Market Curiosity: Exploring Markets And Systems

August 31, 2011

Chart of silver fractional bullion banking suggests silver at $225 to $1,000/oz (update 2, Sep 22)

Filed under: Editorials — Tags: , , — Jeff Fitzmyers @ 1:36 pm

Thanks to Ed Steer for presenting Mr. Laird’s excellent chart from

How can a roughly 3% difference in silver economics from about 2005 to 2010 be 500%??
+15% Supply USGS Silver Statistics and Information and the Silver Institute
+12% Demand The Silver Institute
+500% “Transparent silver holdings” Really?? Supply and demand variables don’t vary much on a yearly basis so where did 497% come from??

Say for fun that’s accurate. The indicated silver to gold ratio is about 8 which suggests silver could be trading about $225/oz. But it’s probably not accurate. Just using 3% growth, the silver gold ratio would be about 1.7 to 1 suggesting silver near $1,000/oz. (Not that the gold numbers are to be trusted either.)

And those entities that think they own 650 moz, might not. If true, would the fractional reserve be about 25% suggesting silver at $4,000/oz? ๐Ÿ™‚

August 31: Changed the words from ‘fractional reserve accounting’ to Mr. Ferguson’s more accurate ‘fractional bullion banking’.

And notice how the chart basically wafts down for 15 years before seemingly making a change in personality. (Although the longer term chart might provide more historical perspective.)

September 22: “Dr Steve” from the web bot forum commented that 2006 is when SLV started, and mentioned Zeal’s Silver ETF Impact 2. We had motive, evidence, and now means ๐Ÿ™‚

Possible events are shocking to me — took me all day to come to grips with this: possibly, over the next few months:
– metals become so valuable they aren’t even traded (more or less). See chart below.
– some script based partly on grains becomes popular since you can trade it locally, it has some shelf life, and you can eat it.
– A possible main reason for the Clif High’s calorie economy is metals are too valuable to risk non escrow trades and too valuable for small trades.
– gov debt crashes to the point, according to TSOTTC v22 that people would rather hold the tatters of “bonds” in hopes of being paid rather than sell them for, say, 10-20 cents on the dollar.
– gov’s introduce other fait scripts and ‘promise’, again, that they won’t mess it up, again. hahaha. This keeps them going for a bit longer.
– People buy almost NOTHING they don’t really NEED.

What I am attempting to show with this chart is that IF the whole rise in paper silver stock was because of fractional bullion banking, when that leverage de-levers look out, it will INVERSE lever. A debt will just poof away. Here, we have say 100,000 people who think they own 800 million oz. If it turns out they don’t, possibly most will then chase after that 150 moz — most of which probably happens to be in strong hands. So really those chasers will be after, say 20moz. And once price starts rising a lot, it just reconfirms that silver holders are correct and so they, and more and more converts, will just hold tighter.

And once a few hedge funds understand, they could just buy the limit of 5,000 contracts nearly at market for immediate delivery and its all gone, and then the comex starts crying about how-could-this-ever-happen?

For fun, a silver holder eBay a 1 ounce generic round — Buy it now! — for $1,000 / oz. and it’s bought in minutes. So the holder offers another coin at a price of $2,000/oz. Everyone else sees this and ups the minimum price drastically. Making the market. (Supposedly that’s about how a market was made at the low of the stock market crash of 1987. There were no bids at all. Finally, a dude, Martin Schwartz, Pit Bull(?) just picked a number way below the last trade and bid a few contracts. That action basically marked the low. Just a dude making up stuff ๐Ÿ™‚

So in the end, you either have metal or you don’t. Those who don’t can’t even afford to even try to get some and so focus more on simply getting and growing food, getting the kids to school — or neighborhood school/armed day care, while people try to make a living semi safely while in shock.

There is no confiscation: People just barter among themselves and don’t report it. I “buy” a house from you for 10 ounces and neither one of us tells anyone — it’s in both our best interests.

I updated the chart attempting to make the alleged fraud more understandable. And, it is easy to speculate there was a lag to the start of fractional bullion banking while Mr Buffet’s alleged silver took a while to get allocated(?) to the shares. The spike up of 70 moz could indicate when that supply ran out.

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