Silver Doctors

We have pointed out numerous times that April’s run higher in silver was not a mania (as Bob Moriarty would have you believe- we set him straight here), but was rather in fact a short squeeze.
BIG DIFFERENCE between the 2.

Ben Davies today stated that he is looking for another short squeeze in silver in the coming months.
We couldn’t agree more.  April’s short squeeze in silver will look like nothing compared to the final short squeeze the day the physical market brings the paper manipulation to a sudden end.
Clearly silver had such a phenomenal rise, we made the analogy that it was like the releasing of a cork being held under water and you release that cork and whoosh up it rushed!  Certainly along with many others in the market we understood the perhaps vile manipulation that was going on by some of the larger houses who, as we know, occupy that space.  Clearly their positioning has been reduced substantially.  I think that after you’ve had such a large move, the market has to acquiesce for a period of time, which is what we’ve been seeing.
There is probably a misinterpretation that the industrial usage for silver will fall.  The reality is that the industrial usage is very much alive and that physical demand will definitely remain strong.  There have been a lot of houses recommending short silver, long gold positions and I wonder if gold continues its move here, as I suspect it will over the coming months, that at some point there will be another short squeeze in silver.
Read more from KWN:

We still don’t know if a financial collapse can be averted in Europe because investors and depositors are not all naïve to reality. The financial malfunction is ongoing and will not be prevented through these continual perverse financial machinations. If Eurozone depositors move their capital – more bailouts will be required, thereby increasing the sovereign debt levels and exacerbating the seemingly hopeless situation that much more.
We believe a growing number of European depositors are transferring their money out of EU banks, and many of them are reinvesting their capital into gold and silver for safety. It does not surprise us to see gold hitting all-time highs in euros and dollars. It’s worthwhile to acknowledge that those investors in Iceland and Ireland who had the foresight to convert their cash to gold before their countries’ respective bank runs have all fared extremely well in both nominal and real terms. We believe that gold and silver are the ultimate alternative for a checking account in a vulnerable banking jurisdiction, and whether the ECB prints more euros or eventually defaults, both outcomes will continue to support a robust demand for precious metals as an alternative currency.

By Eric Sprott & David Baker
The Real Banking Crisis

Although the adjacent questionnaire is facetious, it does ask the right questions. If you’re a wealthy European depositor today, what do you do with your money? Do you really continue to keep cash in a Greek or Italian bank account?

European bank depositors all face a tough decision today – to withdraw their deposits, or not withdraw and take their chances. Their response to that decision may determine the financial future of the Eurozone. Since 2008, EU Government bailouts have transformed a traditional banking crisis into a full-blown sovereign crisis. The European Central Bank (ECB) has managed to keep the Eurozone banking system going for now, but the constant threat of depositor bank runs makes its future extremely uncertain. A bank run on deposits forces banks to liquidate assets to raise cash. Governments and central banks will go to extreme lengths to avert such a scenario, because a liquidation reveals what an asset is really worth – and they are likely worth far less than what the banks are claiming they’re worth on their balance sheets today.

Bank runs have wreaked havoc in Europe over the past three years. In Iceland, it was a UK-led bank run on its second largest bank, Landsbanki, in early October 2008 that led Landsbanki to block over 300,000 UK depositors from accessing their accounts in its online bank called Icesave. Fear of widespread deposit losses compelled the British government to promptly freeze the assets of Landsbanki in retaliation, inciting an effective lock-down of foreign capital in and out of the country.¹ You certainly didn’t want to have an Icelandic checking account when that happened – especially considering that the Icelandic Krona proceeded to lose 58% of its value by the end of November 2008.²

In Ireland, it was the withdrawal of almost €4 billion in deposits in less than three weeks that compelled the Irish government to nationalize Anglo Irish Bank in January 2009.³ Large depositors lost faith in the Irish government’s bank account guarantee and began to pull their cash out of Irish banks in droves. As a Trinity College Dublin professor was quoted at the time, “This is a nightmare scenario for the [Irish] government… they can’t stop further withdrawals from the bank unless we close the borders and turn into Cuba.”⁴

Ireland experienced a second bank run in late 2010, when more than €67 billion was withdrawn from Ireland-based institutions in October alone.⁵ Ireland’s top six domestic banks, two of which are currently in the process of being shut down, have now lost more than €90 billion in corporate deposits since the crisis began in 2008.⁶ And the withdrawals continue – in May 2011 it was reported that Irish resident private-sector deposits had declined by 8.7% over the past 12 months.⁷ Private sector deposits from non-Irish Eurozone residents declined by 9.7% over the same period, while deposits from non-Eurozone residents were reportedly down 28.2%.8 Ireland’s experience makes it fairly clear: when depositors sense danger, and they are free to move their money elsewhere – they typically do.

