Vainly Willing the Return of the 2011 Silver Bubble

Do you remember February to May 2011?

I do. I'd previously confined my trading to stocks: oil and resources, mostly. But I wanted to branch out and thought the gold and silver charts looked good for a solid bounce back. My thesis for gold was pretty clear: a nice solid investment to hedge the rest of my portfolio against inflation. And I figured I'd take a slight gamble with silver as I imagined it would provide me with a 'volatile version' of gold. So at the beginning of February 2011 I went in at 75% gold, and 25% silver.

Boy, did us newbie silver investors get lucky! The charts had pointed to a good rise in silver, but we hadn't imagined such a move in our wildest dreams. By the end of the month it had gone from $26 to $34, and I was scaling out of gold and in to silver. With this metal swap, the profits just kept rising. By the end of April, it had all gone stupid, and it was obvious to anyone with two neurons to rub together that we were in the grip of a mania. I got out at around $45 and never regretted the decision. A few days later silver started its plunge from $50 to (eventually) $26, and has barely recovered to this day (currently at $31 and change).

What I did regret, however, was what happened to everyone who had not ejected. It could easily have been me too, had I had a bit less trading experience and a bit less fear (yes, sharp moves higher always scare the absolute bejesus out of me, more so than the plunges - fact). And this burned my curiosity. What had actually taken place? How had such a mania developed? And why didn't most retail silver investors get out? They were still buying all the way up to $49, the poor bastards.

So I started to look more deeply into the 2011 Silver Bubble, and events since, and was rather shocked by what I found.



First the bit that didn't shock me. Essentially, the 2011 Silver Bubble was just another pump and dump, like so many others that have been seen over the years. I was certainly no stranger to them: one finds them in oil juniors all the time. And the growth of the internet has greatly facilitated the pumpers' trade. What shocked me was the scale of the manipulation of naive retail investors through social media. At the time I thought that such a move in price couldn't possibly be down to just a viral marketing campaign but, the more research I do, the clearer it becomes that that was actually the case.

Silver's fundamentals are pretty ropey. It (supposedly) costs $5 to dig it out of the ground, its use as an industrial metal is silver-bearish during economic slow-downs and credit crunches, the silver jewellery trade is in decline, and - worse of all - there is a massive above-ground surplus:


The gap between the blue and green lines must be filled by coin production (i.e. investment demand) if silver is to maintain a supply/demand equilibrium, let alone start work on creating a shortage..! This, I'm afraid is the proof, along with the insane price move in two months and the fact that gold did not move nearly as dramatically, that the 2011 Silver Bubble was indeed a silver bubble. The pumpers set about trying to fill the gap on that chart - or at least create the illusion of doing so - by generating the necessary investment, then speculative, demand.


Anatomy of an internet-age pump and dump

In fact perhaps not just 'an' internet-age pump and dump, but possibly the internet-age pump and dump by which all future internet-age pumps and dumps will be measured. It was very nearly an act of genius, and would have been admirable in its scale were it not for the effects it had on ordinary people.

It was a crazy time. Here are just a few notable elements:

1. Talking bears: These slick, funny, and convincing tales of silver conspiracies were claimed by the mendacious, fantasist and anti-semitic Mr SilverGoldSilver (SGS), a point repeatedly challenged by Screwtape. They were in fact produced by Omid Malekan and/or the NIA [UPDATE: link removed as the NIA site carries viruses. Thanks to reader AL for alerting me to this] and pumped through a pre-existing arrangement with ZeroHedge. Regardless, they were hugely popular, and were among the first media to bring an old story about large Wall Street shorts in silver to a new and pliant audience in late 2010 and early 2011.

2. PM 'fanzines': Too numerous to name, but all of a sudden they were everywhere. TFMR, SGS, and many more, even the Screwtape Files, all came into existence not long before the metal pump. They complemented perfectly the older, 'war horses', such as KWN and Harvey Organ. Collectively they became the cult-like silverogosphere.

3. Wynter Benton: Ah, good old WB. I think Warren is somewhere round the back of GM's orangery tipping the final bucket of slaked lime over WB's utterly dismembered corpse. Regular readers of Screwtape need no background, but if you're new take a look at this 'all you need to know about WB' guide followed by the most recent post and its comments. In brief, WB claimed to be a team of ex-JPM traders looking to get revenge by busting the silver price to unprecedented highs and force JPM's bankruptcy. Laughable now, but this story gripped the silverogosphere throughout the 2011 Silver Bubble, and even now has the ability to draw a crowd, although 24 October 2012 marks the official day of WB's death.

4. Meme development: Again, too numerous to mention them all, but all sorts of weird memes started to circulate: silver was in such short supply that Sprott had to wait months for his; the COMEX and/or JPM was paying out huge premiums to avoid delivery of physical silver; SLV had no silver in its vaults; a mysterious London Trader (= Andrew Maguire) was working against the system from the inside. These, and many other, memes were proven untrue by us: link, link, link.

5. Confirmation bias: as the price moved higher, each of the above four elements all gained in credibility. So, for example, WB's predictions appeared to be vindicated. More pumpee money pissed into the pumpers' pot. The bears seemed to know what they were talking about - ditto. At this point, the fact that the stories were utter nonsense no longer mattered: the ends were justifying the memes (people were making money), and almost nobody was asking the hard questions.


