Monday, May 21, 2012

Soundtrack to the Global Financial Crisis

And now for something a little different :)

A recent comment from obakesan got me thinking... if I could pick a song per year for the last several to form a soundtrack (backdrop to the major events in each year), what would they be? I came up with the below:

2006: Lilly Allen - The Fear

The US housing market was already seeing volumes drop in early 2006, however the peak national price was achieved in mid 2006. Consumers were spending their new found wealth by drawing equity out of their homes and putting everything on plastic. This level of spending was not sustainable, although few realised it at the time.

Lilly Allen catches some of that consumerist attitude in her song "The Fear":
Life's about film stars and less about mothers
It's all about fast cars and cussing each other
But it doesn't matter cause I'm packing plastic
And that's what makes my life so fucking fantastic
And I am a weapon of massive consumption
And its not my fault it's how I'm programmed to function
I'll look at the sun and I'll look in the mirror
I'm on the right track, yeah we're on to a winner

2007: Freestylers feat. Belle Humble - Cracks

In 2007 the cracks really started to show in the US subprime market. Ben Bernanke famously said in March 2007: "At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained". How wrong he was.

The lyrics from this Freestylers song "Cracks" could almost be a reference to the subprime borrowers, forced to leave their past behind, handing back the keys to the house they couldn't afford and just walking away (following which we saw cracks appear in subprime and the western debt bubble).
Leave the past behind
Just walk away
When it's over
And my heart breaks
And the cracks begin to show

2008: Basement Jaxx - Red Alert

We saw the financial crisis reach it's darkest moments in late 2008 as some of the largest US banks were allowed to fail, while others were gobbled up by larger competitors. The markets started to crash and we may never know just how close we came to a complete financial system meltdown.

The simple lyrics in this track "Red Alert" by Basement Jaxx perhaps sum up the fear seen in the markets at this time:
Red alert! Red alert!
It's a catastrophe
Don't worry.....Don't panic
Ain't nothin' goin' on but history, yeah
But it's alright, don't panic

2009: Hayek vs. Keynes - Fear the Boom and Bust

This song could be considered a bit of a cheat entry, given that it's worded specifically around some of the actions taken by central banks over late 2008 and 2009 to combat the financial crisis, dropping their rates, increasing their spending/stimulus... it's all here in this tune.

Here are some lyrics from the rap:
You see it’s all about spending, hear the register cha-ching
Circular flow, the dough is everything
So if that flow is getting low, doesn’t matter the reason
We need more government spending, now it’s stimulus season

2010: Muse - Uprising

Riots in Tunisia started during December 2010 and were in part fueled by high food inflation, many would argue this was a direct result of Fed stimulus (but this was denied by Bernanke). The revolution spread to Egypt, Libya, Yemen, Bahrain and elsewhere over 2011 and became known as "Arab Spring".

The Muse song "Uprising" works well with this video of Egyptians at a battle over the Nile:
Rise up and take the power back, it's time that
The fat cats had a heart attack, you know that
Their time is coming to an end, we have to
Unify and watch our flag ascend, so come on
They will not force us
They will stop degrading us
They will not control us
We will be victorious, so come on

2011: Spandau Ballet - Gold

2011 was an exciting year for Gold and Silver. Silver seeing it's peak early in the year, putting in a top around the same level as the January 1980 peak (US$50).

Later in the year Gold had a strong rally and peaked over US$1900. There's probably a better song to capture the metals performance in 2011, but for now "Gold" from Spandau Ballet will have to do:
Gold (gold)
Always believe in your soul
You've got the power to know
You're indestructible
Always believe in, that you are
Gold (gold)
Glad that you're bound to return
There's something I could have learned
You're indestructible, always believe in...

2012: Open to suggestions?

We're not even half way into what has already been a turbulent year for the markets. The debt crisis in the Eurozone is already underrepresented in the above themes, perhaps something from Rage Against the Machine "Killing in the name" or "Township Rebellion" in reference to the rebellion against austerity measures? I'm open to any ideas...

