Thursday, June 30, 2011
Link to: Caveat Venditor! at the bottom of the page leads to a very extensive report.
Eric Sprott: The Tyranny of a Rigged Paper Monopoly is Turning
We have a very tough time understanding those bearish arguments against silver. We look at the real silver market, and based on the supply and demand data coming from the real, physical markets for silver, the fundamentals are only getting stronger. And yet there exists another silver market, which as we’ve shown, is not very connected to the physical realm at all. And though silver investors have for decades suffered the tyranny of a rigged paper monopoly over silver price discovery, it appears to us that the tides are turning. In the age of QE to infinity, investors are being more scrupulous with their capital and as such they are demanding physical silver in quantity. With more and more dollars flowing into the silver markets and a finite supply of physical to meet that demand, the theoretical losses for the paper silver short-sellers are near infinite. And with such a skewed and obvious risk/reward payoff vastly favoring the longs, we pose the following question. Who is most at risk in the silver markets: the buyers of a scarce and real asset that serves a growing multitude of purposes, or the sellers, who are short a quantity of silver which may very well not even be obtainable at anywhere near current prices? Let the Seller Beware!
Despite what has recently transpired in the paper silver markets, the robust demand
fundamentals for silver have not changed in our view. For confirmation of this, look no further than the physical silver market
(i.e. the real silver market) which is providing us with evidence almost daily of a sustained bull market for physical silver. The US
Mint recently stated that, “demand for American Silver Eagle Coins remains at unprecedented high levels.”15 Likewise for the
Perth Mint16, the Austrian Mint17, and the Royal Canadian Mint18 as well. The Chinese, who were net exporters of silver only four
years ago, imported 300% more silver in 2010 than 2009 and such large quantities of imports are expected to continue19. Last
year, Indian silver imports increased nearly six-fold, and this year consumption is expected to rise nearly 43% according to the
Bombay Bullion Association20. In Utah, silver (along with gold, of course) will now be accepted in weight value as legal tender21.
According to Hugo Salinas-Price, a prominent Mexican billionaire, there is now “very strong support for the monetization of
silver” in the Mexican congress22. We suspect the Europeans are likely to account for an increasing amount of silver purchases
going forward as well. In fact, we just can’t imagine a better outlook for silver fundamentals. This really makes us question who
could be short such massive quantities of silver and why? Particularly in those leveraged paper silver markets, where as we
demonstrated, only a fraction of the outstanding notional ounces are actually available in physical quantity.
Click here for Sprott Asset Management's latest: Caveat Venditor!