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Thread: Silver Default Looms?!

  1. #1

    Default Silver Default Looms?!

    Silver Default Looms?!

    (It's about time!)

    Silver Stock Report

    by Jason Hommel, Feb 20th, 2011


    I apologize in advance that this essay is entirely without humor, completely sober, and deadly serious.

    As I write on Sunday evening, Feb. 20th, silver prices are up another 40 cents to $33.10, another 30 year high, going back to the previous high of $50 from Jan. 1980. In the last two trading days, last Thursday and Friday, silver prices increased about a dollar per day.

    What's going on?

    As I read on the blogs, about 53,000 silver contracts for 5000 oz. each are nearing the first delivery day on Feb. 28th. At that time, each contract must be fully funded to await delivery in the following 30 days, or sold before then. By the way, 53k x 5k = 265 million oz.
    http://tfmetalsreport.blogspot.com/2011/02/wow.html

    The crazy thing is that the four COMEX approved warehouses have only about 100 million oz. of silver in them. So, in essence, a default looms.

    Will this be it? If so, what will happen?

    Usually, all but a very few contracts roll over to the next months. The futures contract holders rarely stand for delivery, as in their view it is too difficult, and too costly; they are in this game for the leverage. They usually only put down 10% of the money, so that if silver gains another 10% in price, they double their investment quickly. And if silver moves down 10%, they lose everything!

    But here's the kicker. COMEX just raised margin requirements 50% on Friday, meaning that the longs had to put up something probably like 15% instead of the usual 10%. (I have no idea of the real figures, as I have never traded futures, I have never had a futures broker, and don't know where to go for that data.) This means that the longs were not scared out of their positions, as the silver price went up, not down, as the manipulators had intended.

    What I do know is that usually, the majority of futures contracts stand about 3 months away from delivery. But not now.

    Tonight, 53,000 contracts are looming for either close out, or they will stand for delivery. Out of about 150,000 to 200,000 contracts!

    Harvey says 150,000 contracts in open interest.
    http://harveyorgan.blogspot.com/

    321gold.com says 200,000 contracts in open interest.
    http://www.321gold.com/cot_silver.html

    The current situation will be resolved in 8 days, and again, in another 30 days after that. Both deadlines are worth watching closely.

    Either way, this situation presents several problems.

    Clearly, if the longs stand for delivery of 265 million oz., when there are only 100 million oz. in the warehouses, there will be a short squeeze, and the price can go ballistic to the upside, perhaps prices could go up by 5 times higher in a few days.

    However the longs don't seem to realize that the shorts can cap the price by several other manipulative methods. They can deliver paper cash, or SLV shares as well. The shorts and COMEX can also limit total physical silver deliveries to as little as 1.5 million ounces to any individual, or 7.5 million ounces total, if my memory of the rules serves. If they do that, the shorts can delay a short squeeze at the COMEX.

    But this would create another problem.

    A cash settlement, or settlement in SLV shares, or a limit on physical silver deliveries, would be recognized as a default, or a "failure to deliver".

    If any such kind of default would take place, it could cause a run on any remaining silver at any other location, such as directly at the refineries, or bullion wholesalers, or bullion dealers like myself.
    I hope no such default takes place, as I don't want to go out of business for a few days, or a few weeks, or a few months, while I wait for my suppliers to get re-stocked.

    In any event, I think it's important to realize several fundamentals.

    1. The dollar itself -- is fraud.

    2. Silver futures contracts -- are fraud.

    3. Fractional reserve banking -- is fraud.

    4. Fractional reserve silver selling -- is fraud.

    5. The nature of paper money and all frauds is that they tend to collapse rather suddenly, with little warning, especially when their ability to pay debts is called into question.

    6. Argentina maintained a peg of their peso to the dollar, and it lasted until they could no longer make interest payments in dollars. Then, their peso collapsed in value nearly 75% overnight. Even Americans, with American dollars, in American banks (in Argentina) had their dollars forcibly converted into pesos, and their ability to withdraw money severely limited.

    7. The same thing can happen to the dollar.

    8. Silver prices must be seen to have the potential to explode by about a factor of 4-10, literally overnight. This means we might see silver prices at about $33/oz. on one day, and silver prices from $130 to $330/oz. the next day.