Perhaps you have your own version of a soundtrack to the GFC, if so feel free to share!



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Sunday, May 20, 2012

Good chance Gold and Silver have bottomed - Part 2

Early Friday morning (Australian time, it was just after US markets closed on Thursday) I wrote a hurried post explaining that I thought Gold has put in a significant bottom. You can read it here:


I didn't get the chance to include everything I would have liked so have decided to follow up with a brief addendum.

First I would like to clarify what I meant by a "bottom" in Gold and Silver. There is of course the potential for Gold and Silver to trade lower than the recent lows at $1526/$27, however I think there is a good chance that these prices formed a low point which won't be breached again before the end of the bull market (if ever).

Big call I know. One which may prove to be wrong, but the only scenario I see the metals going a lot lower than these price points is in a credit crunch similar to that seen in 2008 and I think that there is enough gunpowder left in the barrels of the Fed, ECB and other intervening central banks to push risk of such a crisis down the road.

Gold (priced in AUD) continued to rally during Australian/Asian trade Friday due to a falling Australian Dollar and rallied a further US$18 in US trade overnight. AUD Gold is now trading back above AUD$1600. My expectation is that even if Gold trades back below US$1530 later in the year, we should get a respectable rally from these oversold conditions. Something comparable to the January rally should be expected, so at minimum a run up to US$1700-1750+ is likely. 

This has been the most significant correction since 2008. The way I see it there is potential downside here of perhaps $200-300 at most. On the upside if we saw a rebound from these lows that was as significant as 2008 (+48% over 4 months) then we could be looking at a Gold price north of $2200 by the end of the year. Such a move to the upside would not surprise me.

One of the current risks which has the potential to derail stability and send the world toward a 2008 redux is a hard default (and exit from Euro) of Greece. This topic has been absolutely hammered to death in the financial press over the past two weeks since the Greek elections failed to result in a new government (with a new election date set for June 17th). 

It seems that almost everyone is expecting Greece to exit the Eurozone imminently. While I think there is a good chance it will eventually happen, I wouldn't be so sure it's going to happen in the next couple of months and if by chance it does I think central banks and governments will be standing at the ready to expand QE programs and bailout any banks that are put at risk as a result.

Over the weekend the G8 met and following released a declaration of which the first few points are as follows:
The Global Economy

Our imperative is to promote growth and jobs.

The global economic recovery shows signs of promise, but significant headwinds persist.

Against this background, we commit to take all necessary steps to strengthen and reinvigorate our economies and combat financial stresses, recognizing that the right measures are not the same for each of us.
It reads to me that they are prepared to ease as much as will be required to maintain growth, regardless of whether it's sustainable long term without further borrowing to prop it up.

The mainstream media was last week lighting up with negative stories on Gold, here are some examples:
Gold’s hasty demise from safe haven to risky asset

From darling to whipping boy, risk haven to risky business.

Gold took another wobbly step in its steep descent Wednesday, shedding $16.80 (U.S.) to $1,540.30 an ounce in New York, as Greece’s political uncertainties once again spooked financial markets. It was the metal’s 11th decline in the past 13 trading sessions, during which time it has lost more than $120.

Gold is an investing theme that has thrived through years of seismic shifts in financial markets. But now, one of the long-accepted rationales for turning to the precious substance – as a haven from risk – has been turned on its ear. The metal is getting sold off whenever concerns about Greece, sovereign debt and the euro grab the day’s headlines.

“Gold is now behaving like a risky asset,” said Capital Economics chief global economist Julian Jessop in a research note.
Bloomberg claims a Gold "Bear Market":
Gold Tumbles Into Bear Market on Greece Euro-Exit Concern 
Gold, on the brink of a bear market, declined for a fourth straight session as concern that Greece will have to leave the euro boosted the dollar and cut the metal’s appeal as an alternative asset.

