Silver Demand Huge...Supply Small: Eric Sprott

Monday was a very quiet trading day in the world's gold markets yesterday. It traded ruler flat in the Far East...and only bumped up at the London open...and then climbed to its high of the day [$1,440.00 spot] about ten minutes after Comex trading began.

Then a seller showed up and quietly sold gold down to its low of the day [$1,429.60 spot] at 11:45 a.m. Eastern...but once that seller disappeared, gold inched higher...and finished the New York trading day up about five bucks from Friday's close. Volume was very light.

Silver jumped up about two bits in Far East trading...before rising another two bits just before London opened. From that point, silver ground slowly higher...and finished the New York electronic trading session on its virtual high of the day at $38.59 spot. This is another new record high close for silver in the last 31 years. Volume in silver was light as well.

Here's the graph of the world's reserve currency from the Far East open on Monday morning...and it's pretty obvious that the dollar was not a factor in the precious metal markets yesterday, as it traded within about a ten basis point range of 75.85 the entire day.

The gold stocks opened the trading day up about a percent. But, except for a small spike at 10:15 a.m. Eastern time yesterday, it was virtually all down hill from there...and the HUI finished virtually on its low of the day. I was more than a bit surprised at this, considering the fact that the gold price spent the entire trading day in the black. The HUI finished down 0.32%. I was underwhelmed.

With the odd exception, the silver stocks were up big across the board...and a handful of my stocks were up huge.

Here's a graph that I thought worthwhile inserting at this point...and it tells all. During the last quarter, gold was up 4.7%...and silver was up 32.6%. Expect this trend to continue.

And another graph. This one of the gold/silver ratio...which set a new low for this move. Expect this trend to continue as well.

And lest I forget Nick Laird's "Silver 7 Sentiment" graph...which is just an eyelash from breaking out into new high ground. This should come as no surprise to anyone.

The CME's Daily Delivery Report was another yawner...as 79 gold, along with one whole silver contract were posted for delivery tomorrow.

There was no reported change in GLD yesterday...but SLV showed an increase of 737,152 troy ounces.

Over at Switzerland's Zürcher Kantonalbank for the week that was, they reported adding 28,113 ounces of gold to their gold ETF...but their silver ETF remained unchanged. I thank Carl Loeb for those numbers.

The U.S. Mint had a sales report yesterday that was worthy of the name. They reported selling another 7,000 ounces of gold eagles...3,000 one-ounce gold buffaloes...and 608,500 silver eagles.

There was very little activity reported at the Comex-approved depositories on Friday. They didn't receive any silver...and reported shipping out a smallish 67,453 troy ounces of the stuff.

Last week I posted some information on the Perth Mint in this column that surprised some, but not others. Over the years, the Perth Mint [amongst other firms] has had its share of detractors regarding its unallocated precious metals account. I must admit that I was one of them...and I said so in no uncertain terms. But some of the responses I received, especially from the staff at the Perth Mint, suggested that my belief structure could use a tune up.

I spent a lot of time on the weekend on the Perth Mint's website...and fired off an e-mail to John Durham, the manager of Depository Services. The reply from John to that e-mail led me to Bron Sucheckie, the manager of Analysis and Strategy...which led to an hour-long phone call with Bron in the wee hours of Monday morning.

Here's the e-mail exchange.

From: Ed Steer
Sent: Sunday, 3 April 2011 7:15 PM
To: John Durham, Manager - Depository Services, The Perth Mint
Subject: Good morning, John

One of my daily readers sent me this Perth Mint contract for allocated gold....see below.

The certificate, as you can see, is for one ounce of gold in 'Allocated Storage'...with an annual storage fee of $13.99...all of which makes perfect sense to me.

Since this is 'allocated'...I would presume that this coin/bar is in the Perth Mint Depository vault...and available for the owner to pick up within two or three business days as stated in Term 7.

Since that appears to be the case, then would you kindly explain Term 13 in light of that fact.

With best wishes, Ed

From: John Durham

To:Ed Steer

Cc: Bron Suchecki

Sent: Monday, April 04, 2011 10:01 AM

Subject: RE: Good morning, John

Dear Ed

Thank you for your email. Yes, allocated coins and bars are kept in the Perth Mint’s vault and segregated from our day-to-day operational metal.

