On June 16th, the COMEX reported total silver inventories of 119.5 million ounces. Ten trading days later, on June 30, total inventories had fallen to 113.56 million ounces, a 5.94 million ounce (4.97%) decline.
There have been significant declines on nine of the last ten trading days, but this story has received almost no coverage by the mainstream media.
One reader of my June 25th column where I broke this story commented that this pattern was consistent with activity a year ago. It is true that inventory levels do fluctuate. For instance, the COMEX gold inventories are much higher now than they were a year ago.
However, some information I have learned in the past five days further demonstrates that the current run on COMEX silver inventories is not just something that happens occasionally in a stable exchange.
In particular, a high percentage of the withdrawn silver has apparently been from two specific depositories, not just all of the COMEX depositories in general. Those who have studied the details closely state that the banks losing the bulk of silver have been Scotia Bank and HSBC.
Scotia Bank has been rumored for many months to have very little physical precious metals in its vaults to cover customer deposits. This can be done, in theory, if the bank owns derivatives to cover their short physical position, but these derivatives are only as good as the other party’s abilities to deliver on demand in event of a possible Scotia default. There is not really any hard and fast information to prove that the derivatives are worth the paper they are printed on. In fact, since the total amount of extant silver derivatives exceed many years of silver mining production, let alone the much smaller amount of available above ground inventories, there is a huge reason to be fearful that the paper silver market could be heading for a crash in the near future.
On one day in June, there were 630,000 ounces of silver withdrawn from other COMEX depositories on the same day that 610,000 ounces were deposited at Scotia Bank. This seems more than coincidental. It looks suspiciously like an emergency transfer from another depository to help Scotia Bank avoid default on making delivery that day.
If this drain of COMEX silver inventories continues, it could literally be the spark that brings down the entire global financial system, Any indication that owners of “paper” silver may not be able to convert their paper into the physical product will only increase the demand to do just that.
As I said five days ago, this run won’t be confined to the silver market for long. Owners of paper gold will see what is happening and almost certainly step up converting their paper into physical metal. By the way, the COMEX recently reported that physical delivery of maturing gold contracts thus far in 2010 is running 39% higher than for the same period of 2009. The parties facing the largest potential losses are naked sellers of gold and silver commodity contracts, where there is no physical inventories to fulfill their liabilities. The entities with such huge positions are major banks. As gold and silver (and probably platinum, palladium as well as many other metals) prices rise because of the supply squeeze, it could easily happen that many major banks and central banks could go bankrupt.
It scares me to think of the worldwide upheaval that could result from this growing run on COMEX silver inventories. I am even more terrified that, not only could it happen, it could bring on a severe financial crisis within a matter of weeks. Those who will be least harmed by these developments are those who get out of paper silver and gold and into physical metals as soon as possible.
Patrick A. Heller owns Liberty Coin Service in Lansing, Michigan and writes "Liberty's Outlook," a monthly newsletter covering rare coins and precious metals. Past issues can be found online at http://www.libertycoinservice.com/ Pat Heller is also the gold market commentator for Numismatic News. Past columns online at http://numismaster.com/ under “News & Articles". His periodic radio interviews can be heard on WILS 1320 AM in Lansing, www.talkLansing.net, and on www.yourcontrarian.com.
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I’m 71, been collecting silver coins for 45 years. Can’t wait for the greedy banks to get the comupence providing our gov. doesn’t bail them out. Linc
Dear Mr. Heller: Your observation is very accurate and very few people understand the precious metal situation as you do. I have come to your website and read your article only by accident. you really should be invited to talk shows and TV appearances so more people can learn about this situation. But first you should at least give a regular talk in Youtube every week so more people know about you. Please consider this because you will help and educate many more people. Thanks. Tien
http://fofoa.blogspot.com is all you need to convince anyone that what you say is true Mr. Heller!!
Cheers!