The U.S. Dollar Index, a measure against six major counterparts, rose for a 13th day to a four-month high after Greece’s political leaders failed to form a ruling coalition.
Enlarge image Gold Drops Near Bear Market as Greece Prepares for New Election

“The market no longer seems to be seems pricing in whether Greece will leave the Europe Union, rather when it will happen,” Steve Scacalossi, a New York-based vice president at TD Securities Inc., wrote in a report. “The risk-off tone continued.”

Gold futures for June delivery fell 1.3 percent to settle at $1,536.60 at 1:45 p.m. on the Comex in New York. The settlement leaves prices down 19 percent from a record close of $1,891.90 reached on Aug. 22, about 1 percentage point shy of a bear market.
This from CNBC:
Global Demand for Gold Falls, Adding to Gloom for Precious Metal

Global demand for gold fell 5 percent in the first quarter to 1,097.6 tones, according to the World Gold Council (WGC), driven by a decline in jewelry and central bank buying.

Purchases by the “official sector”, largely made up by central banks, fell 41 percent to 80.8 tones, while demand in the jewelry sector slipped 6 percent to 519.8 tones as a result of higher prices, the London-based industry group said Thursday in a report.

Worries over Europe’s debt crisis have spurred a flight from gold, sending prices to a 10-month low, and raising questions about the safe haven status of the commodity. The fall in gold prices has been accompanied by a rise in the U.S. dollar, which is being viewed as a safer option by investors.

“(Gold’s) negative correlation with the U.S. dollar is increasing. Last year it was close to zero, at the moment it’s approaching negative 0.7, telling us every time the U.S. dollar increases, gold will continue to fall,” Andrew Su, CEO of Compass Global Markets told CNBC.

Su expects prices to fall to $1300 an ounce within the next three months and he says the recent price declines are unlikely to prop up demand for the yellow metal.
These sorts of reports are exactly the sort of material you should be expecting to see at a bottom, just like you would see the opposite (journalists pumping the metal with upside targets) when Gold is nearing short term tops. 

The way I see it, even if we have another credit crunch it's likely to come with a large price shock to the AUD as well. So by some amazing chance we see Gold back at US$1300, I wouldn't be surprised to see the AUD sold off to 80c in the same conditions which would result in an Australian gold price much the same as we have today (AUD$1625).

Miss out on this buying opportunity at your own risk. Current prices are a gift.



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Friday, May 18, 2012

Good chance Gold and Silver have bottomed

There is a good chance the bottom is in for Gold and Silver or we are very close to it (I could be wrong, so make sure you come to your own conclusions and don't blame me for your trading/investment mistakes).

They say when you pick bottoms all you get is smelly fingers, but I'll take my chances on this occasion. Unfortunately I haven't had much of an opportunity to add to my own positions in this dip as used a majority of my ammunition in the correction 5 months ago when we saw similar prices, but this has been a great opportunity for others who believe the bull market in Gold and Silver is ongoing with a peak yet to come.

Here are a few charts and brief notes on why I think the bottom is probably in.

We saw an indecision candle on May 16th and this was on strong volume which suggested capitulation as the price was allowed to fall almost to the lows we saw in late December 2011:

Click Chart to Enlarge

There was good reason for capitulation as Gold had broken the uptrend line which formed after the GFC lows for Gold in late 2008:

Click Chart to Enlarge

Note that the dip during the GFC saw a similar trend break, but was followed by a new trend which was an even steeper incline than the last.

It is my expectation that the current correction will be followed by a similar new trend with a steeper incline and will possibly be the new trend that eventually takes us to the parabolic blow off top that I'm expecting will end the bull market within the next couple of years.

There have been 3 clear trends of pitch during over the past 11 years and I believe we will soon see the 4th defined:

Click Chart to Enlarge
In Australian Dollars the chart has been suggesting a good buying opportunity with Gold dropping down into what I consider my "buy zone":

Click Chart to Enlarge
Sentiment in Gold and Silver has been pushed down to bearish lows (contrarian signal that suggests a good time to be buying):

Click Chart to Enlarge
Click Chart to Enlarge
And USD sentiment has been pushed to bullish extremes:

Click Chart to Enlarge
Further to all the above there are other aspects pointing to a bottom which I don't have time to detail, but the Commitment of Traders report for Comex futures has seen the Commercials offload a large number of shorts over the past few weeks and the report for this week is likely to show similar. Also there are a large number of Gold bears coming out of their den with downside targets, often a sign we are at or nearing a bottom.


