A Wafer-Thin Mint

Wow, there's a lot going on today. As expected, gold's getting whacked ahead of option expiry and FND. Silver is getting shoved back, too, but all must be well...the stock market is up again!

However, none of this concerns me nor should it concern you. As discussed yesterday, the metals have had a nice, little 3-week rally and were due for a pause. I speculated last evening on TTM that gold would likely fall toward its 200-day moving average near $1668. It has and I would expect price action to center around this level for the next few days, at least through the Monday Feb13 option expiration. 

Also, never forget that when we head toward option expiration on the heels of a rally, there's always Cartel money to be made by putting the fear of God into those who foolishly sold puts into the expiration. Recall that it works something like this:

  • Sheep hedge fund/money manager sees the rally and thinks, "Hey, I can sell the 1675 puts for $X and, as long as gold is above 1675 on Monday, I'll never have to cover them. This looks like free money".
  • Uh-oh. Price starts to fall away from 1690 and said Sheep begins to get nervous.
  • At 1680, Sheep begins to consider covering at a loss but is unwilling because price may still rally back and, sheesh, expiration is only two trading days away.
  • At 1675, the Sheep panic. Now at a steep loss, the only sensible move is to sell some futures contracts to hedge.
  • This additional spec selling drives price even lower.
  • At this point, The Cartel fleeces the sheep by buying all that The Sheep are selling and price reverses.
  • Ultimately, by option expiration, price is back above 1675 and the "sold" puts, so vigorously defended by the Sheep, actually do expire worthless.
  • The Sheep have been fleeced and The Cartel rings the register on another easy trade.

Anyway, the moral of the story is that its all nonsense. Contrived manipulation to game the fools who continue to allow themselves to be gamed in the first place. By next week, the fundamentals will re-assert themselves and both metals will be set to resume their 2013 rallies.

One of those fundamentals is the current, overwhelming demand for silver. Though there is plenty of reasonable debate regarding a silver "shortage", in this case, as in most everything metal-related, perception is reality. Take the situation at the U.S. Mint, for example.

Having The Mint run out of current supply and suspend sales is nothing new. This has been happening occasionally since 2008. It IS due to investor/collector demand, that much is undeniable. The question I want you to ponder today is: Is there going to be sufficient supply of ASEs going forward to meet demand and defuse this perception of shortage?

Please play along with this thought experiment. Let's say, for a moment, that you are the Chief Procurement Officer for Silver at the U.S. Mint. Your job is to predict ASE demand and order, well ahead of time, enough silver and coin blanks to meet this public demand at some point in the future. How would you go about doing this? Keeping in mind, of course, that you are a government bureaucrat who is not paid to be proactive or think "outside the box". I would imagine that you would guage future sales by reviewing past sales. That sounds reasonable, doesn't it? OK, let's start there then.

In December of 2010, The Mint sold 1,772,000 ASEs and in December of 2011, they sold 2,009,000. Knowing this and knowing that total ASE demand for 2012 was showing a run rate at about 25% below 2011, how much silver do you think you'd order and have on hand for December 2012? 2MM ounces? 1.5MM ounces maybe? Well, I don't know but what I do know is this: The Mint suspended sales on 12/17/12 after December sales had reached 1,635,000 ounces. Why did they suspend sales? They were out of silver, of course.

Now this creates a problem. Suspending sales doesn't make demand simply go away. In fact, it makes it worse as the public reads the headlines about the suspension of sales and senses a shortage. Demand for the remaining two weeks of 2012 simply builds up and rolls over into January, when The Mint finally resumes sales.

Uh-oh. You, as the CPOS (I'm just making that up), only ordered about 6MM ounces for January. Why? Because in January of 2011, the biggest selling month of ASEs ever, The Mint sold 6,422,000 and last year, The Mint sold 6,107,000. And since 2012 demand was down 25% from 2011, you decided that it was unlikely that you'd need more than 6MM ounces this January but you went ahead and ordered 6MM ounces anyway. We all know what happened next...The pent-up demand from 2012 combined with fresh, new 2013 demand wiped out all of your 6MM ounces in the first two weeks and The Mint was forced to suspend sales again on 1/13/13 after sales reached 6,007,000.

Now you're really in a bind. There's got to be anywhere from 3MM to 5MM in pent-up demand in your system, waiting to get filled as soon as you resume sales next Monday. The problem is, you still don't have enough metal on hand. In February of 2011, The Mint sold 3,240,000 ounces and last year sales fell off to just 1,490,000 ounces. Knowing this, you ordered just 2MM ounces for February. Chances are high that The Mint will open for sales on Monday and then have to turn around and close again on Tuesday. Or maybe Wednesday. But you get the picture.