The Irish deposit withdrawals have left Ireland’s banks in the hands of the ECB, which graciously bailed the country out back in November 2010, and has now lent Irish banks more than €103 billion as of the end of June 2011.⁹ This, in addition to the €55.7 billion the Irish banks have received from their own central bank, is amazingly still not enough to recapitalize the Irish banking system, which at the time of writing still requires an additional €24 billion of capital to remain solvent.¹⁰

In Greece, bank withdrawals have proven equally as damaging. Greek banks have seen deposit outflows of around 8% thus far in 2011, with an acceleration of outflows in May and June. Moody’s recently warned that such flows could cause a “severe cash shortage if they rapidly increased beyond 35% of deposits”.¹¹ Last week’s €109 billion bail-out suggests that may have already happened.

Just as with Ireland, the ECB has kept the Greek banks afloat, funding them almost €100 billion in 2010 and an additional €103 billion thus far in 2011.^12,13 The recent bail-out will buy Greece time, but deposit outflows could still derail the ECB’s efforts to save the Greek banking system if they continue unchecked.

Although we don’t have the data for Spain or Italy, it does not escape us that those countries’ governments are likely highly aware of the effect a bank run could potentially have on their fiscal stability. Italy is a much bigger fish than Ireland or Greece. Its €1.8 trillion of borrowing in nominal terms is more than the debt of Greece, Spain, Portugal and Ireland, combined.¹⁴ Italy and Spain are too big to fail and too big to bail-out, so the future of the Eurozone will be seriously compromised if Italian and Spanish depositors take flight with their euros. To that effect, we found it very instructive to read about new provisions that the Eurozone’s rescue fund, the EFSF, recently incorporated into the latest Greek bail-out. Included among them is the ability for the EFSF to buy sovereign bonds in the secondary market, give EU states “precautionary credit lines” before they are shut out of credit market, and “lend governments money to recapitalize their banks”.¹⁵ The sovereign crisis, at its root, is still a banking crisis. The banks hold loads of Eurozone sovereign debt. If depositors withdraw capital, those banks must sell some of those sovereign bonds to stay solvent. The EFSF provisions are there to provide the banks with the liquidity they need to survive deposit withdrawals. The question now is what will happen if the EFSF runs out of the funds to do so.

In our view, the depositors that chose to transfer their money out of their local Eurozone banks deserve some recognition, because they ‘get it’. The EU banks are still the root of this problem, and depositors are right to question the security of their deposits held with them. We have always postulated that the real problem in our financial system is too much leverage in the banking system. We are continually reminded of this fact every Friday when US bank failures are released. When you compare the failed banks’ assets to the cost the FDIC pays to make their depositors whole, it reveals how many times the banks have lost their equity capital. The key to remember here is that banks lend out our money and keep very little in reserve. If we assume they keep 5 cents of capital for every 95 cents they loan out – a 25% ‘implied write-down’ in Chart A would mean that the bank has effectively lost its capital six times over.

The banking situation in Europe is no different from that above – EU banks are also highly levered, but their situation is further complicated by the fact that what was once the most liquid and secure loan on European banks’ balance sheets – sovereign debt – is no longer liquid and secure. This makes EU banks extremely vulnerable to deposit withdrawals as it forces them to approach the ECB for help to maintain liquidity. There is only so much the ECB can do – if a true ‘liquidity event’ takes place, we can all rest assured that there will be no buyers of distressed assets in the sizes that European banks hold today, sovereign bonds, or not.