Of course these are risky times we're in with Greece potentially on the verge of a political storm which could see them default on their debt obligations if the bailout money is withdrawn. Regardless of this though, the environment is one that Gold should be thriving in with negative real rates, western banks are ready to intervene again (IMO we will see QE3 within the next couple of months which might drive the start of the new trend in Gold), non-western banks are buying Gold, the geopolitical situation is still shaky and there is risk the Iran situation pushes Oil and Gold higher... nothings changed, so stop rocking back and forth and shaking in the corner because the value of your Gold has dropped. Get back on the horse.


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Monday, May 14, 2012

Tax free threshold allows tax free golden retirement

Note: I’m not a licensed financial advisor, taxation specialist or an accountant, so this information should be considered as an FYI only (NOT FINANCIAL ADVICE).

It’s been known for sometime that significant changes are coming to the tax free threshold for Australians in 2012 and it was confirmed again the other night in Swan’s budget.

From July 1st 2012 the tax free threshold will be increased to $18,200 (up from $6000 for the financial year 2011/2012) and will be bumped up to $19,400 by 2015-2016.

One of the biggest concerns for those saving for retirement in physical Gold is the potential for large amounts of capital gains tax to be payable in the likely event they sell at much higher nominal prices than today, even if the real value has simply kept pace with rising costs.

A high tax free threshold (coupled with the existing 50% capital gains tax discount for assets held longer than 12 months) opens up the potential for those saving for retirement using Gold to deplete their Gold savings during retirement sans tax.

Take the example of someone (let’s call him John) who has been saving in Gold for retirement since 1990 and has purchased Gold every month in equal quantities since that point in time. John’s dollar cost average is around $690 (AUD). With Gold currently trading around AUD $1600 each of John's ounces of Gold are sitting on $910 profit (average).

How does he avoid paying tax on the profit during retirement while keeping within the bounds of the law?

To calculate the maximum which John could liquidate in 2012/2013 for retirement we take his profit per ounce ($910) divide it into the tax free threshold ($18,200) which equals 20 ounces, we then double the ounces as tax is only paid on half of the capital gain (due to 50% CGT discount), so John could potentially liquidate 40 ounces for $64,000 and pay no tax on the proceeds.

Further explanation: Of the $64,000 funded by the sale of 20oz of Gold, $36,400 is profit, but he only needs to pay tax on half the profit ($18,200) and because this is below the tax free threshold he pays no tax.

It wouldn’t matter if he’d purchased the Gold at $1 an ounce and sold it at $1600 for $1599 profit…. as long as John:

- Holds the Gold longer than 12 months allowing 50% CGT discount
- Is comfortable retiring on double the tax free threshold (max)

Based on a $1 purchase price for Gold and $1600 liquidation price John could sell up to $36,400 worth of Gold and avoid tax using the same method. So for those worried about how high Gold might get in the future and the tax payable, as long as you can live comfortably from double the tax free threshold (whatever it is at the time of Gold liquidation) then you can avoid paying tax.

Warren Buffet once said “If you own one ounce of gold for an eternity, you will still own one ounce at its end”. Funnily enough this was in an argument to suggest reasons not to hold Gold, but those who save in Gold are often doing so for this very reason, to preserve purchasing power, with the expectation that over the long term Gold will be able to fulfill this need.