Sorry to pour cold water on your parade, but a major reason for the transfer of silver from one depository to another is because HSBC is closing down its depository. That may also account for part of the rundown of COMEX inventories. It is my understanding that HSBC is refusing to store gold and/or silver, anymore, for individual investors, forcing anyone who takes title delivery to either take physical delivery, or move the precious metal to another warehouse. The only business HSBC wants is business from the major players apparently. That said, I am a fan on silver, and believe it will eventually rise from where it is now by a large measure.
Huge manipulation over the last few days is a sign of desperation by the Cartel. Just keep buying physical silver and take it off the market. The more that is stored outside the system, the faster the default will come. Anyone buying SLV and GLD are idiots thinking that they own anything other than paper. Ask David Einhorn why he dumped GLD for real gold: “Fooling Some of the People All of the Time”.
The strong hands are buying. The weak hands are selling. Physical is the only way to go. Keep on stacking and watch the fireworks.
Good luck everyone.
if silver takes a short term liquidity crunch like it did in 2008 and gold also,I bet it will not go below the feb. low, lso I dont believe central banks want to see a 900 dollar or lower gold price, The people with large net worth are already buying up gold and storing it themself.i own actual gold and silver but I will only take delivery when I believe the actual metal will hold with in 10% under what i buy it for, I would bet if silver came anywhere within 25% of the 2008 lows you will see severe pressure on the price, the more years that go buy hoards get bigger and new hoardes start, but unless we start using silver as money you will never get a 16-1 ratio,we will be lucky to see a high 30s ratio when it hits the peak of this bull market, thats because gold will see several multiples higher before we get a correction large enough at the end of the bull market.once this bull is over i would expect gold to stay above 2000.00 just depends on how many currencies severly devalue or if they create another backup currency not backed at all by gold, Assists must get closer in value to debt owed and gold can do part of it currencies a bit, If gold ever reaches 5000.00 an ounce all the gold ever mined in history wouldnt be worth even 50 trillion,it needs to be 5-10% of world dirivitives or 25-30% of the monatary base, If gold got to 5000k plus it could cover the lost values of houses. If you look at the truth gold is most likely to thrive during a deflationary currency crisis than inflation of the 70s-1982. We need high paying manufatcturing jobs and negitive outsourcing for the next 10 years to rebalance our economy.
Just one major default. That is all we need. One major default to wake up the investment community and get them to take physical delivery of their gold / silver certificates. After that, GLD and SLV will fall and the world will end as we know it.
This is what the author meant when he said that it was rumored that Scotia Bank is short physical metal. I’d say it’s a bit more than rumor.
http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/4/7_Andrew_Maguire_%26_Adrian_Douglas.html
I leave it to Ted B., Jason H. and assorted others to cover what’s taking place now. But the Feds have been working with the banks for generations to assassinate metals prices “Treasury Official Lies About Gold” Essay of the Month the account of William E. Simon, knocking almost 50% off gold prices during his tenure at Treasury; then as a COMEX official, playing a dominant role in wiping out the Hunt/Arab silver play. I am buying hand over fist till the last tick of the clock.
All I know is what I’ve been told !
When Ted Butler talks I listen !
I’ve been studying Silver VERY VERY closely the last 4 years and finally went “all in” in March 2008 on Jason’s advice.
Also, every time the jobs report comes out I just buy some more Silver.
I wish everything was so easy.
All good comments ..Buy ..and keep it safe ..Regards .
I’m amazed by how Heller and crew have taken over a reputable coin publication and turned it into a buy buY bUY BUY shill for what are commodities much like any other (pork bellies, anyone?). I don’t know if silver and gold and all the rest are going to go up or down, but I think the magical thinking that goes on with the metal bugs, the unwillingness to admit that metals can go down without benefit of conspiracy, indicates a real bubble mentality. Heck, when they’re advertising metals on the web and cable to Joe Bluecollar as a sure bet, that’s a sign to me to sell off and leave town quick!
