Hi, this is Jennifer from the Discount Silver Club. I hope you're enjoying your summer! I want to thank our newest member, K.J. from Massachusetts.
The silver price has been very volatile in the past couple of weeks. It was up to $6.70 and now it's back to $6.24. This isn't too surprising, as August silver options expire this week. The bullion banks short the market by selling a lot of call options, and collect premiums from speculators. This means that the banks sell the chance to buy silver at $7, for example, and they bet that silver will stay under that level. If it does, the options expire worthless, and the speculator loses the premium money. Usually, the bullion banks make sure they haven't sold too many options "in the money" by selling aggressively so the price decreases. However, once this week is over, the selling pressure should ease. I expect the price to rise in the first week of August. (For a longer explanation of options trading, see http://biz.yahoo.com/opt/basics3.html).
COMEX Silver Stocks Drop
Since my last newsletter, silver warehouse stocks are down 2.2 million ounces to 115.4 million ounces. Although this is less than 2% of the total, it's definitely a trend to watch. If we continue at this rate, the warehouse stocks will be under 100 million ounces by the end of the year. That's a psychologically significant number, and it will set off alarms in the market if we breach it.
As I reported in a previous newsletter, China has been a willing seller of silver at these low prices. However, it seems China will stop helping the bullion banks soon. The state-owned metal trader, Minmetals, is trying to acquire Noranda, a Canadian miner. Noranda is one of the world's largest zinc and nickel miners, and they have significant deposits of silver ore, as well. Bill Murphy of Le Metropole Cafe and GATA reports that China has signed contracts to purchase 75% of the world's silver production for 2005. Since we are in a supply deficit, silver will be very scarce, and prices should rise sharply.
Russians Blow the Whistle
Murphy also confirmed that a Russian official admitted there is manipulation of the gold market. Oleg Mozhayskov, the Deputy Chairman of Russia's Central Bank, stated that GATA was correct in its assertion that major banks sell gold to suppress its price. Mozhayskov made his shocking pronouncement at the London Bullion Market Association meeting. This is not a rumor; it was said publicly and for the record. His statement is an indirect confirmation of silver manipulation. If the central banks are suppressing gold, why would they leave silver alone? If silver rose to $20 an ounce while gold is stuck at $400, it would look suspicious. The current gold/silver ratio is 62.78:1, so a drop to 20:1 would get significant attention. (You can see Bill Murphy's article at http://www.gold-eagle.com/editorials_04/murphy062004.html).
Silver Money in Silver Valley
One of the richest veins of silver in the world is located in Silver Valley, in Shoshone County, Idaho. Sterling Mining Company decided to promote silver by selling one ounce, $10 medallions called "Sterlings." Certain businesses would be able to buy them for $7.50 each, and give them away or sell them to tourists. The Sunshine Mint was contracted to produce them, the same mint that makes the U.S. Silver Eagles. They weren't intended to circulate as money, but that's what happened. Despite the Sterling's melt value of about $6, people are accepting it for $10 worth of goods and services. Residents prefer silver to Federal Reserve paper. The locals know how valuable silver really is, and they want to accumulate it. People familiar with the Liberty Dollar will recognize this model as nearly identical. When competitors spring up, you know you have a great idea. (To learn more about the Silver Valley, visit http://www.silverminers.com).