We discuss the EU banking crisis this month to remind everyone that we have very recently lived through two instances where the entire financial system almost collapsed. The first took place during the height of the 2008 crash. The second transpired in May 2010 when the ECB stepped in with its $1 trillion bailout package to avert disaster. All financial bailouts up to this point have been instigated with a desire to avert the first domino from falling. They have been instituted to avert contagion – a total financial meltdown that would effectively turn the global banking system into an Icelandic money trap – where no money can get in, or out.

We still don’t know if a financial collapse can be averted in Europe because investors and depositors are not all naïve to reality. The financial malfunction is ongoing and will not be prevented through these continual perverse financial machinations. If Eurozone depositors move their capital – more bailouts will be required, thereby increasing the sovereign debt levels and exacerbating the seemingly hopeless situation that much more.

As the questionnaire above suggests, we believe a growing number of European depositors are transferring their money out of EU banks, and many of them are reinvesting their capital into gold and silver for safety. It does not surprise us to see gold hitting all-time highs in euros and dollars. It’s worthwhile to acknowledge that those investors in Iceland and Ireland who had the foresight to convert their cash to gold before their countries’ respective bank runs have all fared extremely well in both nominal and real terms. We believe that gold and silver are the ultimate alternative for a checkining account in a vulnerable banking jurisdiction, and whether the ECB prints more euros or eventually defaults, both outcomes will continue to support a robust demand for precious metals as an alternative currency.

Somewhat of a quiet day yesterday volatility wise according to today’s CME warehouse report.
No changes whatsoever to registered (deliverable) silver, with inventory remaining at 27,336,846 ounces.

COMEX SILVER WAREHOUSE INVENTORY REPORT 8/2/2011

*Brink’s received a deposit of 600,316 ounces into eligible vaults
*HSBS had a single bar (1,000 oz) withdrawn from eligible vaults
*Scotia Mocotta had a withdrawal of 92,616 ounces from eligible vaults

Total Registered COMEX silver remain unchanged at 27,336,846 ounces
Total Eligible COMEX silver increased by a net 506,700 ounces to 77,667,597
Total COMEX silver inventories increased to 105,004,443 ounces.

This is Jamie.
Get Blythe on the phone!
WTF is going on right now?
What do you mean she went golfing this afternoon!?!?!

Gold has vaulted nearly $20 today, and has just placed a brand new all-time nominal high at $1645.30, less than $5 from Jim Sinclair’s famous $1650 call!
So much for the debt ceiling hike agreement putting a damper on the gold and silver market….are traders starting to think rationally?
We think more likely its a response to the weak economic data reported in the past week, which has traders realizing QE3 is inevitable, and right around the corner.

MARKET IS OPEN (Will close in 4 hrs. 5 mins.)
		Metals	Date	Time (EST)	Bid	Ask				High
		GOLD	08/02/2011	13:11	1642.40	1643.40				1645.30

Stewart Thomson gives his thoughts on silver in his latest piece.
While Thomson believes silver is headed MUCH higher from here, he believes that when the OTC derivative complex finally completely detonates, silver will crash while gold holds onto its gains.
An interesting perspective, especially as it seems to be shared by Jim Sinclair. (He has never quite come out and said that to our knowledge, yet he emphasizes that gold will not crash like in the early 1980′s at the end of the current bull run, but remains strangely silent about silver’s fate at the end of the current bull).

The public is already nervous right now. What happens if the market drops thousands of Dow points from here? The answer is that the public would move into cash and perhaps bonds, and they would do it in size. Their stock market “marked to 15-20% gains a year forever model” pipedream would finally be buried in a marked to market coffin, in the Dow 9,500–11,500 zone. Since their own stocks have generally performed much worse than the Dow, that final exit would likely be one of substantial loss booking.


The US dollar has to be substantially devalued to make even a portion of the OTC derivatives and unfunded liabilities debt manageable. It makes sense that the public would abandon the stock market and go “all-in” on the dollar just in time for a dollar crisis to explode on the world financial stage.


At the beginning of the year in 1979, gold was trading around $200. About a year later price had quadrupled to about $800. I expect the price of gold to repeat that type of parabolic action, as unprecedented institutional liquidity flows out of the US dollar begin to occur. My ultimate gold price target of $6000 is about 4 times the current gold price, something to keep in mind.


