I received a reply to my article and a question yesterday from John Embry of Sprott Asset Management. He asks, “Where” the silver has come from to supply the excess demand over these past years. I have reprinted his question and then my response to John. I will follow my reply at the bottom with some parting comments and a more in depth explanation.
Bill,
I agree with your premise totally but remain baffled by how the PTB are able to access enough physical silver worldwide to meet demand at such a remarkably depressed price. I was talking to Eric Sprott about it yesterday and he can’t understand how they’re doing it. The world experts Ted Butler and David Morgan are at a loss also. Any ideas on your part?
Best,
John
Hi John,
I suspect that China leased out silver 10 years ago. This was done because they wanted and preferred to have gold, it was a better deal to suppress silver prices (and thus gold also) than to just swap it one for the other because even if it was 2 billion ounces you were only talking $10-12 billion at the time. Also please remember that nearly 100 years ago we (and the British) devalued silver versus gold which stung them badly, the Chinese have memories for millennia, this was only a century ago which is like yesterday to them. They (the Chinese) have now gorged on gold and done it with large dollar amounts…not to mention they have emptied the West’s official reserves. They have built a very large gold position off of the foundation of their large silver position. In a nutshell, I believe the silver could have only come from China.
Now let me explain my theory, we saw the open interest in COMEX silver surge a couple of years ago like we are again seeing today. I believe that it originally was “the plan” that turned into a “test” because we did not default on delivering gold. The whole thing is/was a “trap” to be sprung by the Chinese (the East) on the U.S. (the West). They knew how much gold that they had purchased and calculated that we were close to running out. What they did not calculate in my opinion is that in order to keep the game going, we (the U.S.) would steal other western gold that was held in custody and use it to satisfy demand (desperate people do desperate things). I believe the silver “longs” were unwound last time once they realized that other sovereign (German, Dutch etc.) custodial gold was coming to the market. Now, we are close to running through even that “custodial gold” and the Chinese know it which is why the open interest in COMEX silver is rising again…the Chinese through proxies are lining up to “call” silver. I believe the leases were 10yrs in duration which would make sense thinking back to 2003 (Buffet’s silver) and the onset of ETF’s to be used as a pressure valve to divert some of the demand into paper that did not procure the physical metal. China is merely reloading or re preparing to spring the trap now that it looks like the gold well is drying up as evidenced by GOFO rates.
I believe that the “call” will come on 2 separate fronts for silver. One with the 10 yr. leases expiring and China calling those which will coincide with massive contracts standing for delivery on the COMEX for a double whammy. Will they get all of their silver back? No, but they have stockpiled gold in much more numerous “dollar” figures than their silver could have ever been worth. Enter Russia and the Saudis who for sure will (Russia) and probably will (the Saudis) begin to price oil in currencies other than dollars. This will cut the legs of demand out from under the dollar…simultaneously with a call on silver …at a time where gold reserves have been depleted. Can you say “re set?”
Can I prove any of this? No, but I can prove that there were only two large hordes of silver in the past (3 if you include Buffet’s ham sandwich 129 million ounces). We know of 2 billion ounces procured from the scrapping of the “Manhattan Project” and we also know that the Chinese had at least 300 million and probably more like 1 billion silver ounces…which would have gotten us to where we are now if you look at the supply deficits filled for the last 30 years. We know that China had 300 million silver ounces in 1930 and that they have been mining ever since without ever exporting any of it…they surely must have gotten to 1 billion ounces by the turn of the century in another 80-90 years of mining.
This has been “economic war” literally since the 1970’s, we just didn’t know it…the East did. While we “thought” we were winning the war with battles along the way (i.e. collapsing Russia) we lost track of their “troops and their strategy.” This I believe was evidenced by Dick Cheney’s quote that “deficits don’t matter.” They do matter; they always have and always will matter. James Turk by the way is reporting that silver is now also in a negative GOFO structure which would also argue that silver is finally becoming tight. I may be wrong but I see this entire episode as many battles within a giant war where the Chinese have allowed us more and more “rope” to hang ourselves while we won “battles” here and there…until they spring the final trap and win the war. The old saying of “he who has the gold makes the rules” still applies…the Chinese know this and we forgot it. When all is said and done, I believe that the Chinese will “tell us” what the prices of gold and silver are after the system resets. We messed up big time!
