Silver Update: LME & LBMA

empty COMEX vaultBrotherJohnF discusses Friday’s BLS metals smash, gold & silver’s technicals, and recent reports of 100 day delivery delays at the LME
in his latest Silver Update: LME & LBMA:

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Comments

  1. The UST long bond rate has had a mean rate of  5% for 220 years. 
     Lowest historical price was the 1.45% in this UST bond last year.  The highest rate (I think) in history was the roughly 15% in the early 1980′s. 
    The present rate of 2.74% bonds has to double just to get to the mean. If this rate does happen, the disaster will be so large as to be incalculable.
    It’s been artificially suppressed since the mind 1990′s when Greenspan needed to juice the depressed real estate market.  He doubled down on his near-ZIRP policies when the tech wreck hit in 2001 after he flowing hundreds of billions of FIAT into the market to stabilize that irrational exuberance he noted in 1996 as well as the anticipated Y2K problems that never materialized. That juiced the tech market to their incredible highs.
    Thus these multi-year floods of cheap money flowed into all the markets, shooting the equities from their 2002 lows to the 2007 highs.  That inflated all markets including precious metals, real estate and stocks.
    Suppression of interest rates is like a tightly coiled spring.  These rates are unnaturally low and have been for over a decade. For the last 4 years its been the lowest in history, far less than real inflation rates. Just the hint of taper caused that 105 BPS rise over the last 2 months.
    Does it seem likely that the Fed can hold these rates down for another 5 years?  When European rates are up at 4.5-8% and China is well into the 5-7% range, the BOJ and the Fed are the only central banks keeping rates down below their natural level. They are the only ones buying their own bonds at super low rates.
    This has to come to an end whether TPTB like it or not.  The only pools of funds left that can be forced into buying this gar-bhageei are US pension plans and the residual accounts left to those whose deposits remain after some huge bail-ins.  To get FDIC insurance coverage after the bail-ins I think the government will require us to buy bonds. When the currency wars get hot, people suffer and the casualty list gets very large.

    • Too bad that it never seems to occur to these jackasses that letting the free market determine interest rates would avoid all this BS.  Is this the economic version of Occam’s Razor, where the simplest solution tends to be the best solution?  Could be.  Perhaps after ALL else has failed, they will try this and be amazed at just how well it works.

  2. Some time ago, I expressed a suspicion that had arisen from watching the GSR; that some kind of direct exchange ‘price’ seemed to be struggling into formation between them. I dropped the subject since, because further observation SEEMED to show that engagement breaking off. Again, however, I’m seeing that image materializing from a different vector as this NEW circumstance is brought in focus.

    It’s reasonable enough to me, that rising inventories are accompanied by falling ‘prices’. That’s Econ-101 ‘clearance mechanism’ in ANYone’s school of philosophy. BUT, given the glaring curiosity appearing from confluehnce of stock-’price’ factors … in addition to amazingly extensive delivery delays … I’m AGAIN thinking that the rational ‘price’ contest is now encompassing the whole metals complex.

    Most here know that my assessment of the elemental structure of the banknote scheme dictates its inescapable implosion. The math just simply proceeds to that one conclusion, despite the futile attempt to ‘control’ its inherent currency-debt inflation with interest-rate manipulation, that we’ve witnessed the past century. I’ve also been saying, that because of the volume and frequency of signs, from around the world, that this event is impending. If my ascertainment is correct and these phenomena are in fact a metals-complex ‘price discovery’ in process, it does logically fit into ‘place’ as an indispensible precurser for re-instituting the historically proven ideal … poly-metallic … monetary scheme.

    • In spite of the inevitability of your conclusion, Pat, we both know that this will be the VERY last thing tried because TPTB will be absolutely desperate and all out of other ideas to corrupt and loot the current system.  When this and utter collapse are their only two remaining choices, THEN and only then will they will grit their teeth and squinch their eyes as they try it.

  3. You’ve done much more extensive reading on this subject than me, Pat.  From my simple viewpoint  I know is that all FIAT currencies always  fail. It human nature that creates the situation precipitating failure.  When TPTB find they can print money from the treasury they always do so.
     The currency failures violently disrupt the financial markets of the country in which the failure occurs and the violence in the financial markets usually extends into the public square. 
    Venezuela, Argentine, Cyprus, Greece, Portugal and Egypt are all in the throes of violent change.  The currencies of the individual countries as well as the Euro-based problems all involve this FIAT scheme

    • What I deduced didn’t come from reading, but rather from examining the ‘machine’ to it’s most fundamental operation. If I’d have relied solely on textbooks … no ‘school’ will ever have led me to the vision I came to (I’m experiencing a very similar ascertainment in Law). ‘Austrian’, ‘Keynesian’ and Classical schools are pre-occupied with the ‘bells and whistles’ of monetary schemes, or put another way, what can be DONE with them. We have to go all the way back to Aristotle (and I pass even the great Rothbard), to find musings on money’s most ‘nuclear’ aspects. There IS a huge gap between pure Economics and Finance, the latter of which gets more emphasis than it really deserves.

