Someone Is Cornering The Silver Market To Cause A Silver Shortage: COMEX Rule 589 Coming Soon?

Here’s the rule, and why it may be implemented, presented in this well researched argument claiming there’s a physical silver shortage right now…

Editor’s Note: Cyrille is French, and there is a treasure trove of information presented in his article, and it’s just the type of article readers have been asking for, so work through the language and configuration issues because this article is well worth the read.

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Submitted by Cyrille Jubert of CyrilleJubert.com

Just Facts

In 2017, investment in Silver ( physical bar, coin purchase and ETF) fell by 40%. In value terms, annual identifiable investment was worth $2.6 billion for the whole year.

In the first 6 months of 2018,  investments just in silver physical bars jumped to 27.3 billions Dollar. In such a small market, it is an explosive information.

 

The silver price is still under $ 16 today, but it won’t last long at that level. With an open interest around 1 billion ounces on the Comex, there will be a huge SHORT-SQUEEZE before the end of the year. Remember, the rule for silver as for gold :    if you don’t hold it, you don’t own it.

 

Someone is cornering the Silver market

 

Underground reserves of Silver

Underneath, I took over their 510,000 tons of the known total silver reserves from 2010, from which I subtracted production year after year.

 

More or less, there are only 307,500 tons left in underground silver reserves.  At the current pace of mining,  this represents just  12 years of production .

Mining production has increased in recent years, despite the continuing decline in silver content in mined ores, both in pure-silver mines but also with lower grades in copper, lead or zinc mines, where silver is a by-product.(70% of the silver production).

Nevertheless, for more than 50 years, Silver demand has been stronger than supply and the silver market is in an almost permanent deficit (see the red line in the table underneath)

In 1965, President Johnson decided to stop using Silver coins. Here is his speech of 23 July 1965

All of you know these changes are necessary for a very simple reason:     Silver is a scarce metal.  

Our uses of silver are growing as our population and our economy grows.

The hard fact is that silver consumption is now more than double new silver production each year. So, in the face of this worldwide shortage of silver, and our rapidly growing need for coins, the only really prudent course was to reduce our dependence upon silver for making our coins. If we had not done so, we would have risked chronic coin shortages in the very near future.  

Above ground Silver stocks

The World Silver Survey 2018  (page 38) says there are  86,651 tons of silver in aboveground stocks.

86,651 tons of total silver above-ground stocks

49,781 tons in custodian vaults   50% in Asia

20,834 tons in the occidental known ETF

2,523 tons of government reserves  (2/3 Chinese)

454 tons of industrial private reserves

At the end of 2017,  13,059 tons were in private vaults purchased by investors waiting for a big rise in the prices of silver.

Silver in ETF

The stocks of the different occidental ETFs are about 669 Moz of silver bought on behalf of investors.

After the Washington G20 in November 2008 and the willingness expressed by the concert of nations to change the monetary system, Chinese banks had offered their customers to keep their cash in either Yuan or gold or silver via ETFs. This means that every Chinese bank has a stock of gold and silver. Unlike in the West, these Chinese ETFs are officially supervised by the Chinese Central Bank. China has therefore well established a reserve of silver, but whose exact weight is not revealed.

LBMA

Last year the LBMA promised to publish gold and silver stocks the first day of each month. The last time they did it was in march 2018. At that time, in their warehouses, there was    33,786 tons of silver (source ). This includes the SLV silver stock for 9,000 tons.

So there were only about 24,781 tons of silver to sell in the LBMA warehouses in march 2018.

COMEX

In Comex warehouses, there are 203 Moz eligible ( not for sale) and 72,9 Moz registered (for sale at a price defined by the seller)

This listed inventory represents only 275 Moz which include JPM’s 133 Moz , which could be intended for the US Treasury … and perhaps to be restituted from a lease to China, in fine.

On the Comex, traditionally, there are very few Silver deliveries

Total 2015     14.554 contracts of 5000oz = 72,77 Moz      or  2.204 tons

Total  2016  13.741 contracts of 5,000 oz = 68,7 Moz          or 1.947 tons

 

Between 2012 and January 2018, JPM Bank has accumulated 133 Moz in 6 years, or 22.2 Moz per year.

This represents 31.4% of Comex’s deliveries.