It would appear that The Mint has put themselves into a perpetual state of sales/production backwardation (to bastardize the futures market term) and they are left with only a couple of options, both of them bad for The Bad Guys but good for us.

  1. They could simply go out and secure a whole bunch of silver in order to meet demand, something like 10MM ounces or so. This is unlikely though because 1) Finding 10MM ounces isn't easy, unless you're the custodian of SLV and 2) It would cost a lot of money that currently isn't in The Mint's 2013 budget and what bureaucrat is going to be sticking his/her neck out on that one?
  2. They could simply leave the market for ASEs in this current state of disarray, only opening for sales for days or hours at a time.

I've got to believe that #2 is the option they'll choose and where does that leave us? An ever-increasing perception of extreme physical tightness. Again, it matters little whether or not The Mint could go out and procure the 10MM ounces they need to get "caught up". What matters is the perception that physical silver is in very short supply, otherwise "why would The Mint always be shut down to new orders?". Premiums will continue to rise for all other new and existing forms of silver bullion and this excitement will, eventually, bleed over to the paper market as other bullion producers seek or feel forced to lock in forward contracts and speculators try to cash in on all the excitement.

And this is what I mean by (perception = reality). Something like this Mint situation could easily generate its own momentum in the headlines, the public and the market. Shorts could begin to get squeezed and we might even see a repeat of Feb-April 2011 paper price performance. Throw in any other "news" events like QE∞ and U.S ratings downgrades and the potential becomes decidedly real.

Here's one other thing for you to consider: Has the Treasury Department been planning for this eventuality all along? The law used to read that The Mint had to supply enough silver coins to meet the public's demand. See here: http://codes.lp.findlaw.com/uscode/31/IV/51/II/5112. The actual point was marked with a number (2), section (e):

(e) Notwithstanding any other provision of law, the Secretary
shall mint and issue, in quantities sufficient to meet public
demand
, coins which -
(1) are 40.6 millimeters in diameter and weigh 31.103 grams;
(2) contain .999 fine silver;
(3) have a design -
(A) symbolic of Liberty on the obverse side; and
(B) of an eagle on the reverse side;

Interestingly and sneakily, the law was changed in 2010. See here: http://www.law.cornell.edu/uscode/text/31/5112. It now reads:

(e) Notwithstanding any other provision of law, the Secretary shall mint and issue, in qualities and quantities that the Secretary determines are sufficient to meet public demand, coins which—
(1) are 40.6 millimeters in diameter and weigh 31.103 grams;
(2) contain .999 fine silver;
(3) have a design—
(A) symbolic of Liberty on the obverse side; and
(B) of an eagle on the reverse side;

Note the subtle difference. No longer must The Mint "meet public demand". Now, The Mint must simply make as many ASEs as the SecTreas requests. Hmmmm, now why would they do that? What's the big deal? If silver is just laying around all over the place, collecting dust, why can't The Mint simply produce a seemingly endless supply for an insatiable public? Chew on that one for a while.

So, anyway, what's the point? I firmly believe that we are on the cusp of another, major rally in silver and these actions/inactions by The Mint only help the cause. The state of perpetual ASE shortage created by The Mint will serve to exacerbate demand for both physical and paper metal. This demand will drive prices higher in an increasingly strong feedback loop as we head through the next few months.

Therefore, buy the dip and take delivery...if you can. wink

TF

335 Comments

Revelation's picture

The Apple is Starting to Rot

Apple drops 12%, trips short-sale circuit breaker

 
As goes Apple so goes the Market...
Istack's picture

Silver is sooo pretty

it's nice to see young folks waking up to the truth

Istack's picture

Oops

i think you are right Turd.  We are going to see an on again off again strategy from the us mint.  this will not meet current demand

Igiveup2's picture

Double post

Got lost in the excitement.

Mr. Fix's picture

Oops, I didn't think I was doing a double post.

Okay, you guys are good. I spent the better part of 5 min. just trying to get this page to come up on my screen.

And then when it did, there was no place to put a comment!

I refreshed the page at least five times, and still there was no place to put a comment.

Finally, I am here, but what was funny about it, as I kept watching the amount of comments go up every time I passed home.

It seems like a new post almost crashes the site now, from so many people trying to be first.

