Here comes the revolution !

From zerohedge.com

“Three days ago we noted that in just the first week of January, the US Mint had sold 2,221,000 ounces of silver “a number which if run-rated would be an absolutely all time monthly record” A quick glance at the tally today, shows that something very scary is going on. In the subsequent three days, the number has surged by 50% and has hit 3,407,000 ounces of silver! In just the first 12 days of the month we have already surpassed the total monthly sales of 9 separate months of 2010.”

Gather Ye Silver While Ye May

Jeremy, can we have your opinion as to why the US Mint has sold so much silver in such a short time. Are they wanting to reduce their trillions of dollars of debt? Are they wanting to delay or halt the threatened mighty rise in the silver price?

Could you give us your thoughts on what is happening and what the significance of such a uniquely large sale is?

Why do you say: Here comes the revolution?

I read somewhere that since JP Morgan has gone short on a vast quantity of silver, it could go bankrupt or be in some sort of big trouble if the silver price rises too high. Any sort of collapse of this bank, I was told, could set off a domino effect for the banking system more widely.

Could this be why the US Mint is selling so much silver into the market? At least, what they have done explains why the silver price has dropped and I suppose may drop further, particularly if they sell yet more. Still, I’m ready to ride this one out and, as the man says, where else do you put your money at the moment?

John Mark, the US Mint has sold all this silver because people are calling them up and buying it. Demand for the physical metal (coins etc.) is increasing and the US Mint is the ‘coin factory’

Don’t make the mistake of looking at the spot price of silver. Instead, ask yourself why the Sprott Physical Silver Fund PSIL has a premium over the spot silver price of +/- 14%

Or ask yourself why many 1oz silver coins on ebay trade at spot +/- 50%

Democracy means power to the people NOT power to the banks. The revolution will restore the former as people vote, with their wallets, for honest money

Jeremy, thanks for replying! However, I am not entirely convinced by your point that the US Mint is selling all this silver JUST because people are phoning up wanting to buy. The Editor’s thoughts on this would be much appreciated.

Ed Note: The mints all talk of record demand over the past few weeks – could just be short-term or be the start of a much bigger run up in prices.

b>Some Background on the Politics of Silver in the USA:
Let’s cut to the chase here. I closely monitor the US Mint’s sales and also the JPM silver short positions (I’m graphing the latter for an acquaintance of mine who has an on-line newsletter). By law, the US Mint will produce enough gold and silver coins to “meet demand”, and by law, the silver coins must contain silver that is only from US silver mines; that’s the way the original law was written. However, in November 2010, the US government modified this law because the current production of silver coins were eating up 100% of all US domestically produced silver. The US strategic silver stockpile is now at zero; by comparison, in 1960, the US strategic silver stockpile was over 3 billion oz (stored at Ft. Knox!).
Now the “modified” law says that ”the US Mint will produce sufficient silver coins in quantities deemed appropriate by the US Treasury Secretary.” In other words, the government now realizes that it shouldn’t be minting this vast quantity of US mined silver as “coins”. You may interpret that in any way you wish, but it’s rather obvious what is going to happen here!

Why the US Mint is Reporting Tremendous Sales in Jan:
There’s a “physical” reason, as was mentioned in responses above, and there’s a “political” reason, and each of these “reasons” are intertwined. First, as was said, there was a continuously growing demand for American Silver Eagle (ASE) coin sales for each successive month in 2010. In December 2010, the ASE demand went through the roof, and this demand continues unabated, not only in the US but also around the world (a large German mint reported that it had run out of silver last week; two weeks ago, the Perth Mint in Australia reported that it could not keep up with demand; etc.). This demand for ASEs was so large in December that the US Government didn’t want the “real” December monthly sales to be reported (my guess: for fear of causing a run on silver coins), so the US Mint was forced by the Obama Administration to understate the actual sales for that month. By law, the Mint has to report these sales eventually. So my guess here (but a very educated one) is that the Mint reported approx. 15% of the December silver coin sales as being sold in the first week or January 2011.

Yes, JP Morgan (JPM) is the Silver “King of the Hill”
Nothing happens in the COMEX silver market without the hand of JPM; since they hold approx. 85% of the silver short positions, they control where the daily silver price moves, and by how much. JPM currently holds approx. 22,300 net silver short contracts on the COMEX (1 silver contract is equal to 5,000 oz of silver); this is down from approx. 39,000 silver short contracts that they held in August, 2008 (yes, JPM took every silver investor to the cleaners in the summer of 2008, and made a ton of money in the process!). For details, go here for the CFTC reports on commercial longs/ shorts for each commodity:
http://www.cftc.gov/MarketReports/BankParticipationReports/index.htm

Lots more to say about JPM here, and how their “casino” plays with pin risk (i.e. how they manipulate the daily commodity price; the more acceptable phrase that these casinos use here is how they “manage the volatility” of a commodity) . . . but this response is already too long.

