Wednesday, May 4, 2011
CME Hikes Silver Margins By 17%: 4th Hike In 8 Trading Days
Nobody could have foreseen this. Nobody. At this point there is nothing left to comment on what is a concerted action to "mitigate" any and all risk in the commodity market but could as well be classified as executive order 6102.5. While we were joking before that soon one will have to post more cash than an silver contract is worth, we are now forced to reevaluate this sarcasm.
Update on Silver 05/04/11 5:20 p.m.
Submitted by: Francis Soyer 05/04/11
For those of you who like taking 10 or 20 ounces into possession for the safe like I do take note of the huge disparity in physical ounces versus paper ounces like JPM's SLV ETF, which is now almost 5 dollars below an ounce from a bullion dealer, no doubt by design for an arbitrage to occur for dealers to sell bullio they do not have, buy SLV ETF's t the discount to spot and then demand delivery from the SLV cutodian. Good luck to the dealers doing this though as JPM has maybe an ounce or two in their vaults to cover this arbitrage.
The big take away from my latest order was that I was informed that my order would be significantly delayed for delivery, I am probably looking at 6 weeks from Bulliondirect.com So the physical market for this metal is becoming very difficult. This is a sign of things to come for the paper silver markets. They will be going to zero to reflect the total fraud that they are. Like I mentioned in the earlier post PSLV is the only alternative that I have found that actually has the physical silver in the vault to cover delivery. SLV and the CME have squat, they will default in the coming days on delivery and they will go belly up. Best of luck to them, they are going to need it.
Silver update 05/04/11 SLV / PSLV after the close
Submitted by Francis Soyer: 05/04/11
We may have turned the corner after todays session. While we have heard many things over the past week or so none of which changed the thesis as to why to own and notice I say OWN (as appossed to rent or on margin in Chicago so you can bent over by the CME, CFTC and their partners in crime) have only improved as to why to own precious metal as a backstop to the USD losing its reserve currency status in the coming days. And NO SLV is not a safe vehicle, there will come a day when SLV ETF certificates will be worth the paper they are written on. If you doubt that then check the prospectus and you will see numerous get out of jail free clauses that basically say they can make delivery of physical silver whenever they dam well please. And for new investors in Silver the SLV ETF is managed by None other than JP Morgan, the same slime who have been artificially pushing price of Silver lower to get out of their short position. PSLV is the closest and only vehicle I have found for actually being able to take delivery when needed without getting robbed. And no Silver and Coin brokers that offer to store it on your behalf are not safe either. The Silver sneed to be in your hands, at your home and in a Safe. For a list of reputable bullion dealers email in the comments section and I will be happy to provide.
World Bank chief surprises with gold standard idea
Remember all moves of what the Global Monetary System is up to are telegraphed well in advance. This is an example of why metals are getting pushed lower artificially. The War is on and they will fight tooth and nail to get everyone out of Silver and Gold because they want it ALL.
World Bank chief surprises with gold standard idea
World Bank President Robert Zoellick speaks at the Development Committee news conference during the annual IMF-World Bank meetings in Washington October 9, 2010.
Credit: Reuters/Yuri Gripas
LONDON
Mon Nov 8, 2010 6:30am EST
LONDON (Reuters) - Leading economies should consider adopting a modified global gold standard to guide currency rates, World Bank president Robert Zoellick said on Monday in a surprise proposal before a potentially acrimonious G20 summit.
Writing in the Financial Times, Zoellick called for a "Bretton Woods II" system of floating currencies as a successor to the Bretton Woods fixed-exchange rate regime that broke down in the early 1970s.
The former U.S. trade representative, who served in several Republican administrations, said such a move "is likely to need to involve the dollar, the euro, the yen, the pound and (a yuan) that moves toward internationalization and then an open capital account.
"The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values," he added.
Analysts were cautious. "Going forward that would be something that we could look toward, but it's not going to happen within a short period of time," said Ong Yi Ling, analyst at Phillip Futures in Singapore, adding that gold prices barely reacted to the comments.
Gold briefly hit a record high of $1,398.35 an ounce in early trade on Monday on concerns of a continued weakening dollar trend after the U.S. Federal Reserve last week acted to resume buying Treasuries.
SUMMIT ACRIMONY?
That policy has fed acrimony among leading economies in the Group of 20 in the run-up to their summit in Seoul on Wednesday and Thursday.
China and Germany, major exporting nations, have both decried the Fed's quantitative easing -- effectively printing money -- which is weakening the dollar.
Investors are pumping dollars into emerging markets in search of higher yields, and the potentially destabilizing impact of this, along with big current account deficits and surpluses as well as China's reluctance to let the yuan appreciate faster, are set to dominate the G20 debate.
France, which takes over the G20 chair after this week's summit, says it plans to work on a new international monetary system to bring greater currency stability.
Beijing's central bank chief has suggested an alternative monetary system based on using the International Monetary Fund's Special Drawing Rights, a notional unit of value based on a basket of major currencies, instead of the dollar as the sole global reserve currency.
Zoellick was a senior official in the U.S. Treasury at the time of the 1985 Plaza and 1987 Louvre Accords on rebalancing currencies among major industrialized nations. He noted that that phase of currency coordination helped launch the Uruguay Round of world trade liberalization negotiations.
While his opinion article in the Financial Times did not represent either U.S. or World Bank policy, it may reflect a greater openness in Washington than in the last two decades to some form of international currency cooperation.
