Chapter 108 The silver market on the brink of a massive run

Although people have no illusions about whether the U.S. courts can sanction financial giants such as JP Morgan Chase and HSBC, this incident has made investors around the world re-understand the value of silver.The price of silver is so low, not because it is the same thing as cabbage, but because it is desperately hunted down by super heavyweight financial predators such as AIG, Bear Stearns, JPMorgan Chase and HSBC.Silver is the "dollar's trump card" that the Federal Reserve wants to get rid of at all costs. At the same time, silver is the "Cinderella" that will shine in the investment market in the near future.When investors all over the world understand this truth, Baiyin, the "hero of the generation", will immediately attract "countless heroes" in the market.

After entering 2009, silver and gold teamed up, just like the Soviet Red Army. After tenaciously defending Stalingrad, it finally ushered in the moment of a big counterattack against the US dollar.From around $9 per ounce at the end of 2008, it went all the way to around $18 per ounce in August 2010.From the end of August 2010, the price of silver began to surge from US$18 per ounce, all the way to the city of US$30 per ounce.In less than 3 months, the increase was as high as 61%, hitting a new high in 30 years and attracting worldwide attention. When more and more investors discovered the huge investment value of silver, people began to compete for very limited physical silver resources.According to the report of the World Silver Association, the total output of silver in the world in 2009 was about 889 million ounces, and the manufacturing industry used about 730 million ounces, and after deducting the amount required by mining companies to reduce hedging, the remaining 137 million ounces were invested Those who eat them all. Investment demand in 2009 soared 184% from 48 million ounces in 2008!Judging from the current trend, the investment demand for silver in 2010 will increase more than that in 2009.

At present, there are about 700 million ounces of silver stock that can be bought in the world market, and the total value is about 17.5 billion U.S. dollars based on the current price of 25 U.S. dollars per ounce.Such a very attractive and very small market, once locked by the market's radar, under the fierce attack of global funds, a sharp rise in prices will be inevitable. In terms of the appreciation potential of silver, Butler is far more discerning and patient than Buffett.Butler believes that it is precisely because several major banks have artificially lowered the price of silver that ordinary investors have encountered a once-in-a-lifetime investment opportunity, and the supply and demand relationship in the market will ensure that silver buyers will eventually defeat the big short-selling banks.The developments seem to be confirming several scenarios that Butler once envisioned for the eventual explosive growth of silver prices.

The first scenario is the impact on the silver market of the forced liquidation of short contracts by large banks.When the market discovers the value-added potential of silver and a large number of buying orders pour in, continuously pushing up the price of physical silver, the short-selling contracts of big banks will be under huge delivery pressure.Forcing it to either pay physical silver when it expires, or buy a contract equal to the number of short-selling contracts, that is, forced to close the position.Currently, the total amount of short silver contracts on the New York Board of Trade alone is equivalent to 550 million ounces.Equivalent to selling 79% of all silver spot on the world market.If the short side does not spend money, where can they find so much silver spot to sell?

The second case is the impact of the forced return of leased silver on the price of silver.Since more than 20 years ago, the central banks of many countries have thrown a large amount of silver into the market by leasing silver to suppress the price of silver.Why is there a move to lease silver?Because some silver mines cannot deliver on time due to various reasons, they temporarily rent silver from the gold and silver spot trading bank to ensure on-time delivery.After the silver is mined, it will be returned at the original amount, plus an interest of 1% or less.In the same way, gold and silver spot trading banks can also lease silver from the central bank.The central bank is happy to lease out a large amount of silver reserves on the pretext that the silver is piled up in the warehouse and cannot earn interest, and at least it can charge 1% interest.After the gold and silver spot trading banks leased these silver spots, they threw most of them to the market to cash out.Then use the resulting cash to buy government bonds with a yield of 5%.After returning 1% interest to the central bank, you can earn 4% steadily.In this way, central banks and bullion banks suppress the price of the silver market without a trace.

Butler estimates that in the past 20 years, hundreds of millions or even billions of ounces of silver may have flowed into the market through leasing.Theoretically speaking, the silver rented out will eventually have to be returned to the central bank.However, most of the silver has been used as industrial raw materials, and it is impossible to return the original amount.Once the price of silver was finally unstoppable and soared, the central bank began to ask the lessor to return it, and the lessor must buy back an equivalent amount of physical silver from the market.These physical silver is another large amount of silver spot on the New York Mercantile Exchange besides the silver that has been shorted.Buying back this batch of silver spot will have a huge impact on silver prices.If that happens, silver prices could hit $500 an ounce on that alone.This is also an important reason why those bullion spot trading banks that lease silver are desperately trying to suppress silver prices.

