The current silver short position is already at historic highs. With a big purchase, it used to be the bigger the order the deeper the volume discount. However, with silver in backwardation, suppliers want a higher premium because you are taking their inventory.
by John Rubino
February 19, 2013
Dollar Collapse
In this week’s talk with National Numismatics’ Tom Cloud, we cover the debt ceiling negotiations, futures contract expirations and the activities of his biggest customers (they’re buying silver).
DollarCollapse: Hi Tom. It’s been an intense couple of weeks…
Tom Cloud: Yes, and it could get more intense. Short futures positions in silver are expiring and we’re waiting to see what JPMorgan Chase and Goldman Sachs do. If they take more short positions, silver could pierce support at $29.50/oz and fall another 3%-4%.
DC: The current silver short position in already at historic highs, isn’t it?
TC: It is extremely short. We’ve always known there are far more futures contracts outstanding for silver than there is physical silver. The commitment of traders (COT) numbers are certainly important, but they’re harder to use as an indicator because there’s so much deception going on. In the physical market there’s a shortage for sure. It hasn’t been this out-of-balance since 2008.
Yesterday, for instance, I made my biggest-ever sale, 116,800 ounces in 100-ounce Comex silver bars. That’s 1,168 bars worth about $3.5 million. It took me 8 or 9 days going back and forth while the price was moving. For an order this size you first go to the big boys and see what they have and start down the supply chain.
DC: Really? For a $3.5 million dollar order you can’t just make a phone call? That’s a pretty small amount of money in today’s world.
TC: No, you can’t. They can find 5,000 or 10,000 ounces, but more than that is hard. And suppliers want a bigger premium because you’re taking their inventory. It used to be that the bigger the order the deeper the volume discount but with silver in backwardation [where the spot price is above the 1-month futures price] they want a higher premium for an order this size. So the more you want the more you have to pay.
Just to be clear, these are Comex bars from the five major refineries, not from secondary refineries. These bars can be used to settle futures contracts so in a Comex default their premiums will soar, and as a result people are very interested in them. Even the biggest refineries don’t have millions of dollars of inventory sitting around.
DC: Meanwhile, the little guy is quiet.
TC: Orders in the $600 to $10,000 range have been really slow. Small buyers don’t want to go in when the market’s down, they want to wait. But the big players are active. Besides the huge order, we’ve had other very nice-size orders in the past few days.
DC: The main macro news on the horizon seems to be the debt ceiling debate.
TC: Conservative republicans are demanding spending cuts and democrats want tax increases. It’ll be a war for a while, but there’s no doubt that they’ll raise the debt ceiling by another $2 trillion. A higher debt ceiling has historically been great for gold, so the question is whether the reaction will be like 2011 when gold went up by $150 in three days. We know they’ll raise the debt ceiling, and we know that will be good for gold and silver. We just have to be patient.
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