Who benefitted?


This is tricky to answer without getting sued. Many of the fanzine sites were relatively innocent 'useful idiots'. WB was a silver-fan kid in a basement who'd ingested too much of the on-line hype and got too turned on by the attention he was able to garner (and even now doesn't seem to be able to give it up). But the bears, and some of the sites (such as the infomercial KWN, and the self-aggrandising Max Keiser) were clearly promoting an agenda.

We all know who the big silver investors are, and many of the links between them, the miners and the silverogosphere are not even secret. TRE sponsors KWN; Sprott is an investor in GoldMoney, and has all his own derivative products to flog; Casey (another GoldMoney investor) is linked to numerous silverogosphere sites, sometimes via the egregious Tekoa da Silva. Turd laps up every word of Gonzalo Lira and 'Santa'. Harvey had Sprott's ear throughout the 2011 Silver Bubble. The NIA were pumping all over the place.

I can't go further on specifics. But it is one big incestuous mess, with the investors and some miners at the top of a pile of blogs: not necessarily bought and paid for (KWN being the avowed exception), but clearly heavily influenced. The 2011 Silver Bubble was a triumph of organically created mass marketing. A few 'seed sites' were able to lead to numerous others forming of their own accord - a viral process, in the modern parlance - to produce a large body of online pro-silver material and silver-conspiracy meme fountains, most of which was outside the direct control of anybody, but all of which was serving precisely the pumpers' aims.

Genius. All it took then was for the momentum traders to come in and just keep forcing price higher and higher. Sadly, even retail investors were widely encouraged by the silverogosphere to play the paper game (ironic, really): remember all those guys buying AGQ and options on their credit cards? Tragic. When the momentum stalled, the dump came and the big boys won big. Really big. And the pigs got slaughtered.


When will the silver magic come back?


All of the above was rather a diversion from the main point of this post. The rebirth (or re-re-rebirth) of Wynter Benton, and the increasingly desperate faith-based exhortations from certain sites that guarantee silver is still going to the moon, has made me realise that the silverogosphere is still trying to resurrect the conditions that led to the 2011 Silver Bubble. Like an out-of-control Hal, not realising that its job is done and that it's no longer welcome, we keep witnessing the desperate attempts to resuscitate the old 'magic'. The reason is obvious if we go back to the first graph: there's no less silver supply than there was before, and the only way for the bulls to break even is to get things moving to the upside again by stimulating huge amounts of investor demand (read 'speculation').

I submit that it won't work. Last year we had the perfect confluence of events. An organic, self-hyping silverogosphere, backed up by 'just-credible-enough' tales from insider knowledge and hedge fund traders bent on vengeance and viral You Tube videos. And the charts being in the right place in February 2011 for a move higher to provide confirmation. Once the cycle was entered it couldn't stop until there were only sellers left and the bubble burst - a classic mania.

I just can't see the same trick working twice, or at least not for a long time. Not only have many investors been well-educated by the experience, they've also been put off financially. No-one's going to believe a talking bear this time, or a kid in a basement. The scales fell from people's eyes in May 2011, and all that are left are a hard core of increasingly out-of-touch fanatics, desperately clinging to the hope that the magic will come back. This is borne out by how few believed the Third Coming of WB, and how sceptical sites (such as ours and Kid Dynamite's and the Fundamental View) are becoming ever more popular as people decide they prefer to be challenged in their views rather than spoon-fed what they want to hear. This is all extremely positive.

But it does mean that silver's not going back to $50 any time soon. Or even $40 for a long time.

I'm sorry, but it won't. The charts are awful, the fundamentals absent, and the retail investors (and speculators) way less gullible.




53 comments:

The Big Setup said...

Probably the worst analogy of silver, ever. If you look at the LONG term charts and studied "bubbles" you would understand the SILVER bubble is a LOOOONG way away. Here get educated:

HERE..

Scroll down to see where we are..

Jeanne d'Arc said...

@The Big Setup

That's probably the worst bubble chart analogy ever!

I didn't say that the 2011 Silver Bubble was the 'biggest' bubble ever. I didn't say that there had never been a silver bubble before. And I didn't say that there would never be one again.

But 2011 was a bubble, as is evidenced by the speed of ascent, the speed of descent, the lack of a correlation with gold, and the fact that it was based on no fundamentals whatsoever.

I actually prefer the word 'mania' to bubble, in any case, because it leads to precisely these kinds of disputes (people automatically think of tulips, South Sea companies, etc.. Feel free to mentally change the word 'bubble' to 'mania' throughout the article if it makes you feel better.

But you'll need a much better chart than the one you submitted to make the point that a 40% drop in a few days and a 50% drop overall, with no apparent recovery in sight, after a speculation- rather than fundamentals-driven ascent, is anything other than a silver bubble/mania.

anon said...

How come nobody (even contrarian sites such as this one) talk about Carlos Slim and his silver mine? Slim went SHORT silver in the high $40s in order to finance the development of his mine. Or how about Bolivia nationalizing SAC? (Would seem like a huge distributor to the supply side) We all know about the players (Sprott, Kaiser, Maloney, Turk etc, etc) but how about the stuff that we don't know about? How about the whole spread hedging theory of Sinclair?

Jeanne d'Arc said...

