Silver Shortages (Again!)
(It's like March, 2008, all over again!)
Silver Stock Report
by Jason Hommel, March 19, 2011
Two of our best Silver Eagle suppliers have been sold out for a week. One might have them in again in about two weeks, but that's not guaranteed.
Our 10 oz. bar supplier is backordered now, with a two week delivery time.
Our 100 oz. bar supplier has raised prices.
We can still buy 90% junk bags and 1 oz. rounds and get them in a few days, but prices to manufacture 1 oz. rounds just increased.
All of our silver is available for immediate delivery, we still ship the same day your wire comes in, but our prices have increased to reflect the delays and price increases for us to replace those products.
Our price for 90% junk silver bags remains low at 3.7% over spot, but I don't know how long that bargain may last in this hot market. Once 90% silver sells out at the supplier level, it gets very difficult to source in quantity, since coins dated 1964 or earlier are not being made anymore. In fact, we have not been able to buy Silver Dollars from any wholesalers since we started dealing in late 2008.
We can also source 1000 oz. bars with a 5 day delivery wait, which is excellent and fast.
===== SILVER PRICES UNSTOPPABLE =====
Here's why major increases in the spot silver price is inevitable and unstoppable.
It is important to remember the two key ways they halted the exponential rise in the gold and silver prices in 1980. First of all, it was not a manipulation by the Hunt brothers, they were simply scape goats.
The way they halted the rise was to let interest rates rise to compete with the gold price increases. They let interest rates increase to about 22%. Gold, meanwhile, from 1971 to 1980, had increased from $35 to $850/oz., and if you take the annual average of that over 9 years, it was about 42.5% per year. See the math here:
The second way they halted the rise was to introduce futures contracts for gold. In this way, if you believed that gold prices would continue to rise, you could put down a small percentage, say 10% down, to control ten times the amount in gold. Then, you could have put the other 90% of your capital into bonds, to simultaneously capture the gains there.
This is not going to work this next time. Why not?
This time, it's different.
Interest rates have been kept artificially low for a very long time. Bond values move inversely to interest rates. This means that as interest rates rise, bond values go down. Examples: Let's say you have a 1 year bond paying 1%. So, you pay $99.01 for a bond that matures at $100 a year later, which is the result of the 1% increase, or bond interest rate. But if interests rates go to 10%, then the value of the bond goes down, and would only be worth $90.9 to mature at $100 a year later, with a 10% annual increase.
If they let interest rates rise from 4% to 25%, bond values would be crushed from about $99 to $80, and the bond market decimated. This move would be particularly destructive, since many bond holders don't hold bonds directly, but rather, they hold bonds on leverage.
Furthermore, many more businesses today, as compared to 1971, have much more debt, and if interest rates rose to 25%, the interest payments would be a crushing burden unable to be paid, and thus, most all companies in debt would go bankrupt, driving most stock prices to zero.
Furthermore, most of the derivatives out there are interest rate derivatives. Like in the silver market, these are mostly one way bets, with the market on one side, and the big banks on the other. The banks have bet interest rates will stay low, and the market is betting they will rise. So even the big banks will go under, if interest rates rise significantly, and so, they cannot.
Similarly, the futures market is about to default on silver and gold deliveries. There is a growing market awareness that the banks have sold short over $200 billion to $400 billion in silver, while all the world's silver mines only produce about $30 billion of silver annually. Market participants are now taking on the cornered banks, putting them into an epic short squeeze of having to deliver silver that does not exist in quantity even remotely compared to the amount of money that exists that can buy silver.
With bonds and futures both about to be fully discredited, they will not likely to be able to be used to trick market participants back into paper this next time around. With silver having gone up 100% in the last year, how high does the interest rate for bond need to go in order to convince holders of silver to give it up for paper? And even if they could, how could they possibly induce the tiny $3 billion silver investor market (investors only buy about 10% of the world's silver market today) to dump silver, to prop up the $50,000 billion bond market? Clearly, the smaller market, if sold, is not nearly big enough to prop up the larger market.
The banks are the deceivers, but they have become the deceived. There are no longer any people in the banking industry, or government, who practice the long lost art of fundamental analysis, basic math, and rational thinking. They flat out do not know what they are doing, or why. They are fighting a losing battle with tools that no longer work, and cannot work in the long run.
An investment into physical silver is now going to be a guaranteed win if you can manage to ride out any temporary price dips that the manipulators manage to paint the tape with. Silver buyers are ready to buy on the dips, and so, in 2008, when silver dipped, silver ran out, and premiums on physical silver reached as high as 50-70%. Such premiums may well return if the banks continue to foolishly fight rational market prices.
Silver shortages lead to either rises in price, or long delivery
times. We have chosen a basic business model of free market
processes to keep delivery times as fast as possible, and to let price
rises be our guide instead. You are now likely to find other sellers
of silver selling it cheaper than us, but they will keep your money for
months. We recently heard of one national silver seller delay a
silver delivery for 8 months. Be careful who you order from.
Make sure they have the product in stock and can