Bron Suchecki, our Manager of Analysis and Strategy, left a comment to your article at the bottom of your column. I’ve pasted it below:

Point 13 on the Certificate (by the way, those terms are only a summary of the key terms from the full storage agreement) were put in to specify the exact price at which a claim by the client on the West Australian Government Guarantee would be fixed at. The reason for this is that the Government Guarantee in our Act says that the "payment of the cash equivalent of gold due, payable and deliverable by Gold Corporation, the Mint or GoldCorp under this Act and all moneys due and payable by Gold Corporation ... is guaranteed by the Treasurer, in the name and on behalf of the Crown in right of the State."

As we discuss on our website http://www.perthmint.com.au/investment_invest_in_gold_government_guarantee.aspx, a government's power to tax can only be in terms of money, therefore its obligations have to be expressed in monetary terms. Should the Government Guarantee need to be activated, such as in the case of a total failure to deliver (due, say, to a gold heist), the Perth Mint will immediately purchase on the open market the required amount of precious metal needed to meet its obligations and then request funds from the Government to pay for the purchase (in other word, request the "cash equivalent" of the precious metal due).

In this way cash is converted into physical metal so that the Perth Mint can meet its legal delivery obligations under the Certificate. By specifying the price and market, point 13 provides certainty as to the cost to the Government and the market in which the replacement metal will be acquired. Alternatively, if the client should wish to take paper money, then point 13 again provides specific definition as to how that would be determined.

Point 13 is not some “get of out of jail” loophole. We have publicly stated that the Mint will honour its obligations to give clients metal rather than just the “cash equivalent” that the Government stumps up to make good any loss of metal.

If you have any further questions, please feel free to contact Bron directly, as he was involved in setting up the Depository business and the development of the legal terms so has more knowledge of what they are about. Bron is happy to call at a time convenient to you to talk directly about this and any other issues.

Regards

John Durham
Manager - Depository Services
The Perth Mint

From: Ed Steer
Sent: Monday, 4 April 2011 2:02 AM
To: John Durham
Cc: Bron Suchecki
Subject: Re: Good morning, John

Hi John,

Thanks for this.

I am embarrassed to admit that, because of time constraints, I rarely get to read the comments posted in my daily column...and didn't notice this comment from Bron, which I have now read.

As you can imagine, I spent a lot of time on your website this weekend and, from what I've read, not only does your firm live up to the letter of the law...it certainly appears to live up to the spirit of the law as well.

I have found nothing anywhere on the your website that leads me to believe that all the negative press you've received [including mine] over the years has any merit whatsoever...and my comments in my column [either on Tuesday or Wednesday] will reflect that.

My apologies to you.

With best wishes,

Ed

Hi Ed,

Thank you for spending your time reviewing our website and our comments. I expected that you were probably too busy to read comments, I know I find it difficult to keep up with what is written about us on websites and discussion forums.

I would stress that your point about unallocated accounts in general is correct, readers do need to be careful. If they are not outright short positions, they are almost always “hedged” by futures contracts or whatnot. A good example is ScotiaBank’s metal accounts, which I analysed in this personal blog http://goldchat.blogspot.com/2010/04/king-world-news-scotia-certificates.html. It shows that while in some years the liabilities are backed by physical assets, in others they are not.

I have your column in my RSS feed and believe it to be one of the best market summaries on the internet, most are lightweight shameless selling pieces. I note you run Nick Laird’s charts, he is a good guy and I think his service is unappreciated.

Please feel free to drop me an email if you have any questions on what is going on in this region or want my take on something.

Regards,

Bron Suchecki
MANAGER, ANALYSIS AND STRATEGY

The hour-long telephone conversation [on my nickel] was a delight. It started off with my b.s. meter on the high-gain setting...but it didn't take much time for me to realize that this was totally unwarranted. Bron is a straight-up guy...and the organization he works for is the same.

I like to believe, that after 62 years on this planet, I've become an excellent judge of character. I saw nothing on their website, or anything Bron said, that even hinted at any kind of impropriety.

