Twos-Day Silver Shortage Report

(No Silver on Tuesday)

Silver Stock Report

by Jason Hommel, September 3, 2008

For the last two weeks, I've asked my readers to go to their local coin shop on Tuesday, September 2, at 2PM.  In sum, for those who acted, they were alone.  Most shops were out of silver, or nearly out.  Dealers want you to pay up front for silver that may take 5 weeks or more for delivery.

No customers.  No silver.  Those who deny the silver shortage, are increasingly now recognizing the retail shortage, and say that it's record demand that's doing it.  Nonsense.  Investor demand for silver could not be lower.  No lines.  No huge demand.    The U.S. Mint produced over 500 million ounces of silver in U.S. coinage in 1964.  Today, they can barely produce on pace to make 20 million silver Eagles, without horrible shortages developing.  That's not a "manufacturing" problem; it's a supply problem.  But still, the mints can't supply the market.  Why not?

The silver market is broken.  COMEX broke it.  The CFTC broke it.  The Federal Reserve broke it.  The paper dollar broke it.  Hedged refineries and dealers broke it.  The broken trust broke it.  Lack of knowledge about usury and promises not being the same as real silver broke it.

The spot market, the over the counter market, is transforming itself into the futures market that it depended upon.  If you try to buy silver at "spot", it's like buying a futures contract for delivery in 1 to 2 months all over again!

We now need a new silver market, where people cannot sell silver that they don't have.  We need a new spot market to help discover the real price of silver.  Although ebay right now is the best free market indication of a real price that there is, it is bad for silver because of the 10-15% fees, which restrict volumes.  Surely a new market will emerge where people can only sell what they have, and can be proven to be able to be delivered, where real silver will sell at increasing premiums.

A dollar used to be defined as a certain amount of silver, about .76 of an ounce of it in a real silver dollar.  In 1968, a few years after the U.S. Mint stopped making silver coinage, they continued to let people exchange silver certificates for real silver.  It became very profitable for people to buy up the silver certificates and present them for delivery of silver that was being sold at below market prices.  Eventually, .76 of an ounce of silver, a real silver dollar, was sold at increasing premiums to a paper dollar. 

Same thing is happening now.

Real silver is selling at increasing premiums to the paper price of COMEX silver that you can't get.  If you can get it, then you will be able to increasingly sell it at a premium, and make a quick profit if you can find silver priced at COMEX prices.  Manipulated silver prices are a great advantage if you can buy cheap silver, and sell it at real free market prices, as some dealers have begun to do, expecially with Silver Eagles.

Here are the reports from my readers, all from today:

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Twos-day visit to local coin shop

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Went to the Onlygold.com shop in Phoenix, AZ. Do not get tripped up by the name. These guys do a fair amount of silver dealing as well. This shop is owned by a guy named Richard Smith. Richard has slammed the notion that there is a silver shortage and has also picked on Chris Powell of GATA as well. Here are the two articles that I was referring to:

http://onlygold.com/Articles/ayr_2008/Remember_Gata.asp
http://onlygold.com/Articles/ayr_2008/Daddy_What_Was_Silver.asp

I guess we can debate on how negative these articles are against the metals. The reason that I bring up this subject is because of what I found in the shop. I walked into the shop and I did not meet anyone from the Hommel camp. I have gone to this shop and only this shop for about 5 years now. I have never been turned away due to them being out of silver. I briefly went over with one of the employees tallying how much silver they had in stock. The stock at that time was as follows:

< 50 Silver Austrian Philharmonics +2.50 over spot for 20+ order
< 50 American Silver Eagles +3.25 over spot
5 100oz. JM/Engelhard bars (did not check how much premium over spot)
1 100oz. Generic Silver bar (did not check how much premium over spot)
No Generic Rounds or 10oz. bars (which I have never seen before)

(it would not surprise me if all of this inventory was cleared out by tomorrow)

The only reason that I went was due to the Tuesday at 2pm so I only brought $500 with me so that I could buy whatever I could but his inventory was more of my concern than anything else. I ended up buying 32 Austrian Philharmonics for 15.60 (13.10 + 2.50.) The employee that I talked to said that it was getting drastically harder to acquire the metal.

I just found it laughable that an insignificant $500 took out 5% of his inventory. No sir, there is no shortage

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Being a silver enthusiast since 1978 I took your advice and decided to visit not one but two coin shops in my local area on September 2nd. I was very curious to see what kind of knowledge the owners, personnel, and customers had regarding the silver market.

Around 12:30 pm I entered American Coin. Only one customer, an older man, was in the shop. He was selling some semi-precious gems. So I know he was not a reader of the Silver Stock Report.

The owner asked me what I wanted and I told him I was interested in buying some 100 oz silver bullion bars, some US Silver Eagles, or bags of junk silver. I was told that he did not have any in stock and it would be several weeks before he could get me any. If I wished to purchase some I would need to pay for it in advance. (Where did I hear that from?)

I asked him why there was such a long wait. He mentioned that the silver market was being controlled by paper silver and they were controlling the delivery so it was very hard to get the silver quickly.

I change the direction of the conversation by stating that of the 43 billion ounces of silver ever mined in the world, only one to two billion, at the very most, was still in existence. The rest was used in the manufacturing processes and are basically unrecoverable. And of the 5 to 6 billion ounces of gold ever mined, at least 95 percent was still in existence. I received no real comments on those figures, with the exception that I erroneously said million instead of billion, but quickly corrected myself.

I asked the owner what silver was used for and he replied photography, jewelry, and a couple of other uses, and that was about it. I gave him a list of the applications that silver is used in the industrial world, which I got from one of Ted Butler’s newsletters some years ago and asked him if this had any impact on the supply of silver. He looked at it and replied, “That has nothing to do with the price of silver. As I told you the silver market is controlled by the paper sellers. With the government and outside sources controlling the precious metals there nothing you or I can do.”

I asked him if he understood the law of Supply and Demand. He replied, “What does that have to do with paper silver?”

Additional dialog was passed for a few minutes. At some point I mentioned that the price of silver was in March, that of $21+ and that it was now approximately $13. The gentleman who was selling his semi-precious gems left the store rather abruptly. While he was gone I tried to emphasize the fact if buyers of silver set the bid price substantially higher they would find more people would be willing to sell their silver.

A few minutes later the older gentleman came in with a fist full of silver dollars to sell. Apparently hearing the price of $13 (and not the $21) got him all excited. At that point the salesman just looked at me as if he wanted to say, “Why raise my bid price when people are throwing silver at me.”

At that point I left my list of silver applications with him and he politely put it aside.

I left the store thinking, “He totally understands why silver prices are low, but he, like most other Americans, AIN’T GOTS A CLUE or even a low level of understanding of Supply and Demand.”