The COMEX therefore delivers only 47.8 Moz per year or 23.9 Moz per semester

Cornering the silver market

Since the beginning of 2018, the COMEX has transmitted to London its delivery obligations in the form of these new EFP.  (Source Harveyorgan )

In just 7 months, these EFP accounted for 1,820 Moz or   51,596 tons of silver.

These delivery requests in the first half of 2018 represent 45 times  the semi-annual normal at the COMEX.       (Or 69 times the normal without JPM stack)

In 2017 Silver mine production had been less than 22,500 tons. These delivery requests represent more than twice the 2017 production and it is concentrated on only 7 months !!! If this continues, at the end of the year, there will be a delivery request for 4 years of production.

As the mine supply of silver has been in “just-in-time » production for decades, it is almost impossible to deliver such a huge quantity without destabilizing the market.

If there are only  24,781 tons of silver to sell in the LBMA warehouses, how could they deliver 51,596 tons ?    26,815 tons are missing   that represents more than a year of  mine production

This Silver chart says that the triangle would be closed  in October 2018, but the rise should start in september.

The previous Silver corners

In the early 1970s, the Hunt brothers, who had made their fortunes in oil, panicked at the sight of galloping inflation, since the Federal Reserve had abandoned the defense of the fixed price of gold in dollars. As in the United States it was forbidden to hold more than a certain amount of gold, they decided to invest heavily in silver.

When they started, one ounce of silver was worth $ 1.3. On the last day of the hike, in

January 1980, the silver reached $ 50,  before the Hunt brother were crushed by the Fed.

What is surprising is that the Hunt brothers and their associates in the emirates had only amassed about 100 Moz of physical silver (source). Beside of that, they had bought all the futures contracts on the markets, which they had to sell with huge losses, because of margin calls.

 

In October 2009, China banned the export of silver, depriving the market of approximately 154 Moz  blocking JPM in a short-squeeze by not delivering the silver sold by China through Bear Stearns.  This caused the prices to skyrocket in 2010 and 2011. The silver price climbed from 14,67 to $ 49. In may 2011, the CME changed the rules to crash the speculators with 5 successive margin calls… exactly like in 1980.

At the beginning of 2009, when the silver was at $ 14.67  the whole silver market was worth about 13 billion dollars.

 

  1. Between January and July, the “smart money” asked delivery of 1,820 Moz that they bought for 29 Billion Dollar. They started buying all the physical silver available on the market. When the second circle of insiders will be informed of this extraordinary opportunity, there will be a rush of new investors, who will try take advantage of the windfall. Billions of dollars will be invested in a very small market.

 

On July 6th, Andrew Maguire confirmed this move of the smart money  on KWN  “We are also evidencing a large move to allocate and remove gold and silver from the interconnected legacy banking system.

This is creating a supply shortage ahead of season.”

 

Everything had changed

 

In january 2018  13.059 tons were in private hands, but since, 51,596 tons  had been added.

There are now 64.655              tons of silver in private vaults, 75% of the the above-ground silver stock are in the hands of investors organizing a shortage… and the year is not even finished

 

There will be a huge Short-squeeze  and the silver price will rise brutally

 

My analysis

 

The Gold Silver ratio

 

In the history of humanity, gold and silver have always been monetary references. Gold / Silver ratios have often fluctuated from one continent to another and from one era to another. When European mines were exhausted in the late fifteenth and sixteenth century, the gold / silver ratio was 1/10 in Europe against 1/5 in China.

The bimetallic monetary system set up by the French Convention in 1795,  set a ratio of 15.5, which will remain the international reference until the First World War.

Today, the ratio fluctuates according to the manipulations of the market. But if you look at the data published by the USGS year after year on gold and silver

 

When the world gold production is 2,500 tons, the world silver production will be  evaluated to  25,000 tons.               The ratio is 1/10

When  the world’s gold reserves are estimated to 50,000 t, the world’s silver reserves are calculated to  500,000 tonnes,           The ratio is 1/10

 

All figures produced by the USGS are false, but they wrote those numbers, year after year on the same gold-silver ratio basis:  1/10  

I conclude that this ratio has been for decades a  political will.

 

This political will has been reflected in these coins hit by the US Mint in 2007 and 2008, which had been revealed by a whistleblower to the net community.

The Ameros were supposed to become the domestic currency of the NAFTA Zone (USA, Mexico, Canada) like the EURO for the European Union.

As seen on these coins, weighing one ounce of gold and one ounce of silver,  their face value respected  the 1/10 ratio

If you study the global derivatives statistics on the Bis’s website Here

The ratio between gold and silver is once more 1/10

The Gold-Silver ratio  which is at 1/78 today , will crash severely  in the 3 years to come.

