09 March 2011

What's Going On In The Silver Market: Audio Interview with Harvey Organ

First a bit of housekeeping. There will be no chart updates tonight.

Here is an interview that may be a little overdone in some parts, and with the opening codenames, but is very interesting, containing an abundance of informative content nonetheless. This is an interview from December of 2010. I thought it would be interesting to reprise it now, because so many of the things which they say are unfolding even three months later. The gold/silver ratio has dropped to 41, and silver has rocketed higher in price. I missed it initially because of an illness in the family.

Harvey Organ is a wealth of knowledge and detail.  I am not sure what is happening obviously because of the opaque nature of the situation and the apparent dissembling and obfuscation regarding the facts, especially in a period in which fraud has been revealed to be rampant in a variety of financial transactions.  I mean, really. How can one be certain of anything when dealing with this brood of vipers running the financial system?

And yet trust and confidence is at the very heart of a well functioning free market system for the allocation of capital and the pricing of goods.  And so it seems that crony capitalism could write its own epitaph in its mindless pursuit of greed. It is this abject and otherwise inexplicable failure to reform the financial system and break up the Wall Street Banks that undermines the economic recovery. I can think of no more obvious reason than a credibility trap.

The shorts appear to be trapped, and are playing for time, in what seems to be an increasingly untenable situation. I mean, unless you are completely naive or a book-talking dolt, having one or two institutions short about 25% of the world supply does seem a bit much, especially with all the secrecy surrounding it, and the inability to demonstrate that this is due to legitimate hedging by producers, information which should be disclosed since it absolutely impacts the valuations of publicly traded companies.

And it's a serious issue for the powers that be, because the trapped fish are some very big fish indeed, and may be connected to other things in other markets, and much bigger fish, perhaps the biggest in their ponds.

Before that happens, and after a protracted period of trading antics in which Blythe is given some leeway to try to wiggle out of the problem, I think that they will be told to 'throw in the towel,' and let silver run to roughly 16:1, from the existing ratio of about 41:1, with whatever price they can tolerate for gold given their limitations, on the basis that this is the historical and natural balance.

Without admitting any wrongdoing of course. The Fed can print enough paper to cover their losses. I suspect this would be done in concert with some other crisis. So I would not be looking for JPM to 'crash' per se. Rather, I would look for the next bagman patsy for a stealth bailout of the banks such as the role that AIG played for the Street in the 2008 financial crisis.

This gives me rough targets of $2000 gold and $125 silver. If you prefer $400 silver, then you should be looking for gold around $4000. And I think gold will at least reach a ratio of 2:1 with the Dow Jones Industrial Average, and maybe 1:1, so take it from there.

But first they have to dampen any talk of placing silver in the SDR basket if it is given international reserve status in lieu of the dollar. And then they have to persuade the world to move on, and not take any inconvenient notice of this particular fraud, as it may lead to questions about all those other frauds and deceptions being played, well-intentioned as they think they may be, or at least as they represent them, as in the case of the Wall Street bank bailouts, the insider trading, naked short selling, fraudulent financial instruments, campaign payoffs, and revolving door sinecures.

Harvey Organ's Gold and Silver Report

"As for the gold-silver ratio? It currently stands at about 41. Deutsche Bank, in a not particularly daring forecast, says it should fall below 40 in 2011 and 2012. We’re nearly there.

They run through some history that hints that the ratio could drop even further. Among their tidbits:

* From the 12th to the 17th century, the ratio held at about 12.
* Isaac Newton set a ratio of 15.5 early in the 18th century.
* The earth’s crust: silver exceeds gold by a ratio of about 18.75.

Lastly, China and Hong Kong were the last places to abandon the silver standard, in 1935. The China word for bank: Silver House.
'Trading activity from China has increased considerably over the past several years; we believe that much of this is a function of increased investor demand within the country as inflation threats build.'
So, like any good bull story these days, China plays a role."

Deutsche Bank: Silver Will Keep Streaking
Additionally, here is something a little more controversial. I am not quite sure what I think about it yet. In this interview Harvey is discussing what he perceives to be the musical chairs nature of GLD and SLV, Part 1 and Part 2. They work well in what might be called 'normal market conditions.' I would not use the word fraud, as it appears that it could be more in the nature of undisclosed counter party risk. And of course, I have little to no background in securities law. It is my very lack of knowledge that made this discussion interesting.  I do think their comparison between PSLV and SLV is unfounded and incorrect, because one is a closed end fund and the other is an ETF. 

I have felt for some time that Brown's Bottom in gold, the sales of England's bullion near the bottom of the market, were stealth bailouts of a bullion bank or two caught short in deals such as those discussed in the above interview.

No matter, these markets do appear on the surface to resemble a house of cards.  And this is cause for me at least to view them with concern, especially with the rank failures of regulation which the financial crisis recently disclosed.