(Not that I would know anything about that).wink

Igiveup2's picture

3rd actually

Oh so close.  You guys are good!  I was parked here and missed it.  Gotta go back and read now.

Mr. Fix's picture

It took forever to refresh the page.

Congratulations to those above me, I was really trying, but I got locked out.

Thank you for all you do Turd!yes

silver66's picture

Top 10

My lucky day, should  I celebrate by buying a lottery ticket or stopping by the LCS. 

Silver66

ag1969's picture

Not to mention

That we also have the Canadian Mint rationing as well, further creating the perception of a supply issue.

Prize Fighter's picture

Those aren't real "firsts"

Those aren't real "firsts" when they hedge a post with "." placemarkers.  Man up to the keyboard you hoarders!  wink

Rotag's picture

a thin wafer

Monty Python a thin mint (wafer):

moguls's picture

FOMC

... and we have FOMC meeting and unemployment rate next week. Interesting week ...

atlee's picture

good

yes Like your thinking here turd

Turd Ferguson's picture

Thanks, atlee

MODERATOR

Always nice to see you.

Response to: good
El Gordo's picture

Odd happenings

I notice that at my favorite vendors site, the 2011 ASE's still command a slightly higher premium than the 2013's. 

Xeno's picture

"Quantities that the Secretary determines are sufficient "

LOL I think they goofed on that one, the sec. can't even determine his own taxes lol

At least it lets the poor guy at the mint with the job of ordering off the hook.

Interesting point you made Turd, that the mints budget it blown and it's not even Feb. yet. Da boyz could cover and get some funding to the mint but that wouldn't quell demand or increase supply. Guess they're hoping that restricted sales will reduce demand... maybe at the mint but that'd be the only place.

Hmmm... maybe their end game is for the sec. to say that there really is not that much demand as a bit of MOPE and spin, the masses believe it(not), and all is well in the world. Besides, all that demand is from only a few percent of the pop. - not really "public" demand don't cha know.

Boy, will this be fun to watch this yearcool

mrneutron's picture

Royal Canadian Mint starts rationing silver coins

Royal Canadian Mint starts rationing silver coins

Section: Daily Dispatches

12:36a ET Thursday, January 24, 2013

Dear Friend of GATA and Gold:

Jason Hamlin of Gold Stock Bull reports that, following the U.S. Mint, the Royal Canadian Mint has begun rationing its silver coin production:

http://www.goldstockbull.com/articles/royal-canadian-mint-hits-supply-sh...

It's not that silver isn't available. It seems to be that the mints don't want to buy the metal necessary to meet coin demand, lest they allow the price of silver to be pushed up to jeopardize the government-backstopped price suppression scheme.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

http://www.gata.org/node/12162

onewileyz's picture

From our local weekly

Redneck Perspective: A redneck frolic in D.C.

Wednesday, January 23, 2013

 by Clyde Thornhill

I just returned from a weeklong frolic in Washington D.C. with Blythe Winters-Paulson, vice president of ethics with Goldman Sachs. We met during the Jackson Hole Economic Policy Symposium. Blythe works out of the main office in Manhattan but often travels to D.C. to explain to our elected representatives the complexity of ethics in investment banking....
Read the whole article, click below:

http://www.planetjh.com/opinion/Article.aspx?ArticleID=109048

exiledbear's picture

There's a fly in their soup though

Bitcoins gained the $18 handle. From $5 last summer to $18 now. Bitcoins may not be all the real, but at least the market for them is honest...

proton777's picture

I believe

that paper silver and physical silver are as similar as a goat and a baloney sandwich.

We know that unlimited paper silver can be created and sold into the "market" with a few keystrokes. We also know that unlimited FRNs can be created in the same way.  Neither of those correlate to the true value of the metal or the currency they supposedly represent.

So, the fact that the US Mint is out of silver again - and might be for a while - probably won't affect the price of physical silver. Certainly it won't and hasn't affected the price of paper silver, either.

Buyers of size of physical silver aren't going to the Comex, buying futures contracts then settling for delivery. They know that's foolish.  If that were true, Comex silver wouldn't be down again. The tail (derivative) is wagging the dog (physical).

And think about the 33 million ounces of silver The Mint sold in 2012:  That's a mere 6,600 contracts worth.  We routinely see more than that hit the ticker during the frequent raids.

Grublux's picture

Turd Rounds

If the sovereigns cant keep up with production, private round premiums should go up.  Maybe the board should revisit the Turd Rounds idea.

