Editor’s note: Due to a spreadsheet mapping error, the original data published last month was incorrect. The corrected charts and data have been updated below.
As promised in my last article, Precious Metals Dealers: If the CME Artificially Creates Dips in Paper Gold and Silver Futures Prices by Raising Margins, Stand Your Ground and Continue to Raise Physical Prices, and as a follow-up to my previous article, The COMEX Issues and Stops Report Expose COMEX Physical Gold Supply Problems, an article that went viral on ZeroHedge, I mentioned that I would discuss how the 73% increase in silver futures margins over the past few months has affected physical silver supplies. As I have stated before, the act of stopping in house accounts means that the listed bank/financial institution has taken the steps to receive physical delivery of the metal while the act of issuing means that the acting financial entity will have to eventually deliver metal. Consequently, for house accounts, the optimal situation is for the number of stopped contracts to exceed the number of issued contracts and thereby produce a net receipt of the physical metal. To the contrary, the optimal situation for the listed bank/financial institution is for the net number of issued contracts less the stopped contracts to be a positive number, so that the outcome is a net positive increase in the listed institutions physical metal supply.
Here is how the situation has played out regarding the most heavily traded COMEX silver futures markets, the 5,000-ounce silver contract in the CME stops and issues report for the first nine days of April.
Though some of the bullion banks hemorrhaged physical silver heavily to start April, as you can see from the above data, for the past rolling four months and change, they are still net positive in physical silver supply by nearly 3.3M AgOzs. While I don’t expect this rate of physical silver loss to continue in a linear fashion for the rest of April (a net loss of 1.2M AgOzs for the first nine days of April), I do expect the losses to ramp up in the beginning of May, possibly in exponential fashion. One month of physical silver loss at this pace will likely not be disastrous, but a few consecutive months at this pace will likely place extreme stress on the ability of COMEX to back their silver futures trading with real physical silver, especially since two of the world’s leading silver producers, Ecuador and Peru, ordered nationwide suspensions of all silver production recently in response to the coronavirus pandemic and the total registered silver backing COMEX silver futures trading was listed at slightly more than 82Mozs as of the fourteenth of this month.
I ignore the “eligible” listed physical silver in COMEX warehouse, because, I have explained multiple times through the fifteen years I have been running my news site here, though the COMEX always claims that eligible silver can readily be converted to registered silver at any time should it be necessary, this simply is not true. Vaulted silver by private individuals and institutions is among the silver listed recorded as “eligible” and in reality, the only physical silver eligible to be delivered to close out silver futures contracts is the silver listed as “registered”. Of course, were I a private or institutional owner of silver, I would never vault my silver at COMEX warehouses or anywhere within the warehouses of the banking industry because perhaps the COMEX implication that eligible silver can be converted into registered silver is merely a statement revealing that under emergencies, they would seal all warehouses, not allow the owners access to their vaulted eligible silver, and simply commandeer it for use as registered silver.
Finally, to quickly explain why the violent divergences between paper and physical gold and silver prices I discussed a month ago here, were going to continue to likely escalate due to precipitating global gold and silver physical supply shortages, let me provide a quick primer on the spot gold price. The gold spot price is calculated by averaging the net value of all gold futures contracts traded for the nearest month and is the price that is used to settle all gold derivative contracts and is the price that is normally used by all physical bullion dealers to price their products (although this obviously has not been the case for the past month or so with physical bullion dealer pricing). So if spot prices were higher than future prices then longs typically didn’t ask for physical delivery. However, because physical prices are so much higher than spot and future prices at the current time, the relationship between spot and futures prices has little bearing on the decision of longs to take physical delivery. With much higher real physical prices, and with supply chain disruptions and mine production being shut down entirely in nations (like Ecuador and Peru that I mentioned above), longs are standing for physical delivery.
Ever since the demise of Lehman Brothers during the 2008 global financial crisis, JP Morgan has become the de facto bank of the US Central Bank for running the majority of physical silver and gold that underlies COMEX silver and gold futures trading. Thus, it would behoove those that are long in either gold and silver futures gold through JP Morgan bank and desire to take delivery of physical to demand immediate delivery to ensure that receipt of the precious metal before JP Morgan may run into serious supply issues.
Finally, for those of you wondering why State officials have reacted so harshly to this viral pandemic worldwide, resulting recently in riots in some states in India against the lockdown measures, are many are more likely to die from starvation than from infection of the virus itself due to an inability to earn a living, recall that the answers to crises are rarely what is easily observable on the surface for all to see. So is it just old, rich people that run governments willing to allow young, poor people to starve to death just for selfish interests to protect their own health? Is it the opportunity to implement harsher surveillance technologies under the premise of being necessary to stem the virus that are being implemented under the guise of “temporary” measures that have always been intended to be permanent? Though these likely are part of the reasons, again these are answers that lie on the surface that anyone can see. So what is the real answer? I will be releasing a podcast sometime next week with my take on what my research has dug up as the answers beneath the surface, hidden from view, on why every Western nation that condemns totalitarian measures regularly enforced by their “enemies” have so willingly enforced some of the exact same totalitarian measures that they previously so vocally condemned in response to this pandemic. Just ensure that you subscribe to my podcast to discover the hidden reasons behind the global lock down response.