 

For an investor, that means that investing in silver will be nearly 8 times more interesting than investing in gold, whatever the future price in Gold.

 

What price for silver ?

 

The rise of silver can be slow or very brutal

 

A slow rise  will already be surprisingly fast.

Refer to the 2010-2011 graph. In September 2010, Silver broke the resistance, which had held for 2 years.

Then the pricess rose from $ 18 to $ 50 in just 6 months, jumping from a fibonacci’s fan to the next.

 

 The rise will go faster and faster when the 50$ level will be broken.

A brutal rise

The COMEX Rule N° 589, which entered into force on 22 December 2014, could be applied at any moment.

Let’s suppose, that Silver price is 16$.  At some point nobody will want to sell its physical Silver. Buyers will then be forced to raise the auction. After a rise of $ 3, the market will be stopped 2 minutes to let buyers and sellers negotiate. Then the market resumes, the auction goes up by $ 3 … etc.  When the threshold of $ 12 rise in the day will be reached, without anyone wanting to sell physical silver, the market will be closed. And there will be no fixing for that day.  Without a fixing, nobody will be able to buy or sell silver in the world till the next fixing.

The second day, the silver market opens  at $ 28.  But nobody agrees to sell physical silver at this price … so as the day before, the price rises by $ 12 … but there is once more no fixing.

In 2 weeks, 10 business days of trading, courses will increase from $ 16 + $ 120 = $ 136.   … Have fun and do the math by yourself.

 

And during this entire period without fixing, no one will be able to buy or sell silver in the world.

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This rule has been created for something, is not it ?

 

Did they create this rule to solve the problem of a future Big Corner ?  😉

Timing

 

Just like in 1976, there had been attacks on gold and silver in july. It could be the same in august.

In the last days of august 1976, Silver was at $ 4,08

In January 1980, one ounce of silver was at  $ 49   as you can see here

Israel Friedman  wrote in  2006

Only a shortage in physicals can bring high prices and defeat the paper market and force the naked short sellers into bankruptcy.

Price Points and the Coming Silver Squeeze

To define what I mean by shortage in silver, I say categorically that I’m not interested in the level of world inventories of silver, COMEX inventories and the guru’s stories. I am only interested to know if the users are receiving their shipments of silver on time. When a delay of silver shipments occurs, and affects most the users, I will consider this as a shortage.

Let’s see the stages of a shortage.

  • Pre-shortage – the users will have to wait 3 to 6 weeks extra for shipments. Then the prices can rise to $20-30/oz.
  • Shortage – the users will wait an extra 6 weeks to 4 months for silver. Then the prices can rise above the old all-time highs of $50/oz.
  • Super shortage – the users have to wait more than 4 months for their silver shipments. The price will range from $100 to prices you won’t believe.

If this last scenario occurs, and gold has plenty of supply, the price of silver, at a minimum, will equal the price of gold. And my crystal ball tells me that silver can exceed the price of gold by a great deal.

You should be asking, how did I calculate the prices for the different stages?

My calculation is very conservative. I only take into consideration the future deficits between the producers and users, which is running currently at around 50 million ounces annually. I also take into consideration that private investors have 400 million ounces in bullion and coins that they will sell in some stages.

-In stage one, pre-shortage, I think investors will be willing to sell 50 million ounces at a price between $20 to $30.

-Stage two, shortage, investors will sell 200 million ounces between $30 and $100.

-And the remaining 150 million ounces will be sold in stage three, super shortage and the prices will be truly shocking.

These prices are very conservative, in my opinion, because they don’t take into consideration the naked shorts, new investments, or those banks worldwide that sold silver certificates without real silver backing, only derivatives backing.

The shortage is here. It is a fact.

 

In the weeks to come, you should find many articles to read about the growing delays in delivery of silver. There should be real problems for delivery at the end of September and the beginning of October. Prices will climb fast to 25$ at that time.

 

The first leg of this silver bull market is about to be launched. For me, there will be 3 big waves in the years to come.

The first leg should bring silver between 150 and 200$

There will be a consolidation during a krach on the markets  And then the second leg will start, going to the moon.

 

At the moment, let’s enjoy the first wave.  It is the calm before the tempest.

Cyrille Jubert

French Precious         metal   analyst            and      chronicler