This could mean a 10 to 1 gold and silver in near future?

goingbroke

I found this and wonderd if it might have something to do with the rise in gold and silver this week. Comments? I would never claim to have the wide knowledge or expertise of Mike, but it seems to me that it may mean that almost everything that Ted Butler has been claiming and predicting could very well come true --- in other words, silver (and gold, to a lesser extent) might just get their "moon shot" after all, depending on just how extensive the corruption in the derivatives markets actually is and has been. What i would see happening if the Chinese are behind the silver shorts and declare Force Majeure would be all positions of paper-silver and paper-gold becoming worthless until proven otherwise - by claiming the physical metal they promise the holder.

This would cause a world wide scramble for physical gold and silver to cover by those who legitimately issued certificates, and further defaults on the paper which some issuers never intended to honor.

The resulting panic could spread to other commodities very easily. Grains, base metals, lumber, oil, etc.

The ETF's would be wiped out i am sure. Of course some are likely just fronts to divert cash from physical investment. GLD shares can only be redeemed by the "Major Participants" who are the big bullion banks for example.

roadrunner

With all the manipulation and fraud that has come down in the areas of paper trading (ie LTCM, Enron, Worldcom, BSC, Lehman, Madoff, etc) would it really be a surprise that the 2 main alternatives to paper currency, gold and silver, might just have some major fraud buried in their paper tradings schemes?

What I found confusing in Ted Butler's article is that he seemed to be saying that the Chinese were both the shorting side culprit as well as the "counter party" to AIG's/JPM's short position (ie the long side). Using the words "off-setting" and "backed" to describe China's possible silver positions makes it sound like they would be the aggrieved party holding the long side in the transaction. After reading the references again it was clear Butler assumes China was/is in cahoots with AIG/JPM on the silver short side. Given that, how would they be able to walk away claiming fraud if they were in fact the party manipulating the silver market and creating the scam? I'm not quite sure I get that. If they were on the long side all along I could see them claiming fouling and walking away.

If China was indeed manipulating the short side and they did walk away there would likely be heck to pay on US economic retributions regardless of their large position in US dollars. If there was such a risk no doubt Geithner's last visit to China touched base on that as well as trying to keep them buying our debt. Once silver ignited, gold would follow very quickly. To believe that no games are going on in the gold and silver futures as well as the otc derivatives is to give way too much credit to the Madoffs of the world.

The ratio of silver to gold settlements on daily trading in London is about 5 to 1. That's the same approximate number of annual mined silver vs. mined gold. That fact coupled with the notion that most silver is used up and gold is not, does imply that the current GSR of 61-1 will indeed head towards much lower numbers.

roadrunner

jmski52

I envision a scenario where silver becomes much scarcer in gold and the price ratio tips all the way in favor of silver - say maybe 3 to 1 silver vs. gold.

Then, in my dream I cash in half of my silver for gold and discover that I've made a really bad trade as silver to gold price ratio continues all the way to a 9 to 1 ratio, and keeps on going.

And luckily, I only sold half of my silver, so the rest of it carries the day in a really, really massive way!

Hey man, I can dream.

Wolf359

Butler has been claiming silver manipulation for years. The last article is mostly a summary of previous ones. The China angle he's taken is confusing to me. But if he's right, silver is entering a perfect storm.

fficial&client=firefox-a&um=1&ie=UTF-8&sa=N&hl=en&tab=wv#q=Peter+sCHIFF+gold&hl=en&emb=0&client=firefox-a&st=week">Peter Schiff's take on the Gold and Silver rally is excellent. Check the last minute where he talks about China.

Wolf359

Sorry, bad link and now I can't edit it.

Here is a better one

cladking

I warned everyone back when the LCE defaulted on nickel that when
silver blew up it would be far more serious. Nickel can be substituted
for with numerous other metals and strategies. There is almost no sub-
stitution for silver. Factories eat this material and about the only thing
that can slow it down significantly is population decline.

But this isn't the real problem with a silver default. We can always find
a way to muddle through such difficulties even when are own stupidity
has caused a loss of most of the supply over many decades and even
when we wait too long for real market forces to create a balance. The
real problem with a silver default is that to a very real extent silver is still
money. Any major change in silver will also force gold higher and it's even
more like true money. This means that as silver seeks its rightful value
relative other commodities and currencies it will have an outsized impact
on causing currencies to weaken.

The world is founded and run on smoke and mirrors. One of these mirrors
is about to distort the perception of the staus quo.

This impact is visible again and again in history as governments have de-
based their coinage; their money. And it will happen again even when
money is fiat.

