Wednesday, December 15, 2010

The Most Important Commentary You Will Read All Year

Now that the Asians have begun to convert their dollar-based reserves and assets into physical gold and silver, the world will soon understand the degree to which U.S. and European banking systems have issued to investors an absurd amount of paper claims on gold/silver which does not exist to be delivered.  This imbalance - of which the paper amount outstanding is several 100 multiples (including OTC derivatives per the BIS quarterly bank reports) the amount of actual supply of gold/silver - will be resolved such that price of gold/silver in all currencies will soar to levels that take even the most ardent goldbugs by surprise...

"[T]he basic problem is that government and banking debt around the world are both rapidly moving towards default, and since governments are guaranteeing the lot, the pace of monetary creation is accelerating The consequence is that the gold suppression schemes, which have existed for the last one hundred years in one form or another, are finally coming to an end. We are trying to guess how dramatic that end will be. It will be difficult enough to stop a run by unallocated account holders on the bullion banks, without forcing a cash-payout amnesty. But if the central banks themselves cannot supply the necessary bullion to prevent this, the prospect of a total collapse of paper money will be staring us all in the face."

Here's the link:  MUST READ MATERIAL

That essay should be read in conjunction with this:
It’s [meaning the paper manipulation vs. physical bullion supply] eventually going to blow because at some point these buyers will say, ‘I’m indexed, but I actually want to get all of this physical gold and silver now.’  When that happens, the game is over.
Here's the LINK

...for anyone long gold and silver that is actually in their possession - or appropriately safekept at a safe distance from all Governments - the shock and awe of the upward price revaluation will be breathtaking.


  1. I read these articles sceptically. The Chinese have no reason to blow up the banking system and certainly no reason to blow up HSBC which would blow a real hole in the Chinese community in Hong Kong and elsewhere across Asia. They have got reasons however to take HSBC over and that is more likely if the balance sheet in the US subsidiary can be cleaned up.

    Also the issue of the Chinese refiners comes into play. Once they can obtain to enough gold and silver to offset the supply chain if the worst comes to the worse and London defaults they can simply take delivery in China via a judgement in China against London and the West. The Chinese are begining to show their teeth in their domestic courts and allowing jurisdiction just look at SDRG. The supply chain analysis is totally missing from these comments.

    Likewise there is no discussion of the trend for the Chinese to buy the concentrate and refine it for domestic consumption. This is mentioned in some articles and some company reports but it is totally absent from this analysis. The fact that they are not allowed or don't compete aggressively to bid up physical silver but do bid up aggessively silver concentrate indicates these matters are subject to prior agreements or London rules. If this is so then their ability to set off a price explosion or force a collapse of the fractional reserve system in precious metals is limited.

    A discussion at this level would tell us what is going on terms of physical versus the paper market. All we really know now is that the Asians are buying unallocated silver in large quantity but not how large and not how large in relation to their potentail security in the Chinese supply chain. Without his information we can't know how much risk they are taking on the London banking system. Again without a discussion of concentrate purchases we can't get a feel on the real nature of the slow motion train wreck that this market is becoming.

  2. $1363 and falling.

    CFTC is a joke.

    Position limits is bullshit.

    Turd Gensler pissing in everyones cornflakes.

    Bought and paid for!

  3. so, anonymous, why do you think this information is being leaked, or seen as a coup de grace? is it the bears attempting to get the bulls all in a fervor? is it just hyper-anticipation on account of some mega-bulls? or is there something else?

  4. BE, Jim Willie gets it.

    "This time though, the Chinese object of criticism, rebuke, hostility, and retaliation is the largest USTreasury creditor. The counter-attack from Beijing after an amateurish display of ignorance and tantrums seems directed at purchases of Gold & Silver, along with developing a stranglehold on the commodity supply chain."

    The problem is none of these people talk about when and how much and if they really were insiders this is what they would be talking about.

    Everyone talks about the end game but really a new game is just begining. What is it really in China's interest to do once it has the PM markets by the throat? This is the question, not crap about collapse or massive uncontrolled price spikes. This may happen, but would China sell physical for $'s at any price. I read somewhere that the price is going to have to go a lot higher to let the shorts off the hook. But really does the COMEX have anything to do with the physical market anymore? Especially once it has lost the supply chain. Isn't a Swiss chair to infinity more likely? The Chinese can take-out all the surface silver and gold slowly.

