10 October 2011

Fekete on Sprott and Silver

I missed this piece dated 6 September 140 Year of Silver Volatility where Fekete picks up on Bob Moriarty's Facts on Silver from 25 April with this cutting comment: "Beware of the fund manager, crying from his rooftop that the paper silver market is a joke, while down there under the roof he is selling paper silver at a 25% mark-up."

Also worth reading Bob's article with these five facts on silver:

1. When charts go parabolic, it ends badly.
2. The actual ratio of silver to gold in the earth's crust is not 16 to 1.
3. There is no shortage of silver. There never has been a shortage of silver. Until the laws of supply and demand are repealed, there never will be a shortage of silver.
4. The most illogical thinking and worst use of "facts" is common among the silver uberbulls and the parrots that follow them.
5. There cannot be a run on Comex. The rules do not allow the chance for a run.

By the way, Bob is certainly in the "Repeat of 1980" category with comments like "You can't profit if you don't sell and all the permabulls are screaming "Buy, buy, buy." As they will at every top."

PS I missed the Schoon and Morairty posts because those sites don't run RSS feeds, which I think are essential. I've got around 100 feeds giving approx 250 posts a day to get through, just not possible to include manual site visits in that.


  1. Hey Bron,

    Thanks, nice article. You need to post this on Silver Stackers. There are a lot of folk on there that don't understand the supply/demand issue. They are playing a dangerous game and need to be as informed as possible. I've tried with limited success but someone like yourself is more respected.

  2. Sorry just wanted to emphasise, we really need to kill this shortage idea.

  3. It was posted on silver stackers in september

  4. The concept that there can never be a shortage of supply is incorrect, or at least needs to be qualified.

    Yes, price will fluctuate until supply meets demand, either from demand dropping off or supply being bid in.

    Assuming price is not otherwise fixed. Assuming you are looking at the market as a whole. Assuming prices are still able to be made.

    It is quite simple to either construct, and common to come across, a case where a supplier runs out of stock. Is that the sole supplier? Probably not. Is it the sole supplier with the capacity to easily and quickly buy and sell? More possible.

    Remember that price is not the only factor; time also plays a role.

    Am I suggesting that Comex can be 'broken'? No. I have no idea as to the truth of that. Generally though, any conduit has a limit above which it either shuts or blows.

  5. IMO, there is one sense in which paper trading on the Comex can be likened to a "joke". Its illustrated by this example:- the number of actual Martian meteorites that have been found on Earth is less than 100. They are small, rare and valuable. Now imagine if the Comex opened up a market for trading them, and soon they started in volumes of many tonnes. Far far more than could ever be delivered. And a punter asks, "what happens if someone says, 'give me physical delivery of x tonnes'". The Comex guy will reply, "If for some reason we could not deliver x tonnes, then we just settle the balance in cash."

    Easter Island used to be covered in trees, but is now 100% treeless. As people say, "What the hell were they thinking when they cut down the last tree?" Its too bad they did not have a futures market, because then they could have still continued to trade trees by the tonne, even though there were none left.

  6. The other daft thing about the 'Break the Comex' meme is that nobody stops to realise that they are comparing two dissimilar things.

    The amount of stock and the amount of flow are not directly comparable.

    If someone is trading back and forward even in since contract terms over a day - buying in and out on the short term scale, it would be quite reasonable for them to rack up a flow volume 100 times larger than the amount of stock they were trading each time.

    We aren't dealing with a supermarket here.

  7. Bron - any thoughts on getting rid of the 2oz gold coins (which don't seem to do a lot of trade) and replacing them with 100g versions?

  8. They are pretty traditional about the coin program, I doubt they would drop the 2oz and do another weight. Grams sizes are usually done by us as minted bars.

    When/if we get mass market interest we will stop making other sizes and just make 1oz to maximise our output.

    Good point about the supermarket comparison, huge turnover doesn't tell us anything, just that a lot of desk traders traded a bit of gold between themselves.

  9. Slightly off topic, but maybe of interest. Following the advice from Alan Koeler's recent piece viz: if you are a buyer of gold/silver be careful at present, if you have a profit take some money off the table - I chose to take the latter.

    When it came to payment the local coin dealer asked to pay me with 2 cheques. One now, and one upon payment from the Perth Mint. One cheque was from his personal self-managed Super. And, from that, he chose to buy all of the silver that I was selling (quite a lot). Don't know what it means but I thought it might be interesting to record the confidence of professional dealers that silver will surge again. He reckoned steady for about 6 months, then another surge.