The third scenario is the impact of panic reserves by industrial users on silver prices.Silver is a raw material with thousands of uses.It is a key material in many products, but its usage is not large. This feature prevents the demand for silver from falling due to the rise in price, which is the so-called rigid demand.With the surge in investment demand, the inventory of more than 30,000 tons will be exhausted soon, and the production cycle of new silver mines will last for several years, and most of them are associated mines, which cannot quench the thirst of near water.As a result, there will be out-of-stocks of silver, and the out-of-stocks will be longer and longer, from days to weeks, and later may be as long as months.The production line of the factory cannot be stopped because of the out-of-stock of silver, so the company must take precautions and reserve first, which will inevitably lead to a soaring price of silver.

Judging from the actual situation in the past few years after the outbreak of the financial crisis in 2008, whether it is the deflation in the United States and Europe, or the inflation in Asian countries, it is generally good for gold and silver.Because gold and silver are priced in U.S. dollars, the deflation in the United States and Europe might as well. Asian people who are threatened by inflation buy gold and silver with a lot of banknotes in their hands, and the price of gold and silver soars at this time.On the other hand, in order to resist deflation, the United States and Europe will prompt the Federal Reserve to carry out further quantitative easing and print more money. Affected by the depreciation of the US dollar, the price of gold and silver will inevitably continue to rise.

Silver is a very wonderful investment variety. During the financial crisis period of inflation or deflation, it, like gold, increases in value as the dollar depreciates.After the economic recovery, due to a large amount of industrial demand, silver will show its characteristics of industrial raw materials and appreciate in accordance with the relationship between supply and demand.This is a unique double advantage that is not available in any other investment varieties. The scale of the silver market in the world today is astonishingly small. The above-ground silver stocks in the world are only 30,000 tons, worth only 120 billion yuan, which is much smaller than the financing scale of the Agricultural Bank of China's listing.At present, the ratio of physical objects to "paper silver" in the world silver market is extremely different at 1:100. Behind the transaction of 100 ounces of "paper silver", there is only 1 ounce of physical material as support. If the high leverage of 1:50 in the financial market eventually leads to The financial tsunami has swept the world, so the silver market, which is twice as high as this ratio, is on the verge of a run at any time.

An extremely distorted, highly leveraged, and extremely small silver market contains powerful energy that can seriously impact the world's financial system! When Greenspan and others discussed in 1995 that soaring gold prices could effectively reduce US debt, they were sure to win.Since the United States and Europe control the central bank’s gold reserves as high as more than 20,000 tons, they have unquestionable pricing power over the physical gold market, plus the Wall Street-London axis has over the gold futures and other gold derivatives markets. With absolute control, they can achieve a controlled rise in the price of gold and cover the "established" retreat of the US dollar. While significantly reducing government debt, they can continue to maintain the US dollar as the world currency hegemony and achieve a soft landing of the US dollar crisis.

However, they ignore an important variable, which is silver. Due to the historical inertia of the gold-silver price ratio and the huge psychological interaction energy of gold and silver in the market, if the world silver price rises suddenly and violently, it will disrupt the rhythm of the gold price rise. The risk sentiment will be like an overwhelming fire bull formation, directly impacting the position of the gold market.The physical silver is running out, and the silver futures market in New York will experience large-scale defaults and severe delays in delivery. Silver industrial users have begun to hoard silver raw materials urgently, and silver investment customers have asked to withdraw spot goods for their own storage. demand delivery of spot silver. Investors who are extremely hungry for physical silver will instantly run out of the 50 million ounces of deliverable silver in the New York futures trading market.When everyone was completely disappointed in the "paper silver" market in New York, they immediately flocked to the "physical silver" market in London in droves.However, they immediately discovered that the largest market for so-called "physical silver" with only 75 million ounces in stock turned out to be "no physical accounts", and most silver owners were "(gold and silver) owners without physical confirmation" . At the same time, the terrible news in the silver market will induce a run on the gold market. Don't forget, this is also a 1:100 super bottle cap game. The silver and gold markets in New York and London were paralyzed one after another, and the world financial market will immediately fall into a real panic.This heartfelt panic will be unprecedented.At this time, the whole world suddenly discovered that gold and silver are the cornerstones of the world's credit currency skyscrapers buried deep in the ground. , the foreign exchange market, and the $500 trillion financial derivatives market built on top of all of this will shake even more violently! At this time, financial markets around the world began to call for government rescue. At this time, the governments of Europe and the United States are helpless. After all, silver cannot be changed through a "quantitative easing" document.The huge silver stocks of the European and American governments have already been sold out, thus losing the most important bargaining chip that directly affects market prices.Even if European and American governments ordered the compulsory confiscation of private silver, just like President Roosevelt ordered American citizens to hand over all gold in 1934, it would not help, because the total silver inventory above ground level is only 30,000 tons, which is still far from being able to cope with the scale of the run. In desperation, there is another trick, which is to mine silver mines urgently to calm the world's silver run.However, when the government ordered urgent mining of silver mines, it would take at least 5 years from resource exploration, new equipment, expansion of production scale, to a significant increase in total supply, and the cucumber dishes were cold. At this point, the eyes of the world will be on China.Because the world's largest producer and exporter of silver is China!What a huge international political and financial leverage this will be!What a strategic opportunity this will be!