OK, so that was my back and forth with John Embry yesterday, I apologize for the hopping around style of writing but it was written off the cuff and is a little difficult to follow. We spoke at length on the phone afterwards where we talked on this and several other subjects. John’s response to me was that he had never heard this take before; I thought that he had because Harvey Organ and I have discussed this several times and they are both from Toronto. In any case, I think I got John (and hopefully others like his partner Eric Sprott) scratching his head on this one. Like I said, I cannot prove it all except that the U.S. depleted their silver reserves that were amassed from scrapping the Manhattan Project. They had roughly 2 billion silver ounces that were expended (sold) prior to the turn of the century. I also can prove that China at 1 time had a hoard of over 300 million ounces of silver (1930) and probably at least 1 billion ounces (2000). The rest is connecting these dots because the metal had to come from somewhere.
Logically, if demand has outstripped supply by 100-200 million ounces or so per year…it had to come from somewhere, right? Like I have said many times before with gold (where central banks were the big holders), you must look to the biggest hoards to see where the physical metal MUST have come from if the supply and demand numbers do not add up…which they have not for many years and do not today. I know of no other large deposits of silver that could possibly have plugged the gap between excess demand and the limited supply other than these 2 sources…one of which we know has been long gone (some will say also the LBMA, they may be correct but I am skeptical of this source). Logically, if the Chinese wanted gold but knew that physical silver was the “suppressors” Achilles heel, then they knew that providing physical silver was their road to purchasing large amounts of gold at subsidized prices. China has known all along that there are no large silver hoards left and that the West could never keep the price of gold down without keeping silver in check. In other words, you can’t have $1,300 gold if silver is trading at $500 or $1,000 per ounce. I believe that they used their silver as “bait” because they knew that the West needed it to suppress silver… In other words, they leveraged their massive silver holdings into an avenue to accumulate gold at suppressed prices
I believe that they have now trapped the West. I believe that much of the Western gold already resides in the East and that the losses of some physical silver will be more than made up for. I and many others have wondered for years, why hasn’t someone blown up the COMEX silver pit with a mere $3-5 billion? If the real “prize” was gold then wouldn’t you wait to blow up silver until there was no more gold forthcoming? This is common sense I believe and could explain why and how silver has been “carried” for so long. Seriously, there are certainly countries, states, companies, hedge funds, mutual funds and even individuals that could come up with $5 billion. This small sum would be enough to completely upset (to the upside) the pricing structure, it will be easily done when it happens.
I would also like to add that I also believe that much of whatever physical silver has been held and vaulted has also been “used.” I believe that it has been hypothecated, re hypothecated, and even the physical metal (the collateral) itself has been sold off to meet the demand. I truly believe that we will wake up one day only to find out that 99%+ of all “paper receipts” for gold and silver don’t even have the original metal behind them. At one point they surely did but since then the original ounces were sold or “pledged” on paper many times over…but now in many cases even the original metal has been sold. You either hold it in your hand or have deposited it in a non-bank storage facility or you don’t really have it in my opinion.
The above is merely my opinion so please, if you disagree with it tell me how and where the logic is wrong rather sending fired up e-mails at me. I have thought about this topic for many a moon and always come up to the same conclusion. “Silver (or gold) can only come from where it was or is held” …which in this case I have narrowed down to China. I think it makes sense and I also think that this is your answer as to who is now behind the record open interest in silver with 3 year lows in prices. Nothing else makes sense to me. For what it’s worth.
Do you believe a reset will happen soon?
the conditions have existed already for several years.
Bill I love your down home, no bullshit, truth tellin’ writing. Keep it coming!
Keep stackin’ people!!
thank you Stacker.