A new bull market was since reborn for both silver and gold stocks, but don’t think you can outperform gold with silver or gold stocks in this OTC derivatives-based crisis….without taking some serious kicks in the financial head on the downside. Focus on enduring those kicks in the head, because you are not going to avoid them, despite what the timers are telling you. At some point, I think silver disconnects from gold and implodes, while gold sits there watching the action with a smile. I think it happens at prices far above $50 an ounce, but I think it happens.
Read more:

Mike Maloney of Rich Dad Poor Dad on $1500 silver.

 Further confirmation in the continuing stealth accumulation of bullion by central banks came overnight with confirmation that South Korea’s central bank bought 25 tonnes of gold  over the past two months. The gold is worth $1.24 billion and resulted in a 17-fold increase in their gold reserves.
Thailand’s gold reserves rose by 15.5% in the two months and rose to about 4.07 million ounces in June, from about 3.523 million ounces in May, according to figures on the Bank of Thailand’s website accessed by Bloomberg this morning.
South Korea is the world’s seventh-biggest foreign-exchange reserve holder and 64% of its reserves are in U.S. dollars. The bank said that it also holds euros and other assets and the move was about achieving diversification.
From Goldcore:

Gold is higher in all currencies today except for the Swiss franc and is trading at USD 1,629.20 , EUR 1,147.30 , GBP 1,000.20 and CHF 1,270.10 per ounce. Gold’s London AM fix was USD 1624.00, EUR 1145.28, GBP 997.30 (10:41 GMT).
Gold reached new record nominal highs in euros and Canadian dollars yesterday at EUR 1,149.60/oz and CAD 1,566.48/oz yesterday and remains close to these record highs today, and close to record highs in most fiat currencies.

Cross Currency Rates
European indices are lower after Asian indices fell (Nikkei -1.2%, Sensex -1.1%, Shanghai -0.72%, Hang Seng -1.07, STI -1.25% and the South Korea’s Kospi was the worst performer falling 2.35%).
The Italian MIB is down another 0.9% and jitters abound about Italian banks and banking sector.

Gold in Euros – 30-Day (Tick)
Spanish and particularly Italian bonds are under pressure today with the Spanish 10-year rising to 6.37% and the Italian 10-year rising to 6.21%. Spain and Italy’s debt markets are beginning to look like Portugal and Ireland’s prior to their bond yields surged to over 10%.