    If that happens, I might close up the JH MINT for anywhere from an hour to a day or so, until I can guarantee a source of silver from my suppliers.

    I will likely be able to remain in business though, because if there is a price quote, it means silver is available at such prices.

    The most likely course is that the paper traders continue their game of "chicken". Both sides will swerve at the last moment and avoid a collision. Prices will likely go up to about $35 to maybe as high as $40 next month.

    We will likely have another record sales of silver bars and coins.

    The US mint will likely have another record of sales of 1 oz. American Eagle silver coins. They might run out for a week at a time, again.

    We will likely have plenty of silver available at about 6% over spot, while all the physical silver ETF's trade at about a 8-12% premium over "spot" prices.

    But then again, you never know. I can predict that the busses will likely run on time, and I will likely be right, until they don't. Better order silver now, while you still can.

    My greatest fear is that silver will run out. When silver runs out, people will buy other things to protect the value of their dollars, such as food. If people start buying up food, in amounts of up to $100,000, food prices will soar, and that will cause food prices to exceed the values that most people can afford, and then, most people will begin to starve. The beauty of gold and silver is that you cannot eat them, and thus, there is no such thing as a price that is "too high" of a price for gold and silver. My wife and I stocked up on food this weekend at COSTCO. We spent only $700, the least we have spent in months. We filled up the back of our Ford Excursion. You can see what problems would be created if wealthy people begain to buy 50 to 100 truckloads of food at a time, in the event that silver became unavailable.

    Further links for further study:

    The Silver Institute -- for silver statistics
    www.silverinstitute.org

    Eric Sprott (a billionaire) is very well informed. The 3 men he listed, Ted Butler, Dave Morgan and Jason Hommel are among the smartest guys in the room when it comes to silver.
    http://marcfaberchannel.blogspot.com/2011/01/david-morgan-interviews-eric-sprott-1.html

    ECB emergency lending jump persists
    Traders ponder whether spike is result of bank error or renewed stress
    http://www.marketwatch.com/story/ecb-emergency-overnight-lending-jump-persists-2011-02-18?dist=beforebell

    CPM Validates Imminent Comprehensive Silver Shortage Predictions
    http://blog.ml-implode.com/2011/02/cpm-validates-imminent-comprehensive-silver-shortage-predictions/

    $500 Silver, Max Keiser Explains His Price Target -- 19 February 2011
    http://www.youtube.com/watch?v=Ab5u2rysOfQ

    Bill Murphy: "Silver can double in a week, the price is held down with derivatives!"
    May 11, 2010 (When silver was priced at $20/oz.)
    http://www.youtube.com/watch?v=4J7x3xcToeQ

    Why no talk of $32,567/oz ? by Jason Hommel, Jan 2, 2003
    http://www.silverstockreport.com/essays/Why_no_talk_of_32567_oz_-.html

    Disclaimer: I am a bullion dealer. I sell silver and gold for a living. I'm not trying to cause any sort of panic buying. I believe it is rational and logical to purchase silver, and I have advocated buying silver since 2003. I have predicted a default in gold and silver metals futures contracts since 2002, after the palladium default of 2001, and it has not yet happened. I believe in God, honest weights and measures, and honest money. I believe men will prosper far more when they follow God's laws to use honest money in commerce, and avoid all kinds of futures contracts.

    I'm proud to say that my teachings from the Bible on avoiding futures contracts have inspired a world-class programmer to create a new computer programming language that avoids the mistake of making futures contracts, which avoids creating problems in the programming world.
    http://copute.com/dev/docs/Copute/ref/intro.html

    Further, http://www.oneoverspot.com/ continues to thrive as a place to buy and sell silver and gold.

    =====

    I strongly advise you to take possession of real gold and silver, at anywhere near today's prices, while you still can. The fundamentals indicate rising prices for decades to come, and a major price spike can happen at any time.