Hi Bill,
Interesting theory…I never knew how much silver the Manhattan project required. I looked it up and they borrowed 14,700 tonnes of silver (appox. 430 million ozs.). According to a Washington Post article dated 29 may 1970 the last of the silver was returned to US treasury in 1970. There was only minimal amount of loss of silver by the project.
This 430mln figure hopefully means that there is much less silver for the cartel to use in their scheme
the government did at one time have close to 2 billion ounces.
Great thinking… what a game these people play. I am just trying to cover me and the wife’s *sses. I have been hedging with Au since 535..and am really glad I got started early as I am not a rich man. I hold to my conclusions, and articles such as this one are the reason my confidence has not really wavered. I know the money in my stack gives me a lot more of a sense of security than that the system holds for me. And so does my garden.
Bill,
Outstanding stuff. This is why I scour the internet for hours at a time, to find nuggets like this. If your conclusions are correct this would be Pulitzer prize material.
This to me, has ALWAYS been the 64 million dollar question. We know how they suppress the gold price (with central bank gold). Silver never made sense. I continuously wondered how they did the same with the silver price…now I’ve encountered a rational explanation.
Great Work,
Icarus
thanks Icarus
Bill,
I think your theory holds water.
We have been out foxed by China. Doesn’t surprise me.
The USA has been left holding an empty bag.
ps – those paper gold and silver holders are in for an unpleasant surprise!
we’ll see soon enough.
Congratulations!!! You are now thinking like the Chinese, namely Prospective and Long-term Pragmatically.
We try.
I think you’re on to something here. If this is accurate then the “tell” is to keep an eye on the refining backlog of the Swiss. From what I gather, the Swiss have been running full bore with all refineries smelting “good delivery bars” into 0.9999 pure 1 Kg bars. When this subsides due to lack of supply, then the Chinese imports will fall and the “trap” should(will?) be sprung.
that would be a “tell”.
Bill,
After reading this I was a little confused as to your premise that there is a shortage of silver. My reading of the experts indicates that there is something in the neighborhood of 100 million ounces of excess per year after satisfying the demand by industry. So where is the shortage?
Kevin
mine supply has not met demand for probably 20+ years now.
Then why is leasing a thing of the past?
first off, the mining companies got burned big time when prices went higher so they do not lease in amounts even close to the old days. Leasing primarily has been a “ruse” to portray a plentiful supply…now both gold and silver are in backwardation which makes no sense and should never ever happen but it is. This situation of backwardation outright illustrates physical tightness. The fact is, GFMS has for years fudged the “scrap” numbers to make supply and demand numbers to equate. The days of plentiful metal are gone and mine supply is now shrinking.
WOW, this is great stuff. When you get John and Eric into the conversion – in my estimation you are really on to the truth. I love your writings and sometimes the replies are even better. It all boils down to the fact that FIGURES LIE AND LIARS FIGURE and that is what has happened as the American politicians got over greedy. Let’s hope the truth emerges ASAP.
it will emerge…but it will be uglier than anything you’ve ever seen before.
There is a legend that the US had aproximately 4 billion ounces of silver in the treasury in 1964 when it was no longer going in the coins and LBJ sold it off. Is that a fact based legend? If so, where might that silver gone, how does it compute into stockpiles?
excellent having you experts work on these details in public to help us understand, we thank you.
I do not know what was left in 1964 but I highly doubt it was 4 billion ounces. Some say that JFK was shot because he wanted to end the Fed and move more toward a metallic standard…instead we went the other way.
I can see what you are saying.
Thanks
Would another possible source be that some “industrial” users are reporting they are using it in industry but are really using it (10% say) to help suppress prices? Just like the miners, the users can’t be trusted.
In theory yes.
The other possible explanation (and that’s a speculation that I have been making for a long time now) is that big mining cies like Barrick Gold aren’t reporting all their real production on their books.
The bullion bank cartel has a near total vertical control of the PM market. Starting from ownership/control of large mining cies (Barrick Gold’s new CEO is an ex Goldman Sachs top executive), to refineries and wholesales/import monopolies through their Central Banks network around the globe.