How wrong I was about my suspicions of this firm...and if the time ever came, I would be delighted to fire off a cheque [that's check in American] for any amount to either their unallocated or allocated accounts. I feel they are exactly as they advertise themselves to be...and I apologize to them and to some of my readers, who I know had grave concerns about them based on what I [and others before me] had said.

Before I start with my stories for today...here's a paragraph that I stole from silver analyst Ted Butler's Weekly Review to his paying subscribers on Saturday..."Conditions in the physical silver world still continue to suggest tightness. The frantic pace of movementsinto and out from the COMEX warehouses has continued. SLV silver holdings remain at a record, up for the quarter; while GLD gold holdings are substantially lower year to date. The Central Fund of Canada announced a new offering of shares, for the first time in a year, which will result in more than 4million ounces of silver bullion being taken off the market. Here’s an observation that I can’t help but mention. Whenever the Central Fund makes an announcement of new shares, the very first thing that almost everyone does is to calculate how much silver will be purchased, how long will it take for the silver to arrive...and what impact that might have on the silverprice. Even though 50% of the new money is used to purchase gold, I’ve never heard a comment as to what impact the Fund’s purchase might have on gold’s price or when the gold will arrive."

¤ Critical Reads

Why the Housing Market is Three Times Worse Than You Think

I have more stories for you today than I care to even count...so I'm just going to post as many as I can until I run into my 5:00 a.m. Eastern time deadline.

My first couple of stories are real estate-related...and the first one is this yahoo.com piece from last Thursday that's courtesy of reader Scott Pluschau.

According to research firm CoreLogic, there's another 1.8 million homes sitting in shadow inventory. These are homes that don't yet show up in NAR's Multiple Listing Service as being for sale, but that are likely to hit the market at some point. They include homes that banks have already foreclosed on but have yet to put up for sale, homes that are somewhere in the foreclosure process, and homes in which owners are at least 90 days late on their mortgage payments. CoreLogic estimates that those 1.8 million homes represents an additional 9 months of potential supply given the pace of how bank-owned property and pending foreclosures make their way to market.

I'll bet money that the situation is even worse than this story suggests...and the link is here.

View full GSD edition

Thanks To 60 Minutes' Report On Fraudclosure, US GDP Is About To "Soar" By $50 Billion

This zerohedge.com posting is courtesy of reader Scott Carpenter. Once you've listened to this 14-minute '60 Minutes' expose, you'll understand why I said what I did in the last paragraph of the previous story. In my opinion, this is a must listen...and the link is here.

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Geithner warns U.S. to hit debt ceiling by May 16

"The longer Congress fails to act, the more we risk that investors here and around the world will lose confidence in our ability to meet our commitments and our obligations," Geithner said in a letter to congressional leaders. "Default by the United States is unthinkable."

You can't make this stuff up...and it's hard to know whether to laugh or cry...and I thank reader Scott Pluschau for his second offering in this column. The link to this Reuters piece is here.

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March Madness: U.S. Gov't Spent More Than Eight Times Its Monthly Revenue

Scott's last offering today is this piece out of cnsnews.com. The U.S. Treasury has released a final statement for the month of March that demonstrates that financial madness has gripped the federal government. The $1.0528 trillion in spending for March equaled 8.2 times the $128.179 billion in net federal tax revenue for the month.

Something tells me we aren't in Kansas anymore, Toto...and the link is here.

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Fears for global recovery as oil hits $120 mark

Brent crude, the London benchmark, had been trading around $115 per barrel for a fortnight, but the price has crept up over the past couple of days as the military action in Libya shows no sign of easy resolution. It closed at $121.06 – a two-and-a-half year high – on Monday.

This story was filed in The Telegraph late last night...and I thank reader Roy Stephens for sharing it with us. The link is here.

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Ministers admit family debt burden is set to soar

Families will be hit by a spiraling debt crisis over the next four years that will see average British households plunge further into the red as the government austerity programme bites, official figures reveal. The Office for Budget Responsibility predicts average household debt will reach £77,000 by 2015.

This story appeared in The Guardian on Saturday...and I thank reader Tariq Khan for sending it along. The link is here.