Of course absent structural deficiencies this might serve to reignite world
production and consumption.

sinin1

I think what they are saying is China(or whoever has the position) has backing for the position meaning they have physical possession of the silver making it a hedge not a stricly speculative position


When you say the gold silver ratio could get 10 to 1 (or 3 to 1), are you saying when gold is $1000, silver will be $100 ( or $1000 to $333)?




that would be quite a spike in silver as many believe gold will not drop much do to the US dollar value dropping because of gevernments aggressive spending


maybe I should start buying circ sets of silver roosies again

goingbroke

. I just think China realizes that we owe them so much money now that the interest rates alone are so high we can't ever possbibly get out of their debt, so they are screwing us before we screw them. They are repo'ing our nation and keeping the assets. This is just phase I. Ask yourself this. If China is VISA and we are the CC holder and we make 40k a year and the interest on what we owe China is 15k a year. Would VISA continue to give us a line of credit? No. China's going to start shutting us down in any market where them defaulting doesn't hurt trade. They want their money back. I think at this point I don't know who's worse our communist radical president or the Banks stealing our homes, money, and tax dollars now for decades to come. I can't believe the bankers are not being shot at by China and the American people for what they have done to us. At least China stands up for their people. Our government just stole our money and gave it to the banks when what they really should have done is taken the money and bail out the people in the houses. Foreclosures are down this month? Bull! It's because banks aren't foreclosing any more. They just let the property sit there and go into ruin and hopefully someone squatter will burn it down and they can get some insurance money. Our whole way of life is so messed up right now and its because we have the greediest SOB's in the world trying to screw everyone and everything and they control our government now too. Throw the bankers in Guantanamo and ask them where they put the money and give back to the people they stole it from. Example Maddof. Chairman of the Exchange is the biggest crook of them all. What is our society becoming? This doesn't even resemble America any more. What ever you do DONT sell your gold and silver I have a feeling it will be most usefull!

roadrunner

Interesting little summary goingbroke.

Gold to silver ratio will overshoot on the way down so 20-1 should not be unexpected. In fact since it went to 17.5-1 back in 1980 it could easily drop lower than that. While we don't have the Hunts today we have something far worse in the manipulation of paper contracts vs. physical silver. There was much more available silver around back in 1980 than there is today. A final ratio of 10-1 would not surprise me even at $3000 gold / $300 silver. Whatever it peaks at, it will surprise 99% of the people.

roadrunner

Norseman88

<< <i>Interesting little summary goingbroke.

Gold to silver ratio will overshoot on the way down so 20-1 should not be unexpected. In fact since it went to 17.5-1 back in 1980 it could easily drop lower than that. While we don't have the Hunts today we have something far worse in the manipulation of paper contracts vs. physical silver. There was much more available silver around back in 1980 than there is today. A final ratio of 10-1 would not surprise me even at $3000 gold / $300 silver. Whatever it peaks at, it will surprise 99% of the people.

roadrunner >>



This is all sweet music to my ears however I fear none of this will come to pass as the local so called precious metal expert has declared that Gold and Silver will collapse in price never to recover again.

1jester

<< <i>Interesting little summary goingbroke.

>>



I agree.

As an aside, does anybody think silver will ever be more valuable than gold, since there's less of it (supposedly) available for industrial and investment purposes than gold?

goingbroke

China's derivative default stance rattles banks
By cpowell
Created 2009-09-01 03:53
By Eadie Chen and Chen Aizhu
Reuters
Monday, August 31, 2009

http://www.reuters.com/article/rbssBanks/idUSSP47327420090831 [1]

BEIJING -- A report that Chinese state-owned companies will be allowed to walk away from loss-making commodity derivative trades provoked anger and dismay among investment bankers on Monday as they feared it may set a damaging precedent.

The state-owned Assets Supervision and Administration Commission, the regulator and nominal shareholder for state-owned enterprises (SOEs), told six foreign banks that SOEs reserved the right to default on contracts, Caijing magazine quoted an unnamed industry source as saying in an article published Saturday.

While the details of the report could not be confirmed, it was Monday's hot topic in financial circles from Shanghai to Singapore as commodity marketers feared that companies holding underwater price hedges could simply renege on the deals, costing banks millions of dollars in profit.

The warning from SASAC follows a series of measures from Beijing this year to crack down on the sale of derivative products by foreign banks to Chinese enterprises, principally big consumers, who bought protection against higher prices last year only to watch the market collapse -- leaving them with losses.

While many companies including top airlines have come clean on the losses, some analysts fear another wave may follow.