We’ve had defaults before in precious metals and they settle in cash at 10 cents on the dollar, sadly.
But those in slv & gld are going to be really disappointed.
They will get 1% of the gld and slv they think they own.
Re: Kingworld interview and Scotia Bank.
There’s allocated precious metals and there’s unallocated PM. If you can make it to near the end of the discussion this is touched on, but it would have been less alarmist to mention it at the beginning. There’s no reason to feign amazement that all the unallocated PM on certificates is not sitting in the vault unless you want to scare ignorant people, just as no one should be amazed that all the money that’s been deposited at a bank is not sitting in the vault.
Unallocated PM means nothing is guaranteed except that you give them money and that money is secured by the assets of the bank – after preferred creditors of course. If Scotia is taking delivery from Comex, it’s to cover redemptions – that’s why there is waiting time if you’ve got more than a few ounces on precious metals certificates, and that’s why they don’t charge you storage. Unallocated PM works like a fractional reserve system. All you’re buying is paper.
With allocated PM you are given serial numbers of the bars and the bars are physically held for you. That’s why they charge you storage, and every other depository charges you storage. You should be able to go to the allocated vault and get every last ounce with your serial numbers on them. If you can’t, it’s fraud, and I would be more afraid of smaller operators than the Bank of Nova Scotia on that issue.
Quite apart from all that, the only fear you should have is of the government suddenly saying that the criminal hoarders are the enemy of the state, the wreckers of the dollar, and all gold and silver is thereby confiscated for the benefit of the nation and the people, whether allocated or unallocated. Act accordingly.
It could very well be the next “bubble”. Silver is the most volatile so take delivery and HOLD. It is an industrial metal with 75% of global surpluses used over the last decade. When they’re gone, -some experts predict $400.oz spikes. Industry absolutely MUST have silver. The demand is driven by need –not whim.
The elite have most of the gold (money) and thus the power to hold onto their money monopoly. Later, they won’t have a problem with taxing it back into the ground either.
But silver is different. After a century of demonetization/destruction of inventory silver is more commodity than money now because of its greater volatility (high flow to stock ratio). Bankers win – as they’ve neutered the greatest threat to their monopoly – people’s money off the fiat grid.
The purposeful destruction of silver through low price makes it one of the greatest “commodity” buys in a lifetime. And if they try to tax the hell out of it industry won’t get any.
All the gold bars in GLD are allocated and in a London facility. The GLD prospectus says: “The gold bars in an allocated gold account ar specific to that account and are identified by a list which shows, for each gold bar, the refiner, assay or fineness, serial number and gross and fine weight. Gold held in the Trust’s allocated account is the property of the Trust and is not traded, leased or loaned under any circumstances.”
GLD is audited by Deloitte & Touche. Gold is counted twice a year; every bar at fiscal yearend, and a statistically random count in the spring, with the Trustee records reconciled to the Custodian records and to the physical gold bars. The count is done by Inspectorate International Limited. No anomalies were found.
So in order for there to be a shortage of physical gold in GLD, all of the following would have to be in cahoots:
State Street Global Markets, the sponsor
Bank of New York, the Trustee
HSBC, the Custodian
Inspectorate International, the inventory counter
Deloitte & Touche, the auditor
And a couple of law firms, I’m sure
Tell me again why you are worried about “paper” gold?
Considering that silver inventories are up since mid Feb 2010 I find this article very much out of context – see https://marketforceanalysis.com/index_assets/COMEX%20Inventory%20Shows%20Alarming%20Trend.pdf
very interesting and educational. is silver really going to break out or continue to do the same .
I only need to know two things to make a decision about silver:
1. Watch the production and reserve numbers move at http://www.usdebtclock.org/gold-precious-metals.html
2. It takes about 7 years to bring a mine into production.
If it were food instead of silver, everyone would stockpile in fear of certain starvation.
search, the road to roota letters.