"The dollar is losing its relevance especially with the emergence of Asia economies, so a more neutral benchmark may be required. Gold, amid all the recent uncertainty, is proving its worth," said ANZ's senior commodity analyst Mark Pervan.
Gold retreated to around $1,390 an ounce by 1000 GMT as speculators booked profits.
Zoellick said a new monetary system would take time to develop and should be part of a package approach including possible changes in IMF rules to review capital as well as current account policies, and linking IMF monetary assessments to World Trade Organisation obligations.
The dollar rose sharply on Monday as unwinding of dollar short positions that began with solid U.S. jobs data snowballed, pushing down the euro to its lowest level since the Fed embarked on fresh easing last week.(Reporting by Lewa Pardomuan, Nick Trevethan and Paul Taylor; Editing by Ruth Pitchford)
World Bank chief surprises with gold standard idea
World Bank President Robert Zoellick speaks at the Development Committee news conference during the annual IMF-World Bank meetings in Washington October 9, 2010.
Credit: Reuters/Yuri Gripas
LONDON
Mon Nov 8, 2010 6:30am EST
LONDON (Reuters) - Leading economies should consider adopting a modified global gold standard to guide currency rates, World Bank president Robert Zoellick said on Monday in a surprise proposal before a potentially acrimonious G20 summit.
Writing in the Financial Times, Zoellick called for a "Bretton Woods II" system of floating currencies as a successor to the Bretton Woods fixed-exchange rate regime that broke down in the early 1970s.
The former U.S. trade representative, who served in several Republican administrations, said such a move "is likely to need to involve the dollar, the euro, the yen, the pound and (a yuan) that moves toward internationalization and then an open capital account.
"The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values," he added.
Analysts were cautious. "Going forward that would be something that we could look toward, but it's not going to happen within a short period of time," said Ong Yi Ling, analyst at Phillip Futures in Singapore, adding that gold prices barely reacted to the comments.
Gold briefly hit a record high of $1,398.35 an ounce in early trade on Monday on concerns of a continued weakening dollar trend after the U.S. Federal Reserve last week acted to resume buying Treasuries.
SUMMIT ACRIMONY?
That policy has fed acrimony among leading economies in the Group of 20 in the run-up to their summit in Seoul on Wednesday and Thursday.
China and Germany, major exporting nations, have both decried the Fed's quantitative easing -- effectively printing money -- which is weakening the dollar.
Investors are pumping dollars into emerging markets in search of higher yields, and the potentially destabilizing impact of this, along with big current account deficits and surpluses as well as China's reluctance to let the yuan appreciate faster, are set to dominate the G20 debate.
France, which takes over the G20 chair after this week's summit, says it plans to work on a new international monetary system to bring greater currency stability.
Beijing's central bank chief has suggested an alternative monetary system based on using the International Monetary Fund's Special Drawing Rights, a notional unit of value based on a basket of major currencies, instead of the dollar as the sole global reserve currency.
Zoellick was a senior official in the U.S. Treasury at the time of the 1985 Plaza and 1987 Louvre Accords on rebalancing currencies among major industrialized nations. He noted that that phase of currency coordination helped launch the Uruguay Round of world trade liberalization negotiations.
While his opinion article in the Financial Times did not represent either U.S. or World Bank policy, it may reflect a greater openness in Washington than in the last two decades to some form of international currency cooperation.
"The dollar is losing its relevance especially with the emergence of Asia economies, so a more neutral benchmark may be required. Gold, amid all the recent uncertainty, is proving its worth," said ANZ's senior commodity analyst Mark Pervan.
Gold retreated to around $1,390 an ounce by 1000 GMT as speculators booked profits.
Zoellick said a new monetary system would take time to develop and should be part of a package approach including possible changes in IMF rules to review capital as well as current account policies, and linking IMF monetary assessments to World Trade Organisation obligations.
The dollar rose sharply on Monday as unwinding of dollar short positions that began with solid U.S. jobs data snowballed, pushing down the euro to its lowest level since the Fed embarked on fresh easing last week.
The Last Great Opportunity in Silver and Platinum
The Last Great Opportunity in Silver and Platinum
by: Avery Goodman May 04, 2011
Share0 A rise in performance bond levels will usually cause a transient reduction in the price of any commodity, and silver is no exception. Most long buyers are undercapitalized and buy more than they can afford, no matter how huge their assets might be. Usually, they keep the minimum amount of the performance bond in their accounts.
Once a margin hike occurs, some are thrown out of their positions by margin calls. Many flee because experience tells them that the price is about to go down. And still others are flushed out because as a result of the first two situations noted above, their stop-loss orders are triggered. This usually ends with a steep price drop, depending on how high the performance bond levels are moved up.
We noted in previous articles that COMEX has been serially increasing margin requirements for holding silver futures contracts. This has happened three times in the last nine days now. Although some commenters claim that the hikes are happening because of the need to maintain leverage to a fast rising silver price, it was done, yet again, on May 2, 2011, when prices fell.
According to an article published in Zero Hedge, we've learned that MF Global hiked silver margins way beyond the official level, to roughly $25k per contract. Similarly, ThinkorSwim has raised margin requirements on SI $30,037.50 and $6,007.50 for the smaller 1,000 ounce contract? That is about two and a half times what the margin requirement was prior to last Friday's official COMEX performance bond increase. We have not been able to independently confirm this increase, but Zero Hedge has been accurate in the past.
