Political Metals

Submitted by: Richard (Rick) Mills | Ahead of the Herd

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As a general rule, the most successful man in life is the man who has the best information

In World War I severe material shortages played havoc with production schedules and caused lengthy delays in implementing programs. This led to development of the Harbord List – a list of 42 materials deemed critical to the military.

After World War II the United States created the National Defense Stockpile (NDS) to acquire and store critical strategic materials for national defense purposes. The Defense Logistics Agency Strategic Materials (DLA Strategic Materials) oversees operations of the NDS and their primary mission is to “protect the nation against a dangerous and costly dependence upon foreign sources of supply for critical materials in times of national emergency.”

The NDS was intended for all essential civilian and military uses in times of emergencies. In 1992, Congress directed that the bulk of these stored commodities be sold. Revenues from the sales went to the Treasury General Fund and a variety of defense programs - the Foreign Military Sales program, military personnel benefits, and the buyback of broadband frequencies for military use.

American Silver Eagle

The American Silver Eagle is the official silver bullion coin of the United States. It was first released by the United States Mint on November 24, 1986 and is struck only in the one troy ounce size.

The Bullion American Silver Eagle sales program ultimately came about because the US government wanted, during the 1970s and early 1980s, to sell off what it considered excess silver from the Defense National Stockpile.

“Several administrations had sought unsuccessfully to sell silver from the stockpile, arguing that domestic production of silver far exceeds strategic needs. But mining-state interests had opposed any sale, as had pro-military legislators who wanted assurances that the proceeds would be used to buy materials more urgently needed for the stockpile rather than merely to reduce the federal deficit.” Wall Street Journal

The authorizing legislation for the American Silver Eagle bullion sales program required that the silver used for the coins had to be from the Defense National Stockpile. By 2002 the DNS stockpile was so depleted of silver that if the American Silver Eagle bullion sales program was to continue further legislation was required.

On June 6, 2002, Senator Harry Reid (D-Nevada) introduced the Support of American Eagle Silver Bullion Program Act to “authorize the Secretary of the Treasury to purchase silver on the open market when the silver stockpile is depleted.”

2002 - 10,539,026 Bullion American Silver Eagles were sold.

2003 - 8,495,008 Bullion American Silver Eagles were sold, silver averaged $4.88 an ounce for the year.

2004 - 8,882,754 Bullion American Silver Eagles were sold. For 2004 the average cost of an ounce of silver was $6.67.

2005 - 8,891,025 Bullion American Silver Eagles were sold. Silver averaged $7.32 an ounce.

2006 - 10,676,522 Bullion American Silver Eagles were sold. Silver averaged $11.55 an ounce

2007 - 9,028,036 Bullion American Silver Eagles were sold.

2008 - 20,583,000 Bullion American Silver Eagles were sold. Silver averaged $14.99 an ounce and almost 80% more Bullion American Silver Eagles were sold then in any previous year.

The US Mint suspended sales of the silver bullion coins to its network of authorized purchasers twice during the year.

In March 2008, sales increased nine times over the month before - 200,000 to 1,855,000.

In April 2008, the United States Mint had to start an allocation program, effectively rationing Silver Eagle bullion coins to authorized dealers on a weekly basis due to “unprecedented demand.”

On June 6, 2008, the Mint announced that all incoming silver planchets were being used to produce only bullion issues of the Silver Eagle and not proof or uncirculated collectible issues.

The 2008 Proof Silver Eagle became unavailable for purchase from the United States Mint in August 2008.

2009 - 30,459,000 Bullion American Silver Eagles were sold

On March 5, 2009, the United States Mint announced that the proof and uncirculated versions of the Silver Eagle coin for that year were temporarily suspended due to continuing high demand for the bullion version.

On October 6, 2009, the Mint announced that the collectible versions of the Silver Eagle coin would not be produced for 2009.

The sale of 2009 Silver Eagle bullion coins was suspended from November 24 to December 6 and the allocation program was re-instituted on December 7.

Silver Eagle bullion coins sold out on January 12, 2010.

The average cost of an ounce of silver in 2009 was $14.67

2010

No proof Silver Eagles were released through the first ten months of the year, and there was a complete cancellation of the uncirculated Silver Eagles.

Production of the 2010 Silver Eagle bullion coins began in January instead of  December as usual. The coins were distributed to authorized dealers under an allocation program until September 3.

In 2010 the US Mint sold 34,700,000 Bullion American Silver Eagle Coins.

2011

According to the USGS’s most recent Silver Mineral Industry Survey, silver production fell to 37 tonnes in October - compared to 53 tonnes year over year (yoy).

In 2011, the United States produced approximately 1,054 tonnes of silver – down from 2010’s production of 1,154 tonnes and down from 2007’s production of 1,163 tonnes.

The US imported 6,600,000 oz of silver for consumption in 2011 – up from 2007’s imports of 4,830,000 oz.

In 2011 the US Mint sold 39,868,500 Bullion American Silver Eagle Coins.

2011 was the first year in which official coin sales will surpass domestic silver production.