I’ve checked under Alex Jones interviews Kaiser (or Kaisler) and there is a big scare on at the moment about JP Morgan and HSBC being liable to lose much money on their shorting of silver, I believe it is. People are being encouraged to buy silver to bring JPM crashing downwards.

If people are responding to this by ordering silver coins from the US Mint, the latter will presumably need to sell some of its silver holding in the market and this would bring the spot price down, I presume. This would protect JPMorgan, I suppose.

However, if a vast number of people go on buying from national Mints presumably the latter will have vastly reduced stocks in the market and in their vaults with which to keep the price down indefinitely. Certainly Kaiser is encouraging people to buy silver to embarrass JPMorgan big time, perhaps, bankrupt them again.

Has anyone else come across this potential difficulty that JPMorgan has got itself into with silver?

obewon, that is an excellent and informed account! Thanks very much!

Now please would you take pen to paper and tell us about the risk that JPM is taking on shorting so much silver, and why Kaiser and others are encouraging people to buy silver in order to bring JPM and other banks down in some sort of people’s revolution.

@John Mark:
Your question is a good one, but there is no “simple answer.” In a nutshell, JPM is taking on some risk, but not as much as most folks believe.

Some Facts Surrounding the Problem:
. . . like that old saying “just give me the facts, ma’am!
Fact # 1: JPM, together with HSBC, hold approx. 95% of all silver short positions, and while they short both silver and gold, it is silver that is their main target because it is there where they make their most ill-gotten gains. Does anyone see a conflict here? Does the CFTC even care about this fraud?

Fact # 2: There are silver (SLV) and gold (GLD) ETFs, both of which have amassed tons of money by selling shares in those ETFs. Please note that the Custodians of these two ETFs are none other than JPM (for the silver ETF) and HSBC (for the gold ETF). These ETFs “supposedly” are backed by the real stuff; however, there is tremendous evidence suggesting that these ETFs are storing only a portion of the physical metal that is required (… and that is another story in itself!). Does anyone see a conflict yet?

Fact # 3: JPM is an agent of the US FED, and executes global trades (e.g. manipulates foreign currencies, or ruins the currency of a sovereign nation, etc.) as directed by the FED. Since there is a tight relationship between a country’s interest rates, the price of gold (and to a lesser extent, silver), and the value of the US dollar, it is imperative that the FED (using JPM), control the inevitable and continuous decline of the USD (i.e. their goal is to devalue the USD by 50% between 2010-2015, and by another 50% between 2015-2020). The tricky part here is that the FED doesn’t want it to decline too fast, as they continue to print trillions of paper money each year (i.e. in order to offset the declines in tax revenue and huge deficits each year!).

Fact # 4: Since JPM controls the silver market, including the silver Futures and silver options markets, they also know the “striking prices” of those options, and they know exactly what their profits will be at various price points, as they drive down the silver spot price to scare the longs into executing the automatic sell stops. As the tech longs liquidate their positions, JPM then slowly (i.e. low volume, but continuously): a) covers their shorts, and b) buys silver longs in the Futures markets. These actions prevent the spot silver price from rising back up too quickly during the trading day.

Fact # 5: The US government, together with their agents control and manipulate the stock market, the bond market, the commodities market, and the foreign exchange (i.e. currencies) markets. There are many good commentaries on this topic, but for an interesting read from an actual US newspaper (much to my surprise!!!), go here:
http://www.baltimorechronicle.com/2009/052909Lendman.shtml

Partial Answer to Your Question:
Now to answer your question, or at least try to address it; I can’t pretend to know the final outcome, but here’s a likely scenario. Theoretically, JPM would go bankrupt, as the price of silver continues to rise. However, JPM is also making a lot of money via deliberately causing high volatility with the spot silver price; and because JPM is the FED’s agent, they are also getting paid handsomely by the FED for driving the gold price back down (albeit temporarily!). Additionally, they’ve got the CFTC in their “hip-pocket” (last week, the CFTC, in a vote of 4 to 1, refused to establish “position limits” on COMEX silver and gold . . . something that they were supposed to do by law!). Finally, if this situation eventually explodes, as some experts believe, the FED will bail out JPM, just as they’ve done back in the fall of 2008, when they bailed out AIG and gave many banks $25 billion each (e.g. GS, JPM, B of A, etc. etc.).