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Banks sue for peace with 'ring fencing' compromise

Here's Roy Stephens second offering of the day. This is a story that showed up in The Telegraph on Saturday.

Britain's leading banks have offered a compromise to the Government-appointed Independent Commission on Banking (ICB), proposing that banks should consider “ring-fencing” core services to protect the taxpayer in the event of another financial crisis. Barclays are believed to be leading negotiations and are supportive of the proposals which would mean that services such as payment systems, customers’ deposit accounts, business credit lines and the cash machine network would continue functioning even if the banks suffered another collapse.

You just know that another one is coming when the banks start talking dirty like this. The link is here.

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More Keynesian than Keynes was – and more wrong than right this time

Here's another story from reader Tariq Khan. This one is an op-ed piece out of yesterday's edition of The Independent.

No amount of fiscal stimulus will be enough to return the UK to the conditions that prevailed before the financial crisis, dependent as they were on excessive credit growth and a build up of systemic financial risks. It's up to our political leaders to work out where the axe will fall but there is no escaping the years of austerity which lie ahead.

Britain...like Ireland...is financially and economically...toast. The link is here.

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Ireland Bows to Trichet on Bondholders as Bank Rescue Reaches $142 Billion

Here's Roy's last offering of the day. It's a Bloomberg piece from last Friday that was filed from Dublin.

Ireland agreed yesterday to inject as much as 24 billion euros into four banks, while leaving bondholders untouched. The government already funneled 46.3 billion euros into the financial system and set up an agency that paid more than 30 billion euros to assume risky property loans. The total equates to about two-thirds the size of the Irish economy.

Ireland is finished. They will never get out of debt. Their only hope is to pull an 'Iceland'...and let the banks fail...but they won't. The link is here.

View full GSD edition

China tells Unilever to hold back on price rises

Here's a Reuters piece that was filed from Beijing on Saturday...and it's courtesy of reader Bob Fitzwilson.

Both Unilever and Procter & Gamble were planning to raise detergent and soap prices by up to 15 percent from April 1, citing soaring raw material costs. The planned move caused a rush on purchases in Chinese department stores.

But Unilever said it had "chosen to comply" with a request from the National Development and Reform Commission to postpone the price hikes, according to the Financial Times report.

This 4-paragraph story is worth the read...and the link is here.

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Mine nationalisation without compensation will spark revolution – Motlatsi

Here's a piece from reader Dave Crofton that was posted over at miningweekly.com last Friday...and was filed from Johannesburg.

Mine nationalisation without compensation would spark revolution because of the large number of South Africans who would lose their pensions, says former National Union of Mineworkers president Dr. James Motlatsi. Conversely, Motlatsi believes that nationalisation with compensation is a non-starter, because the government does not have the R2-trillion-plus that it would cost to buy the mines. The link to the story is here.

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King Ibn Saud's 35,000 British sovereigns - Gold's historic undervaluation versus oil

Here's a gold and oil related story that I ripped out of a Sunday GATA release. Chris Powell's preamble reads as follows..."More excellent analysis of why gold is not in a bubble but instead grossly under-owned comes today from Michael Kosares, proprietor of Centennial Precious Metals in Denver, who compares gold's price with oil's at a crucial moment in the history of oil not quite 80 years ago. Kosares' analysis can be found at Centennial's Internet site, USAGold.com...and the link is here. This short piece is worth your time.

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Ron Paul to probe US Mint Coin shortage

This story is courtesy of reader 'Charleston Voice'...and is a posting of a Kitco story over at commodityonline.com on Sunday.

Rep. Ron Paul, R-Texas, has one question for the U.S. Mint: why is there a coin shortage? He is aiming to get to the bottom of this during a scheduled April 7 hearing of his U.S. House Subcommittee on Domestic Monetary Policy to examine the bullion programs at the U.S. Mint.

The really interesting part about this story is the fact that some of the blanks are made at a company in Australia. I was always under the impression that all the silver for U.S. eagles had to come from U.S.-mined silver. The link is here.

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Sumitomo Workers Lift Strike at San Cristobal Silver, Zinc Mine

Here's a short piece that was posted over at Bloomberg yesterday...and it's courtesy of Washington state reader S.A. The headline sums it up pretty well...and the link to this very short story is here.