If this is being done at those two broker-dealers, it is probable that the same thing is going to be done by many other futures dealers. MF Global is a very big futures broker and a big clearing member of the CME Group. ThinkorSwim is a broker which uses the services of a major futures clearing broker-agent who services retail brokerage houses. The ThinkorSwim margin requirement levels will be duplicated at dozens of other brokerages which use the same clearing house. We cannot help but wonder whether the proprietary trading divisions of MF Global and the clearing broker being used by ThinkorSwim are short silver? We don't know at at the moment, but it would be very interesting to find out.
Investors who do not want to be flushed out of their positions by an unexpected margin call need to regularly inquire with their brokers because, as the price continues rising, the margins are being constantly changed. The remaining open interest in silver would be inconsequential in normal times. However, right now, the demand for physical silver is so high and the inventory is so low that intense pressure is being put upon the silvers futures market. We tend to think that the real battle is in the form of OTC delivery demands being made upon London based dealers. To meet those demands, we are seeing, and we will continue to see financial institutions that participate in the ETF SLV continue to cash in their shares in exchange for baskets of physical silver. In our view, the reduction in the size of SLV's holdings is a result of this process and not any form of exit by average investors.
We don't know what is motivating the clearing brokers to dramatically raise performance bonds. The raises can only be justified if they were being applied to short sellers and new buyers who are buying their positions at the current prices. But they are being applied to all long buyers, including those who may have bought when the price was half of what it is now. We do know that these actions have but one effect. They force a transient long liquidation of silver futures positions, and that is exactly what happened on May 2, 2011. They drive down the so-called "spot" price for silver in a transient manner. This has also happened.
The "spot" price was once thought of as being the result of so-called "price discovery" at the futures exchanges and in the bullion market in London. The spot price is now viewed, by many, as a false price that is gamed. This is because on February 3, 2010, Andrew Maguire, a former Goldman Sachs commodities trader who is now independent, emailed the CFTC some valuable information about a “manipulation event”.
He described it with extraordinary detail, and predicted accurately what would happen just two days later. The emails have been released publicly and are now posted here. The extraordinary accuracy helps us understand what is happening in the silver market. Why prices are soaring, why prices are defying traditional technical analysis and why so many investors no longer give any credence to the so-called "spot" and "London fix" prices. The price of silver which, based on the emails has been artificially suppressed, is not really doing anything extraordinary. It is simply an asset that has been mispriced by the market for a very long time and is unwinding to fair market value.
The ongoing price drop represents an opportunity for people to buy silver at a price that is cheaper than it probably should be right now. We believe that this is exactly what a lot of smart people are going to do. A severe drop in spot prices created by the margin changes could last anywhere from a few hours to a few days- or even a few weeks- if they keep raising the bond levels. But the spot price is becoming increasingly irrelevant. If arbitragers believe that COMEX or the LBMA will deliver the silver promised in derivatives, they will buy there and sell in the physical market, forcing prices up again. Alternatively, if a COMEX or LBMA member bank default on silver lies ahead, the spot price will be discredited forever.
Trying to find the lowest price during a price dip is very difficult. Just be happy with buying at a "good" price, considerably lower than you would have had to pay just a short time ago. Sales in the physical market were bigger than ever, even when the spot price was driven close to $50 per ounce. So the exact price you pay now may not matter. You need to play it by ear as these events unfold. Our previous articles (I, II, III, IV) can help provide additional information.
There are huge opportunities for traders willing to take big risks in the silver market right now. This may represent a last great opportunity to buy silver at a cheaper price. The depth of this dip will largely depend on how fast over-leveraged long buyers can be flushed out of the futures markets; on how fast some of them can put in new orders after their stop-losses are triggered; on how many times the performance bond levels are raised; and on how fast people can wire in more money to their brokers to get back into the game.
Seemingly "managed" price drops usually last less than a week, and often no more than a day or two before running out of steam. After that, a shell-shocked, disspirited market is utilized, for the most part, to maintain a lower price for a longer period of time. In the aftermath of the McGuire emails, however, it is not likely that people will remain disspirited for a long time. People now know why silver is declining.
An ominous problem continues to be faced by silver shorts. For the first time, a lot of serious investors who are not undercapitalized are a part of the silver market. They opportunistically buy cash positions as leveraged longs are flushed out. Therefore, we are not likely to see a traditional "shell-shocked" market arising out of this. Even if peformance bonds are raised to 100%, the difficulty in finding silver to make deliveries into the OTC market will continue. That will force prices up again.
Conservative long term investors might also want to consider platinum. By our estimates, it will be in serious shortage in a year or two. JP Morgan Chase is buying physical bars of platinum like hotcakes. Platinum has a similar concentrated short position at the futures markets, having been subjected to the same type of behavior by big futures market players in the past. It also has huge "unallocated" storage ratios, and the mining supply each year is miniscule. The mining supply continues to be relatively stagnant, in spite of higher prices over the last few years. It is costing more and more for miners to extract what platinum is left in the S. African mines, and mining in Zimbabwe is being stymied by political issues.
A 5% shift in jewelry demand away from gold to platinum, as the price of gold and platinum head closer to parity, will lead to a need for 69 tons of additional platinum mining supply each year. The total mining supply, however, is only about 6.9 million troy ounces, or 214 metric tons. The metal is 14.7 times rarer in the earth's crust than gold. All mine production is already spoken for in 2011. Yet, new and important clean air regulations throughout the developed world will require catalytic converters on all new off-road diesel vehicles. That is expected to create about 15.5 tons of new demand. Add 15.5 tons of demand to an already tight market, and you will have a price rise. Add another 69 tons of demand (and perhaps much more) as gold continues to rise in price and be monetized by central bank buying, and you have the makings of a price explosion potentially much larger than what we have seen in the silver market.