Gold in GBP– 30-Day (Tick)
Further confirmation in the continuing stealth accumulation of bullion by central banks came overnight with confirmation that South Korea’s central bank bought 25 tonnes of gold  over the past two months. The gold is worth $1.24 billion and resulted in a 17-fold increase in their gold reserves.
Thailand’s gold reserves rose by 15.5% in the two months and rose to about 4.07 million ounces in June, from about 3.523 million ounces in May, according to figures on the Bank of Thailand’s website accessed by Bloomberg this morning.
South Korea is the world’s seventh-biggest foreign-exchange reserve holder and 64% of its reserves are in U.S. dollars. The bank said that it also holds euros and other assets and the move was about achieving diversification.
The BOK’s reserves, stored in London in the vaults of the Bank of England, increased 25 tonnes to 39.4 tonnes (from 14.4 tonnes) but remain meager when compared to the size of their foreign exchange reserves.
BOK’s gold holdings, at today’s market prices, account for 0.7% of its reserves, up from 0.2% prior to the purchase.
The BOK reserves were at a record high of $311.03 billion at the end of July which puts this $1.25 billion gold purchase in perspective.
Their gold reserves and those of other Asian central banks, particularly the People’s Bank of China, remain meager when compared to those of western central banks and the U.S.
Earlier this year, Thailand, whose gold holdings account for only 2.9 percent of reserves, bought 9.3 tonnes of gold. Russia purchased 41.8 tonnes and Mexico bought 99.2 tonnes.
China is the world’s sixth largest gold holder and the biggest among Asian banks with 1,054.1 tonnes, equivalent to just 1.6% of their massive currency reserves.
According to the World Gold Council, governments hold an average of 10 per cent of foreign exchange reserves in gold. Larger economies such as the US, France and Germany hold more than 50 per cent.
“As a real safe asset, gold helps us to cope effectively with changes in international financial market,” said Jaehyun Joo of the Bank of Korea.
“We expect that gold would serve as a safety net for official foreign reserve and enhance the stability of the Bank Of Korea’s foreign reserve management,” Mr Joo added.
Mr Joo’s comments reflect the mindset of people and central bankers in Asia who realize gold’s store of value importance and are increasingly concerned about the euro, the dollar and the global financial and monetary system.
The “Asian put” continues to place a very stable floor under the gold market and means that gold is not seeing any meaningful correction.
This is likely to continue for the foreseeable future and means that investors would be advised to allocate to gold sooner rather than later as a meaningful price correction is unlikely.
Some weakness in gold may be seen if we experience another bout of misplaced ‘market euphoria’ and risk appetite once the debt deal is fully completed. However, this will likely be more short term weakness as the medium and long term fundamentals remain sound.
Smart money and official demand for gold remains robust as a very fragile global economic recovery, stubbornly high inflation in many countries and sovereign debt and contagion risks lead to diversification into gold.
For the latest news, commentary, infographics and videos on gold and financial markets follow us on Twitter.
NEWS
Reuters
Gold nears record after US debt deal, Korean purchase
The Financial Times
South Korea lifts gold reserves 17-fold
Bloomberg
Gold May Advance to Near Record as Slower Factory Growth Increases Demand
Reuters
Gold edges up after South Korea buy
The Wall Street Journal
Korean Central Bank Moves Into Gold
BBC
S Korea buys gold as safe haven, first time since ’98
Bloomberg
Gold Coins Sell Out in Lisbon as Biggest Bet Sees 22% Gain
COMMENTARY
Zero Hedge
The Imminent $2.5 Trillion Debt Ceiling Hike Will Unleash A Gold Price Surge To $1,950 And Higher
King World News
‘By every metric’ gold is cheap, Rickards tells King World News
GoldSeek
Ron Paul: When a Cut is Not a Cut
MoneyWeek
It doesn’t matter who is in charge – buy gold

Ron Paul inks his second missive of the day regarding the debt ceiling hike agreement as well as the creation of the new Super Congress.

From Paul.House.Gov

According to the non-partisan CATO Institute, this bill merely commits Congress to spending less than it otherwise would.  Even if this Congress could bind a future congress, I doubt many Americans would define a cut as spending less on unconstitutional programs than Congress originally planned to spend.  The bill also assumes large tax increases in its revenue projections, with the expiration of the Bush tax cuts at the end of 2012 calculated into the “baseline” numbers.  This assumption will make it very difficult politically for Republicans to extend current tax rates beyond 2012.

He’s Ba-aaaaaack!

In April, we asked whether Bob Moriarty was now a Silver Troll, as he declared silver at a top at $31 (nice call Bob, considering silver topped at $49.73), and at $38, Moriarty declared silver the world’s most overvalued asset.
We warned readers in late April that silver was getting overextended and that a correction was due, but we believe that silver’s fundamentals have not changed, and we have yet to see the final parabolic blow-off phase where the general public goes all-in to the shiny metal.

Our call on Bob seems to have been much more accurate than his call on silver, as today Bob made these comments:
* “Gold and silver are not wealth”
*Compares gold and silver currently to housing bubble in 2007
*States that silver’s FINAL bull market top is in
*After bashing gold and silver Bob pumps pink sheet junior miner Northern Gold Mining, currently trading at $.34. 
*States that silver’s May action was a “MANIA“
*Bob culminates his argument with this doozy: “In 160 years of trading, there has never been a correction in silver as severe as the 34% decline we experienced in to the May 17 low. Declines of this magnitude have always been an indication a final bull market top in place.”

Um…….The Doc calls BULLSH**!!
That statement is 100% FALSE and is intended purely to provoke a panic/fear response by the reader.
Bob hopes readers have a short memory, or else are new to the silver market.
Just 3 years ago, in 2008, silver corrected from $21.31 to nearly $8, a 62.5% correction! 
And after the 62.5% correction, the silver bull ended there merely as a result of such a severe correction, right? 
Oh wait…silver gained 525% over the next 2.5 years.

