Monday, September 20, 2010

The Curious Case For $936 Ounce Silver

GATA's Adrian Douglas makes the case for bullion bank metals price supression, and for the TRUE value of one ounce of gold and silver.


5 Comments:

At 9/20/2010 2:34 PM, Anonymous Anonymous said...

IMHO -

1/2 correct, 1/2 wrong. The author speculates that if the futures markets trade more than 100% of the current spot price times the total supply of a metal it must be manipulated. Wrong. Crude oil is traded in highly liquid futures and options markets around the world, and the same "barrel" of oil changes hands multiple times before it goes to "physical". That is not the issue and it is not, by itself, an indication of manipulation.

The issue is that in the metals markets (futures and options), there is a "force majeure" clause that states that if the exchange cannot obtain the metal at the strike price (i.e a market meltdown or calamity) they can declare "force majeure" and pay the debt in paper dollars. Many other highly liquid commodity exchanges do not allow force majeure as a reason to fail to perform. In fact, for the NYMEX exchange, when the liquidity of the products change the margin requirement changes and upon a NYMEX exchange directive - EVERY SINGLE PARTICIPANT EITHER COMPLIES OR IS INSTANTLY "TAKEN OUT" OF THEIR POSITION BY THE EXCHANGE. This has kept the rif raf out for decades. It is also why the metals exchanges could be subject to a lockup in a financial meltdown and why holding physical is so important.

However, when you look at aggregate US debt compared to aggregate US gold (govt and private), the number just happens to be in the tens of thousands of dollars per ounce. Why? Because we're currently still willing to hold paper (or electronic) dollars compared to physical gold. Should that change dramatically and quickly there is no ceiling to that multiplier.

Finally, through current US Gov't FinCen regulations, and thanks to both the Patriot Act and recent
(2008) regulatory changes by the Dept of the Treasury, the government seems to be tracking gold purchases by individuals as small as $3000 per year per person. Don't tell me this is to prevent money laundering by drug lords.

So, while the conclusion of the author is accurate, the underlying logic is based on a false assumption, and the correctness of the conclusion comes from a completely different set of reasons.

A paper contract for gold is only as good as the force majeure language that underlies that instrument. Said another way, paper gold is no different that paper money in a complete meltdown.

 
At 9/21/2010 1:42 PM, Anonymous CompassionateFascist said...

When push comes to shove, a box of
.30-30 will be worth infinitely more than an oz. of any PM.

 
At 9/22/2010 9:00 AM, Anonymous Anonymous said...

Please elaborate on your comment about the Feds tracking individual purchases over $3000 per year. I haven't witnessed anything in that regard yet. Exactly how is this done? I don't think dealers are required to report.

 
At 9/22/2010 7:03 PM, Blogger myself said...

I'm 100 % into PM. I believe that PM will be very valuable/useful AFTER the default dust settles. It will be worthwhile when the SHTF. BUT, it won't protect you. It might feed you but, not at any great multiple. After the dust settles, that is when the big re-valuation will come. Remots farmland for the big dustup and PM for the aftermath. Dan

 
At 9/23/2010 8:23 AM, Anonymous Anonymous said...

RE: $3K/year PM reporting

Under the original bank secrecy act back in the 80's or 90's, cash transactions over $10K (each) required identification. This was obviously to clamp down on money laundering by drug lords. After the Patriot Act in 2003 that threshold was reduced to as low as $3K for precious metals and cash transactions. Later, through a Treasury NOPR (Notice of Proposed Rulemaking), the Treasury changed that interpretation to $3K per year, has special PM rules, and has dropped the cash reporthing threshold to as low as $500 per transaction under certain circumstances. Essentially, under current law, Treasury can require reporting of any amount at any time through an agency order. Further, the entity cannot disclose to the consumer what is occuring or why - essentially a gag order issued by Treasury. All of this can be found on www.fincen.gov with a few hours of hunting and reading.

I learned of these provisions in purchasing gold locally. Where my dealer previously did not require ID, they did last time, and all they could say is look it up under fincen.gov.

I knew the Patriot Act had some nasty provisions. The changes by regulatory revision (2008) give Treasury an essential blank check anytime they please under the guise of homeland security. I'm not buying that justification.

Further, under the Obama healtcare bill, all business will be required to issues 1099's for cash purchases in excess of $600 starting in 2011 or 2012 (I'm not certain). You can imagine what that will do to precious metals and coin dealers. It will add another layer of administration and substantially impact their required profit margins in order to remain in business. Even purchasing a single ounce of Gold will entail an associated 1099 at the end of the year, let alone the administrative burder for millions of small businesses with no involvement in precious metals.

Hope that help explain our new reality.

 

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