Thursday, May 5, 2011

Regarding The Rumors That Scrap Silver Has Hit The Market

Someone commented yesterday in my comment section that the suddenly revered Ben Davies stated that a lot of scrap gold and silver must have hit the market.  I responded to that by saying that if that were the case, I would have come across reports of that happening in everything I read, most notably in that regard being the invaluable "JB" reporting, which can be found in the Midas report at every night.  I suggested that Davies' assumption was incorrect.  Today I saw this report from Reuters (source: the JB report): 

India gold, silver traders scramble for supplies:  Gold and silver traders in India, the world's biggest buyer of bullion, scrambled for supplies as they braced for strong sales for a local festival, pushing premiums higher, bank officials and suppliers said.

Here's the LINK  If a lot of scrap were hitting the market, not only would I have come across it my research, but Indians would not be "scrambling" for physical supplies.  Please make no mistake about it.  This price-action in silver is predominantly an attempt by the major bullion banks, backed by the Fed, to create a shock and awe panic in the precious metals.  This action serves a lot of purposes, not the least of which it will save JP Morgan $100's of millions in losses on its short position (blood money for a Wall Streeter) IF they can cover enough short positions.   I would suggest that people who want to trade this market should form their own convictions based on knowledge and experience and not rely any supposed guru as a definitive source of information.  And do not listen at all to anything you hear on CNBC, Bloomberg or Fox News.


  1. Yes well I listened to that interview today and at one point Eric King pushed him if he could estimate how much of scrap was going to the refiners - wishy washy answer - lots of blah blah - and at the end he said no. Wonder if he did talk to any of the refiners - he just mentioned we have people.

    One thing we need to remember Ben Davies came out earlier in the year - also on Eric King - saying that silver will take a rest and it had gone up enough - intimating that they had taken profits then. so a good way to get back in.

    I did enjoy him but this downturn has highlighted one thing for me - those precious metal specialists - turn their story when ever it suits them. There are only a very few who stick to their guns until actual fundamentals have changed. This in and out jockies are the actual problem.

    Another point - the intent of the margin calls is very clear - to kick a dog when he's down. The intelligent way to do it is to faze in increase margins as prices rise - not fall. So as a percentage! It really is just another tool to destabilize the market. And to convince ordinary people to leave it up to the professionals!

    I now realize during this which people to follow more.

    thanks for your blog

  2. Hi Dave, Newbie said....Thanks for your continued efforts in sharing your knowledge. I have a question regarding the Gold/Silver drop; I haven't been in this market very long (less than one year)and am abit worried since I am now under water; should I liquidate or hold tight? Thanks.

  3. Right! I too thought it was Davies pissing in the wind for the sake of it.
    You put it more succinctly.

    I notice at a time like this that there is a lot of "arse covering" by so called gurus.

    They want to have some sound-bite out there so that they can say they were right.

  4. Art does imitate life...

    Danny Dalton: Some trust fund prosecutor, got off-message at Yale thinks he's gonna run this up the flagpole? Make a name for himself? Maybe get elected some two-bit congressman from nowhere, with the result that Russia or China can suddenly start having, at our expense, all the advantages we enjoy here? No, I tell you. No, sir! Corruption charges! Corruption? Corruption is government intrusion into market efficiencies in the form of regulations. That's Milton Friedman. He got a goddamn Nobel Prize. We have laws against it precisely so we can get away with it. Corruption is our protection. Corruption keeps us safe and warm. Corruption is why you and I are prancing around in here instead of fighting over scraps of meat out in the streets. Corruption is why we win.

  5. Newbie - if you are not on margin or using futures, just hold - sit tight and be right. I dipped in too early on Tuesday afternoon and took 1/2 my losses on THAT particular trade. I'm holding my core positions.

    If you are very uncomfortable and not on margin in any way, and have room to add, let the market settle down. It may take awhile. And then let the market tell you when it's okay to double-down.

    I would not be using margin here at all. Eventually this market will be set up to take us a lot higher. But it could take time. On a hit like this the last two times ('06 and '08) it took 17 roughly 22 months before we recovered. So far this hit isn't as bad...PLUS the physical demand is substantially higher than those two hit periods.

  6. OMG Dave how much longer will this f'ing shit go on?!?!?!?!

  7. I'm in the scrap market and we are seeing where numbers are down year over year.(if based on pure ozs). Of course we make alot more when its priced in dollars so year over year we make more . The Physical metal markets are very tight .Was told that London pays a lot faster then New York which seems odd very odd considering New York is only 3hrs away.

  8. Rough week indeed. Maybe we get to my dream price we discussed a while back? Who knows but the games going on are insane.

  9. LOL Anonymous. No idea. Is this your first big cartel ambush? Silver could drop down to its 200 day moving avg - around 28.50 right now and maybe even go 5-10% below that and then snap back so quickly it will give you whiplash. HUI just hit its 200 dma today. I'd say unless they have something designed to really hammer the market, we're about 80% done but who knows. If you're not on margin/leverage, sit tight and be right. I believe it's too late to sell now but that's just my opinion. If it makes you breathe easier, sell 1/3 here and be ready to reload what you sell if they have one more big downside push from here. By that I mean another 20% from here on silver and another 5-10% on the HUI.

  10. One more thing: AT ALL COSTS DO NOT NOT NOT LISTEN TO THE SHIT BIRDS ON CNBC/BLOOMBERG/FOX BIZ/ETC. They cater to the in-bred down syndrome audience.