  5. Fancy ATM skips the folding cash, spits out gold

    BOCA RATON, Fla. – Shoppers who are looking for something sparkly to put under the Christmas tree can skip the jewelry and go straight to the source: an ATM that dispenses shiny 24-carat gold bars and coins

  6. Another day, another new low on SDRG.

    Blowing out Marc might be the only thing that can save it.

    Are you still buying, Dave?

  7. Holy cow SDRG now .11!

    Is sub-.10 in the cards?

    Dave you're flaming out on this one.

  8. SDRG is getting its ass kicked today. Down 25%, trading a 10.5 cents. Just read they are having legal problems in China in addition to their previously announced legal problems in Mexico.

    Dave - have you sold your shares or what? This company looks like one sick puppy.

  9. Dave,

    What's with the large sell off with SDRG. I averaged down at .10 today. There was a lot of volume all week. Is all of this related to the shareholder committee letter or is there something else at work?

    P.S. Just got my silver bullion in the mail from APMEX today. Chinese pandas are even more stunning in the picture than in person.

    Thanks in advance! Keep up the good work with the blog. I check it daily. Cheers to a happy holiday to everyone as well!

  10. Marc Hazout for CEO Of The Year.

    Maybe he can replace Gensler when GG gets a cushy gig at GS. He seems qualified for CFTC.

    And who is Fanny Chan? Marc's jilted lover? Jeez the drama.

    Gimme some Dragon love. A steal at .05. Get some.

  11. RE: SDRG - My colleague - who owns over 1 million shares - and I are coming to the conclusion that Marc Hazout has been engaging in the looting of the Company for a few years now. We believe that letter sent around by Fannie Chan is legit. We also believe that she will be able - through legal means in China - to untangle the mess over there. We think the stock has value here based on SDRG's interest in the Dadi and Laopondao properties. We also believe that Marc has been misleading the public about the truth surrounding the properties in Mexico. We believe that the ultimate value of this stock is minimally .50 - .60 per share, and likely a lot more but that it will take some time for this value to be "unlocked" by Ms. Chan.

    I am sorry if anyone bought this stock strictly on my recommendation, but I have always qualified any investment ideas with "please do your own due diligence."

    This is the first major mistake I have made in 9 years and I know of several other big investors who have been burned by this.

    I am holding the shares I own because of what I believe will be a substantially higher "recovery" value as this saga unfolds. I am not committing any more money to this stock.

  12. One more point. I know Fannie and her investment group owns at least 20 million shares and likely a lot more. We believe her group is the buyer who has been buying everything being sold down here. She is on our side and working to redeem the value of the Chinese properties. If she is successful we will all benefit.

  13. Be,

    One thing that really irritates me about all these so called experts is the complete lack of grown up serious discussion about how the supply chain changes are impacting on the LBMA and the Comex. At the moment the producers deliver concentrate to the Chinese refiners who are paid in silver. These deliveries are sold forward on the LBMA and Comex and under the rules these forward sales are treaed as actual silver holdings. The Chinese have been buying concentrate directly in large amounts. Consequently silver is no longer being sold forward to the LBMA or the Comex. This in the LBMA or the COMEX is like a depository withdrawal and according to some estimates should cause 100:1 reduction in OI in London and 5:1 on the COMEX. The amount of these concentrate purchases and the subsequent deflation of the silver trading balloon must dwarf the monthly drama documented by Harvey Organ and KWN insiders talking about physical withdrawals of silver from London. Yet the only person who seems to have mentioned it in passing is Jim Willie and he doesn't put any numbers on it.

    I find all the so called insider and expert opinion on silver hot air.

  14. Dave, Thanks for the update on Hazout\SDRG. Very big of you to post that. I really admire that.

    I own quite a bit, and have since 2006, so I did not buy on your recco.

    I hope they can sort it out. If they can't it will be a real shame, not just because I stand to lose money, but because they have some really nice properties.

  15. thanks anonymous. i must admit that i'm quite skeptical and admittedly ignorant about all this. but something smells like these "experts" are not so. yet they make some excellent price/technical calls. so sifting the wheat from the chaff is important. while concurrently smelling the BS too. thanks for the critical perspective.

  16. ireland. ire... anger and january.

    Why would the Irish population pay for this bailout.THERE IS TO BE POLITICAL CHANGE IN JANUARY.oops.