"I wouldn't be surprised if more state firms emerge with big derivatives trading losses. Otherwise SASAC wouldn't come out with such a radical move," said a Hong Kong-based derivatives analyst, who like most other industry officials and bankers declined to be named due to the high sensitivity of the issue.

A SASAC media official said on Monday that he was waiting for the "relevant department's" official comment before he can clarify to media. A government official said that the Bureau of Financial Supervision and Evaluation under SASAC was handling the issue. The official declined to be named and did not elaborate.

Spokespersons at Goldman Sachs and UBS declined comment, and media officials at Morgan Stanley and JPMorgan were not immediately available for comment. All are major global providers of commodity risk management.

No bank were named in the Caijing report. The SASAC media officer also declined to identify any specific banks.

"It's a handful of companies who are being encouraged by regulators to renegotiate," said a second banking source. "It's outrageous, but it's China, so everyone is treading very carefully."

For banks that are hoping to sell more derivatives hedges in China, the world's fastest-expanding major economy and top commodities consumer, the danger goes beyond the immediate risk to existing contracts to the longer-term precedent that suggests Chinese companies can simply renege on deals when they like.

The report follows an order from SASAC in July that required all central government-controlled state companies engaged in trading derivatives to make quarterly reports about their investments, including details of holdings and performance.

But the reported letter opened several important questions that could not immediately be answered.

"If we were among the banks receiving that letter, we would be very angry. But now the key is to find out more details on the letter: In whose name the letter was issued, the government or the corporate's? And under what was the reason for defaulting?," said a Singapore-based marketing executive with a foreign bank.

The source, whose bank did not receive a letter, said that Air China, China Eastern, and shipping giant COSCO -- among the Chinese companies that have reported huge derivatives losses since last year -- had issued almost identical notices to banks.

"If it's in the name of the government, the impact will be very negative," said the source, who declined to be named.

Beijing-based derivatives lawyers said the so-called "legal letter" has no legal standing -- SASAC as a shareholder has no business relationship with international banks.

"It's like the father suddenly told the creditors of his debt-ridden son that his son won't pay any of his debt," said a lawyer from the derivatives risks committee of the Beijing Lawyers Association.

It's also unclear why Chinese state firms, which have complained that their foreign banks sometimes did not disclose full information of potential risks when selling them complicated products, did not seek redress through the courts.

"If that is the case, these firms should seek through legal measures to safeguard their rights, instead of turning to the authorities for political interference," said a different lawyer.

SASAC took over the job of overseeing SOEs' derivatives trading from the securities regulator in February after several Chinese firms reported huge losses from derivatives.

Text

jmski52

The game of international derivative default hot potato is just getting started.

Goingbroke's analysis is dead on. The cure was never to give a private banking cartel more money and more say over our collective futures. And the cure is also not to allow politicians to let criminals off the hook, not to mention the crooked politicians themselves.

The only statement I don't agree with is:
At least China stands up for their people.

China stands up for their state-run enterprises. As far as that goes, I don't blame them. They are a sovereign entity and there's no reason why they shouldn't demand payment on contracts made in good faith. We as individual American taxpayers should do the same.

I do however agree with:
What ever you do DONT sell your gold and silver

My opinion - it's real money. And will always be.

Here are the comments that I find interesting:
The world is founded and run on smoke and mirrors. One of these mirrors
is about to distort the perception of the staus quo.

This impact is visible again and again in history as governments have de-based their coinage; their money. And it will happen again even when money is fiat.

dino2008

10 to 1 sounds good to me!!! (still hoarding):

CoinMiner1

10:1 ratio highly unlikely IMO. Only way I can see this happening is if a government decided to go on a bi-metallic system and needed an easily quantifiable ratio to make it work and become acceptable by the populace. And then, the ratio would likely fall out of whack, much as it did in the US in the years before we abandoned the bi-mettalic monetary standard. The only way a sovereign country would return to such standard is after a complete fiat collapse. In the interim the G20 will enforce its schedule of BIS payments.

I've read Ted B. for 10 years, mostly when we both posted on Kitco before someone leaned on Bart K. to shuffle the boards and brink in Nadler to sing the party line.

Ted is bound to be right one of these years, but maybe not this decade either.

That said, I am overweight silver...

1jester

<< <i>10:1 ratio highly unlikely IMO. Only way I can see this happening is if a government decided to go on a bi-metallic system and needed an easily quantifiable ratio to make it work and become acceptable by the populace. And then, the ratio would likely fall out of whack, much as it did in the US in the years before we abandoned the bi-mettalic monetary standard. The only way a sovereign country would return to such standard is after a complete fiat collapse. In the interim the G20 will enforce its schedule of BIS payments.