@Anon,

A very fair point. The simple answer is that I've looked (honestly) and although the links between the 'players' you mention and the silverogosphere are very clear and provable, I've never been able to find anything on Mr Slim, etc.

I realise that's probably disappointing to you, and I should stress that I don't dismiss Slim's role at all. It's a good story. But without a shred of evidence, I can't go there.

JdA

anon said...

Don't get me wrong...I appreciate your work and this site but there just seems to be more to the story the story than that being led on by the usual suspects.

The Big Setup said...

@jeanne..I understand you can't read a chart that well...perhaps not an understanding of bubbles/mania? I have been in this biz since 1979, owning coin shops, trading GOLD and SILVER, REAL ESTATE, OIL, STOCKS, living in 3 countries, traveled extensively... I have lost some and made some, but have a complete understanding of bubbles/mania's and how they work. We are not even close to a mania in SILVER. 2011 drop from $19 or so to $8 was astounding but not out of character in a mania..$48 to $26 the same..I have watched enough mania's over the years to come to grips with how they WORK..You obviously haven't a clue..

Jeanne d'Arc said...

@Anon: For what it's worth, I think you're right.

@TBS: Well, we'll have to agree to disagree. No need for fisticuffs.

Cottonbelt said...

JdA, I have not seen the supply / demand chart shown ex investment demand as to date, mostly seen typical Casey Research et al charts showing silver in deficit since 1999 (incl investment demand) … need to do some more homework.

Depends on one’s investment horizon from my perch, as my long-term ‘silver’ view is agnostic but leaning bullish tied to rise of industrial demand (putting aside s/t disruption of current, slow-motion global crisis) and apparent valuation attractiveness for certain ‘miners’ (tied to ‘booked’ reserves) - any ‘monentary’ dimension / blow-back providing a tailwind for silver just lagniappe IMO.

Thx again for sharing insights … riding along this golden ‘river that is our currencies timeline’.

Bullion Baron said...

JdA, while a good summary of some of the viral elements I don't agree with your conclusion and some of the points raised.

If Silver was a bubble due to the strong 6-8 month rise that preceded it, then it's been a bubble several times over the past decade. If you look at Silver on a log chart the spikes in 03/04, 05/06 & 07/08 are all similar (although no doubt the most recent is the larges):

http://www.bullionbaron.com/2012/01/silver-bubble-what-silver-bubble.html

So have we had 4 Silver bubbles over the past decade or are they all part of the same bull market? IMO the latter and Silver is going to head higher again. I think the Silver spike into early 2011 would have happened without the silverogosphere going wild.

Stating conclusively that Silver will not be heading back to $40-50 anytime soon is bold. Given that sentiment, commercial positions and chart t/a at the recent $26 lows indicated a similarly oversold level to 2008, then a rally as strong as the bounce out of those lows could easily occur (which would take us back to low $40s):

http://www.bullionbaron.com/2012/07/ounce-of-gold-for-your-thoughts-on.html

In my opinion a rising Silver inventory is actually bullish until we are in the final stages of the precious metals bull market. A higher inventory level allows more investors into the metal, making it more liquid and suitable to hold as a store of value:

http://www.bullionbaron.com/2012/10/silver-price-driver-industrial-vs.html

Silver's fundamentals are changing, industrial uses are becoming less important and investor fundamentals are become increasingly important. Whether this is a permanent change or short term is yet to be seen, but to suggest that Silver's fundamentals are absent is being ignorant of the different types of demand for the metal.

As for retail investors... there will be new suckers to drag in with every move higher. Those dragged in at the peak of 2011 may have been turned off (or become wiser, buying at the recent lows), but there will always be more people to drag in. Silver is still far from a common investment.

Jeanne d'Arc said...

@Cottonbelt: Thanks for the comment. Just to be clear, the chart shows demand minus investment demand rather than absolute demand. I'm not trying to be slippery - it's just a good way to show the fundamentals gap that needs to be breached by investment/speculative demand.

Jeanne d'Arc said...

@Bullion Baron: Wow - very thoughtful comments! I won't try to get into the weeds of all of them, because they're all very credible and defensible points of view (albeit not in keeping with my own). But it's very useful for the reader to see two ways of looking at the same problem, so thanks for that.

Just a few points, though:

If silver was a bubble [...] then it's been a bubble several times over the past decade.

Yes, silver is quite 'bubbly'. I don't think the idea that it was in a mania last year and has been in a mania several times previously in the last decade are mutually exclusive. Does that a bull market make? Doubtful in my book.

Silver's fundamentals are changing

I think this gets to the nub of our different views. I just don't see it happening. All I see is a bigger and bigger supply/demand gap that has to be filled by investment silver. As I don't believe that silver is money, or even a particularly good inflation hedge, I just don't get where that's coming from. Why not just buy gold? Or oil? Or a house? Or wine for that matter?

As for retail investors... there will be new suckers to drag in with every move higher.

I was expecting this comment, only I was expecting it from KD..!! You might be right. But I'm in a positive-about-humanity mood today... ;-)

Bullion Baron said...

Yes I would concede that there have been several "manias", I guess whether one considers these bubbles or not would just be arguing over semantics. They reached overbought levels and the price collapsed, followed by the next wave... probably one of the most interesting ways of describing Silvers spikes was as "bull bursts":

https://www.kitcomm.com/showthread.php?t=107765

Despite the volatile way in which Silver has risen/fallen as it climbs higher I don't see how you could deny that it's in a bull market. Gold has seen similar spikes and corrections. To a degree Silver has just ridden on the coat tails of the Gold bull market with magnified moves.