    Follow me on facebook!
    http://www.facebook.com/jason.hommel

    Or Youtube!
    http://www.youtube.com/user/bibleprophesy

    JH MINT & Coin Shop, Grass Valley, CA -- minimum order $5000 for free shipping, USA shipping only.
    Open 10AM to 5PM Pacific Time, Monday to Friday, closed weekends and bank holidays. (Also Closed from Dec. 25th to Jan 1st)
    www.jhmint.com
    (530) 273-8175
    Kerri handles internet phone orders:
    kerri.jhmint@yahoo.com
    (530) 273-8822



    Sincerely,

    Jason Hommel
    www.silverstockreport.com
    www.bibleprophesy.org
    Last edited by PeacePlan; 02-21-2011 at 12:47 AM.



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  3. #2

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    Better question. Who has room to store 265,000,000oz/12 = 22 MILLION POUNDS of silver?

    I acknowledge the market for silver is pretty odd right now. Someone mentioned there may be someone trying to corner the market. That'd make more sense to me.
    "Your mother's dead, before long I'll be dead, and you...and your brother and your sister and all of her children, all of us dead, all of us..rotting in the ground. It's the family name that lives on. It's all that lives on. Not your personal glory, not your honor, but family." - Tywin Lannister


  4. #3

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    On second calculation it's ONLY 16.5 million lbs.


  5. #4

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    Quote Originally Posted by Cowlesy View Post
    Better question. Who has room to store 265,000,000oz/12 = 22 MILLION POUNDS of silver?

    I acknowledge the market for silver is pretty odd right now. Someone mentioned there may be someone trying to corner the market. That'd make more sense to me.
    I just googled how much silver does slv hold = 287,880,359.000

    http://www.answerbag.com/q_view/1864633

  6. #5

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    Quote Originally Posted by JoshLowry View Post
    On second calculation it's ONLY 16.5 million lbs.

    lol i am sure you're right, i was just guesstimating :P
    "Your mother's dead, before long I'll be dead, and you...and your brother and your sister and all of her children, all of us dead, all of us..rotting in the ground. It's the family name that lives on. It's all that lives on. Not your personal glory, not your honor, but family." - Tywin Lannister


  7. #6

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    Quote Originally Posted by Cowlesy View Post
    Better question. Who has room to store 265,000,000oz/12 = 22 MILLION POUNDS of silver?

    I acknowledge the market for silver is pretty odd right now. Someone mentioned there may be someone trying to corner the market. That'd make more sense to me.
    Instead of trying to corner the market maybe JP Morgan and the rest of the big boys threw in the towel. If they did you can bet they are getting long instead of short. Some people think they are stupid but my guess is they will make money like they always do..

    I have been waiting and watching for years and one thing I would bet on is that JP Morgan will be on the winning side of any major move in Gold or Silver. We could be seeing them at last going long? what do you think?

  8. #7

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    Quote Originally Posted by PeacePlan View Post
    Instead of trying to corner the market maybe JP Morgan and the rest of the big boys threw in the towel. If they did you can bet they are getting long instead of short. Some people think they are stupid but my guess is they will make money like they always do..

    I have been waiting and watching for years and one thing I would bet on is that JP Morgan will be on the winning side of any major move in Gold or Silver. We could be seeing them at last going long? what do you think?
    PeacePlan, any updated numbers on the March Contract OI?

  9. #8

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    I do not think we will get a default by JP Morgan. They have been under investigation for 2 years by the CFTC and if they default it would look very bad both the CFTC and JP Morgan. Some of the smaller firms that sold contracts may default but not JP Morgan. Lawyers would be all over JP and CFTC if they defaulted.

  10. #9

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    why buy silver over rice?

  11. #10

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    Quote Originally Posted by jclay2 View Post
    PeacePlan, any updated numbers on the March Contract OI?
    I don't have anything right now but someone over at Lemetropole Cafe may post it and I will post it here.

  12. #11

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    Quote Originally Posted by college4life View Post
    why buy silver over rice?
    I'd have a hard time liquidating 100 bags of rice?

  13. #12

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    Quote Originally Posted by college4life View Post
    why buy silver over rice?
    Because I don't have room to store rice. 1 oz of silver will get you close to 100 pounds of rice.

  14. #13

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    Going to bed all goodnight..