The idea would be that let’s say Barrick Gold under reports its real production to its shareholders. Then turns around and secretly ships its unreported gold/silver to the COMEX or the LBMA so that the bullion banks have enough physical to continue their market manipulation. And everyone is baffled as to where this “excess” gold or silver is coming from…
I am sure that my theory is part of the overall picture. The PTB rigs everything so why wouldn’t they also cook the books of large mining cies lie Barrick Gold, which are totally under their control. I think that the manipulation in the PM sector is vertical ad starts right at the mining level all the way up to the refining, imports controls through Central banks like India and control of the wholesale markets.
Now, that doesn’t mean that your theory isn’t right either. I think that we are both right and both have a part of the overall picture in our analysis.
Barrick already aided in suppressing gold’s price by forward leasing…we all know how that worked out.
Maybe the ‘Rothschilds’ and their friends have also had a huge supply of silver tucked away after their looting of India’s silver in the 1920’s and China’s in the 1930’s, plus another seventy years or so of additional storage, so while the rest of the world had lost interest in silver they were hoovering up the physical stockpiles to the tune of billions of ounces and are now slowly releasing their stockpiles. Just am alternative thought!
Any prediction on just when the trap will be sprung? Weeks? Months? A year?
If I am correct, it should have already happened a year and a half ago when COMEX silver OI was high where it is now but like I said, China did not calculate that we would sell custodial gold held for other sovereigns. We can have a default on any given day for a myriad of different detonators both financially or geopolitically.
Bill, great article. What I have been fearing as well is that once the sovereign gold supplies are finally exausted, and the whole financial system teeters on the brink, there will be enormous public demands from all over the world for governments to repatriate their gold holdings from the US. Once it becomes clear that the gold no longer exists, the US will be branded as the biggest thief in world history and our already shoddy reputation will be completely destroyed. I can see mass confiscations of any and all US assets overseas as a possible result. It is remarkable how passive many populations and governments currently are, despite the recent reports that Germany only received a paltry 5 tons of gold back from the US last year.
thanks Mike, I agree.
Thanks for the interesting and not-impossible hypothesis.
We’ve a forum at TFMR with results from researching above ground silver. Any links you have to support your Chinese 300 million ounces in 1930 and continued mining to 1 billion (presumably in bars?) by 2004 would be appreciated.
The 100 million ounces a year excess supply since 2006 may have come from Ted Butler http://goldsilverworlds.com/investing/ted-butler-i-own-silver-because-of-coming-silver-shortage/ I have found no way of verifying Butler’s numbers.
Silver Above Ground at end of 2012 Overview:
Total Silver Mined 3000BC-2012AD:
49 Billion ounces or 1537000 Tonnes
Irretrievably lost 3000BC-2012AD:
25 Billion ounces or 789000 Tonnes
Silver above ground end of 2012AD:
24 Billion ounces or 748000 Tonnes
Nick Elway, Hagarth, and Byzantium helped create this report
Silver above ground is:
Industrial recoverable at high enough price.
3 Billion ounces or 93000 Tonnes
Note 1
Silver in coins.
2.5 Billion Ounces or 79000 Tonnes
Note 2
Silver in bars and rounds
1.4 Billion Ounces or 43500 Tonnes
Note 3
Silver in jewelry and silverware
17.1 Billion Ounces or 532500 Tonnes
Note 4
——————Nick Elway
Thank you Nick, the silver was held in Shanghai and was documented there as late as 1949 when Mao assumed power. I believe that MacArthur moved 69 gold tons to Taiwan during or just after the war. My point to the article was “where” could silver be coming from to supply the deficits? Just a theory but like you said, “not impossible”. We just do not know of any single large hordes other than LBMA, SLV and maybe COMEX. I agree with Eric Sprott that there is no way that SLV could have been supplied the REAL tonnage that they claim to have.
Silver above ground forum link
http://www.tfmetalsreport.com/forum/4591/silver-above-ground
I’ve heard rumors that a game changing announcement regarding the US Dollar and gold will be made on 4/2/2014. Anybody else hear this rumer?
no, and that would have been over 2 weeks ago if your date is correct.