From an industry supply/demand POV Silver's fundamentals haven't really changed in the last 10 years:

http://www.silverinstitute.org/site/supply-demand/

Industrial uses have increased (e.g. for Solar), but this has been largely offset by reduction in photography use. The price rise over the last decade has IMO mostly been driven by increasing investment demand (speculative or not).

I don't think Gold or Silver could be considered a good inflation hedge (or at least not over the short term, see 1980-2000), although Gold has proven itself as a fairly stable store of value (over the long term). IMO Silver holds many of the same qualities as Gold and one of the main differences (above ground supply for investment purposes) is changing as inventory rises. If I could buy, store and transport barrels of oil conveniently I would probably consider holding physical oil as well ;)

By the way it's a refreshing change to be able to discuss/challenge differing views on a (primarily) precious metals blog without it turning into a shit flinging match!

Sagacious Pelican said...

Dear JDA,

Silver is mostly produced as a by-product of copper/gold mining and is rarely mined for itself. Economic slowdowns usually inhibit supply as copper (expansionary commodity) demand falls and production slows alongside reduced growth. An increased supply in the face of slower growth is unlikely to happen and would most likely see decreased supply and a tighter physical market which is already prone to delays in delivery.
Silver is found naturally (in the earth) at roughly 15:1 ratio against gold - this implies gold should only cost 15 times as much as silver. This would imply a 'natural' silver price of $115 or a gold price around $500. This comparison applies to gold and silver as preserved monetary metals rather than treating silver as an industrial and consumable commodity. Industrial silver consumption creates additional demand in an already small market, reflected in the greater volatility of silver over gold, while the two remain closely correlated: if gold is going up it will drag silver with it.
Don’t listen to youtube conspiracies – just listen to China and Russia. Over a year ago the BRICS nations, at the Delhi Accord meetings, stated they were looking to reduce USD denominated trade within 18 months. China has opened bilateral trade agreements with most of its major trading partners – using domestic currencies and not the USD.
Only a few years ago it was illegal for Chinese citizens to buy gold – now personal gold savings accounts are widely available and saving in gold is strongly encouraged by the government. China is the world’s largest gold producer and importer but they export nothing. The rest of the BRICS are either mining or importing gold/silver at increasing rates along with many central banks and governments around the developing world.
Western countries hold their gold reserves while saying it is just tradition, yet are not selling their ‘expensive’ gold. Meanwhile the buying by Asian Central Banks has been very significant. The US provided the world’s reserve currency after WWII as they were the greatest creditor nation and backed their currency with gold to gain the required faith, credibility and integrity needed of an international reserve currency.
Today the title of the greatest creditor nation rests with China… and they are buying gold. The Chinese appetite for commodities has recently caused major bubbles in Copper, Iron, Nickel, Uranium and Coal. They have only 1.8% of currency reserves in gold and worldwide gold remains significantly under-owned as an asset class. By most formal measures gold is nowhere near a bubble… yet.
Gold and silver have been money for thousands of years and as monetary metals they were the basis for all modern credit money. Gold and silver have no counterparty risk and have intrinsic value. They are valuable because of what they are with no second party required to give it worth. US dollars rely on faith in the US government supporting the value of their dollars, which is being impacted by quantitative easing. The US isn’t printing money alone and as central banks in the West have been rapidly increasing their monetary bases, gold has merely been floating on top of all of that extra financial liquidity.
Lastly, we need to acknowledge that many European nations are flat broke, the US is in as bad shape as Greece, the risks of default are significant, the risks of further money printing are almost guaranteed. Nominal interest rates will stay low – they cannot rise anytime soon or the US will have to default on its debt – and current real rates are close to negative. This all creates a positive case for gold and silver – and if you doubt that just follow the money – the money is in Asia and is converting itself into precious metals.

Cheers,

Sagacious Pelican
@Pelicanussagaci

Sagacious Pelican said...
This comment has been removed by the author.
Bullion Baron said...

Good post Sagacious Pelican. I agree with most of the points you raise (in support of a rising price of Gold AND Silver). However I disagree that the in ground ratio should have something to do with above ground price.

One of the things that makes Gold so special as a monetary metal is stable above ground inventory (not used for much apart from central bank reserves/investment & jewellery), which is slowly increasing over time at a very steady rate. Silver's above ground inventory has dropped from some 12 billion ounces 50 years ago to less than 1/10th of that today. I would question the long term monetary value of Silver with such a volatile inventory. Imagine the deflationary effect it would have had if practically used as money over the last half a century!

Sagacious Pelican said...

Thanks Bullion Baron,

I agree that the natural gold/silver ratio isn't that important when it comes to gold as supply only adds 3% a year, is contracting and growing more expensive to maintain. It does give some interesting background for silver when considering the huge destocking of silver inventories over the last few decades that may have a big role to play in the seemingly low cost of silver today.

Gold stockpiles are so big that supply has less affect as compared to price expectations of existing holders of gold – this is not the case for silver and could actually be a future benefit for holding it going forward. That said, it is difficult to reason what effect this would have had on deflation as the destocking may not have occurred if silver had remained money over the last half century, or at least that silver pricing would have been influenced and affected by this change of perception.