    If the Goverment falls, as has been widely predicted, and by credible reports, then the deal is dead, this just seems to make sense given the Iceland precedent, ....a massive devaluation, a new currency, and these banks and the EU can go whistle.

    So, i would be watching Ireland right now, January is , uh ten days away.

    And if they go, well, the whole European experiment implodes too,everyone will just follow.

    So 2 forces come into play. The stock markets in general will have a stroke, and the repudiations will send money, perhaps huge into the Pms.

    But its got to be bumpy.All stocks could get caught up in it,a la 2008,as people panic for liquidiy, however spurious any currency i. in fact the whole scenario is pretty peculiar.

    or maybe Ireland eats it and the taxpayers honor the deal.Doubtful.
    maybe in another time perhaps, whan people had character, but we live in a shortcut world,and if we come to that fork in the road, I think they will take it.The easy way out that is , at least superficially it looks easier..

    How then to invest. WEll, overextending seems unwise.Rig for heavy weather.

  17. Why should Ireland bail out the bankers? Because all of it's political class is bought and paid for.

  18. Dave,

    The more research I do the more I find red flags everywhere on Marc Hazout. He apparently is a convicted felon in Canada and changed his name. None of this looks good.

  19. Yes I agree. Have been dealing with and sorting this out for the last 4 days. I believe the Chinese shareholder group lawsuit has full merit and that they will be able to recoup a lot of value for the shareholders, but it will take quite some time.

    I know of someone in this country who is putting together enough paperwork to go after Hazout.

    This is my first big mistake in 25 years of investing. Now I know in a very small way how sophisticated investors felt after they got Madoff'd

  20. Dave,

    I appreciate your continuing comments on the subject. Everyone makes mistakes investing, it helps keep you humble and hopefully we can all learn from it. I am heavily invested in both ecu, and eurasian so the gains in those have helped with the loss in silver dragon. I hope somebody does go after Hazout as it sure looks as if he is a crook who needs to pay for his crimes. I continue to accumulate bullion and love the blog!

  21. Thanks for your words of support! It's been a rough week for me because of SDRG and because of a personal matter.

    But hey, I learned a lot from the Dragon experience and hame come into acceptance of the situation. There we some people with a lot more money in it than I and who had deeper contact with Hazout who have burned badly as well.

    I trust you saw the drilling news on ECU today. That one is real, there's no fraud and it will be a home run.

    Same with Eurasian.

    I think I have my head screwed back on again enough to start throwing up some new blog material this week! Stay tuned...

  22. Dave, Are you throwing in the towel on SDRG?

    Do you think it's likely that Hazout will be ousted? Has he broken any laws?

  23. As I said in an earlier comment post, I believe Hazout has committed fraud and security law crimes. I don't know the extent of the damage - no one does yet. I think the woman in China who is leading the lawsuit against him and the board of directors is going to be able to salvage a lot of value for the shareholders but it will take quite some time.

    Hazout has fucked over a lot people. He is a criminal and I hope someone leads a shareholder lawsuit against him from this country. He is a mini-Madoff.

    I am not going to recommend that anyone hold onto the stock here. I have lost a LOT of money and my fund has lost a lot of money on this one. Fortunately I have had a lot of other big winners in the fund. I do think that there will be a lot of value that will be recouped, but I say that without knowing the full extent of the damage done by Hazout.

  24. Hazout was stealing value from the company for his own personal gain and screwing over shareholders?

    What is so unexpected about this? Isn't that what CEO's have been doing for the last decade? Rubber-stamping the board's initiatives and looting the treasury.

    I don't mean to rub salt in the SDRG wounds, just to point out the psychpathic nature of CEO's. He may win some award at the 'CEO inner circle' awards dinner.

    FYI, I am looking to buy some here ( a call option of sorts), but those OTC market makers don't want to hit my bid, they want to scalp me.

    BIg of you to address this, Dave. Some would run and hide. It is the nature of investing. Some things work out as planned, others throw you a curve ball.

    Thoughts on Tebow? Good luck to your Buffs in the PAC 10.

  25. Agree Rothbard but some commit much more egregious acts of fraud than others. Hazout falls into the egregious - Madoff-like - category.

    Rothbard, I don't know if you watched Tebow play on Sunday, but I believe he has the potential for NFL greatness. He throws a tight spiral, throws pretty much on the money in tight spots and even threw one across the field right to left (he's left handed).

    Buffs are on the rise again!