How to Force a Massive Decoupling of Silver from Paper

[Steven Douglas]

Please feel free to poke holes in this, or make suggestions on how to improve it:

As long as silver and silver derivatives are treated essentially the same in terms of the paper used to trade each of them, paper silver will continue to swamp and dilute the value of the physical. That's not a belief on anyone's part. It's the reality so long as the physical remains coupled with paper in a six of one, half dozen of the other scenario, with most people content to deal in whichever is more convenient.

Since there is no immediate RIGHT NOW advantage to physical, here's something I wonder about:

I'm going to invoke Peter Schiff's name now, just as a convenience, but it really could be anyone else. If Peter Schiff (or anyone else in his position) wanted to, I think he really could single-handedly break COMEX's stranglehold on silver, with successive waves of third party runs.

Here's the strategy, which works somewhat like a lottery. A MASSIVE lottery.

Firstly, Schiff establishes a trust, similar to Sprott's PSLV, but with a very different angle, as Schiff's intentions are made known and are all above board. In this case the trust is an actual campaign, with the stated goal and intention of causing physical to decouple from all paper, and only through investors who believe that when this happens, the price lid on silver comes off for all concerned. Schiff does all of this using other people's money -- to buy physical silver, in successive waves, at a premium over spot price and all derivatives. He can't be accused of trying to corner the market, because he is only doing this on behalf of others.

Schiff offers to make successive rounds of silver purchases on behalf of others--from the public, NOT FROM COMEX. All at a premium over spot.

The catch:

1) ONLY PHYSICAL is accepted
2) Prequalified sellers only (prior agreement for an automatic cash settlement penalty if delivery is not made, effectively treating others like COMEX)
3) Offers to purchase are in surprise waves, with no advance notice given
4) Acceptance of offers to purchase are limited, and on a first come, first served seller basis
5) Offers to purchase are high, but limited per customer (to prevent APMEX and others from playing games)
6) Offers to purchase that are accepted must be shipped/delivered immediately to lock in the price

Note that Schiff already offers allocated physical holdings--and even offshore-based debit cards tied to gold and silver. That's on the selling side, however. And since he already does this at a premium over spot, he could make the offer to buy equal to that amount, so that there would be no incentive for his existing customers to cash out and cash back in, selling their physical back to Schiff, as that would be zero-sum, with no profit.

So, imagine it:

There you are, like every other PM stacker and/or speculator, floating like so much flotsam and jetsam at the mercy of COMEX, just waiting for something to happen. And then something does happen--an artificial demand, with a windfall opportunity to the lucky private parties who are prepared. If you're sitting there with SLV, a futures contract, or some other silver derivative other than physical, there are no windfall opportunities for you. Your paper promises are no good here. You cannot participate without physical silver already in your possession and ready to ship, and there is NO TIME TO GET IT ONCE THE OFFER TO BUY COMES. Where and how you get the silver is your problem, and between you and whomever you are getting it from.

The run on physical would initiated by Schiff, BUT NOT THROUGH COMEX; he would be initiating a run on ordinary people, including ordinary dealers throughout the country, in high, but nonetheless limited quantities per customer. That alone would produce shortages. The run on COMEX would come after, initiated by everyone else who is trying to get physical so that they can restock, along with the possibility of having more on hand to sell to Schiff later at a premium, to take advantage of the windfall in some other surprise wave--which will come later.

Meanwhile, Schiff suddenly has a monster list of ordinary people interested in the Sure Thing of selling silver to him at a premium. Furthermore, Stockholders are given the first shot at selling their own silver to the company they own stock in! So Schiff's Silver Trust is all the buzz, as many of those same people that are buying silver are also investing in his Silver Trust. It's high risk, but only with investors who have firm beliefs in the fundamentals (read=every silverbug on the planet). So Schiff amasses a war chest, with successive rounds of stock offerings, the funds of which in turn are used to buy more physical--not from COMEX--but from the general public only.

What happens to silver after a physical-only buying spree from the public? It goes up, naturally, because Schiff has left a void in his wake that must now be filled by that same private market he bought it all from. The private market, in turn, buys from the public market. That initiates a ratcheting effect. Afterward, COMEX does what ever it does, and the market corrects, however it corrects. It doesn't really matter, because the only target in this case is PHYSICAL.

So Schiff does this again--in successive waves. Eventually, anticipation of the next wave will have every speculator and his grandmother throughout the market seeking to prepare in advance, knowing that the only way to participate in the next over-spot buying spree is a) with physical only that is b) already in their possession. They are safe in doing this, because they know that they can turn right around and buy...what...more physical with the difference, without suffering any losses.

That leverages the physical market against all derivatives, as suddenly the market becomes "aware" of the difference between physical and derivatives. And all because of a succession of "loss leader" purchases of physical only.

[Cleaner44]

My first thought is that the federal government would declare such actions to be domestic terrorism. A negative PR campaign using words like hoarder and speculator would be unleash in an effort to cast the buyers as evil and purposefully trying to harm the United States. I would expect the PR campaign would demonize the buyers as a threat to crash our economy and that unusual regulations would be needed to protect the national interest. It would be a PR campaign that all statists could get behind as the evil free market would be outlawed in order to protect we the people from those that would take advantage of the freest system in the world. I would love to see Jim Rogers start this!