Bill, Do you consider bible prophacy or believe in that sort of thing, when contemplating future outcomes with the ecconomy in general and gold and silver in particular? The reason I ask is a statement made in Daniel 11:43, “in the last days”(vs. 40)……He(the king of the north) shall have power over(many versions say”gain controle of”) the treasures of gold and silver and over the precious things of egypt”. You may not consider this worth anything but some of your readers might. I find it interesting/scarry that this could explain why this unexplainable depression in PM’s angainst such strong fundimentals screeming for PM’s to reach their true value, seems to have gone way past what TA ever would have predicted.
I do love your theory, it might even be the fit to Daniel 11;43, a lot depends on who one sees as being the king of the north. A chapter or even a book could be written on this
yes David I am a Christian and believe in the Bible but do not write from that angle at all because then more than half the population would not read what I write thinking I was a crackpot. That said, I suspect when we look back there will have been some sort of hints given us through the Bible. At this point I believe in “God helps those who help themselves”, holding your wealth in PM’s is one way to do it.
Well said, that’s exactly what I’ve done since early 2000. So I’m way ahead and holding.
Bill, do you expect that once the “trap” is sprung successfully the US govt will once again attempt to confiscate gold (and possibly silver) to satisfy its financial obligations?
very well could be?
Bill’s theory would have required GOFO in backwardation in the months preceding May 2011. Silver was but not gold if I remember correctly. Is this not right?
no, not necessarily. Silver just went into backwardation last week for the first time. My “premise” or theory was that silver WAS in fact being delivered, my conversation with John was about “where” it could have possibly been coming from which I speculate to have originally been China’s silver. Also, I don’t think that gold went into backwardation until last year for the first time or maybe 2012.
Sorry I wasn’t clear in my question.
If gold drying up is what is presently pushing up the silver OI, then shouldn’t we have seen GOFO in backwardation back in early 2011, the last time we saw these OI levels in silver? Thanks.
yes but that was exactly my point, there has been silver available even though much more is taken off the market than is produced.
If you look at the last 2 years or so, silver was weaker almost always in overnight trade. If you look at 2-5 years ago, silver was strong almost always in overnight trade. The difference was china began to suppress silver prices and then silver went into its current correction. My own theory was that the Chinese sold paper and bought physical–feeding some physical back into the market but keeping as much as possible. They have previously stated that paper contracts will not be honored at their discretion.
you may be correct, John asked me where I thought the physical metal was coming from. The only logical place that I can think of was the Chinese hoard.
I am rather new to PM investing (about 4-5yrs) but have been scouring the net for answers and the price of silver is a big puzzle for just about everyone. I have to say, this is the closest plausible answer I have read. It provides a number of plausible answers in one theory.
All the more reason to stack-up because between the under-supply, growing demand and below production cost prices – it would seem absurd not to.
One additional thought – with Japan, China and India announcing huge solar initiatives spanning for years/decades into the future and the following quote for guidance:
The silver, however, has value. A standard solar panel has about 20 grams of silver, according to a representative from DuPont, a leading supplier of silver paste for solar panel manufacturers. That’s a little over two thirds of an ounce, and with silver trading at roughly US$20 per ounce … that’s about US$13 per panel.
When you read the gigawatts of solar each country has plans for, it would seem to make sense that planners would want to secure sufficient supplies while the price is suppressed – because realistically speaking, if half of your theory is true, whole industrial sectors will be in a bind as this manipulation drives down exploration and forces high grading – preordaining future supply issues.
Surfing a few headlines, it was not hard to come up with many tonnes of silver being needed for these solar plans. (And I didn’t even touch that kooky solar farm on the moon idea out of Japan for tetrawatts 🙂
In short, it would be wise if the Chinese moved on silver to insure their financial and industrial needs are met sooner rather than later. After all if gold pops, silver quickly follow along for the ride. (or conversely as you point out, a squeeze caused by a series of stand for delivery, silver provide upward pressure for gold.)
Well after all we have been through – I’m ready…but what comes behind it…I am not sure anyone is ready for.