When and if you speculate in silver, or in anything else, remember that nothing is a sure thing. We have bought the SIVR ETF on the dip. It is a good trading instrument, but not necessarily the best way to own silver long term. A calculated gamble with a small percent of your assets can be fun and profitable. Just don't put the house, the retirement assets or the "lunch" money at risk. Even if you make a big percentage profit, don't get carried away by it. Speculation by average people should be limited to what they can afford to lose in Las Vegas. Leave the heavy lifting to silver vigilantes.
That being said, you may want to take advantage of the current situation to buy as many beautiful silver coins and small bars as please your eye. They are beautiful and pleasant to look at, feel and hold. They will last as long as you live, and can be passed down to your children and your children's children, long after you are dead. They also happen to be a good long term investment.
Disclosure: I am long SIVR.
by: Avery Goodman May 04, 2011
Share0 A rise in performance bond levels will usually cause a transient reduction in the price of any commodity, and silver is no exception. Most long buyers are undercapitalized and buy more than they can afford, no matter how huge their assets might be. Usually, they keep the minimum amount of the performance bond in their accounts.
Once a margin hike occurs, some are thrown out of their positions by margin calls. Many flee because experience tells them that the price is about to go down. And still others are flushed out because as a result of the first two situations noted above, their stop-loss orders are triggered. This usually ends with a steep price drop, depending on how high the performance bond levels are moved up.
We noted in previous articles that COMEX has been serially increasing margin requirements for holding silver futures contracts. This has happened three times in the last nine days now. Although some commenters claim that the hikes are happening because of the need to maintain leverage to a fast rising silver price, it was done, yet again, on May 2, 2011, when prices fell.
According to an article published in Zero Hedge, we've learned that MF Global hiked silver margins way beyond the official level, to roughly $25k per contract. Similarly, ThinkorSwim has raised margin requirements on SI $30,037.50 and $6,007.50 for the smaller 1,000 ounce contract? That is about two and a half times what the margin requirement was prior to last Friday's official COMEX performance bond increase. We have not been able to independently confirm this increase, but Zero Hedge has been accurate in the past.
If this is being done at those two broker-dealers, it is probable that the same thing is going to be done by many other futures dealers. MF Global is a very big futures broker and a big clearing member of the CME Group. ThinkorSwim is a broker which uses the services of a major futures clearing broker-agent who services retail brokerage houses. The ThinkorSwim margin requirement levels will be duplicated at dozens of other brokerages which use the same clearing house. We cannot help but wonder whether the proprietary trading divisions of MF Global and the clearing broker being used by ThinkorSwim are short silver? We don't know at at the moment, but it would be very interesting to find out.
Investors who do not want to be flushed out of their positions by an unexpected margin call need to regularly inquire with their brokers because, as the price continues rising, the margins are being constantly changed. The remaining open interest in silver would be inconsequential in normal times. However, right now, the demand for physical silver is so high and the inventory is so low that intense pressure is being put upon the silvers futures market. We tend to think that the real battle is in the form of OTC delivery demands being made upon London based dealers. To meet those demands, we are seeing, and we will continue to see financial institutions that participate in the ETF SLV continue to cash in their shares in exchange for baskets of physical silver. In our view, the reduction in the size of SLV's holdings is a result of this process and not any form of exit by average investors.
We don't know what is motivating the clearing brokers to dramatically raise performance bonds. The raises can only be justified if they were being applied to short sellers and new buyers who are buying their positions at the current prices. But they are being applied to all long buyers, including those who may have bought when the price was half of what it is now. We do know that these actions have but one effect. They force a transient long liquidation of silver futures positions, and that is exactly what happened on May 2, 2011. They drive down the so-called "spot" price for silver in a transient manner. This has also happened.
The "spot" price was once thought of as being the result of so-called "price discovery" at the futures exchanges and in the bullion market in London. The spot price is now viewed, by many, as a false price that is gamed. This is because on February 3, 2010, Andrew Maguire, a former Goldman Sachs commodities trader who is now independent, emailed the CFTC some valuable information about a “manipulation event”.
He described it with extraordinary detail, and predicted accurately what would happen just two days later. The emails have been released publicly and are now posted here. The extraordinary accuracy helps us understand what is happening in the silver market. Why prices are soaring, why prices are defying traditional technical analysis and why so many investors no longer give any credence to the so-called "spot" and "London fix" prices. The price of silver which, based on the emails has been artificially suppressed, is not really doing anything extraordinary. It is simply an asset that has been mispriced by the market for a very long time and is unwinding to fair market value.
The ongoing price drop represents an opportunity for people to buy silver at a price that is cheaper than it probably should be right now. We believe that this is exactly what a lot of smart people are going to do. A severe drop in spot prices created by the margin changes could last anywhere from a few hours to a few days- or even a few weeks- if they keep raising the bond levels. But the spot price is becoming increasingly irrelevant. If arbitragers believe that COMEX or the LBMA will deliver the silver promised in derivatives, they will buy there and sell in the physical market, forcing prices up again. Alternatively, if a COMEX or LBMA member bank default on silver lies ahead, the spot price will be discredited forever.
Trying to find the lowest price during a price dip is very difficult. Just be happy with buying at a "good" price, considerably lower than you would have had to pay just a short time ago. Sales in the physical market were bigger than ever, even when the spot price was driven close to $50 per ounce. So the exact price you pay now may not matter. You need to play it by ear as these events unfold. Our previous articles (I, II, III, IV) can help provide additional information.
