02 June 2011

Comex Silver Inventories Reach New Lows As a Forced Resolution Approaches

It is a small point, but the drop cited in the last sentence in the piece below is incorrect. The Comex deliverable inventory was at 41 million ounces on April 18, and not two weeks ago.

The real story here is that the silver bullion market for real, available metal is very tight. The Comex needs to find a large supply of silver, unemcumbered and in suitable condition, to satisfy its contracts.

Wall Street's usual response to a crisis of this sort is to try and bluff their way out of it, and look for help from the regulators and government officials. When they run out of options, they settle out of court and pay a nominally large, but in reality token fine as a cost of doing business.

I cannot tell if there is a real story behind the 'reclassification' of the Scotia Mocata inventory, or if it is just customers pulling their inventory out of the deliverable category at one of Canada's major bullion banks. I am waiting to see if Harvey Organ has anything to say about this, since it was he and his son who first exposed the inventory problems there a few years ago, problems that were subsequently corrected.

Whatever the details, there is a growing problem at the Comex in terms of the product that provides the basis for their derivatives, the silver future contracts.

The decline in inventory will be resolved. This can be accomplished in one of three ways: a collapse in the silver market triggered by a collapse in the US economy, much higher prices which persuade holders of bullion to part with it, or a declaration of force majeure and a default on delivery of bullion in favor of other paper derivatives.

Much less likely would be a government intervention to save its friends in the Wall Street banks. If the Obama Administration invokes any sort of executive power to control the markets I expect massive civil disobedience from the public through the summer. Much more likely is a resolution cited above and a cover up. This is what they have been doing since 1990 at least.

As an aside, Goldman was served with subpoenas this morning by the Manhattan District Attorney's office as a follow up to the Levin Report on their role in the fraud and corruption surrounding the financial crisis.

There may be a bull market in Congressional hearings and subpoenas coming. The scandal reaches to the highest offices in the US government and financial establishment. Therefore the truth may never be revealed. But a reckoning is coming.

From Goldcore:
"The supply situation in the silver market gets more interesting by the day.

Registered COMEX silver inventories have fallen to multiyear lows at 29,631,268 ounces. In the last 5 days they fell from 32,132,903 ounces to Tuesday’s holdings of 29,631,268 ounces. As can be seen in the table below registered silver inventories fell every single day last week leading to a sharp fall of 8.4% in 5 days.

Registered metals are those metals which meet the standards for delivery under the silver futures contracts and for which a receipt from an Exchange-approved depository or warehouse has been issued. Eligible metals are those which meet the delivery standards as stated in the rules for which no receipt from an Exchange-approved warehouse has been issued.

This is a long term trend that has been seen since the early 1990s when total COMEX silver stockpiles were over 101.45 million ounces.

However, the scale of the drop in inventories since early 2008 is significant and the trend has accelerated in recent weeks.

Registered silver inventories are down a sharp 38.5% in just two weeks – from 41,044,280 to 29,631,268."