I mentioned the ratio as it provides some background and scope for comparison in that it shows that gold is either way too expensive , which I do not believe - or that silver is way too cheap... Bingo! I mentioned that silver is trading cheaper than it should be when based on natural supply availability because historical pricing has tended to reflect this ratio over the very long-term. If we were to view the large gold stockpiles against the small silver stockpiles we can see that silver should be even more attractive, though it is the small size of this market that makes it so volatile and so disheartening when it contracts.

Volatility, however, can be a very good thing when you have it on your side. To me personally, there exist more reasons for buying both gold and silver today than exist reasons to sell them.

Cheers,

Sagacious Pelican
@Pelicanussagaci

victorthecleaner said...


Pelican,

I mentioned that silver is trading cheaper than it should be when based on natural supply availability because historical pricing has tended to reflect this ratio over the very long-term.

As Bullion Baron just explained to you, the natural abundance of the elements in the earth's crust has noting to do with their value nor with their price.

If it were true, you should perhaps try Iridium which, according to your logic, should trade around $17000/ounce:

http://www.chemicool.com/elements/iridium.html#abund
http://www.chemicool.com/elements/gold.html#abund

Quite the contrary. All of us will be able to watch the show when the gold/silver ratio increases well beyond 300:1. What makes the difference though is whether you think long and hard before that happens or afterwards.

Same with crude oil. If I had access to physical oil (say a couple of wells, a tank farm, etc.), I would sell it all as long as the going is good. The gold/oil ratio, too, is headed for well beyond 100:1. Eventually, there will be a lot of the ugly black stuff on sale for less than Euro 30/bbl for a decade or two.

Forget it. The masses will not run into hard assets. The masses will queue for food and take their granny's silverware to the pawnshop. It's the ultra-wealthy people and the surplus countries who will move away from the dollar and trigger the change. And *they* have long made their decision about what is going to replace the dollar as the primary international reserve: gold.

Victor

Ryan said...
This comment has been removed by the author.
Sagacious Pelican said...

I seem to be confusing people, so I will try to be clear.

Price is determined by what people are willing to pay for an item - not what it costs to produce (though cost does affect primary supply and will eventually influence price).

There is no reason for an element to trade in-line with its natural abundance in the Earth’s crust... except when that element has shown a historical tendency to do so, relative to another element.

Over time there has been an empirical tendency for silver to trade at a similar ratio to gold that reflects (but is not defined by) the natural abundance of each.

As gold and silver have extremely long records to trace we have seen this ratio vary over time as advances in exploration and mining have influenced production and availability... so it is a subjective reference.

Currently the ratio shows silver to be cheap compared to gold, relative to the value ratio range over the last 100 years.

But this really has no more meaning than the gold/DJIA ratio or any other comparative ratio you can name. .. the ratio doesn’t necessarily tell you anything important but it does add to the background.

And Victor - there are many reasons why Iridium would not make good money and why gold and silver do - extreme rarity is not a good trait and was not the point I was making at all...

Cheers,

Sagacious Pelican
@Pelicanussagaci

Unknown said...

If silver went from 26 to 31 overall in a few months (discounting the mania inbetween) its still been a pretty good investment hasnt it? You seem to be talking like a gambler.

Dan D. said...

Fantastic work JDA ... people need to take their blinders off.

Funny I don't see one of the main protagonists in the "pump" Max Keiser calling for everyone to buy an ounce of silver to crash JPM anymore. Also notworthy is that all of the pumpers had their hands in some silver retail business, i.e. in which they benefited from selling physical metal to retail investors.

6li2h said...

This is my first post to Screwtape Files.

I'd just like to say that I'm grateful for this site, and for the qualities of critical thinking exemplified specifically in this article.

I bought silver in February 2011 after some chance surfing led to the talking bears and what I now see as the hypoxic rhetorical hothouse of the silverogosphere. Mostly out of dumb luck, I swapped for gold when silver was $47. I'm still cleanly in the black and considering reinvesting into platinum and palladium. So I'm not complaining as far as that goes.

But after over a year of exposure to the regular silver sites, I've decided that manipulation is very real and the commodity is readers and the currency is belief. And human misery.

The wrong being committed is actually pretty heinous, because it's precisely what JPM et al are alleged to be doing with the metals market. But the capital is people's lives and livelihoods, not some dumb metal. Max Keiser and his ilk should, in my personal opinion, face the same penalties his kind commonly recommends for JPM executives.

There is a variable, by the way, not covered in the article. The viral "silver meme" materialized in PM fanzines, Wynter Benton, YouTube videos, etc., but the enabling backdrop in the U.S. was the right's increasing departure from evidence-based reasoning. Political discourse in the U.S. is consuming its own mendacious vapours for fuel all across the spectrum at this point, of course. But it's worse on the right, perhaps (I'm not American, so I'll just recklessly generalize) because U.S. right-wing ideology is already infused with religious magical thinking. It's probably easier to believe in an ideology that's part nerd-revenge fantasy and part cargo-cult when one already believes in a roughly similar master narrative organizing time and space. Throw in some guns, libertarianism, and freeze-dried beans, and you've got a winner.

Sites like this provide a bit of oxygen for the breathing.

I'll even more recklessly generalize, by the way, and opine that when future historians give a name to the rhetorical manipulation we call the silver bubble, they will call it "the Canadian Connection."