I've read Ted B. for 10 years, mostly when we both posted on Kitco before someone leaned on Bart K. to shuffle the boards and brink in Nadler to sing the party line.

Ted is bound to be right one of these years, but maybe not this decade either.

That said, I am overweight silver... >>



Me too, about 95+% silver, 5% gold, palladium. Back to my point in my previous post, does anyone think the value/price of silver will ever surpass that of gold, since there's much more gold available in the world (above-ground) than silver? Why wouldn't gold take a back seat to silver when most people realize that?

goingbroke

<< <i>

<< <i>10:1 ratio highly unlikely IMO. Only way I can see this happening is if a government decided to go on a bi-metallic system and needed an easily quantifiable ratio to make it work and become acceptable by the populace. And then, the ratio would likely fall out of whack, much as it did in the US in the years before we abandoned the bi-mettalic monetary standard. The only way a sovereign country would return to such standard is after a complete fiat collapse. In the interim the G20 will enforce its schedule of BIS payments.

I've read Ted B. for 10 years, mostly when we both posted on Kitco before someone leaned on Bart K. to shuffle the boards and brink in Nadler to sing the party line.

Ted is bound to be right one of these years, but maybe not this decade either.

That said, I am overweight silver... >>



Me too, about 95+% silver, 5% gold, palladium. Back to my point in my previous post, does anyone think the value/price of silver will ever surpass that of gold, since there's much more gold available in the world (above-ground) than silver? Why wouldn't gold take a back seat to silver when most people realize that?
I dont think the price of silver will ever be higher than gold. I do believe the price of gold will be so high allmost no one will be able to buy other then verry rich folks. I think in the end most will own silver.

>>

renman95

So, I'm thinking silver could be $800 by 12-12-12.

R95

cladking

<< <i>

<< <i>Interesting little summary goingbroke.

>>



I agree.

As an aside, does anybody think silver will ever be more valuable than gold, since there's less of it (supposedly) available for industrial and investment purposes than gold?
>>




I told a few friends back in 1974 that one of us would live to see silver higher
than gold. I still believe it. It won't be soon but it won't be many decades.

Norseman88

<< <i>

<< <i>

<< <i>Interesting little summary goingbroke.

>>



I agree.

As an aside, does anybody think silver will ever be more valuable than gold, since there's less of it (supposedly) available for industrial and investment purposes than gold?
>>




I told a few friends back in 1974 that one of us would live to see silver higher
than gold. I still believe it. It won't be soon but it won't be many decades. >>



While I am bullish on Silver I wouldn't dare say that it will eventually be higher priced than Gold even though many things are pointing to this eventually happening.

cladking

<< <i>
While I am bullish on Silver I wouldn't dare say that it will eventually be higher priced than Gold even though many things are pointing to this eventually happening. >>



I believe that demand will continue an exponential path regardless
of what price does. There may be nothing else so unaffected by price
than silver. In almost every single one of its applications there is no
substitute. This should apply to new uses going forward. Since in
most cases silver is used in such small quantities price of the silver
is a small part pof total price there is little curtailment of demand.

Of course supply is in the hands of the world's consumers since it is
a by product of other mining. Investment demand can and eventually
will absorb any surplus should it develop. There are no supplies of
physical silver to sell into price increases. There are no impediments
to the price rising.

jmski52

Investment demand can and eventually will absorb any surplus should it develop. There are no supplies of physical silver to sell into price increases. There are no impediments to the price rising.

No impediments today anyhow. Silver up +$0.40 today!!!

roadrunner

Above ground silver is probably on the order of <10X the quantity of gold. The historic mining ratio has been on the order of 10X while the amount trading on exchanges is on the order of 5X. And of that 10X how much has been lost/used up over the millenia? The estimates run from as high as 100% of the 48 BILL ounces ever mined are still here vs. only 1% of that still left. The truth is probably in between. And those sitting on hoards of silver aren't exactly talking about it. But one would think if even 20 BILL ounces of silver were still around (5X the amount of gold....that's 25 years of world wide silver demand available) why the push to continue to process/mine silver other than via normal production profits? And why the need to have $190 BILL in silver derivatives (14 yrs of world annual production)? It must be that we don't have close to 25 yrs of supply.

I don't know that we'll ever get to equality on the 2 metals but I wouldn't say it's impossible. It could take decades to eventually draw down the high end estimate of silver stocks to reach that of the gold inventory. We won't find out the answer unless the trading exchanges start to default or change the rules. Even if silver existed in 10X the quantity of gold, it's value today would still only be an inconsequential $800 BILL. or just one bail out bill.

roadrunner