There are huge opportunities for traders willing to take big risks in the silver market right now. This may represent a last great opportunity to buy silver at a cheaper price. The depth of this dip will largely depend on how fast over-leveraged long buyers can be flushed out of the futures markets; on how fast some of them can put in new orders after their stop-losses are triggered; on how many times the performance bond levels are raised; and on how fast people can wire in more money to their brokers to get back into the game.
Seemingly "managed" price drops usually last less than a week, and often no more than a day or two before running out of steam. After that, a shell-shocked, disspirited market is utilized, for the most part, to maintain a lower price for a longer period of time. In the aftermath of the McGuire emails, however, it is not likely that people will remain disspirited for a long time. People now know why silver is declining.
An ominous problem continues to be faced by silver shorts. For the first time, a lot of serious investors who are not undercapitalized are a part of the silver market. They opportunistically buy cash positions as leveraged longs are flushed out. Therefore, we are not likely to see a traditional "shell-shocked" market arising out of this. Even if peformance bonds are raised to 100%, the difficulty in finding silver to make deliveries into the OTC market will continue. That will force prices up again.
Conservative long term investors might also want to consider platinum. By our estimates, it will be in serious shortage in a year or two. JP Morgan Chase is buying physical bars of platinum like hotcakes. Platinum has a similar concentrated short position at the futures markets, having been subjected to the same type of behavior by big futures market players in the past. It also has huge "unallocated" storage ratios, and the mining supply each year is miniscule. The mining supply continues to be relatively stagnant, in spite of higher prices over the last few years. It is costing more and more for miners to extract what platinum is left in the S. African mines, and mining in Zimbabwe is being stymied by political issues.
A 5% shift in jewelry demand away from gold to platinum, as the price of gold and platinum head closer to parity, will lead to a need for 69 tons of additional platinum mining supply each year. The total mining supply, however, is only about 6.9 million troy ounces, or 214 metric tons. The metal is 14.7 times rarer in the earth's crust than gold. All mine production is already spoken for in 2011. Yet, new and important clean air regulations throughout the developed world will require catalytic converters on all new off-road diesel vehicles. That is expected to create about 15.5 tons of new demand. Add 15.5 tons of demand to an already tight market, and you will have a price rise. Add another 69 tons of demand (and perhaps much more) as gold continues to rise in price and be monetized by central bank buying, and you have the makings of a price explosion potentially much larger than what we have seen in the silver market.
When and if you speculate in silver, or in anything else, remember that nothing is a sure thing. We have bought the SIVR ETF on the dip. It is a good trading instrument, but not necessarily the best way to own silver long term. A calculated gamble with a small percent of your assets can be fun and profitable. Just don't put the house, the retirement assets or the "lunch" money at risk. Even if you make a big percentage profit, don't get carried away by it. Speculation by average people should be limited to what they can afford to lose in Las Vegas. Leave the heavy lifting to silver vigilantes.
That being said, you may want to take advantage of the current situation to buy as many beautiful silver coins and small bars as please your eye. They are beautiful and pleasant to look at, feel and hold. They will last as long as you live, and can be passed down to your children and your children's children, long after you are dead. They also happen to be a good long term investment.
Disclosure: I am long SIVR.
Silver SLV / PSLV Update 05/04/11
Submitted by: Francis Soyer
Lets review the silver thesis and understand what the last couple weeks have been about:
1. Over the past 8 days the CME has raised margin rates three times being an 8%, 10% and then another 12% increase on Monday followed by another round of 100% increases in rates from large futures brokers in chicago yesterday.
2. This rampant increase in rates comes on the heels of Bernanke's testimony which triggered massive buying (a vote of no confidence and that the Fed is losing credibality) and is a vote of no confidence on the worlds reserve currency the USD.
3. Comes days after April 24th 2011 when China's Central Bank and Monetary Policy member Xia Bin announced that China will be dumping $2.3 Trillion of US debt nearly a two thirds of their holdings and went on to say that these will be shifted into "strategic resources" to diversify. The only thing strategic that I can see to replace money with money is Gold and Silver!
4. Comes shortly after Japan will need to raise $1 Trillion by dumping U.S. Debt to recover from their earthquake.
5. Comes after a series of margin hikes from the CME and Futures Brokers after the November announcement that China and Russia will commence trading in their own curriencies and dumping the U.S. dollar for trade with eachother. And yes this means they will be using their own currency to buy and sell OIL with EACHOTHER. For those who do not understand... The worlds oil trade settlement standard is the global the reserve currency the US Dollar. China and Russia have officially flipped the bird to the dollar in this announced move. http://www.ibtimes.com/articles/85424/20101124/china-russia-drop-dollar.htm
So lets try to quantify what this agreement means outside of the fact that China is also Dumping Two Thirds of their USD. The answer is that for 2010 China traded or purchased roughly 9 million barrels of oil per day. So lets multiply 9 x 365 and we get 3,285,000,000 barrels of Oil for the year or 3.285 Billion barrells of Oil.