How much Gold would you need to save in order to retire? A little while ago I looked at the average weekly wage (before tax) priced in Gold ounces, here is the chart:
Average Weekly Wage Priced in Gold Ounces (Click Image to Enlarge)
Basically an average weeks wage has fluctuated between ½ and 2 ounces of Gold even dating back over 100 years. This example from the previous article, showing the ratio was .51 (number of Gold ounces the average weekly wage would buy) in 1901:
In 1901, the average weekly wage for an adult male was about $4.35 for a working week of almost 50 hours, which after inflation equates to $217.50. However, wages have grown much faster than inflation, with the average weekly ordinary time earnings for adult males in May 2000 being about $830.00 for around 37 hours work, in far better conditions.
The price of gold has often been used as a measure of inflation. At Federation, the price of gold was $8.50 an ounce, or $425.00 in today's money. The actual price of gold in 1999-2000 averaged about $460.00 an ounce, showing that it has generally maintained pace with inflation. ABS
If we take the midpoint (1.25oz), minus tax we would have paid on the equivalent income (-30%) and multiply it by .7 (as we will assume John has a freehold home resulting in lower living expenses) and we get around .6125oz per week required x 52 (31.85oz Gold per annum) x 15 years of retirement = 477.75oz Gold required to fund John's retirement. Your figures may vary depending on inputs.

I wouldn’t advocate relying on a single asset class to fund retirement. Personally I will be looking to build a portfolio of income producing assets (which also rise in value), but it’s an interesting exercise nonetheless.

Of course there are any number of risks that could void tax free retirement working in this way such as Gold confiscation, a windfall tax being applied to Gold, changes to the tax free threshold, changes to the 50% CGT discount. Or perhaps Gold doesn't retain a similar value against Australian wages/goods/services as it has over the last 100 years. Anything is possible and the turbulent times we have ahead are likely to result in significant changes to the way we live today...

This above post was inspired by the following from projack on Silver Stackers:
If you buy gold for retirement you do not have to worry much about CGT as an average person. Selling $40,000 value gold a year for your lifestyle for example even if the original purchase price was only $10,000 means $30,000 "profit" and only half of that amount is counted as CGT and used as assessable income, and that is 15,000. With the new $18,200 tax fee limit from the 2012/2013 financial year (and will go up further) this is no problem and you do not have to pay any CGT.
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Wednesday, May 2, 2012

Perth Mint 1oz Silver Koala Coin Sales Go Mental


This included updates on multiple Gold and Silver series coins (click any of the links below to view the spreadsheets):


One of the biggest shocks when looking through the data was the large increase in sales of 1oz Silver Koala Coins (in 2011), see the below table of sales since the series started in 2007:


Year
Description
Sales
2007
1oz Bullion Silver Koala Coin 2007
137,768
2008
1oz Bullion Silver Koala Coin 2008
84,057
2009
1oz Bullion Silver Koala Coin 2009
336,757
2010
1oz Bullion Silver Koala Coin 2010
233,531
2011
1oz Bullion Silver Koala Coin 2011
910,480




Some other notable increases in sales were also apparent:

1/2oz Silver Koala Coin increased from 13,315 in 2010 to 76,755 in 2011
10oz Silver Kookaburra Coin increased from 18,782 in 2010 to 45,901 in 2011
1/2oz Silver Lunar Coin increased from 50,035 in 2010 to 124,488 in 2011

Perth Mint had already pointed out heavy demand for the 2012 Koala coin earlier in the year (the below from an email to customers):
"The 2012 Australian Koala is satisfying pent up demand for silver bullion coins from The Perth Mint.
Launched in early January, the iconic investor coins are available in 1 kilo, 10oz, 1oz and 1/2oz sizes.
In just two weeks, investors have ordered more than 170,000oz of pure silver in 1oz sized Koala coins alone!"
So there's a good chance that this years Koala sales may even surpass the large number minted last year. Could we hit 1 million 1oz Koala coins in 2012? 

If demand for the Koala's continues then picking up some of the earlier years which have much lower mintages might prove a good option with the potential for the premiums to continue increasing as the larger pool of buyers for the new designs seek to complete their Koala collection.