10 Year Silver Chart Sure Looks Like Silver Has Irreversibly Broken Down, Right?

As to Moriarty’s ridiculous conclusion that silver’s FINAL bull market top is in solely because silver corrected 34% in May we make the following points
*When did the US federal government balance their budget?
*When did silver’s supply/demand fundamentals change from a massive deficit to a surplus?
*When did we miss the general public rushing into gold and silver? (We wrote about a month ago how an Average Jane who is a friend of The Doc had NO IDEA WHAT GOLD AND SILVER WERE when The Doc recommended them for her portfolio)
*When did the COMEX substantially increase their registered silver inventories which were at a NEW ALL-TIME RECORD LOW OF 26.7 MILLION OUNCES ON FRIDAY???
*When did The Bernank find buyers for the $3 Trillion in T-bonds that will be issued in the next year and a half so he will not need to perform QE3 to monetize the federal debt?
*When did less than 1% of the population owning a particular asset become to be known as a MANIA?
*When did….ok, you get the point.  Nothing’s changed.

Things are WORSE than in 2008, from which silver roared to a 525% gain in 2.5 years after its severe correction.

Ok, now that we’ve cleared up the fact that Moriarty’s statements today are largely incorrect, and in at least once case blatantly false, what is the purpose of such a piece by one who owns a gold/silver website?

Think back for a moment to the TIMING of Moriarty and 5 other analysts’ coordinated attack on silver back in May.  They were all PERFECTLY TIMED and released the exact day that silver was severely taken down as it threatened to cross $50 and take out all overhead resistance. 
The silver trolls’ work coincided with 5 successive margin hikes which succeeded at inducing a silver correction.

Fast forward to today, where we have repeatedly stated that the $40-$41 level for silver is a MAJOR battleground, and a clear break-out above $41 will have silver quickly shooting back into the mid 40′s, and back challenging $50 before Blythe knows what hit her.

Last week we saw 7-8 cartel raids thrown at silver.
Last night we saw Interactive Brokers raise silver margins above exchange requirements.
Today we see the re-emergence of the silver troll attacks. 

Think the cartel does not understand the importance of the $40-$41 level of silver?

Buy the FREAKING Dip (BTFD) and keep accumulating physical silver.
NOTHING HAS CHANGED!

P.S. Sorry if this appeared rant like, which I’m sure it did.
This appears however to be more than simply a bad call by an analyst that I disagree with, but rather a continuation of coordinated attacks on silver investors to prevent a break-out of silver.

Ted Butler shares the closest views on silver to The Doc as any other analyst.
Butler’s latest public piece: A Nervous New World examines why silver should outperform other hard assets during a crisis.
There’s really nothing to add as we agree with everything Butler states in this piece.

My sense is that the European debt crisis and the clash over the US debt ceiling and deficit have had the unintended consequence of instilling doubt in the minds of many where that doubt never existed. Confidence is a tricky thing; hard to earn, easy to lose. Perhaps people should have been more concerned about debt and financial matters earlier, but more are currently as a result of recent headlines. This undermines the confidence needed to continue to buy and hold paper debt obligations. Maybe this confidence is not lost overnight, but it does erode gradually and enhances the chance a panic will come at some point.
In a genuine financial panic, it is hard for me to conceive how people won’t flock to hard assets, particularly precious metals.
There is less silver bullion inventory in the world than there is gold bullion inventory; around one billion ounces of silver versus three billion ounces of gold. Common sense would suggest that an item more rare than another similar item would reflect that relative rarity in price. While silver has vastly outperformed gold over any reasonable time period over the past ten years, the rarity of silver is vastly underappreciated. I would guess that maybe one out of every million of the world’s inhabitants knows of this fact.  Even among those exposed to the rarity of silver compared to gold, few accept it. Inevitably, as more come to learn and appreciate this startling fact, more will choose to invest in silver.
After subtracting the industrial and other fabrication usage of silver and gold, the amount of each “left over” and available for investment the attraction of silver becomes clear. Who cares if more silver is produced if most of it is spoken for by industrial and other fabrication consumption.  Very few people consider silver in this perspective. As time progresses, more will.