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Is silver a better buy than gold?  Ted Butler thinks so.

Here are some interesting facts pointed out by Ted Butler.  The total world production of silver is around 800 million oz.  There are 1.3 billion oz. of above ground silver.  The open interest on Comex equals around 700 million oz., which is equal to nearly 90% of annual silver production.

The total world production of gold is about 95 million oz.  There are an estimated 5.5 billion oz. of above ground gold holdings.   The open interest on Comex equals approximately 41 million oz., which is equal to only 43% of annual gold production.

Note the imbalance here.  The Comex open interest is twice that of gold and around 35 times that of gold’s world inventories.

This is not bearish for gold but does point out the heavy foot on the price of silver.  Butler says:

If just 0.3% (a third of one percent) of the total current value of all the gold in the world ($7 trillion) tried to convert to silver that would be more than all the silver bullion that existed. Higher gold prices would only amplify the comparison. 

Butler Research

Compared to gold, silver is scarce!

In the last several years there has been a large liquidation of gold and silver, most notably gold from GLD where over 40% of the ETFs gold has been liquidated (around $25 billion in 2013 alone.  At the same time, there is very little silver liquidation from SLV, though there has been a constant movement in and out that would allow a large buyer to steadily accumulate a large quantity of silver without calling attention to itself.

The low prices for precious metals has translated into softer business – in the US.  If your precious metals dealer has a business model that relies on strong volume and their overhead is based on this business model, they are in trouble.  We have heard stories from our clients and from our contacts in the business that several large firms, names you would recognize, are in big trouble now.  They are offering excuses and stalling tactics instead of shipping gold and silver to their clients.

I took the following story from Ed Steer’s newsletter today, but I also heard about it from several wholesale sources as well.

Joshua Gibbons Warns on Tulving Company

For close to two decades, The Tulving Company has been well known for almost always offering the best prices on a fairly limited selection of items, with a high minimum order, and ‘no-frills’ being an understatement. We would always recommend them to people who could afford the minimums, and were looking for the best prices.

In the past, he would normally ship very quickly (often the same day he received your money).

However, starting mid-April, 2013, there were serious (read: illegal) issues with delays. Complaints to the BBB increased, and it looked like there could have been a problem. 

Now, things are at the point where we feel that an alert needs to be issued. There are dozens of 300+ confirmed complaints of people waiting several up to 6+ months for $10,000 to $200,000+ orders.

This commentary by Joshua was posted on his website last Friday—and it’s worth reading.  All questions about this story should be directed to him—and his e-mail address is at the bottom of the linked commentary.  I thank Ted Butler for pointing it out to me yesterday.

Read more…

Casey Research, January 28, 2014

You may see more cases like this if the rebound in gold and silver business, here in the U.S., drags on until late 2014.  Many firms are losing money and have been for months.  This happens in our industry whenever a long-lasting correction takes place.  Companies expand and over-spend during the boom times and can’t re-adjust when business disappears.

Why is this happening?  Because when firms business model is based on selling at the lowest price and then there is a protracted period when volume drops significantly, it often results in long delays of customer shipments.  It takes new money coming in to buy material to ship out.  That’s the way Ponzi schemes work.

I’m sure Ed Steer is not deliberately singling out Tulving but this story – and even Kitco’s well-documented legal problems with the Canadian government – are warning shorts that all is not well in our industry.  Do your homework before you send off money.  Do NOT store your metals with any dealer!  Be very concerned if your order is not shipped in two weeks or LESS.  If you have any concerns, check with the BBB and state agencies – find out if other people are complaining and stop doing business with firms that have over-extended themselves.

Now is not the time to “pay the least” for your gold and silver.  Deal only with firms with no complaints filed with the BBB and with a long history of honesty and service.  Getting your orders filled is not a given in this market.

I can promise you that Miles Franklin is doing fine, since our overhead was structured with the ups and downs of our industry in mind.  We deliver.  We also offer personal broker-to-client service and many benefits not available from the low-price outfits.  Even with our newsletter and our highly experienced and dedicated brokers, our prices are not far off from those who offer nothing else but price, and you will never have to worry about Miles Franklin not delivering or taking months to fill an order.  We are based in Minnesota and the State of Minnesota has very strict laws about how to run a precious metals business.  We don’t need their regulation to do things the right way, but it insures that we must ship in a timely fashion.

We are exactly the kind of firm you want to do business with.  You will never read about us on the Internet under the “bankrupt business” or “under investigation for stealing client money” category.  We are highly respected within our industry, have a spotless 25-year track record and have booked nearly $2 billion in sales.  We have survived the horrible business climate in the 90s and early 2000s with our reputation and a spotless record.  You can count on us.

Finally, to give you an idea why gold and silver fell (again) yesterday and as a heads up where they may be headed the rest of the week, Ed Steer and Ted Butler point out…

Today is options expiry for February on the Comex—and tomorrow is the last day for the large traders to roll out of their February futures contracts on the Comex as well—and by the end of trading on Thursday, every other trader holding a February Comex contract in any physical commodity must have either sold it, rolled it, or are standing for delivery on First Day Notice—and the first of those statistics will be posted on the CFTC’s website late Thursday evening New York time.  And, as always, it’s who the issuers and stoppers are that matter.  How big a part will the HSBC USA, Canada’s Scotia Bank and, most importantly, JPMorgan Chase have in all of this?  I’d guess that it will be almost all of it.  It will be interesting to see how the delivery month unfolds.

The above Comex timetable, along with the FOMC meeting that starts today—and ends tomorrow afternoon—will be what drives the market for the remainder of the week.  It matters not that platinum production is shut down in South Africa, or that China is sucking the world dry of every gold bar it can lay its hands on.  Supply and demand mean—and have always meant—nothing.  It’s only what JPMorgan et al do, or are instructed to do, that matters—period.

Of course, in silver, there was a time when supply and demand mattered greatly—and that’s when JPMorgan almost got overrun during the latter part of March and all of April in 2011—and why they and others took a sledge hammer to the Comex futures market in the drive-by shooting that began in the thinly-traded Far East market on Monday, May 1, 2011.  That’s also the day they began accumulating silver for the first time in their own warehouse.  Ted Butler spoke about this at length in his commentary to his paying subscribers last week—and I’ve touched on this from time to time as well.

Casey Research, January 28, 2014