    Just looked at silver and it is up .64 http://www.kitco.com/market/

  15. #14

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    Quote Originally Posted by PeacePlan View Post
    Because I don't have room to store rice. 1 oz of silver will get you close to 100 pounds of rice.
    Well, yes, that's true now, and it will probably be true at some point after but removed from a total collapse. Silver is the kind of store of value that will allow us to jump ahead of the recovery once things start turning up. However, in the midst of a total FRN collapse, the rice-sellers are more likely to charge what the market will bear, and you may find that 1oz of silver is good for maybe 5lbs of rice.

    I'm buying silver myself, but I would caution you not to rely on silver as a barter commodity during a total economic collapse. In addition to silver, every person should have 6 to 8 months of food stores, or you may as well be storing little chunks of aluminum...

    Silver will become useful on the way OUT, on the other side of the collapse. If you don't also work on your foodstuffs plan, your silver will end up in the hands of a food producer and you will end up eating 10x more silver than you anticipated.
    “And how we burned in the camps later, thinking: What would things have been like if every Security operative, when he went out at night to make an arrest, had been uncertain whether he would return alive and had to say good-bye to his family? Or if, during periods of mass arrests, as for example in Leningrad, when they arrested a quarter of the entire city, people had not simply sat there in their lairs, paling with terror at every bang of the downstairs door and at every step on the staircase, but had understood they had nothing left to lose and had boldly set up in the downstairs hall an ambush of half a dozen people with axes, hammers, pokers, or whatever else was at hand?... The Organs would very quickly have suffered a shortage of officers and transport and, notwithstanding all of Stalin's thirst, the cursed machine would have ground to a halt! If...if...We didn't love freedom enough. And even more – we had no awareness of the real situation.... We purely and simply deserved everything that happened afterward.” ― Aleksandr Solzhenitsyn

  16. #15

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    Quote Originally Posted by GunnyFreedom View Post
    Well, yes, that's true now, and it will probably be true at some point after but removed from a total collapse. Silver is the kind of store of value that will allow us to jump ahead of the recovery once things start turning up. However, in the midst of a total FRN collapse, the rice-sellers are more likely to charge what the market will bear, and you may find that 1oz of silver is good for maybe 5lbs of rice.

    I'm buying silver myself, but I would caution you not to rely on silver as a barter commodity during a total economic collapse. In addition to silver, every person should have 6 to 8 months of food stores, or you may as well be storing little chunks of aluminum...

    Silver will become useful on the way OUT, on the other side of the collapse. If you don't also work on your foodstuffs plan, your silver will end up in the hands of a food producer and you will end up eating 10x more silver than you anticipated.
    thank you gunny, you will need both and I fear too many put all their faith in gold and silver.

    I own both metals, but I think food will be even more important during an economic collapse. I say this as someone who is leveraged to the hilt in some silver contracts.

    I think Rice and some agriculture will even outperform the metals in the next few years

  17. #16

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    Agriculture, Precious Metals, Ammo/Guns, & daily life commodities (like TP, toothpaste, candles, etc. would be good to have in supply ~ 3 months is a good idea). Oh, also get to know your neighbors and local community. You may need to form militias to guard both against thieves and the Government.
    Last edited by Austrian Econ Disciple; 02-21-2011 at 02:31 AM.
    School of Salamanca - School of Austrian Economics - Liberty, Private Property, Free-Markets, Voluntaryist, Agorist. le monde va de lui même

    "No man hath power over my rights and liberties, and I over no mans [sic]."

    What, sir, is the use of a militia? It is to prevent the establishment of a standing army, the bane of liberty.

    www.mises.org
    www.antiwar.com
    An Arrow Against all Tyrants - Richard Overton vis. 1646 (Required reading!)

  18. #17

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    Looks like 33.50 will be the test for today. I still want to reserve judgement on the next couple days moves until I see some open interest numbers.

  19. #18

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    Quote Originally Posted by Cowlesy View Post
    Better question. Who has room to store 265,000,000oz/12 = 22 MILLION POUNDS of silver?
    Oh, I think I could make room for it if you twisted my arm.
    I compiled a "brief" history of events since October 2008 that are defining the global currency war and the role that gold is playing:

    Tin Foil Hats, Economic Reality and the Total Perspective Vortex

    Also, have you contacted your Congressional Rep and asked them co-sponsor Ron Paul's Rep. Paul Broun Jr.'s HR 1098 77: Free Competition in Currencies Act?






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