      When the elemental design of a monetary scheme is as incorrigably flawed as what we have, it CAN seem on cursory review as though its dissolution is induced by human foible (propensity to spend), but the TRUTH goes deeper, to the very SEED ITSELF. This is why I so pedantically and repetitively  ’preach’ its features. If we stop our investigation at the feet of men, we miss learning how OTHER MEN will AGAIN use the invisible ’mecanism’ to enslave our CHILDREN. Now, I really have genuine doubts about whether this whole virtualized ‘money’ scheme has evil or altruistic origins. I can visualize BOTH scenarios with equal veracity. All I know is that, mathematically  IT CAN’T WORK. So, it ought … ONCE AND FOR ALL-TIME … to be utterly abandoned. Like the Siren Song of Homer’s Illiad, it leads invariably to rock strewn shoals and ruin.

    • “All I know is that, mathematically  IT CAN’T WORK. So, it ought … ONCE AND FOR ALL-TIME … to be utterly abandoned. Like the Siren Song of Homer’s Illiad, it leads invariably to rock strewn shoals and ruin.”
       
      We can also apply this same line to socialism.  It not only does not work, it cannot work; yet we seem to have a never-ending supply of fresh idiots who are historically illiterate and who want to “try it again”, Sam.  Repeating the same actions over and over while expecting a different result is not a symptom of sanity.

  4. Pat  the way you put it, a Siren’s song, is pretty clear.  As the siren sings, the frailty of our human nature is that some, or maybe even all, will hear its call.  Many will heed it and thus begins and ends another chapter of FIAT foibles and failures visited on the human condition.  You put that eloquently and simply   Even I can understand it in those terms

    • And, what could be more alluring than for a society to have all the ‘money’ at its disosal, that it could EVER desire, for ANY project or ANY contingency? You see why I have doubts about its origins as necessarily ‘evil’?

      Yes that prospect IS an enticement to which most would succumb, but unlike Odysseus, I don’t ‘prescribe’ wax and bindings, but KNOWLEDGE of the dread song and its course to destruction.

      What appears as ‘spending’. is in truth DISTRIBUTION. The banknote scheme automatically inflates the currency supply commensurate to the RESULTING interest on the whole float of currency. The ‘big idea’ was to so strongly control the current-interest-rate, in accord with economic plenty and scarcity, that the resulting inflation could be ‘throttled back’. What was, I surmise, never envisioned by the originators, was the power of the exponentiality acting on the CUMULATIVE interest burden in excess of short-term amelioration, that broke the ‘monster’ free of Frankenstein’s influence so entirely that even NEGATIVE current-interest has proved futile to the task.

  5. at church I will start talking about economic collapse, devaluation of us dollar, silver, destruction of the us food supply etc and they just look at you with this socialist engineered blank  stare!!but yet they will pay for virtual pigs on Farmville.  the deaf and dumb are holding hands as they stand on the train tracks of history. the siren is loud and clear but it is a willful ignorance.

    • Then you already know their fate.  Just remember that “no man is a prophet in his hometown” and do what you can for family and close friends.  The rest are quite beyond our reach.  As in a triage situation, we need to separate people into 3 groups:  those who can be saved if immediate attention is given them, those who can be saved by delayed attention, and those who cannot be saved by any means at our disposal.  It is a terrible conclusion to reach but it is a recognized fact.  Don’t exhaust yourself beyond your ability to save those who can be saved or you invite disaster.  Hoard your resources as if they will be very badly needed by the few whom you can save… because they most certainly will be.  Good luck and God bless.

  6. How does does this work, is the exchange buying up more and more base metals? Or do they aim to keep a fixed $ amount each?
    Why stockpile metals so high up? Are mines paid market price to stockpile metal that no-one is interested in?
    With demand lower than supply (as stockpiles seem to suggest), and prices falling, won’t mine output be likely to diminish in the near to mid term?
    And as silver is mostly mined as byproduct to these base metals, will that will impacted proportionately, or could miners place more emphasis on silver extraction somehow if price dictates it?
    It seems that silver production levels are under threat both for being low priced in itself, AND via the base metals that it’s mined along with also being superfluous and low priced. Why bother having a mine at all anymore?
    While base metals seem decently available, it’s proving really hard to extract PM’s from the general public. They hold quite a bit but are not selling. The people I sell silver to, have no intention on parting with it for years to come. They have strong, long hands. This exchange stock, if it exists, is inifinitely liquid. Buy a contract, and stand for delivery. Or they should be.