Turd Ferguson's picture

Yes, but...

MODERATOR

Again...perception, headlines, etc

Response to: I believe
Kcap's picture

@ Turd and the BOARD

Something else just struck me and sent chills down my spine....

Re-read the first bullet point:

"in qualities and quantities that the Secretary determines are sufficient to meet public demand,"

Ummm..,

"In QUALITIES"....

Do you know what this means?

Since 2010, ASE's could be less than .999 technically speaking.  Has anyone tested?  All they have to do is "contain" .999 silver, not be 100% MADE UP OF .999 silver....as long as the meet the size and weight specs, guess what?  You all could be holding bunk junk.

Many of you might say, no way, what other white metal can weigh exactly what silver does....??

Well, it doesn't take just one metal, but if you have two metals of differing weights, then it only takes a RATIO between the two to obtain the desired weight.

I am not sure, but I think the cover just got blown off of something here.

Kcap

tobydaniel's picture

Turd, this was your best post yet!

Loved every word of it. I guess since I believe that physical shortages are our only hope, this bodes well with that.

4406PACK's picture

they are saying they dont

they are saying they dont want to teach constitution to highschool students in the usa

Nana's picture

Kcap RE: Turd and the BOARD

Stunning thought.....wow.....

meegoreng1's picture

Can someone please help me understand...

..why silver producers/companies are just sitting back and allowing the manipulation of their ‘commodity’ by the EE? Are they not aware of the manipulation? That can’t be.

Heck, silver has been manipulated for decades.  This was LBJ’s statement when he was the President:

”It is necessary for the U.S. Government to have large stocks of silver in addition to the quantity needed for coinage.  We need these stocks because our SILVER COINS IN CIRCULATION MUST BE PROTECTED FROM HOARDING or destruction.  Protection of the silver coinage will continue to be a necessity since WE PLAN FOR IT TO CONTINUE TO CIRCULATE ALONGSIDE THE NEW COINS.  Our silver coins are protected by the fact that the Government stands ready to sell silver bullion from its stocks at $1.29 a troy ounce.  THIS KEEPS THE PRICE OF SILVER, AS A COMMODITY, FROM RISING above the face value of our coins.  This, in turn, makes hoarding or melting of the silver coinage unprofitable.”

And the suppression of silver is still going on currently with JPM and the Big Banks having the largest short position in the trading floor.

A few years ago, I attended one of Casey Research events and that was the time when Eric Sprott first made his suggestion that silver producers hold back some of their silver and keep them as reserves instead of holding cash. Up till now, I know of only one company (EXK) that may have decided to follow his advice. There were quite a few silver CEOs attending this event too. After Eric’s speech, I approached one of the CEO of a major producer.  (Withholding name for now. I know many of you may own this company’s shares. I do too.) I asked him what he thought about Eric’s suggestion. He just dismissed that notion and mention that it would be impractical to hold silver instead of $ as that would hinder operations. By his mannerism, I could tell that he was ridiculing Eric. To me this was cop out response. No where in Eric’s speech did he mention to hold back ALL of their silver.

Do these owners, executives of these silver companies not believe like we do that silver is money and not just a ‘commodity’? Why are they allowing their ‘commodity’ to be suppressed for decades which in turn is costing them billions in profits? Why wouldn’t they join forces and spend some of their millions educating the public of this ongoing obvious manipulation and put a stop to this?

Is it possible that the major silver companies are controlled by the EE already? Are the board members infiltrated by these disreputable decision makers?

Is it possible that if anyone of them ‘goes against the grain’ that they would be punished? Is there a lot of arm twisting, threatening behind the scenes?

It is my assumption that SVM possibly may have and is now being obliterated by the TPTB on trumped up charges. The TPTB have now sent in their ‘vulture law firms’ and is trying its best to decimate the company.

Yes, we know that we need a greater awareness of our world monetary policies among us around the world as that would spawn a huge and increasing demand for silver as real money but the supply side of the equation is equally important. This is something that cannot be disregarded if we are to realize the real potential of the value of silver.

Punk-Assets's picture

I concur. The upward trend

I concur. The upward trend from mid May is still in place. We seem to be at or very near a bottom. I hope! 

ag1969's picture

Kcap

I just received some 2013 ASE's in the mail.  How do I test them?

I have long thought that if there were any government that would fake their coins, it would be ours.  That is why I buy a bunch of different stuff.  I would hate to be holding all ASE's on the day we find out our government is a bunch of money grubbing hacks that would counterfeit something.

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