Thanks again,
JerseyJoe
yes, you have come up to speed quickly Joe.
SILVER AND GOLD SHOULD NOT BE LINKED, NOR SHOULD GOLD AND OIL BE LINKED, ITS SO MUCH NONSENSE TO THINK THAT THESE “commodities” are perma-linked to each other and must either go up or down in “price” TOGETHER!Do not praise or punish one “commodity” because of another, Silver is rare and useful and its intrinsic value should be $50 an ounce minimum starting from now until the end of currency. I dont care if gold falls to a penny an ounce (though it should be around 2 grand an ounce minimum) its not relevant to silver because silver has unique properties and uses from gold and they are completely different elements and do not need to be linked to each other in any way shape or form (or to oil or anything else.) The people that are manipulating the natural prices that should be derived mainly from SUPPLY and DEMAND need to be caught and stopped! Since we are no longer on the gold standard (though we SHOULD be ) there is no longer any set ration of monetary value of silver to gold like there was 100 years ago or so, so all the precious metals need to float freely and not be linked to each other in any way, or to any other “commodity” (how people call precious metals a commodity just like orange juice is when they are **non-renewable resources** is “beyond me”/its absurd.)(do some people actually consider gold and silver renewable resources just because there is more left in the earths crust?? there is a very finite amount and it does not grow on trees like SOME things do..)
Im not as smart as you guys but when people realized they couldn’t get their 3 dollar a box of twinkies they were selling on ebay for 30 to 40 dollars a box…..I think silver will do better than that….Greg
good’ern Greg!
I note your crest Liberty. People I am at the coal face, a pensioner, metallurgist, last professional employment Denver Equipment of Joy Manufacturing Milwaukee 1971. Currently I’m testing two potential diamond pipes I discovered in two days both with all accessory minerals.
I lapsed a patent application USSR which I could have taken but hold expired patents and Trademarks in Australia, Canada, USA, Russia and PRC. Wise Technology encompasses the Wise Wet Gravity Concentrator and highly technical Particle Settling Rate Sorting Process
In 10,000 years of metallurgy three new processes have been established: new sizing process; a particle shape-sorting process and the Holy Grail- a process to determine on stream the variations of grain size of minerals in an ore and hardness allowing the full automation and computer control of an ore dressing plant for greater economic efficiency and increased throughput.
This feedback loop allows greater planning for “mineralogical”mining between mine geologist and mining engineer and metallurgical operations increasing efficiency at lower cost. In addition to increases noted it allows sub-ore grade to be mined increasing the reserves markedly where halos exist to the benefit of all.
The processes: can make stronger aggregate for concrete construction, road and rail ballast due to shape sorting.
can recover gems to whatever size
will upgrade high-grade ore deposits like iron, coal, magnesium, titanium, chromium etc
the 25 associated economic efficiency applications allow the throughput of a plant to be incresed say to 100 per cent or beyond. This is metal in the hand.
Just after the time of patent submission with provisional pecifications April 1972 I turned to Annual World Metal Production, country, metal tons, value. My estimation was $A14 Billion. The USSR was the biggest producer and it was the time of the Cold War. On reading the value I realised I was in big international trouble.
Military, Political, World Economics, Metal Production, Metal Pricing, Trade and Metal Markets, the right for all world citizens to share in ordered mining activities for a better life. The current annual production is probably around $A300 Billion. The Australian Patent was granted 10th April 1973. I hold the patent valid due to enormous international interference and cannot do anything until Governments clean up their act.
At that tme I held that the United Nations should control developments such as this massive sudden input and I still hold that belief. I know that humans can have no boundaries for greed, power and ego at any cost.
James Wise, Rockhampton, Australia
John Embry has been calling for a giant spike in gold since FOREVER…and all it does since 2011 is GO DOWN…pretty bad track record Mr. Embry…I’m not impressed at all and i’m sick of your BLAH BLAH BLAH….Down again this week
there are other sites and authors to read. John Embry is an honest mental giant amongst midgets in my opinion.