    Why is it SO hard to get proper data from the market on how orders work and who is waiting for delivery when at the very top of the darkess, folks like Andrew McQuire are there spellin it all out for us?

    • “How does does this work, is the exchange buying up more and more base metals? Or do they aim to keep a fixed $ amount each?”
      The exchange does not buy metals, it just facilitates trade between buyers and sellers

      “Why stockpile metals so high up? Are mines paid market price to stockpile metal that no-one is interested in?”
      If a mine is a private business they produce metals to make $, nothing more nothing less.  If metals are in the warehouse, someone owns them and has paid for them.

      “With demand lower than supply (as stockpiles seem to suggest), and prices falling, won’t mine output be likely to diminish in the near to mid term?”
      I think so, if a mine has cash contracts or hedges in place, they may be able to survive these lower prices by performing on their contracts.  At some point those will run up and the next sale they make is at the current market.  Eventually lower prices should encourage a production slowdown to more closely match the physical demand.

      “And as silver is mostly mined as byproduct to these base metals, will that will impacted proportionately, or could miners place more emphasis on silver extraction somehow if price dictates it?
      It seems that silver production levels are under threat both for being low priced in itself, AND via the base metals that it’s mined along with also being superfluous and low priced. Why bother having a mine at all anymore?”
      Production will be an equation.  If base metal yield + precious metal yield does not produce profit, mine will slow down or stop. 

      “While base metals seem decently available, it’s proving really hard to extract PM’s from the general public. They hold quite a bit but are not selling. The people I sell silver to, have no intention on parting with it for years to come. They have strong, long hands.”
      Agree, my silver is also not for sale at these prices.  About the only silver I see is at auctions from heirs liquidating estates.

      “This exchange stock, if it exists, is inifinitely liquid. Buy a contract, and stand for delivery. Or they should be.”
      The paper stock is infinite and while not infinitely liquid, it is very liquid.  When you stand for delivery you get it at spot price.  Since stocks in warehouses are steady to rising it tells me that major users of silver have ways to source bulk silver at prices cheaper than spot.  If they could not, they would take delivery as you mention, resulting in a drawdown of stocks.

      “Why is it SO hard to get proper data from the market on how orders work and who is waiting for delivery when at the very top of the darkess, folks like Andrew McQuire are there spellin it all out for us?”
      Exchange data is pretty transparent and you can see not only how much is being executed physically, but also who is doing it, and for whom (i.e. see Scotia taking delivery, and are they doing it for themselves or their clients).  Private data on what price mines and refiners buy/sell bulk silver has so far been beyond my grasp, but this is what I really want to try to find as it is the heart of the market. 

    • Thanks Mikey!
      But what do these stock levels mean? And why would one want them to be publically known, when they’re so high? Seems bad for business. 

  7. Pretty good vid, thanks for sharing.  Couple quick comments on the thoughts at the end
    Why are stocks so high yet there are delivery problems.?  Likely due to lack of ability to just pick out any metal and bring it out, but need specific metal, not FIFO, so takes longer to execute.  Also, warehouse only required to load out a minimum amount each day.  Since a long is paying a storage charge each day, if they extend the time it takes to load out, the warehouse earns more storage income.  A bit nefarious if that is the main motivation and I’m not suggesting it is, but could easily be a piece of it.
    Why are stocks so high despite lower prices?  Likely some part due to the 100 day delays!  Why pay spot price if I need it today?  I’ll end up paying spot + storage for 100 days and it does me no good because I need it today.  Why not go find someone who has the metal and can deliver it promptly and see if I can buy if from them at spot + 50 days storage.  Hell I may even pay spot + 150 days storage depending how badly I need it.  If I’m successful with my first bid then I get my metal when I need it and for cheaper than I was going to pay for a 100 day delay, and that stock does not result in a withdrawal from the delivery warehouse, so the inflated stock in delivery houses remains. 
     
    Right now market is doing its job by trying to pull the stocks out of delivery, probably about to see a disconnect happening in paper vs. physical mkts in the metals hit by 100 day delays.  This indicates the paper price is cheap enough to own as lots want to own it and convert to physical, but the fact that it doesn’t get you physical today but 100 days from now means the paper is worth less to many buyers, physical mkt will trade a premium for prompt delivery.  Over time this will come back to normal as more buyers source from cash mkt trades rather than futures execution.  Futures will rise to cash price once they represent an executable commodity again.

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