Chile Forum

A most unusual recent development has been the large inflow of metal into the big ETF, SLV, over the past few days. The extraordinary high volume sell-off in SLV “should” have resulted in a massive outflow of metal, as ordinary investors undoubtedly sold in response to the sudden collapse in price. Instead, deposits surged on a price plunge for the first time ever, if my memory serves. In fact, I had predicted in the weekly review an outflow of 10 million ounces and not the almost 7 million ounces that came in. The most plausible explanation was either big new buyers rushed in to scoop up bargains or (as I suspect) we witnessed a large covering of the massive short position in shares of SLV or some combination of the two. There are two ways to cover a short position in SLV. One involves a straight buyback of shares from sales by existing shareholders which would result in a reduction of the short position and no change in metal deposits. The oth er alternative is that metal could be deposited and the newly created shares could be offset against the short position. The important point here is that whatever happened, it happened because of the intentional takedown in price that was most assuredly in connection with COMEX short covering and other commercial buying. If the CFTC can’t see this, then it is only because they don’t want to see it or are incapable of seeing it.

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There are several reasons to be concerned about the possibility of some sort of peak or decline in silver production in the future.
Here are just a few of the areas of concern, whether or not these factors will turn out to produce “peak” silver.

The Energy Return on Investment and Declining Ore Grades
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Lack of New Mine Discoveries
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Silver production is held hostage to the prices of copper, zinc, lead and gold
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Anemic Silver Reserve Growth Estimates
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Andean Countries: The Saudi Arabias of Silver
Between 2005 and 2010, only three countries accounted for nearly 70% of the 240,000 ton increase in global silver reserves. Those three countries were Peru, with an increase of 84,000 tons, Chile, which increased nearly 70,000 tons, and Bolivia, also nearly 18,000 ton increase.
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Peak growth rate in silver mine production (per 100 year time frame)
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Peak ratio of annual silver to gold production (in terms of silver’s abundance)
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Peak ratio of silver to world population
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Peak percentage of primary silver production versus byproduct of other metals
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Peak amount of silver held at futures exchanges
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So, while we may not have achieved peak silver, the white metal is by no means abundant.
And I still don’t think that most people appreciate its rarity.

Well, the Commitment of Traders Report lived up to its advanced billing...especially in silver.
In silver, the bullion banks decreased their net short position by an incredible 16,446 contracts...
which is 82.2 million ounces.
I've never seen a 1-week change this large in silver, ever!
The net short position in the Commercial category declined to 121.3 million ounces.
It's been many years since the Commercial net short position has been this low.

The '4 or less' bullion banks are now short 159.7 million ounces...
and the '5 through 8' Commercial traders are short 42.9 million ounces.
So these eight traders combined are short 202.6 million ounces of silver, which is 167% of the entire Commercial net short position.
If these eight Commercial traders disappeared, the remaining Commercial traders [...all 34 of them] are massively long the silver market, just like everyone else.

...the fact is that the real reason the price declined was because of paper trading on the Comex...
and it had nothing whatsoever to do with real-world supply and demand fundamentals.
Eight [and probably much fewer] traders in gold and silver control the price of both these metals...
and that's flat-out illegal.
They hold a short-side corner on these two markets.
The tail is wagging the dog, as there is no true price-discovery mechanism allowed to operate in these markets.
Can you imagine how fast the CME and CFTC would react if eight or fewer traders had a long-side corner on any commodity???
Ask the Hunt brothers and you'll find out...
and they didn't even get close to the position sizes that JPMorgan et al, hold.

Nick Laird's Days of World Production to Cover Short Positions graph... here it is now.
Please note the red bars in particular.
These are the '4 or less' traders in every commodity that's traded on the Comex futures market.
Note how the biggest ones are in the precious metals...silver and gold in particular.
It would take 82 days of total world silver production for the '4 or less' Commercial shorts to cover their short positions.
In gold it's 67 days.
All this data was extracted from yesterday's Commitment of Traders Report...
and then converted into days of world production for each commodity.

On silver's year-to-date chart we can see how the brutal plunge that wiped out many leveraged small silver speculators...

Big Money is right now having a field day mopping up the holdings of massacred small traders whose corpses are being loaded on to wagons like a scene from the aftermath of The Battle of Waterloo, and there are strong indications that after they have finished rifling through their pockets and taking the fillings from their teeth, silver is going to go storming back up.

A flock of small leveraged silver investors were caught on camera last week right after being fleeced...

Now we will look at the truly extraordinary COT situation for silver which suggests that, with weak longs having being nicely shaken out, it won't be long before it resumes the upward path.
The latest COTs show a TRULY MASSIVE DECLINE in Commercial short and Large and Small Spec long positions in silver, which comes on top of earlier declines for several weeks.
The Commercials have never been long silver and make money by playing the swings and this is as close as they have got to being long.
This is THE MOST BULLISH COT CHART FOR SILVER THE WRITER HAS EVER SEEN.
It alone suggests a stunning turnaround in the silver price before long.
How could this be?
If we couple this strongly bullish silver COT chart together with the strongly bullish euro COT chart shown in the Gold Market update (and the dollar COT chart is very bearish), the story it appears to be telling is that the dollar rally may soon be history, which suggests that some kind of breakthrough may be imminent regarding the crisis in Europe.
This would logically involve more integration and the commitment to a massive blast of QE, Fed style, in order to mitigate the liquidity problems arising from the insolvency of member states.
Needless to say, if Europe graduates to the elite super QE club, it will be great news for gold and silver, and for commodities generally.