Now lets assume according to the chart below that for 2011 on a conservative estimate that demand will be 10 million barrells a day for China which gives us 3,685,000,000 barrels of oil for the year or 3.685 billions barels. Now lets use another conservative estimate for oil in dollars for the year of 2011 and say the average price for the year woul be $100 per barrel. So for 2011 China in U.S. dollar terms will buy 3.685 billion x $100 on average giving us a dollar value of $365,000,000,000 or $3.65 Trillion that we will need to subtract from the value of the USD in terms of demand in settlement of Oil contracts from here on out. This is in addition to the $2 + Trillion that China announced it will be dumping of U.S. Dollars. Hence from estimate point of view we need to calculate $2 Trillion + $3.65 Trillion or $5.65 Trillion of additional debasement of the USD for 2011-2012! http://www.oilslick.com/Commentary/?id=2192&type=1
6. QE I and QE II (Quantitative Easing Program from the Fed which is printing money out of thin air and devalues the USD) QE I printed based on conservative estimates $1.5 Trillion and then launched QE II for $600 Billion and is expected to end in June. QE I began in November of 2008. The close price for UUP or the dollar index ETF closed on that day at $26.55. As of today May 4, 2011 with roughly six to seven weeks left of Money Printing out of thin air UUP is trading as of the close on May 3, 2011 at $20.97. So the total program of QE I and II of $2.1 Trillion or money printing which does not include any of the above mentioned and comming real influences on the debasement of the USD was a decrease in the value of the dollar by %21.01.The coming $5.65 Trillion in coming debasement is equal to 2.69 Times the total value of QE I and II. Thus by doing a simple calculation by assumption that if $2.1 Trillion is debasement or money printing equaled a decline of %21.01 then by reason we should calculate that another $5.65 Trillion or 2.69 Times %21.01 of continued debasement means the using UUP as an example 2.69 x Neg $21.01 gives us Neg %56.51 or a coming haircut of $11.85 per share on UUP which gives us an ending price using yesterdays close of UUP in the next year or so of $9.12!!! What is more concerning is in addition to the China Factor these numbers do not include Brasil or India two other large and growing economies that have made it clear that they are no longer willing to play with unclse same, are taking their ball and bat and going home.
7. So what does the above boil down to or how do we summarize what is occuring? The value of Money or currently but not for much longer the USD or the Global Reserve Currency is falling and rapidly so. That said we should ask well, what is Money?
Here is a basic rundown: http://en.wikipedia.org/wiki/Money
Medium of exchange
When money is used to intermediate the exchange of goods and services, it is performing a function as a medium of exchange. It thereby avoids the inefficiencies of a barter system, such as the 'double coincidence of wants' problem.
Unit of account
A unit of account is a standard numerical unit of measurement of the market value of goods, services, and other transactions. Also known as a "measure" or "standard" of relative worth and deferred payment, a unit of account is a necessary prerequisite for the formulation of commercial agreements that involve debt. To function as a 'unit of account', whatever is being used as money must be:
Divisible into smaller units without loss of value; precious metals can be coined from bars, or melted down into bars again.
Fungible: that is, one unit or piece must be perceived as equivalent to any other, which is why diamonds, works of art or real estate are not suitable as money.
A specific weight, or measure, or size to be verifiably countable. For instance, coins are often milled with a reeded edge, so that any removal of material from the coin (lowering its commodity value) will be easy to detect.
Store of value
To act as a store of value, a money must be able to be reliably saved, stored, and retrieved – and be predictably usable as a medium of exchange when it is retrieved. The value of the money must also remain stable over time. Some have argued that inflation, by reducing the value of money, diminishes the ability of the money to function as a store of value.[4]
Enter Gresham's Law
Gresham’s law, observation in economics that “bad money drives out good.” More exactly, if coins containing metal of different value have the same value as legal tender, the coins composed of the cheaper metal will be used for payment, while those made of more expensive metal will be hoarded or exported and thus tend to disappear from circulation. Sir Thomas Gresham, financial agent of Queen Elizabeth I, was not the first to recognize this monetary principle, but his elucidation of it in 1558 prompted the economist H.D. Macleod to suggest the term Gresham’s law in the 19th century.
Money functions in ways other than as a domestic medium of exchange; it also may be used for foreign exchange, as a commodity, or as a store of value. If a particular kind of money is worth more in one of these other functions, it will be used in foreign exchange or will be hoarded rather than used for domestic transactions. For example, during the period from 1792 to 1834 the United States maintained an exchange ratio between silver and gold of 15:1, while ratios in Europe ranged from 15.5:1 to 16.06:1. This made it profitable for owners of gold to sell their gold in the European market and take their silver to the United States mint. The effect was that gold was withdrawn from domestic American circulation; the “inferior” money had driven it out.
So what does the above mean in terms of Silver? It means that as Fiat Money depreciates Silver or Gold as a store of value, a commodity, than can be measured by units and is accepted as currency Silver and Gold Appreciates. Why? Because gold and silver is finite in supply and annual production. It is finite because most of it or 60% of it in Silvers case is used to make things like circuit boards, mirrors and computers and yes Jewelry too. So of the 40% of Silver every year that is not spoken for can be used as currency or Money. With more and more people buying Silver to replace crap money for good money or money that can not be printed out of thin air, do you think the CME by raising margin rates until they are %100 the value of contracts for delivery are doing so to protect you the Silver investor? That they are doing this in your best interest? Or do you think that they like any other governmental organization around the world say like China or Russia would rather have Silver or Gold in their vaults rather than paper and cotton USD notes that continue to devalue on a daily Basis? In my opinion the answer is simple. The CME, The Fed Reserve, the U.S. Goverment for that matter will do everything in its power legally and not to part people from their silver and gold. Why? Because it has value and that value will continue to rise so far beyond imagination that when we review this past few days one year from now we will be puking in our waste baskets wishing we had taken out a second mortgage on our house and bought every ounce of Silver asd Gold we could have gotten our hands on.