Jeff Clark of Casey Research writes“For the first time in history, sales of silver Eagle and Maple Leaf coins surpassed domestic production in both the US and Canada. Throw in the fact that by most estimates less than 5% of the US population owns any gold or silver and you can see how precarious the situation is. A supply squeeze is not out of the question – rather it is coming to look more and more likely with each passing month.”

The US Mint is required by law to mint the bullion Silver Eagles to meet public demand for precious metal coins as an investment option. The numismatic versions of the coin (proof and uncirculated) were added by the Mint solely for collectors.

2012

United States Mint Authorized Purchasers (AP’s) ordered 3,197,000 Bullion American Silver Eagle Coins on January 3rd, the first day they went on sale. That opening day total catapulted January Bullion Eagle sales higher than half of the monthly totals in 2011.

As of January 25th 2012, 5,547,000 Bullion American Silver Eagle Coins had been sold.

Bullion Silver Eagles are guaranteed for weight and purity by the government of the United States and because of this the US government allows bullion Silver Eagles to be added to Individual Retirement Accounts (IRAs).

Conclusion

The twin policies of zero interest rates and the continual creation of money and credit being enacted today, by all governments and central banks, means that the purchase of precious metals is the only way to protect the value of your assets.

“Mark my words, if the interest rates on U.S. government debt truly reflected both the real level of inflation in this country and the rising risk of some form of default, rates would already by sky-high and the U.S. would resemble a massive Greece.”  John Embry, Chief Investment Strategist, Sprott Asset Management

Investors are currently risk adverse and mining stocks are not well understood by the general investing public, but at least one thing is going to become very apparent to most -  the best way to hedge yourself against inflation could be owning silver.

Junior resource companies offer the greatest leverage to increasing demand and rising prices for silver. Junior resource companies are soon going to have their turn under the investment spotlight and should be on every investors radar screen. Are they on yours?

If not, maybe they should be.

Richard (Rick) Mills
[email protected]
www.aheadoftheherd.com

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In 2011, silver averaged a loss of 6.8% against 75 selected fiat currencies, while gold charted a corresponding gain of 14.3%. That occurred in a year when gold itself saw a plunge of 20% in USD terms from its high of $1920.

Was there any fundamental change in the silver market that could account for such a drastic plunge in silver prices? I know of none, and industry watchers concur.

Not once, but twice in 2011 did the silver market plunge by 35% in a matter of days on deliberate price moves lower. It is impossible for a world commodity to suddenly plunge 35% in days without some radical change in real supply and demand in a free market. Aside from proving that the silver market is still manipulated, these price plunges would not have occurred had the Commission acted expeditiously in concluding its current silver investigation - Ted Butler.

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Market manipulation. Price suppression. That’s why silver’s prices in all currencies did what they did in 2011. Ted Butler, in his most recent article “Enough is Enough” recounts the history of CFTC’s investigations into complaints of price suppression in the silver market.

The journey to justice and truth is often long and arduous, but must never be abandoned. The alternative is to live a life lacking substance. But neither should the journey be unnecessarily prolonged. These things tend to creep up on you day by day, but we have passed the point of the CFTC taking too long for deciding if the silver market has been manipulated in price. Enough time has passed.

Having started in August 2008, we are now at the 3.5 year mark in the current investigation into silver by the Enforcement Division of the Commodity Futures Trading Commission (CFTC). Never has a similar investigation taken this long. Considering that the current silver investigation is the third such inquiry by the Commission into alleged downside price manipulation by large commercial participants on the COMEX, the agency has spent most of the past decade investigating silver. As recently as this past November, the Commission reaffirmed that the silver investigation is ongoing. Still, the issue is unresolved.

The current silver investigation began due to revelations I discovered and wrote about in the CFTC’s Bank Participation Report of August 2008. This report indicated one or two US commercial banks held a concentrated short position which was unprecedented and uneconomic in terms of real world supply and demand. I asked the question – how can one or two US banks holding a short position equal to 25% of annual world production not be manipulative? That question has not been answered by the Commission to this day. Later, I discovered that it was basically only one US bank, JPMorgan, which was the big COMEX silver short.

Not for a moment do I believe that the CFTC initiated the current silver investigation (or the previous two) just because I wrote a few articles. The key was that so many readers took it upon themselves to write to the Commission and their elected officials about the issues of concentration and manipulation in the silver market. Simply put, there would have been no silver investigations had not great numbers of you petitioned the regulators. Please think about that for a moment. It is beyond extraordinary that the agency has investigated and continues to investigate such a small market like silver. That can only be because of public pressure and that the evidence was compelling. Most remarkable of all is that the core allegation in all three silver investigations has remained the same – manipulative short selling by large commercial interests on the COMEX.

In the two prior investigations of May of 2004 and 2008, the Commission’s Division of Market Oversight (DMO) concluded that the silver market was not manipulated.