It's worth noting that while the Koala has no mintage limit, they are only produced to the close of each year:
Explanation of "mint to order" = No mintage limit applies to these coins for 12 months. However, production will close at the end of (each year) and The Perth Mint will declare each coin's official mintage.
So there is no opportunity for the Perth Mint to go back and start minting new coins again like they are doing with the 1oz Kookaburra coins which haven't met their limit, see this previous post of mine for further details...

If you're looking to purchase some 2012 Silver Koala coins then Bullion Baron site sponsor Bullion Money offers them for competitive prices (Click Here). Can't say I'm really a fan of the Koala designs for 2011 and 2012, but each to their own!

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Tuesday, May 1, 2012

Higher Silver Inventory Could Lead To Rising Prices

The content of this post  is something that has been playing on my mind for awhile, but I have not had a chance to easily put pen to paper (figuratively speaking) to write it (time constraints and struggled with an easy way to broach the topic). 

Luckily I noticed that Bron Suchecki has given me a succinct opening to get started.

This is an excerpt from Bron Suchecki's blog a couple of days ago:
If Sprott and Baker "are students first and foremost of the physical market" then they surely are aware that the one thing which makes gold different from all the other physical markets on earth is its huge above ground stocks relative to new mine supply - 170,000 tonnes versus 2800 tonnes.
This, I suggest, is a quite material fact and one which may be where "the gold is going to come from". Unlike "any other market", to which conventional supply/demand analysis can be applied, one cannot understand the gold market by just looking at annual supply/demand numbers when there is such a large overhang of stock.
What drives the gold price I would therefore argue, is not so much demand, but to what extent existing holders of the 170,000t will withhold it from the market. It is actually supply - the withholding of supply - that matters most. If even a small fraction of these holders decide to sell, then that supply "will soon overpower" the physical market, China or no China. This is not a negative statement. The decade long gold bull market is a message that the existing holders are requiring higher and higher gold prices to let go of their gold and that the new holders are more likely to withhold it. Gold Chat
In the above post Bron takes aim at an article from Eric Sprott and David Baker in which Sprott/Baker question where the Gold is going to come from given the increase in demand from China and other countries who are increasing their Gold reserves (such as Mexico, Turkey, Russia and Kazakhstan).

They come up with a poor comparison in the article, asking what would happen to oil if a similar increase in demand was to occur, given the supply limitations...
Could you imagine, for example, if the demand shifts described above were applied to the global oil market? What would happen if a single country came in from nowhere and increased its oil purchases by a factor equivalent to 30% of the world's annual oil supply?
The example provided in Sprott/Bakers article (oil) is a commodity which does not have significant above ground reserves. Wikipedia says there are 4.1 billion barrels of oil held in global strategic reserves:
Global strategic petroleum reserves ("GSPR") refer to crude oil inventories (or stockpiles) held by the government of a particular country, as well as private industry, for the purpose of providing economic and national security during an energy crisis. According to the United States Energy Information Administration, approximately 4.1 billion barrels (650,000,000 m3) of oil are held in strategic reserves, of which 1.4 billion is government-controlled. The remainder is held by private industry. Wikipedia
Barely enough to last a couple of months at current consumption levels.

As Bron points out on his blog, the above ground Gold reserves provide an abundant supply of Gold to those looking to increase their position at the right price (e.g. rather than mining supply vs new demand setting the price it's instead those who hoard the existing supply of Gold who do)

You're probably thinking "What about Silver? This article was supposed to be about Silver!"

Hold your horses, I'm getting there...

In an article last year I talked about how the price of Silver was in limbo with industrial demand waning which was pushing the price lower while the monetary (/speculative) demand was pulling the price higher (you can read the previous blog here). 

At the moment the pricing mechanism for Silver is positioned somewhere between Gold and Oil. It is both a consumable and an asset hoarded by those who think the price is set to rise.

A chart graphing data from CPM group shows that Silver inventories have been rising for the past 7 years:

Silver Inventories (above ground supply)

It's currently around a level which would provide 20 months supply for industrial purposes, which is significantly more reserves than 2 months worth of oil supply.