8. The above, is just one part of the picture as to why the CME and the governments that back them will do everything they can to drive you out of Silver and Gold. In part two I will discuss supply, demand and inflationary issues that are all also placing upside presurre on the two that the monetary part does not get into.
Think about it.
Francis Soyer
Rumormill around who is buying and selling precious metals is getting more ridiculous
The rumormill around who is buying and selling precious metals is getting more ridiculous than daily Radioshack LBO speculation. The latest comes from the WSJ which informs that based on "people close to the matter" Soros and Burbank are now dumping their gold and silver: "George Soros's big hedge fund, a firm operated by high-profile investor John Burbank and some other leading firms have been selling gold and silver, according to people close to the matter, after furiously accumulating precious metals for much of the past two years." Greg Zuckerman's conclusion, assuming a multi billion hedge fund will actually let its competitors know what it is doing concurrently as it is doing it, is merited: "Their selling suggested the sharp, nine-month run-up for precious metals could be entering more dangerous territory." Of course, something tells us that just like Goldman, whose prop desk has a nagging tendency to buy as its sellside "analysts" say sell, we would rather hold off until we see respective 13Fs on the matter. In the meantime, we fail to see where over the past week the central (pardon the pun) thesis has changed: namely that central banks will not print more linen/cotton when the time comes. And if the market is indeed starting to price in QEasing's end, then the deflationary scare will certainly see the RUT plunge and undo months of carefully executed (by NYU interns) POMO operations. For a Fed which equates the economy with the RUT, this is simply unacceptable.
More from the WSJ:
Yet silver, which has had a huge run, remains up nearly 38% in 2011. It rose 84% last year.
And some prominent investment pros continue to favor precious metals, among them hedge-fund manager John Paulson.
Last week an exchange-traded fund, or ETF, that owns silver bullion—the iShares Silver Trust—was the most active ETF on the U.S. market on some days, a sign of the rabid recent interest in silver.
"We haven't seen this much volatility in decades," said Robin Rodriguez, a metals trader in Charlottesville, Va. "We have such large profits built in," so some investors are taking their winnings, said Mr. Rodriguez, who remains bullish on the metal.
Interest in holding the silver ETF grew so intense it became hard to borrow shares to sell, as bearish traders need to do if they want to sell the metal short and bet on a decline.
All this helped set up the tumble, which started late Sunday, catching many by surprise. As sell orders flooded the market in Asia, brokers sought more collateral from investors who had bought on margin, even as they fielded calls from anxious investors who wanted to sell.
"Everybody wanted to get out," said Richard Digenan, an executive at R.J. O'Brien, a brokerage firm in Chicago.
The other side of the story, that of repeated margin hikes, is well known to ZH readers:
For those who invest in silver via the futures market rather than an ETF, exchanges and brokers have been raising margin requirements, the amount of collateral investors must leave with their broker to back a position.
CME Group, a commodity-exchange operator, has raised margin requirements three times in a week. It announced the latest increase Tuesday.
Many investors in silver futures make heavy use of borrowed money and were faced with either sending more collateral to their brokers or selling some contracts.
But back to the original story:
For nearly two years, Mr. Soros's hedge-fund firm bought gold and silver, becoming the seventh-largest holder of the biggest gold ETF, the SPDR Gold Shares. Some others with stellar records—including Mr. Burbank, of Passport Capital, and Alan Fournier, of Pennant Capital—also have been passionate about precious metals, giving encouragement to individual investors to follow.
Now they are selling, in each case for distinct reasons.
While many who buy gold do so to protect against future inflation, Soros Fund Management bought gold to protect against the possibility of the opposite—debilitating deflation, or a sustained drop in consumer prices.
But now the $28 billion Soros firm, which is run by Keith Anderson, believes chances of deflation are reduced, eliminating the need to hold as much gold, according to people close to the matter.
People familiar with Mr. Anderson's thinking said he believes the Federal Reserve's continuing to pump money into the system has reduced the likelihood of deflation.
The Soros team, meanwhile, isn't especially worried about a surge in inflation. Mr. Anderson has argued that by the end of this year the Fed will signal that interest-rate increases are in the offing, possibly early in 2012, according to someone close to the firm. Higher interest rates would tend to suppress inflation.
The Soros fund has sold much of its gold and silver investments over the past month or so, according to this person.
Mr. Burbank, a longtime gold supporter who predicts growing worries about the creditworthiness of the U.S. and some other nations, has trimmed some of his investments to lock in profits, according to someone close to the firm. This person added that Mr. Burbank remains a long-term gold bull and expects to buy more gold-mining shares after a decline.
Yes, this is the same Soros who bastardized Hayek a week ago, even as he admitted that the current monetary system is on the precipice.
As for the only guy who matters, and whose every move is studied under a microscope, he is not budging. In fact, he see gold at $4,000 in 3 years.
A number of high-profile investors remain huge holders of gold and silver, amid continuing concern about inflation and the dollar. Mr. Paulson, known for his lucrative bet against mortgages a few years ago, told investors he still has most of his personal money in gold-denominated funds operated by Paulson & Co.
Mr. Paulson told investors Tuesday morning that gold prices could go as high as $4,000 an ounce over the next three to five years, as the U.S. and U.K. flood the money supply. Gold settled in New York at $1,540.10 a troy ounce Tuesday.
Also, Wexford, run by Robert Rubin's right hand man from the Goldman arb desk days, and Mike Steinhardt protege, Chuck Davidson, doesn't appear to be going anywhere in a hurry either.
Wexford Capital, a $6.5 billion fund that has been a large buyer of silver over the past year, retains much of its metal positions, according to someone close to the matter.
