As I reported on Tuesday, I made my recent article, “The Perfect Crime” public,
in which I spelled out the reasons why I believed JPMorgan had, since May
2011, amassed upwards of 300 million oz of physical silver, including as many
as 70 million oz of Silver Eagles, or half the amount produced by the US Mint
since April 2011. I was careful to note that I had “yet” to notice any
response to the publication. As it turned out, a response was soon
forthcoming in which one of my contentions (the one about Silver Eagles) was
disputed. http://www.silverseek.com/commentary/market-d...jp-morgan-13951
First off, I appreciate the non-personal tone that the author (Steve St.
Angelo) took in the article, particularly his acknowledgement (as he has on
past occasions) that he got interested in silver years ago after reading my
articles. And I was gratified with him for writing his critique, as the worst
thing that could happen to any commentator is to have his analysis ignored.
Disagree if you must, just don’t ignore. And I can’t help but feel that the
disagreement was rooted mainly in the fact that what I speculated about was
so at odds with Steve’s preconceived notion of who was buying so many Silver
Eagles that it was a knee jerk rejection on his part, as opposed to a genuine
factual rebuttal. I say this because I saw no real proof provided that
JPMorgan wasn’t the big buyer, just a flashy headline announcing “proof.”
However, I was disappointed that he focused exclusively on the issue of
Silver Eagles (which comprised only about 20% of the physical silver I claim
JPMorgan has acquired) and ignored the other evidence I presented – the
counterintuitive SLV metal flows, the unprecedented COMEX silver warehouse
movements which began in April 2011, the opening of JPM’s COMEX warehouse in
May 2011 and now the largest COMEX silver warehouse, the movement of 100
million oz of silver from JPM’s warehouse to Brinks in London in 2012 in
order to make room for JPM to store their own silver, etc. Regular readers
know that I have solicited comments on these topics and others and I will
re-extend the invitation to Steve for further comment. I suppose I’ll have to
make this segment public in the near future, as Steve is not a subscriber
(although he probably should be). For now, I’ll just deal with his
contentions on the Silver Eagle issue.
Certainly there is no disagreement that just over 44 million oz of Silver
Eagles were sold in 2014 and 140 million since April 2011. The only
disagreement is in the composition of the buyers. I happen to agree with
Steve that it was broad public demand that drove sales of Silver Eagles (and
Maples and Philharmonics) up to and including early 2011 for the simple
reason that the public tends to buy investment assets on rising prices, be
those assets stocks, bonds, real estate or precious metals. Collectively, the
public gains confidence and reinforcement as asset prices rise, even as those
assets may get overpriced.
However, the converse of that is also true in that the public doesn’t
normally buy investment assets on falling prices. As it turned out, silver
prices have been falling since May 2011, so the conventional wisdom would
hold that as collective confidence erodes and negative reinforcement takes
hold, broad retail buying dissipates. Steve does agree with me that there has
been a marked disparity between very strong Silver Eagle sales vs weak Gold
Eagle sales and goes one step further in stating that the same disparity
exists between Silver and Gold Maple Leafs, yet he offers no explanation for
why this is so. To me, the most plausible reason is the presence of a big
buyer in silver coins, whether those coins are Silver Eagles, Maple Leafs or
Philharmonics.
The main “proof” that Steve advances for there being strong public demand
for Silver Eagles is feedback from three retail coin dealers, consisting
mostly of contact these dealers have with the authorized distributors for the
US Mint which serve as suppliers and not hard sales data. I’ve done this as
well with very different results. I don’t want to get into a dealer versus
dealer debate because I’ve long disclosed I consult for Investment Rarities,
Inc., and avoid like the plague badmouthing any dealer. I would point out
that only two of the dealers Steve mentions are included in this fairly
objective list of dealers and those two have not been in business as long as
most dealers on the list. target="_blank" http://www.bulliondealerdata.com/
Based upon Steve’s own words, he seems upset with the idea that there
might be a big buyer of Silver Eagles because it doesn’t give “credit” to the
public buying the coins. I understand that sentiment, but not to the extent
it distorts analysis. Let me give you some additional facts that support my
big buyer premise.
As I’ve written previously, on the three dollar silver rally that started
in early June, sales of Silver Eagles fell off dramatically to a rate of only
2 million oz a month, the lowest rate of the year. Yet this is precisely when
retail sales should have been expanding and always had expanded in the past.
I do believe the public was buying at that time but that what accounted for
the sharp falloff in overall demand was the big buyer stepping aside. I
further concluded that because JPMorgan had greatly expanded its concentrated
COMEX silver short position it was highly likely that it stepped away from
buying Silver Eagles until silver prices fell; which is exactly what
occurred. I even put a price tag on it, claiming that JPMorgan saved about
$15 million by stepping aside from buying Eagles until it had succeeded in
manipulating silver prices lower on the COMEX, in turn cheating not just the US
Mint, but US taxpayers.
My point is that because of JPMorgan’s price manipulation in the summer,
we got to witness something else entirely - the true level of demand for
Silver Eagles by the retail public emerged only after JPMorgan stepped away
from buying. As it turns out, the base level of retail demand, 2 million oz
per month or 24 million coins annually, leaves JPMorgan (or whoever the big
buyer is) at buying 20 million Silver Eagles this year, the amount I’ve
estimated. And if I’m correct that retail buying accounted for 24 million of
the 44 million coins sold this year that is still a very healthy amount,
particularly when compared to sales of Gold Eagles. In fact, with a little
over 524,000 Gold Eagles sold in 2014, 24 million Silver Eagles would still
be way above historical relative levels of Silver vs. Gold Eagle sales. The
most plausible explanation for why such an extraordinary number of Silver
Eagles were sold this year relative to Gold Eagles is the presence of a big
silver buyer. target="_blank" http://www.usmint.gov/about_the_mint/index...mp;type=bullion
The year 2014 also saw the demise of two large retail coin dealers,
Tulving and Merit Gold and Silver. Tulving was perhaps the largest Internet
retail coin dealer (because it offered prices that turned out to be too low)
and it is thought that $20 million or more may have been lost by customers
left hanging by its sudden bankruptcy. Generally, even unscrupulous coin
dealers can stay afloat in a strong retail buying environment and most often
meet their demise when retail demand is soft. The fact that at least two
“name” dealers bit the dust in 2014 would seem to confirm an overall weak
retail demand environment, not at all supporting the contention that broad
retail demand explains completely the record amount of Silver Eagles sold.
Finally, I have a fairly decent subscriber base and while I haven’t
formally canvassed that base, I do get feedback. My take is that a few are
buying silver and Silver Eagles, with fewer still selling and the vast
majority sitting pat. I don’t get the sense at all that subscribers are
plowing into Silver Eagles with the reckless abandon suggested if the record
sales reported by the Mint were exclusively retail demand. In fact, I
remember a recent article by a coin dealer saying that one shouldn’t purchase
Silver Eagles. I don’t agree with that but that also points to someone other
than the public behind the record sales.
I think it’s constructive that this critique/debate has occurred, but
Silver Eagles only account for a small slice of what I allege JPMorgan has
acquired in terms of physical silver. I am not convinced in the least by the
above disagreement and I am still disappointed that no one has stepped
forward to rebut my more important evidence. Certainly, if JPMorgan has
acquired the amount of physical silver I’ve claimed, it’s no small matter.
This was an excerpt from a recent weekly review for subscribers. Please go
target="_blank" to www.butlerresearch.com for
more info
Ted Butler
January 6, 2015
