Jaysus on a popsicle, Mary and all the Saints do I have some egg on my face. Since January 27 silver has been on one seriously wicked ride. I’ve been banging my head to Metallica’s Whiplash for the last ten days.
So, WTF happened?
In short: from where I sit the paper markets are trying to create a force majeure situaiton for March contracts. The market is incredibly volatile and highly illiquid. Traders are draining the vaults of bullion. Indeed, as Dario notes, “Silver physical deliveries at the Comex just crossed 4,000 contracts (~20m/oz)and we are only 6 days into February.” That’s nucking futs.
If the Comex defaults to force majeure (SHFE is a bit of a different matter) the Comex will lose all credibility as a fair functioning market dedicated to price true discovery. Never mind that silver prices in the USA has been a cozy Fed-supplied rentiers market for decades, should this happen businesses will begin a mad scramble to source silver for themselves. That leads to supply and demand chaos. Bad. Vewwy bad.
On the SHFE–Shanghai–one day last week over 1.3 billion ounces of silver volume were traded. That’s one year of global demand in a day. The Chinese government’s motto regarding traders shorting silver on the SHFE seems to be FAFO. The Chinese are cracking down hard. Why? Well, to produce one gigawatt of power using solar panels requires 1 million ounces of silver.
You read that right. One million ounces.
Fundamentals matter. Global demand is strong. Businesses need silver for industrial applications beyond just solar panels and dentistry. But traders can keel-haul fundamentals sometimes with epically shitty consquences. Watch this video by Dario starting at minute 6:43 for how this possibly plays out.
It’s ugly. And it seems to me that maintaining a viable silver market is now fully in the hands of the Chinese. US traders are determined to destroy price discovery and reinstate the cozy rentiers market in the US.
I have no idea how this will end.
marku
I thought the end of month beat down was due to a TBTF bank having being big time potential short losses, perhaps needing a Fed bailout. So the theory goes.
Doesn’t explain this continuing misprice betweeen US and China. This post posits that a big miner is refusing to sell to Comex due to the mispricing.
https://halturnerradioshow.com/index.php/component/content/article/claim-mining-companies-refusing-to-deliver-silver-to-comex?catid=17&Itemid=101
It’s all been fun to watch. I love to see elites panicking.
elkern
Thx for update, SPK. Don’t get caught up in the craziness, it’s just money… 😉
Also, plz explain what ‘force majeure’ means in this context?
ventzu
So shouldn’t Comex gradually reduce the paper : inventory leverage, rather than lose all credibility? That should enable true price discovery.
different clue
Food will get you through times of no silver better than silver will get you through times of no food.
Eric Anderson
I wouldn’t want to be the lawyers making that force majeure argument. It would seem to be in bad faith given the banksters brought it on themselves. Sanctions would potentially fly.
Elkern: As I understand it, it has no meaning in this context outside of a hail mary bad faith legal maneuver.
To invoke force majeure (force of nature/act of god — give it a name), the affected party must usually prove the event was unforeseeable, beyond their control, and directly caused the inability to perform, often requiring evidence of mitigation efforts.
In the COMEX context the contracts explicitly define force majeure as circumstances preventing a member from making/taking delivery or payment. But, (BIG BUT) the lawyers will argue the paper traders brought this on themselves. It was entirely within their control and they benefitted from it in the short term — it’s the long term reality that is going to eat their lunch.
Don’t quote me … I’m not a $1000 hr big law fancy pants shitheel corporate lawyer. But, that’s what I’d argue.
Sean? You agree?
Eric Anderson
If only we could eat books too. Right, different clue?
Love that quote.
spud
i once posted on alt.politics.economics, then a well known blog in recent history, it was not well received, that’s for sure.
that gold, silver, etc., was not money, but a commodity, a store of value for sure. but its really dependent on someone else’s view of what they are willing to pay for it.
the need for commodities has always been there. but what happens with something like gold or silver is, so many average people view it as a backup to money, you know the ad, paper money.
so when the price goes up in a deflating economy(wage deflation that is), the average person says the gold bugs were right, and a tremendous amount of of gold and silver is dumped onto the market, including silver ware, jewelry, etc..
and with china having a tremendous ability to smelter the stuff compared to what our ability is left after the disastrous polices of bill clinton were implemented, china gets flooded.
so when the real deflation hits the west, and it will, a massive depression even with a high worthless number like GDP, the demand for goods and services will plunge even more, so more commodities are dumped for scarce cash, and commodities are not needed as much.
it might be a downwards spiral.
a can of coffee and a gun might be worth a whole lot more. we shall see.
different clue
@Eric Anderson,
Thank you for the kind words. I gather the very first version of that ‘format’ of quotes was the phrase from the country song ” love will get you through times of no money, better than money will get you through times of no love”.
And then a few-couple decades ago, Stewart Brand wrote in an issue of CoEvolution Quarterly that ” libraries will get you through times of no money better than money will get you through times of no libraries.”
Food is something to stay alive with. Books are something to live for. Not the only thing but an important thing. And books about growing food get you partway to food itself, if you have the physical means and space to apply what you learn in those books.
Eric Anderson
different clue:
Yeah, I always that the quote version re books was the original.
Learn something new every day around these parts. Thank you 🙂
Feral Finster
Pretty sure that market conditions are not Force Majeure.
ethelg
The original is “Dope will getyou through times of no money better than money will get you through times of no dope” from the Furry Freak Brothers, isn’t it?
elkern
ethelg’s version (“dope”, via Gilbert Shelton’s Fabulous Furry Freak Brothers) was my first contact with the phrase, but I’d bet that the original version refers to food.
After all, the “food” version is the most true, by far (see Maslow). (How many books can one read before dying of starvation?)
different clue
@ethelg,
This sounds like a fitting subject of study for an academic in the field of American Studies. When and where did the first quote in that basic quote-form get said? And by whom?
I wonder what Fat Freddie’s cat thinks about all this.
different clue
Here is that country song ” Love will get you through times of no money better than money will get you through times of no love.”
Girls Next Door – Love Will Get You Through Times Of No Money
https://www.youtube.com/watch?v=-ommAFXxUpU
I feel like that they independently invented this phrase-form all by themselves for that song even if other people invented other expressions of that phrase-form before The Girls Next Door invented their version.
That’s just a feeling, though.
different clue
oh look . . . someone did a super-short animation off of the Fabulous Furry Freak Brothers’ version of the saying.
” Dope Will Get You Through…
“Dope will get you through times of no money better than money will get you through times of no dope ”
https://www.youtube.com/watch?v=HwNEWkZ6eN8
Jorge
Gold is a collectible, like sports cards. Silver is both a collectible and an industrial metal. Platinum, palladium and rhodium are industrial metals with a little collectible status.
But, yes, this whole thing has been hilarious.