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Sprott Physical Gold Trust Announces Follow-on Offering of Trust Units

Sprott has launched a follow-on offering of transferable, redeemable units of the Trust ("Units") in an aggregate amount of up to $340 million at a price of $12.54 per unit (the "Offering"). Certain lead investors, including certain funds managed by Sprott Asset Management LP, have agreed to purchase no less than $115 million of Units in this Offering.

The Trust will use the net proceeds of this Offering to acquire physical gold bullion in accordance with the Trust's objective and subject to the Trust's investment and operating restrictions described in the prospectus related to this Offering.

We'll find out soon enough just how much gold they purchased...and once again I thank Washington state reader S.A. for bringing this story to my attention...and now to yours. The link is here.

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Silver demand huge, supply small, Sprott tells King World News

Here's a GATA release from yesterday that's a must read. Eric also talks about $2,000 gold as well. The blog...and Chris Powell's preamble...are linked here.

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Richard Russell - US Dollar Collapse Will Accelerate

While I've got King World News teed up...here's a Richard Russell blog that Eric sent me late last night that's worth reading as well. The link is here.

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Feds move to keep Liberty Dollar's $7 million metal inventory

Federal prosecutors on Monday tried to take a hoard of silver "Liberty Dollars" worth about $7 million that authorities say was invented by an Indiana man to compete with U.S. currency. The case involves more than five tons of Liberty Dollars and precious metals seized from a warehouse, which the government wants to take by forfeiture, according to federal prosecutors and Michel.

Once again I thank Washington state reader S.A. for sharing this with us. This is an AP story posted over at finance.yahoo.com yesterday...and the link is here.

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Urge Bloomberg News to challenge Fed next on gold market rigging

Here's a GATA release, with a very long must read preamble by Chris Powell. In a Bloomberg story headlined "Fed Crisis Legacy Made It the People's Bank: Matthew Winkler"...the guys and girls at Bloomberg are all happy about their big FOIA win in the courts over the Fed.

Powell respectfully requests that you take a minute to send Bloomberg editor-in-chief Matthew Winkler a note thanking him for his column...and for Bloomberg's heroic challenge to the Fed's secrecy and urging him to continue by challenging the Fed's secrecy about its rigging of the gold market. Just a few critical questions to the Fed about gold, posed by a major news organization, could bust the gold price suppression scheme wide open while exposing all sorts of other surreptitious market intervention as well.

As I state above...this is a must read...and the link is here.

View full GSD edition

In light of recent world events, perhaps the most staggering revelation is that quite a bit of Fed money went to the Arab Banking Corp...a third of whose stock is owned by the Libyan central bank. This occurred while Libya, a declared state sponsor of terrorism, was under strict economic sanctions. How erratic the United States must appear when we shower a dictator alternately with dollars and bombs.- Congressman Ron Paul

As I mentioned at the top of this column, trading volume in gold was very light...with emphasis on the word very...as a bit less than 80,000 contracts [net of all roll-overs] were traded. The preliminary open interest number was an astonishingly small 665 contracts...so I'm hoping that the final number posted this morning will be a pleasant surprise.

Gold's final open interest number for Friday's trading day dropped down to 983 contracts...which is basically nothing.

Silver's net trading volume yesterday was a bit under 45,000 contracts...which is very light. The preliminary open interest number was a whopping 4,021 contracts. But, considering yesterday's price action, I'm not overly surprised...but it's still pretty chunky nonetheless. I'm hoping that the final number will be much smaller than that.

Silver's final o.i. number on Friday was reduced quite a bit from the preliminary number...but at 1,874 contracts, it's still a bigger number than I'd like to see.

The backwardation issue in silver remains basically unchanged from what it was on Friday...and still awaits resolution...one way or another.

With the Far East's Tuesday trading day almost over...and London's just starting...action has been choppy [as of 4:45 a.m. Eastern time] on very little volume in gold...and silver's volume has been average. I'm not going to read a thing into it...but I'm sure that the Comex trading session will bring more clarity to the situation once the New York bullion banks step up to the plate.

That's more than enough for one day. See you on Wednesday.