Just my two quatloos!

victorthecleaner said...


Pelican,

Over time there has been an empirical tendency for silver to trade at a similar ratio to gold that reflects (but is not defined by) the natural abundance of each.

Who cares? There is no economic process that would make the prices revert to the historical gold/silver ratio. Please read here:

http://fofoa.blogspot.com/ncr/2012/10/debriefed-2-rjpadavona.html?commentPage=1&m=0#c7236186285335190642

Victor

The Big Setup said...

China Silver Demand to Climb to Record
By Bloomberg News - Oct 25, 2012 12:36 AM PT

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Silver demand in China, the world’s second-largest user, is set to jump as much as 10 percent next year to a record as investors look to preserve wealth, according to Beijing Antaike Information Development Co.

Consumption may climb to 7,700 metric tons after gaining 6 percent to 8 percent in 2012, Shi Heqing, an analyst at Beijing Antaike, said in an interview on Oct. 22. About 33 percent of the country’s demand comes from jewelry and coins, with the rest from industrial use in photography, solar and electrical appliances, according to Antaike, which has studied metals for two decades.

77 said...

Silver market surplus at 3K tons in 2012, 4K tons in 2013: Barclays http://www.commodityonline.com/printnews.php?news_id=49618

right now gold and silver are due a seasonal bounce... usa metals futures options expired today

totally agree with the cult like behavior in the goldbug blogs that totally roped the newbie into buying high in silver and then being wiped out

the cartel(hedge funds-sovereign wealth funds-institutional trading desks) ran silver just as they had run crude oil to $147 ... crude oil went to $33 after it's bubble and now silver is in a similar post bubble pattern

one big thing is the money printing since 9-11....say since 1999 crude oil from 20 to 100 and gold from 250 to 1700 and soybeans from 5 to 15 etc... if the printing continues then a new higher number than ever before happens in the commodities... but are they really worth more?
http://www.stockindextiming.com/marketviews/oct12/index.htm

Jeanne d'Arc said...

@6li2h

(nice name, btw. Almost looks like 'blith' (blythe) if you squint hard enough... ;-) )

Thank you so much for your first comment to Screwtape - and what a beautifully written one it was too. I nodded all the way through it - it sounds like we're very much on the same page.

Very good point about the US right. It's certainly something I could/should have considered for the article: post-2008 a new paradigm seems to have been entered for the US right, which - as you allude - has set the framework in which PM-mania can thrive.

Further, a pump without a political slant would have been too bland and much less effective: just a 'get rich quick' scheme for greedy and naive pumpees. The insertion of a political mantra, and a sense of political/economic injustice, just makes the whole pump that much more convincing and appealing.

I suppose the closest I've come to examining this (albeit in a rather metaphorical way) was in my Good versus Evil post.

Welcome again, and do please keep contributing.

JdA

77 said...

a big reason the commodities and stock markets have been selling off lately is the fear that bernanke will lose his job... bernanke has been the supreme money printer since 2008 and if repubs wins he is gone... a wall street journal article also said bernanke would not seek a 2nd term

victorthecleaner said...


77,

Bernanke doesn't print because his primary concern is the economy. He doesn't print because his primary concern is employment. He doesn't print because he wants to rob the savers and give to the borrowers. He doesn't print because he is a neo-Keynsian ideologue either (or whatever you call them).

He prints because the dollar will crash if there is too much deleveraging. The dollar with its historic role as the global reserve currency is *the* currency that wouldn't survive the deleveraging intact.

Now the republicans might fire him as a political gesture (or he might step down for personal reasons before that happens). But his successor, whoever he his, will operate in exactly the same framework and exactly under the same constraints and will *have* to do pretty exactly the same. Monetize the part of the government deficit that's not bought by foreigners plus everything that foreigners sell.

No currency other than the dollar (and sterling to some degree) have this problem. The actions of the Fed and the US government in this issue are largely predetermined by these constraints, regardless of who exactly will be in charge.

Victor

Bullion Baron said...

victorthecleaner said... There is no economic process that would make the prices revert to the historical gold/silver ratio.

Bottom line is that regardless of whether Gold is officially remonetised (freegold, gold standard, part of SDR basket, etc) and Silver is not, that is no guarantee that Silver won't continue to perform as well as it has versus Gold over history.

There is as much argument for 15:1 or lowers as there is for your suggestion of 500:1. We can only speculate as to where the ratio ends up, even if Gold is remonetised.

victorthecleaner said... The masses will not run into hard assets. The masses will queue for food and take their granny's silverware to the pawnshop.

You infer here that it will only be western masses that matter in the run to hard assets... what about India, China, etc? Have you seen the level of speculation in the Chinese property market? What happens when that big money moves into hard assets including Silver?

We can really only make educated guesses, but IMO the suggestion that Gold will trade at $20,000 an ounce while Silver remains at $40 (500:1 ratio as you speculated) is a pretty unbalanced outlook.

victorthecleaner said...


There is as much argument for 15:1 or lowers

Haven't seen a single one that passes the smell test.

what about India, China, etc?

Save in gold. It's a tradition (you can never imagine in which ways the Bernank is right, can you?).

but IMO the suggestion that Gold will trade at $20,000 an ounce while Silver remains at $40 (500:1 ratio as you speculated) is a pretty unbalanced outlook.

