Against all odds, gold is back, with a striking distance of its all-time high at 1447.40, underpinned by fresh 38-year highs in silver, and driven primarily by ongoing tensions in the Middle East and North Africa, and the marked rise in energy prices that’s putting upward pressure on inflation expectations, which in turn is putting pressure on central banks to tighten policy, which is creating the value of all time high in the metals. It is there once again, avoiding our pockets from being completely picked, so that a portion of our wealth is saved in something other than the dollar. The traditional alternative has been to fiat currency based savings now is turning back to physical gold—breaking the barriers of all time highs.But while Gold is shining brighter than in any prior history before, silver is coming out from behind its coat tail more vividly and stronger than expected! It seems, that in our current financial crisis, where there is a profound and very powerful advantage being an industrial commodity, the mainstream has forgotten about silver, the shinny little coinages jingling in our pockets, now yielding as a higher monetary metal. The new generation, and possibly even some of us, has only a fleeting association between silver and its value. However, in the face of declining dollar values, and as the supply/demand characteristics of silver, that has become more widely understood, more and more are beginning to discover, just how one can’t go wrong with silver rounds, silver eagles, or silver metals period.
It’s been a long time since gold and silver were taken seriously by institutions as potential allocations. Of course, you will still see the lazy, push-button mentality of Stock Bug fund managers on a daily basis if you watch the business channels. When the discussion devolves to quibbling over “price points” and EBITDA in a given “space” and a haughty dismissiveness at the mention of gold, you probably shouldn’t expect any stunning insights. But, today’s talking heads are seeing the reality, and are indicating that things are changing. Silver as money rather than an industrial metal! Institutional shifting away from fixed income assets! It’s almost as if people were starting to understand that when a fixed income asset generates no income and then turns out to be worthless…the only investment is gold and silver.
Everyone loves an optimist – but while the world has been ignoring the monetary value of silver; it should be noted, that silver prices are artificially low due to a large concentrated naked short position. (Naked short selling scam is in the trillions of dollars, making it by far the biggest financial fraud in history.) So, it’s no coincidence that the day silver reached its multi-decade high of over $21 per ounce in March of 2008, was the same day Bear Stearns failed. Bear Stearns was a holder of a massive short position in silver. This was likely a naked short position because there is nobody in the world who owns such a large amount of silver for Bear Stearns to have borrowed.
After doing a bit of research, looking into the reasons why the Federal Reserve was so eager to orchestrate a bailout of Bear Stearns, is because Bear Stearns was on the verge of being forced to cover their silver short position (short position meaning you are speculating market will go down and they will make money.) Because the silver market is so small and tightly held, if Bear Stearns was forced to cover their short position, silver prices could’ve potentially rose to $50 per ounce or higher overnight. For those who originally had predicted that it would, and it didn’t, exemplifies, the world would’ve seen how economically unstable our country is, and confidence in the U.S. dollar would’ve rapidly deteriorated. JP Morgan knew this, and still holds the silver short position from the Bear Stearns. The concentrated naked short position in silver today is the largest short position in the history of all commodities, as a percentage of its market size. Eventually, JP Morgan will need to cover this short position or it could jeopardize their existence. According to Regal Assets there is no doubt that JP Morgan is going to have to cover their silver shorts which could cause silver could rise as much as $50.00 an ounce overnight”.
The best evidence that the short position in silver is naked and not backed by real silver, is the differential between what silver trades for on the Comex and what real people are willing to pay for physical silver on eBay. Every hour on eBay, there are dozens of one ounce silver coins selling for approximately $35. With so much demand for physical silver, we doubt the silver shorts in the paper market will be able to manipulate prices downward for much longer. A major short squeeze could be right around the corner and silver could take off in a way that shocks even those who are most bullish.
And according to HSBC, the world’s largest bullion dealer [in both gold and silver] confirms that silver’s role as a monetary metal is gathering the most momentum, particularly in emerging economies. They say that the macro economic trends from emerging markets are positive for both gold and silver. They put the growing Chinese middle classes [now well over 400 million people of the 1.3 billion Chinese citizens] as fueling an “explosive” growth in demand for silver as a hedge against fast rising inflation.
The Industrial and Commercial Bank of China, the world’s largest bank by market value, agrees this. I.C.B.C. sold 13 tonnes [418,000 ounces] of physical silver to Chinese citizens in January, alone, compared with 32.97 tonnes [1.06 million ounces] for the whole of 2010. We have seen China turn from an exporter of silver to a huge importer in the last three years. And that’s just the start! China was a net importer of over 3,110.42 tonnes [100 million ounces] of silver last year, whereas while it was selling ‘official’ holdings of silver only a few years ago it was exporting an equal amount annually. China’s ravenous new demand for silver as a store of value in inflationary times is growing exponentially. This is illustrated by the fact that silver imports last year increased four-fold over 2009.
In 2011 we are seeing prices far above those imagined three or four years ago. But then the world is facing far more uncertainty and instability that was ever imagined then too. The decay of currencies’ abilities to measure value has been increasing over that time too, making the soaring prices of silver and gold to become more than plausible. Indeed a strange feature of the silver price has been it moves with gold as though tied with a piece of elastic string to the gold price, rising higher or correcting at each move. “But, Silver will rise to $60 an ounce in the next three years, while gold will climb to $2,000 an ounce,” according to Aaron Smith, managing director of Superfund Financial (Hong Kong) Ltd. and Superfund USA Inc. Smith correctly predicted record copper prices in November and a month later rightly anticipated that silver would outperform gold. American Precious Metals Exchange, one of the largest U.S. gold and silver dealers, said yesterday its sales may double this year. Sales of items including 1-ounce gold coins and 10- ounce silver are “on pace” to reach as high as 15 million units for the year, Chief Executive Officer Michael Haynes said. The dealer shipped 7.5 million items last year.