Either way, a two day 20% correction, and everyone crawls out of the woodwork screaming bloody murder, even as silver has retraced to a price... from two weeks ago.
And once again we ask: will the Chairsatan stop printing? And what happens when the economy tumbles in Q2, as it will once the full hit from the Japanese economic collapse is felt, and Bernanke has no choice but to do in 2011 what he did in 2010? So yes, let silver drop to $30. Let it plunge to $20. The lower the better. Day traders on margin are advised to stay out. Everyone else, who has a personal vendetta with Bernanke however will find each incremental drop an even better opportunity to slam the stake in the heart of a failed monetary regime which is now in its last days.
Everything else is minute charts and irrelevant candles.
More from the WSJ:
Yet silver, which has had a huge run, remains up nearly 38% in 2011. It rose 84% last year.
And some prominent investment pros continue to favor precious metals, among them hedge-fund manager John Paulson.
Last week an exchange-traded fund, or ETF, that owns silver bullion—the iShares Silver Trust—was the most active ETF on the U.S. market on some days, a sign of the rabid recent interest in silver.
"We haven't seen this much volatility in decades," said Robin Rodriguez, a metals trader in Charlottesville, Va. "We have such large profits built in," so some investors are taking their winnings, said Mr. Rodriguez, who remains bullish on the metal.
Interest in holding the silver ETF grew so intense it became hard to borrow shares to sell, as bearish traders need to do if they want to sell the metal short and bet on a decline.
All this helped set up the tumble, which started late Sunday, catching many by surprise. As sell orders flooded the market in Asia, brokers sought more collateral from investors who had bought on margin, even as they fielded calls from anxious investors who wanted to sell.
"Everybody wanted to get out," said Richard Digenan, an executive at R.J. O'Brien, a brokerage firm in Chicago.
The other side of the story, that of repeated margin hikes, is well known to ZH readers:
For those who invest in silver via the futures market rather than an ETF, exchanges and brokers have been raising margin requirements, the amount of collateral investors must leave with their broker to back a position.
CME Group, a commodity-exchange operator, has raised margin requirements three times in a week. It announced the latest increase Tuesday.
Many investors in silver futures make heavy use of borrowed money and were faced with either sending more collateral to their brokers or selling some contracts.
But back to the original story:
For nearly two years, Mr. Soros's hedge-fund firm bought gold and silver, becoming the seventh-largest holder of the biggest gold ETF, the SPDR Gold Shares. Some others with stellar records—including Mr. Burbank, of Passport Capital, and Alan Fournier, of Pennant Capital—also have been passionate about precious metals, giving encouragement to individual investors to follow.
Now they are selling, in each case for distinct reasons.
While many who buy gold do so to protect against future inflation, Soros Fund Management bought gold to protect against the possibility of the opposite—debilitating deflation, or a sustained drop in consumer prices.
But now the $28 billion Soros firm, which is run by Keith Anderson, believes chances of deflation are reduced, eliminating the need to hold as much gold, according to people close to the matter.
People familiar with Mr. Anderson's thinking said he believes the Federal Reserve's continuing to pump money into the system has reduced the likelihood of deflation.
The Soros team, meanwhile, isn't especially worried about a surge in inflation. Mr. Anderson has argued that by the end of this year the Fed will signal that interest-rate increases are in the offing, possibly early in 2012, according to someone close to the firm. Higher interest rates would tend to suppress inflation.
The Soros fund has sold much of its gold and silver investments over the past month or so, according to this person.
Mr. Burbank, a longtime gold supporter who predicts growing worries about the creditworthiness of the U.S. and some other nations, has trimmed some of his investments to lock in profits, according to someone close to the firm. This person added that Mr. Burbank remains a long-term gold bull and expects to buy more gold-mining shares after a decline.
Yes, this is the same Soros who bastardized Hayek a week ago, even as he admitted that the current monetary system is on the precipice.
As for the only guy who matters, and whose every move is studied under a microscope, he is not budging. In fact, he see gold at $4,000 in 3 years.
A number of high-profile investors remain huge holders of gold and silver, amid continuing concern about inflation and the dollar. Mr. Paulson, known for his lucrative bet against mortgages a few years ago, told investors he still has most of his personal money in gold-denominated funds operated by Paulson & Co.
Mr. Paulson told investors Tuesday morning that gold prices could go as high as $4,000 an ounce over the next three to five years, as the U.S. and U.K. flood the money supply. Gold settled in New York at $1,540.10 a troy ounce Tuesday.
Also, Wexford, run by Robert Rubin's right hand man from the Goldman arb desk days, and Mike Steinhardt protege, Chuck Davidson, doesn't appear to be going anywhere in a hurry either.
Wexford Capital, a $6.5 billion fund that has been a large buyer of silver over the past year, retains much of its metal positions, according to someone close to the matter.
Either way, a two day 20% correction, and everyone crawls out of the woodwork screaming bloody murder, even as silver has retraced to a price... from two weeks ago.
And once again we ask: will the Chairsatan stop printing? And what happens when the economy tumbles in Q2, as it will once the full hit from the Japanese economic collapse is felt, and Bernanke has no choice but to do in 2011 what he did in 2010? So yes, let silver drop to $30. Let it plunge to $20. The lower the better. Day traders on margin are advised to stay out. Everyone else, who has a personal vendetta with Bernanke however will find each incremental drop an even better opportunity to slam the stake in the heart of a failed monetary regime which is now in its last days.
Everything else is minute charts and irrelevant candles.
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