More likely $50000 versus $25, both in today's purchasing power, i.e. a GSR of 2000.

Victor

anon said...

@victorthecleaner

So is India set to become the richest nation in the history of the world? Wouldn't that mean trouble for you Brits considering you have some scores to settle?

victorthecleaner said...


Have you seen the level of speculation in the Chinese property market? What happens when that big money moves into hard assets including Silver?

It seems that China stopped buying US bonds about a year ago. So their inflation should now come down. Once they are off the dollar system, there won't be much issue with inflation. You have to understand that most of the world's inflation after 1944 originated from Washington and was felt only in the rest of the world. Once the ROW is off the dollar reserve, the roles will reverse.

Why would the Chinese "masses" run into hard assets? Bubbles come and go, yes. Good luck with the gambling.

Victor

victorthecleaner said...

India, yes, their tradition of saving in gold will probably pay off big time. Whether they will be the richest, probably not (Europe is full of gold, too), but it will certainly be a substantial leap forwards.

On the other hand, the windfall profit from the revaluation of gold will be just a cash gift to them. They will be able to go shopping abroad in a way you hadn't imagined before. But does this mean their economy develops and grows in a sustainable way? Probably not. In the long run, this might even turn out to be a curse - similarly to the exorbitant privilege of the US after 1944.

Victor

Bullion Baron said...

Not really worth trying to reason with someone who has the mindset "Anything other than what I think will happen is gambling".

anand srivastava said...

Nice comment VTC. I completely agree. I hope we will utilize the windfall in a better way. But I don't trust our politicians. Hopefully the Anti-Corruption movement in India will go from strength to strength during the coming crisis.

duggo said...

Dear Jeanne d'Arc

BrotherJohn has just posted a video "Sham Silver Stockpiles."
http://www.youtube.com/watch?v=YuaicLRS7zk&feature=plcp

He makes use of chart and comes to the conclusion that the up-tick in Silver Stockpiles is a "sham" He doesn't seem to think that the down-tick on the same chart might also be "sham" to get people to think Silver is in short supply.

It would be nice if your team could view the video and give him your expert advice.

ps the "post comment" at the bottom of the page is difficult to see.

Jeanne d'Arc said...

@duggo: Thanks for the link. I've just watched the video, and it's fundamentally yet another thesis based on the old meme (mentioned in my article) that SLV and other ETFs have no silver.

This meme is incorrect, and has been proven to be so many times. To continue to repeat it in the face of overwhelming evidence is tantamount to fraud.

A good place to start is Warren's excellent SLV database posts. Screwtape (thanks to Warren) has the biggest collection of silver inventory data assembled, as far as we know, and it has been ruthlessly interrogated. The process is on-going, but there is no doubt whatsoever that SLV has the silver it claims to have.

SLV Database 1
SLV Database 2
SLV Database 3
SLV Database 4

I think SLV database 5 might be coming up pretty soon. Warren may want to add more detail to what I've written here.

JdA

Warren James said...

@Jeanne, you're too kind. Yes I have a few articles being made as part of the database series.

While I would never claim that my research directly proves the validity of the SLV inventory, the mass of data would be difficult to fake in a consistent fashion - the theory of the ETF being empty grows increasingly unstable as time goes on. I'll change my mind in a second, shown the evidence; but it appears many popular silver memes are simply falling under the wheel (cataloging their death has become a fun hobby).

Kid Dynamite said...

what an awesome comment by 6li2h... it makes me so happy when people see the truth...

holdinmyown said...

Hello Jeanne. Let me start by saying that I am not a silverbug. I agree with your premise that the same tricks will not work again. However I do believe that there is likely at least one more kick at this cat. The real mania phase in PMs has yet to occur IMO. The next silver bubble will likely be bigger than the last. I expect that some circling black swan event will soon overwhelm the investment community. Which of the many potential crisis events? I am not sure. Whatever it is it will scare the heck out of everyone. The fear trade will be to gold, silver and US Treasuries. I expect that silver will outrun gold one more time.

I believe that ultimately gold will win out as the only true safe haven asset but not until the international monetary powers gives up on the USD as the world reserve currency.

Robert said...

I don't get it. From reading the comments section, it seems only the silver longs are putting their money where there mouth is and the silver bears are full of hot air. But, go ahead and prove me wrong and reveal your short positions...or your excuse for not taking one.

S Roche said...

I see it differently...

The actions of the various on-line pundits is one thing, but the extreme silver price action can only be explained by short-covering, and not Bubba and his cohorts being conned into buying Silver Eagles at the local coin shop.

To blame these pundits and their nefarious backers, who have after all affected only a tiny sub-set of humanity, is the same kind of conspiracy minded fact-free zone "ir"-rationalisation that you accuse others of. You continue to single them out in your posts and to give others, who are arguably responsible for bringing the world's financial system undone and thereby affecting the lives of billions, a free pass. What gives?

The volatility of the markets is a feature, not a bug, and Izabella Kaminska gives us all a heads up here: http://theleisuresociety.tumblr.com/post/34469229955/adoboli-and-dark-inventory

I think hers is a more practical insight for those wishing to understand these markets.

S Roche said...

ps,

Within the Adoboli story (which is direct testimony of market manipulation being S.O.P.) is this link with more detail: http://ftalphaville.ft.com/2011/10/21/708441/the-power-of-the-dark-inventory/

Jeanne d'Arc said...