  11. Dave -
    I noticed you mentioned a divergence from real physical/paper. Do you see a wild scenario where comex silver and the slv go to zero? As default becomes more likely (not immediately) in the future. They would never declare force majeure (or whatever) and default at $45 or $65, those in the know would bang the s*** out of it. Could we perhaps be seeing some of that recently with ready inventories under $1B. Why would any size entity who is not in the inner circle buy on the comex with intent to take delivery. Comex knows can't handle it and will default at $3 oz and bankrupt the entity.

    Is the real play here short massive amounts of SLV against all miners/cef/pslv and come back in 2 years rich beyond means?

    Thanks for all you efforts. Incredibly helpful.

  12. I believe eventually SLV and GLD will plummet while the price of physical silver/gold goes to the moon. How long till that happens is anyone's guess.

    To be sure, I believe GLD and SLV carry enough physical on-site to cover the potential that some shareholders exercise the option to convert their shares into bars. But what % of the shareholder base that has enough shares to do that actually intend to convert. I'm sure less than 1/2.

  13. I’m not sure if in the article below they are referring to SLV or the futures price as quoted on
    Does anyone know ?


    This latest plunge is typical of silver

    Let me say this at the outset. I really like silver. I like to hold it. I like to look at it. In fact, I often think it’s nicer to look at than its more expensive, yellow cousin. I like its history. And, perhaps most of all, I like what it does.

    I find its uses in medicine incredibly exciting. I find its technological uses incredibly exciting. I find its monetary potential exciting.

    But I am under no illusions. I know what can happen. I’ve been burnt by silver before. I’ve had my ‘paid tuition’. That’s probably why I am so cynical.

    One look at a silver chart shows that it is characterised by spikes. Up and down. I’m afraid that comes with the territory. It’s incredibly volatile. That’s just how it is. If you can’t stand the heat and all that, then don’t trade silver.

    All the same, a $9 correction in barely two days is quite something. But it’s happened before. And in recent history.

    In fact, that $9 fall is only a 20% correction, give or take. I’m afraid that suggests to me the correction is not over.

    For example, in spring 2006, silver went on a similarly parabolic run, which ended in May at $15. Six weeks later it had fallen by more than 35%, to trade around $9.50.

    In March 2008, silver made it almost to $22. Eight months later it was below $9.

    And the move up that began last summer has been the greatest rise of this bull market so far. We can expect a correction of similar magnitudes, giving back as much as 60% of the gains we’ve seen since then.

    How much further will silver fall?

    Keith Neumeyer of First Majestic Silver (NYSE: AG / TSX: FR) said to me at a mining conference earlier this year, “with silver it’s feast or famine”. I’m afraid we’re entering one of those periods of famine.

    But that’s a positive thing. Because there will be opportunities to buy some quality companies at knock-off prices.

    As we enter the summer – a seasonally weak time for precious metals – there are various scenarios I’m considering.

    A fall to $38: The most bullish is that the correction lasts some six to eight weeks. We retrace a mere 38.2% (one of your magical Fibonacci numbers) of the move from last summer, and pull back to the 76-day moving average (the average price over the previous 76 days), where we find support. That would mean an eventual low somewhere around the $38 area.

    A fall to $30: If we give back 61.8% of the move from last summer and retrace to the one-year moving average, we’re looking at a move back to around the $30 area. I see this scenario as more likely. There is historical support at this level. It would also be a 50% retrace of the entire move since the lows of October 2008 from $8 all the way to $50.

    A fall to $22: But silver is a volatile beast, a glamorous temptress who will lure you to places you never want to go, and it has a habit of behaving in the most frustrating ways possible. It will lie dormant when it should be rising. It will fall when there is an apparent shortage. Then, just as you throw in the towel and walk away, it will shoot to the moon. Given its propensity to disappoint, it would not surprise me to see silver go all the way back to $22.

    Watch for the ‘dead cat bounce’

    At some stage we will get the proverbial ‘dead cat bounce’. The level from which that bounce takes place will tell us a great deal about the scale of the correction we can expect.

    I have no doubt that silver will eventually head a lot higher. The fundamentals are too compelling. But the violence of the past two days – and any continued correction – will take a long time to wash out, probably at least a year.

  14. see - davies has bought back into silver and its all go go go again. as i wrote in the first comment above.

  15. Can someone explain the difference between what silver closed at today == Silver suffered another dramatic drop. Its 7.9% dive to $36.30 == and what SLV (the ETF) closed at $33.72.

    What is the $36.30 price referring to ? Is that the current spot price, a futures price, something else ? And why doesn't it match the price of SLV closely (big difference between 36.30 and 33.72)

  16. ETF is priced based on where silver is at the close of NYSE trading. silver was around $34 then. SLV trades at discount to silver because the expenses to run the trust are substracted from the NAV. The discount to NAV will always increase over time. Theoretically SLV could go to zero but it would take a long time LOL.

  17. Wait til mainland China starts thinking about this...and really moves into gold and margins won't matter.

    These Bonds, Investors Say, Were Made in Hell

    Besides, other experts said, bond holders familiar with China's local government investment platforms should not have been surprised by what happened in Sichuan. One seasoned bond market insider told Caixin "this kind of transaction is quite popular. A local government sets up a platform, injects some assets and then issues bonds against the assets.

    "If too much debt is raised, the government will form another platform company, transfer the core asset to it, and issue new bonds," the trader said.

  18. Great point on the scrap silver. Davies article 'Silver Criticality' was dubious on a number of points.
    1. like you said, that was the first I heard of the supposed scrap silver glut
    2. The rest of his article was a new agey rendition of 'instable systems' and a bunch of other psuedo-science. Davies, like Grandich and Sprott, called the top because of CME margin hikes.

  19. Dave also..
    Thanks for publishing your ECU purchase. I had the warrants, sold them, then your endorsement reminded me how oversold it was, so I jumped back in at .66. Thanks again.