Particularly puzzling in the 2008 report was the contention by the DMO that the concentration on the short side in COMEX silver wasn’t unusually large and that the biggest short sellers regularly changed places, so that there wasn’t one big permanent short. The report was issued on May 13, 2008 or two months after JPMorgan acquired Bear Stearns and its concentrated short position in COMEX silver. How the DMO could overlook the transfer of the most concentrated short position in the history of the commodity markets is beyond comprehension. Subsequently, I have come to believe that Bear Stearns’ forced acquisition was caused by the giant silver short position going against it (silver was at a 27-year price high at the time of the takeover) and not mortgage-related difficulties. In this article, I accused the DMO of lying.

Unlike the current silver investigation, the previous investigations were concluded by the Commission in months, not years. Timing aside, all three silver investigations share a commonality apart from stemming from the same basic core allegation of manipulative short selling. That commonality is the Commission’s refusal to conduct a fair and balanced investigation. I confess to being the instigator behind all three silver investigations (with you being the enabler). Not once, in any of these investigations has the agency ever contacted me or anyone I know who is familiar with the allegations. I even complained to the CFTC’s Inspector General about the one-sidedness of the process. How can you conduct a balanced investigation on manipulative short selling when you only question one side, the shorts?

The real problem with the findings of the CFTC of no manipulation in their previous investigations is two-fold. First, it provides a shield and comfort to the perpetrators of the manipulation in that they can continue to hide behind the agency’s findings in the furtherance of an active crime in progress. The longer the CFTC takes to act or report on its current investigation the comfort to the manipulators is maintained, at a cost to nearly everyone else. Second, the prior findings put the agency in a tricky spot. Because the Commission had previously found nothing amiss in the silver market on two separate occasions, if the agency uncovers any wrongdoing in silver in the current investigation it will, effectively, contradict its former findings. Obviously, it will be loath to do so.

The fact that the Commission will contradict its former findings should it now find something wrong in silver may explain the unprecedented delay on the part of the Enforcement Division to act. But the reluctance to reverse the former findings is a weak excuse for the Commission to fail in its most basic mission, namely, preventing fraud, abuse and manipulation. Most importantly, the silver manipulation is a crime in progress and the Commission’s delay in terminating it has allowed for untold continuing damage to thousands of market participants at the hands of the manipulators.

Full article at SilverSeek.com

Related articles:The latest on Silver Market Manipulation

• Silver manipulation
• The latest on Silver Market Manipulation

For the benefit of readers who continue to do their accounting in units of fiat currencies, I’ve summarised the performance of gold and silver in several currencies through the charts below. Hope they help to put things into perspective.

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Gold & silver performance relative to various currencies in 2011

In 2011, gold appreciated by an average of 14.3% against all 75 fiat currencies tracked by goldsilver.com, while silver averaged a corresponding loss of 6.8%. Among the selected currencies of interest charted above, only the Indian Rupee recorded a loss against both gold and silver.

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Gold & silver performance over 12 years

Going back to the beginning of this secular bull market in PMs, both gold and silver charted impressive gains against all tracked currencies. If you’ve been earning or saving in Indian Rupees over the past 12 years, you’d have lost over 500% against both gold and silver. If you think the Indian Rupee had it bad, spare a thought for those who’ve saved in Iranian Rial or Argentinian Peso, which depreciated by 3,368% and 2,240% respectively against gold.

Gold & silver performance before April’s price take downs

Silver’s 2011 performance was extremely volatile peaking in late April.  Silver’s peak and subsequent drop in price mirrored what we witnessed in its 2008 price action when the silver spot price dropped 50% peak to trough intra-year. This chart shows how silver has been leading gold’s performance just before the April price take downs.

Be prepared!

If you’ve been following recent geo-political and macro-economics news, you’d be much better informed than me. Doing a quick review of what transpired during the period I left this blog idle, here’s what I consider noteworthy developments:

• The Fed’s announcement of its zero-rate policy through 2014, requiring it to print more money to buy US Treasuries.
• ECB engaging on its own campaign of printing money hoping to “solve” Euro zone’s deepening debt crisis.
• Start of a countdown to the war with Iran.
• MF Global’s $6.3 billion “repos” saga leading to its collapse and potentially bringing down the Futures/Options (and other derivatives) market along with it.

Bottom line is things are getting worse, not better (as the MSM would have you believe), especially for savers and retirees. 2012 and 2013 are setting themselves up to be potentially disruptive years. Be prepared!

Updates to static pages:

• GoldMoney Review: Discontinued services, Gold & Silver “Client holdings by vaults” charts as at 30 Dec 2011
• BullionVault Review: Gold & Silver  ”Client holdings by vaults” charts as at 30 Dec 2011
• Compare AFE, BullionVault, GoldMoney: Comparative gold & silver holding charts as at 30 Dec 2011 and Alexa comparative traffic rank chart as at 01 Feb 2012.
• Fees Comparison: Highlighting GoldMoney’s zero-spread trading advantage.
• Forecasts: All close ended PMs price action forecasts by industry leaders were off target! New ones are being tracked.

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On the lighter side…

Endemic to the Galápagos Islands, these bright golden land iguanas (Conolophus subcristatus) are incredible friendly and approachable. If not for the 2-meter rule, you could easily reach out to touch them!