@Robert: Nothing would give me more pleasure:

Silver short postion

And for the record: I have covered this short position (a few times, actually), but only to put on more shorts on the bounces. I'm currently still short.

JdA

Jeanne d'Arc said...

@Holdinmyown: You may be right. My crystal ball is no clearer than yours.

The premise of this article is that the pump of silver by the silverogosphere is much weakened by 2011's dumo, and that - on balance - my judgement is that (serious) silver investors will not be rushing back in any time soon.

Jeanne d'Arc said...

@S Roche: I forget when I apparently said that I was the world's policeman. The point of this article was to lay the blame firmly (and quite correctly) at the door of the silverogosphere for the 2011 silver pump and dump.

Is the world's financial system a mess? Yes. Are there lots of sites examining this (mainstream and alternative)? Yes. Do I think these sites are doing good work? Yes.

Do I think that JPM is responsible for silver investors losing money? No. Do I think that central banks have nothing better to do than manipulate the price of physical silver? No. Do I think that people who invest in silver have some god-given right to make profits? No.

I also take issue with your comment that my posts are fact-free. My posts are fact-filled, and well researched. It's up to you if you want to debate those facts or not, but it's not fair to say that I don't lay them on the table for discussion.

JdA

Bien cordialement,

JdA

S Roche said...

Cher Jd'A,

The one fact with which you might oblige your readers on this topic would be the relative size and influence of the silverogospehere, in dollar terms, compared to the established players in the silver market. I believe they are merely a side-show.

My contention is that the volatile rise and subsequent fall in silver prices could not have occurred without the efforts of the established players, as their SOP is detailed for almost all markets by Izabella Kaminska in the above linked articles.

To assign blame for this activity to a group of on-line pundits is to trivialise the ongoing destruction of markets by entrenched interests and thereby detract from the good work being done by "lots of sites".

One other thing, with regard to your odd contention that JPM has not caused losses for silver investors: the silver market is a zero sum game; JPM made money in the silver market in 2011... ergo?

A bientot,

SR

Jeanne d'Arc said...

Cher S Roche,

...the relative size and influence of the silverogosphere [...] they are merely a side-show

Au contraire. One of the tenets of this article was to show that silver demand (minus investment, i.e. coin/silverogosphere demand) is pitiable compared to silver supply. So I would submit that the silverogosphere contributed greatly to the 2011 pump and dump in order to fill this gap. Not the only source, to be sure, but a very significant one, nevertheless.

...JPM made money in the silver market in 2011... ergo?

I hope so! If professional traders couldn't make money by flipping between long and short in the madness of the 2011 silver market, then they should probably be out of a job.

I did not say that retail silver investors did not lose money. That was the whole premise of the article - a lot did. What I said was that JPM (et al.) was not responsible for them losing money. Retail got slaughtered in a big boys' game between the shorts and longs, as always.

JdA

PS: It's "chere" for a girl

S Roche said...

Chere J d'A,

I stand corrected!

In respect of the postscript at least, I'll allow.

"Retail got slaughtered in a big boys' game between the shorts and longs, as always."

We agree, exactly per Izabella's description of the game plan.

Btw, I did not say that you did say that retail investors did not lose money...and with that piece of idiocy I am going to withdraw.

Je reste, toujours vigilant!

SR

Funky Tape said...

"Game over?" Wow, JdA. That's putting your foot down. You're short, I see. Great. Are you calling a bottom?

If the charts look like "shit," does gold not also follow? It's essentially the same chart.

And is copper in a bubble in your estimation? Now THAT was a hell of a short trade: $4 to $1.25 in the span of a few months in late '08. And then back to $4.50? Sweet Baby J, we're ALL in the wrong metal!

Speaking of chart shit, just for shits and giggles I took a snap shot of gold one day, a 1 minute chart to be exact. The pattern looked eerily familiar so I put it next to gold over the past year. Funny how the Universe follows this 'as above, so below' phenomena - maybe the markets aren't so far removed. Check it:
http://i96.photobucket.com/albums/l173/barnz008/Minuteingold2.png

See you on the other side...

S Roche said...

Chere J dÁ,

Late to the party with this, at 6.05:

http://www.youtube.com/watch?v=08lPz-ddE7g

Jeff Christian details the May 2011 silver contract roll, ("completed by April 29th"), on Comex which saw May Open Interest go from "375m oz to 7m oz"...

This sounds to me like Big Money (I posited Carlos Slim as being a large part of it on another thread) rather than the usual silver suspects singled out in your piece.

Strange that with all the reading I do I have not seen this mentioned.

Does anyone know if it is true? I ask because when I caught Jeff Christian out in a blatant falsehood (on the never ending Chris Martenson/Harvey Organ thread) he responded that he was just too busy to check the relevant facts. Is that unkind? It's true.

Tout le meilleur,

SR

S Roche said...

et encore...

Jeff details the parabolic rise of gold in Sep 2011 and defines the cause as "delta hedging by banks" starting 0.35:

http://www.youtube.com/watch?v=BOiX3ELkSCQ&feature=related

with obvious parallels to silver.

SR

Jeanne d'Arc said...

Well worth another read of this article of mine. I particularly like the reference to the price of silver being '31 dollars and change'. Plus c'est la change...