In my own view, if 10 percent of the world’s population decides to buy one silver coin, it will certainly have a significant negative impact on JPM temporarily. But we can also look at this from a completely different perspective; gold and silver are going to continue to be the “safe” investments, as the fiat money printers (I’m including the Euro in this category!) print into oblivion. So JPM is doing us all a favor by allowing us to buy gold and silver “on the dips.”

That was great, obewon, and I’ll need to read it a number of times because there’s lot of information in it. I think AM should take you on as a writer here!

Good to know that the skulduggery of both JPM and the US government with ETFs does not affect your optimism for the eventual rise and rise of both gold and silver spot prices. I was uncertain about this and a little concerned but, thanks, you’ve put my mind at rest. I shall, indeed, buy more bullion in these dips as and when I can, safely ignoring JPM, HSBC, the US Fed, the buyers of silver coins and Mr Kaiser.

Your point about the US government bailing out JPM again if their shorting of silver and gold bankrupts them does seem to invalidate Kaiser’s enthusiasm for everyone to buy silver to bankrupt, perhaps, the banking system, as I heard him say. No doubt he would have an answer and probably a good one since he is no fool.

I suppose the disgrace for the US government bailing out JPM again might have very severe repercussions in the US and particularly its social life. More shootings of politicians, perhaps!

Anyhow, thank you again for working so hard at such a long and useful post.

@ John Mark:
You are most welcome; I’m always motivated to inform the general public about what is really going on, as it relates to the public markets. It’s sad that most investors in the world are totally unaware of how much they are being manipulated.

RE: Max Kaiser
He is no fool, and his “plan” actually has some merits to it, even if it only increases the general public’s “awareness” that silver is a currency, just as gold is.

RE: Possible JPM Bailout
I agree that if/ when this crisis results in financial problems for JPM, the public will be enraged (again) if the FED bails out JPM (or other banks). But once again, the sad truth is that the public will never find out about the FED’s bailouts, just as the American public has no idea of how many hundreds of billions of USD have been sent (albeit, digitally!) to foreign banks back in 2008-2009.

RE: Buying Gold on the Dips
This is almost always good advice, especially during this continuing global financial crisis. But be cautious over the next 3 weeks; if you buy, you may want to stagger your purchases over several days/ weeks. I say this for several reasons.
First, JPM hasn’t finished with their suppression games for this month; over the past 9 months or so, they’ve generally suppressed the spot gold & silver prices during the latter half of each month. The reason here is simple; they drive the price down as the “options expiry” date approaches. That way, the overwhelming majority of options for that month expire “out-of-the-money”, thereby netting JPM millions in fees they’ve collected for the price of the option.
Second, the Chinese New Year falls on 3 February; the Chinese probably will not be active buyers until after that time.

Naturally, if there is a major new financial crisis somewhere in the world (e.g. Ireland may leave the Euro, or Italian bonds/ credit default swaps may jump significantly), then all bets are off, since these events will influence the precious metals prices.

Thank you guys for your insight.
I thought I read that in the CFTC ruling it allows for these guys to cover their short positions with dollars instead of silver/gold. Is that true?

Ed Note: yes, the dollar equivalent

The really scary part of the precious metals “shorting game” is that the JPM and HSBC shorts on the COMEX are only a very small portion of the total accumulated short positions in precious metals worldwide.

The bullion banks have larger short positions in their unallocated accounts (admittedly, a large portion of these are gold shorts) and central banks around the world have secret uncovered accounts. For a very interesting read on this topic, go here:
http://www.financeandeconomics.org/Articles%20archive/2011.01.18%20Comex.htm

Think of the global implications over the next few years, as this “casino game” continues to unwind.

Hey Obewon, in the Congressional Record of June 25, 2002, Rep. Oxley says the Strategic Silver Reserve was depleted (see http://tinyurl.com/62joy9j). That’s 9 years ago, so the
current surge of silver coin orders has noting to do with the depleting of the silver reserve.

@Erik:
Yes, the US strategic reserve was completely depleted many years ago (in the 1960s, that reserve stood at approx. 3 billion oz.

My comments about “the need” for a strategic silver reserve were not related to the surge in the silver spot prices. In essence, my point was this: silver is an industrial metal, a monetary metal, AND a strategic metal . . . and as a strategic metal, countries that want a very strong military (e.g. the USA, China, etc.), whether justifiable or not, have to have a large silver reserve.