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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.


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? 



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.