Most commentators have been fairly critical of this rising Silver inventory, but the truth is this overhang could push Silver toward a pricing system which is less reliant on consumption/industrial demand and would rather allow speculators and hoarders to control the price based on the price point they are prepared to sell at. 

What will this mean for the price of Silver?

As I have pointed out numerous times on this blog I am of the expectation that Gold and Silver will head into a bubble within the next couple of years (in a parabolic rise that will shock many). The change in Silvers pricing system will allow it to break free of the constraints that the previous supply/demand pricing system held over the metal and we will see Silver rise much more significantly than Gold (reducing the current Gold:Silver ration by half or more) as speculators pile into what will be considered the cheapest metal.

So I would suggest that increasing Silver inventories could have a positive influence on the price of Silver in the short to medium term, it is a sign that more participants are coming into the market or that those that are already holding Silver are increasing their positions.

But what will this mean for Silver over the longer term?

With the Silver hoarders now having a larger influence on the price they will be responsible for both the significant rise I expect we will see in the price of Silver as well as the crash that will undoubtedly follow as everyone panics out of their positions flooding the market with more physical than the industrial demand can make use of.

The below comments from Jeff Christian (comments section of Chris Martenson's site) point to some of the risks that Silver faces as a result of the stockpiling of Silver in ETFs and similar products:
I happen to believe that the Sprott silver investments may prove to be the downfall of silver. Remember: I am long silver, in contrast to all those inaccurate disparagements of me that have me an enemy of the metal. In fact, I was telling our clients back in the early 1990s that silver would rise sharply at some point in the distant future. But back to Sprott: Look at what his molybdenum specialty fund did to the molybdenum price, the equity prices of moly producers, and the investors in that fund, in 2008 and 2009. I think that is indicative of what could happen in silver. Sprott has amassed an enormous position in physical silver and in most Canadian listed silver mining companies. When investors grow tired of his funds and start to liquidate, Sprott will be in a mechanical position in which it will have to dump silver and silver stocks. This could trigger a massive liquidation. Link
And in another comment:
You asked about my comments on Sprott's fund being a hole in the armor of the silver market. I may be over-emphasizing his fund's size. I thought he had more metal. Regardless, he has other funds with too large of positions in silver mining shares to be easily liquidated, and Sprott as a company has shown itself to be like a rat on a sinking ship in other markets (and silver): They dump as soon as things look ugly.
Actually, the issue is more ETFs. I am on record for years as warning that the mechanical nature of physical metal ETFs management is a big risk to these markets. In fact, there was a commentary that we wrote presumably confidentially to the SEC when it was first considering permitting silver ETFs that somehow became public about some of the risks we saw. One was this.
Hedge funds, in contrast to public ETFs, have an orderly liquidation process. You have to signal your intention of redeeming shares typically 60 to 90 days in advance, to give the manager the opportunity to liquidate positions in an orderly fashion to match the upcoming redemptions. Physical ETFs do not have such management discretion. Investors go only and sell shares. If the sale is not met by ready purchase orders in the market, the market makers have to buy and hold them in the market. The market makers generally will redeem heavy sales flows (see what happened in the first half of May last year, and, on a smaller level, what happened in April last year). If investors say sell, or click the sell button on their computers, the managers of the ETFs have to sell at that time regardless of the price. So, prices could cascade downward in such an event. Obviously the SLV is the biggest worry, with 312MM oz, but the others could be worse, insofar as they may be sold in less liquid markets. PSLV has only 32 MM oz, so it is somewhat less worrisome, but I also am focusing on the silver mining shares held by other Sprott funds. Link
Of course the Silver held by the ETFs will only be a concern if you believe they truly hold the bars claimed and don't blow up trying to deliver the physical metal in the meantime (/tongue in cheek, I personally believe that they have the Silver they claim).

If I'm right then we're certainly in for a bumpy ride over the next couple of years, but at least we can rest easy that the Silver bull market can continue despite an increasing above ground inventories. Just make sure you're ready to exit before the rest of the hoarders decide to unleash their stockpile on the unsuspecting late comers to the bull market.