the central banks are willing to do just about anything to keep things reflating and that they will continue to succeed (and that US government spending will continue unabated). For example, Mario Draghi merely said “Believe me it will be enough!”, about his plan for “Outright Monetary Transactions” (OMT), and sovereign bond rates in Europe have been tame ever since. Not that such measures can really work in the long run, but who knows how long they can? The bottom line is that as long as the vast majority of people/investors believe in the power and stability of our fiat money system and monetary central planning then the belief in g/s just isn’t going to reach “escape velocity” and cause a paradigm shift.

        I do think it’s a good time to buy metals on a monthly basis because eventually things will change. You also make a good point though about what happened in ’08, which is the best “bearish” argument I’ve heard about gold, at least if/when there is a crisis. The ideal g/s investor is one who can afford to hold them for the long term and will never be forced to sell it for living expenses. If/when the SHTF g/s may actually fall in price NOMINALLY because relatively few people will have much money (FRNs) or not enough to afford any more than their immediate needs. After the dust settles I’d expect g/s to begin to regain its traditional role as true money, but if you had to give it up then it won’t matter.

        • PaperIsPoverty

          Degrees of absurdity is a good way to put it.

          The thing about the ’08 crisis is that silver had enormous premiums, so for someone like myself who buys at a local coin shop, the price was nowhere near as low as it looked on paper, and there was very little available. Steady monthly accumulation is best if you want to buy your metals anonymously and locally, because if the spot price dives that’s great, but it’s harder to actually get metals then. Every time there’s a sale there’s a shortage.

          The Automatic Earth folks (and others) say there are 100 paper claims on every real bit of wealth. If that’s even close to the truth, then what matters is having no counterparty risk, not price. So yeah, just accumulate what you can… it’s a guaranteed chair to sit on when the game of musical chairs ends.

    • chowthen

      I disagree. Debt ceiling will have to increase wither they’ll be a congressional debate or not. With a fiscal spending of $3.7T and a revenue of $2.5T plus sequestration of $0.1T, there’s still deficit of $1.1T. Where’s the government going to get that but to borrow so the debt ceiling will have to go higher and higher to no end. There will be no debt ceiling increase if we have a balance budget which means only spend what you take in revenue; hence, the government should only spend $2.5T yearly which is impossible to do.

      Now “vast majority of investors will have capitulated, conceding that the central banking/fiat money system has prevailed once again.” and put there money into equities; then, let them. In the long run it seems to me the deficit spending if it continues will someday cause the dollar to collapse due to devaluation.

      • Bruce C.

        I didn’t say the “debt ceiling won’t increase”, I’m saying that the term “debt ceiling” and it’s implied concept (i.e., a limit to the US Treasury debt level) will dissipate. We agree that Federal deficit spending “must” continue – and so it will – but it serves no political purpose in Washington for that fact to be continually publicized every few years.

        Just as the “White House” doesn’t want people to know how much money the incumbent President wants to spend (and so no budget is presented at all) the Congress (“the protectors of the purse”) don’t want people to think about how fiscally irresponsible they have become by having a “debt ceiling debate” every year or so. They would rather drop the term and spare themselves all the attendant embarrassment and cynical backlash, as Fed Chairman Ben Bernanke and others have suggested. That way they could get on with running the country the way they want without so much political flak.

        As for your second point, I also agree, but that is the multi-trillion dollar question. It seems to a whole lot of folks that if the deficit spending continues it will someday cause the dollar to collapse due to devaluation.

        But the key word is “someday”. It may take decades more (though I hope not) for that to happen catastrophically. The US dollar has gradually lost about 97% of its value in the last 100 years or so – that’s a lot of devaluation already if you ask me – and yet it is still the world’s premiere reserve currency and every time the global macro economy “burps” everyone flocks to the dollar for safety. One big factor is that there is no other currency to replace it. Furthermore, there are a lot of lesser currencies that need to implode first. Japan has even more debt than the US and has, at least until recently, one of the strongest currencies in the world. Maybe Abe will succeed in destroying it but I wouldn’t hold my breath. And then there’s the British pound that refuses to die. And seemingly the life goal of every intellectual oligarch in Europe is to maintain the euro so that’s “unfortunately” looking like a slow motion train wreck too. How can the dollar decline first amongst so much competition? China’s renbimni/yuan? It isn’t even a globally recognized currency, never mind a coveted one. Besides, even if China accumulates “enough” gold to challenge the dollar’s status, it is still a fatally flawed country philosophically, and has come so far so fast in appearances only that I don’t think they’re capable of being the next empire any time soon.

  • StukaPilot

    The plutocrats will keep using paper ounces to pound down the price of PMs right up to the moment of Ponzi collapse. When they move over to the real stuff, they want to grab as much of it as possible. Fine with me. I’m buying a box here, a box there, accumulating for an eventual barter economy; ultimate “dollar” value is irrelevant, since there will soon…be…no…dollar.

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  • tim ramich

    Small people don’t order when the market is down because the asshats selling the stuff don’t lower the prices in accordance with spot. I see rolls of 90% silver quarters on eBay going to well over $250 while the melt value is not even $210. That’s ridiculous for coins that have been circulated, worn, and likely don’t contain the amount of silver they originally contained. Even uncirculated coins shouldn’t fetch THAT much. Circulated coins should go for melt or lower.

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  • Hampster

    I love gold and silver and hold several ozs.. But something that gets lost especially in online discussions is the fact that if the economy does implode and bread prices for instance go through the roof. You gold and silver will go up in price but it will equal itself out because it will take a oz of gold to buy bread. So $10,000 gold and $1,000 silver is a double edged sword.. Also I’ve been paying attention lately and i’m VERY weary of posts and blogs that metals like gold and silver should be 10k or higher, actually the metal usually falls when stories like that hit the net.

    • Whatchu TalkinBoutWillis

      Why is it that a mercury dime will still purchase 1 gallon of gas? A $20 gold piece will still buy a fine men’s suit? It won’t increase nominally. In fact, it will increase INTRINSICALLY just as it has all along. 1 OZ of gold will purchase the same amount of bread in a SHTF scenario as it will now. The difference will be that it will take $20k fiat dollars to buy 1 oz of gold.

      We see this happening right now.

      Yesterday, one case (12 quarts) of Car Quest brand oil, 30 weight @ $48.00.

      Eye exam with dilation, 1 pair glasses, 30 daily wear contacts, $785.00

      2 Michelin 225 x 75 x R16 load zone E tires mounted = $595.00

      I spent $1428.00 in one day, on “every day” items.

      Obviously my Myopia prevents me from seeing any inflation (Nominal Value).

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