Silver Shorts Cover Nearly Half Their Position In One Week

As we anticipated earlier this year, commercial shorts including JPM are finally within grasping reach of covering their positions and transitioning to net long. For more than a decade, the large commercial trading banks have been trapped with an enormous short position in silver as the price has risen from its lows near $3 to its May high of nearly $50. Most analysts expected the commercial shorts to be broken in a short squeeze, likely launching silver above $100. However, this short squeeze will not occur.

In September 2010 these traders began to aggressively cover their short positions. Since then, commercial net short positions in silver have been reduced from over 65,000 contracts to 24,262 as of September 27, 2011 - and falling from 40,708 just one week earlier.

The large September take down from the $40 price level to the $30 price level has completely wiped out the small leveraged speculators, which saw their net long positions crash from 18,170 the previous week to 8,837. Meanwhile, open interest is threatening to break below the 100,000 level - indicating that speculative money has abandoned silver and sentiment is extremely low amongst investors. The combinational one-two punch of the May takedown and September takedown served to transition contracts from speculators to the commercial shorts at a much lower average price than most analysts ever expected.

The bullish trend line in silver that began in 2009 remains intact. However commercial shorts are now within a few weeks of trading their way out of an impossibly large short position to go net long. We expect the remaining positions to be covered within the $26 to $32 price range under the guise of bearish speculator sentiment.

This is extremely bullish for silver's long term trend, as the commercial banks will capture more profits from the bull market in precious metals than any other trading group. Once the commercial banks have a net long position their financial incentive will reverse from using takedowns to take-ups.
This will likely coincide with the next round of monetary intervention by the Federal Reserve and the beginning of the third phase in the silver bull market - in which waves of retail investors push silver to its destined triple digit price level.

Overall silver has still appreciated 0.55% versus 75 different fiat currencies globally.

Currency vs 1 oz Silver.............1-Jan-11......30-Sep-11......% Silver + / - Q3 2011

Chile Pesos..........................14,456.98.....15,782.79................9.2%
United States Dollars...............30.91...........30.24...................-2.2%
Canada Dollars......................30.84............31.42....................1.9%

"[I took] a moment to revalue the world's above ground bullion inventory of silver and gold adjusted for the new prices. World silver bullion inventory of one billion ounces is now worth $30 billion, whereas gold world bullion inventory of 3 billion ounces in now valued at $4,900 billion [$4.9 trillion]. All the gold in the world is worth 163 times more than all the worlds silver bullion is worth, even though silver is much more rare than gold. I would suggest that is absurd and silver is destined to climb sharply in value, both on an absolute basis and relative to gold."
Ted Butler as quoted by Ed Steer

California South wrote:@g-j: I feel obligated to convey thanks for your time and energy - you share a lot of info and links. Many of the sources I read and/or subscribe to, but many others are complementary and very informative.

Lastly, anyone who is good at connecting the dots will realize the ramifications of this article go way beyond just the peaking of silver. The falling EROI of energy will not only be a destroyer of precious net energy, but will also help bring down the largest empire in the world.
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... the information in this article is an interpretation and opinion of what the energy and silver market will look like in the future. Each reader should develop their own opinion, based on several sources, and not solely on this single article.

Occupy Money: Pay With Silver To Beat The Banks!

People are now at the snapping point as B of A adds a $5 per month fee to use a debit card for purchases. Nothing if you only use the card at the ATM. A major hassle to go to the ATM before getting gas, etc. The average Joe will pay the $5.00 fee and that’s what they are counting on.

This is how we corner them. We OCCUPY MONEY. It’s a lot of work to go down to the demonstration. It smells like stale urine because people haven’t been very tidy. You might get arrested for doing nothing more than walking down the street.

You can OCCUPY MONEY where ever you are! If you have a bank account, you can convert some of the money to silver and spend it. If you can’t attend a rally, this is a way for you to participate.
It’s an instant demonstration – a proclamation of freedom. And the merchants can help support the people, too.

The banking powers aren’t counting on all the citizens out there to go off the banking grid. This will start with small merchants who are being trashed by the big banks. They will accept silver U.S. coins as payment for their merchandise because they want real money.

Banking customers are tired of getting near ZERO percent interest payments. Why keep your money in a bank when you can buy silver coins and put them in your mattress. People may say “you could get robbed at home”. We say “You are GUARANTEED to get robbed at the bank”!

Paying with genuine U.S. silver coins sends a strong message to all….we don’t want any more of that “fake” Federal Reserve money. We’re tired of the bankers controlling the money supply and stealing the value from our currency. Pushing people out of their homes.

Go into any merchant and bring your silver coins. Tell them you want to pay in genuine U.S. money. Real money. Not that fake electronic and paper money that depreciates by the day. It’s 100% legal since it’s 100% legal U.S. currency.

Tell the merchants you visit to post a sign by their register with that day’s price of silver and the amount dimes, quarters and halves will buy. Tell them to help Occupy Money.

Remember, Remember the 5th of November: BANK TRANSFER DAY

Together we can ensure that corrupt crony-capitalist banking institutions will ALWAYS remember the 5th of November! If the 99% removes our funds from major banking institutions to non-profit credit unions on or by this date, we will send a clear message to the 1% that conscious consumers won’t support companies with unethical business practices.