“Holy Jeepers,” Sprott to Buy $1.5B of Silver Bullion!

The silver price could explode higher in coming months.

As the silver and gold price predictably fade ahead of option expiration, JP Morgan’s bullion manipulation scheme could be headed for unprecedented problems, not from the record purchases of gold and silver from the Chinese, Indians or Russians, but from one Canadian billionaire.

Canadian-based Eric Sprott Management CEO Eric Sprott filed a follow up prospectus for the purchase of an additional $1.5 billion of silver bullion to cover expected demand for the company’s exchange traded fund, PSLV.  Sign-up for my 100% FREE Alerts

Combined with the recent decline in the PSLV premium to spot silver to 14 percent from the typical 20 percent, along with Sprott’s reported sale of some of its holdings of PSLV at the rich premium, it appears a familiar hallmark of a gigantic $580 million silver bullion purchase in December of last year emerges once again.  Since demand for silver products at Sprott remain brisk, it should come as no surprise to the silver world that Sprott needs more silver.

Yet, only two Web sites mention the breaking news, The Globe and Mail and bullion market reporter Harvey Organ, HarveyOrgan.blogspot.com.  Don’t expect Eric Sprott to herald the milestone purchase; he’s trying to avoid investors front running the purchase.

“Since Sprott filed its prospectus last Friday, PSLV units have come down 12 percent, while the price of silver has dropped only 6 percent,” stated Canada’s daily newspaper, The Globe and Mail, on Nov. 18.  “Whether or not the new filing is the root cause of the difference doesn’t affect Mr. Sprott much. He has been selling his PSLV units for most of the year (as documented by kid dynamite.)”

Because Sprott today represents ½ the size of the Hunt brothers wallet and their attempt to corner the silver market in 1979-80, nimble investors have taken advantage of the bulky Sprott in the past by front running his purchases, as his size and legal entity requires him to file with Canadian regulators—an issue he laments of during his interviews.

But for silver investors, the regulation could be a boon to the silver price, as the last time Sprott needed substantial inventory, the silver price soared 177 percent, though Sprott’s purchase cannot directly be proven to be responsible for all of that monstrous move.

However . . . more than four years earlier, in April 2006, prior to the launch of the NYSE version of PSLV, the Barclay’s iShares Silver Trust SLV, spot silver at the COMEX more than doubled at its price peak leading up to the launch of the SLV to $15 from $7.50, as late as September 2005—a double within six months, or a 200 percent ARR.

Moreover, further evidence of a coming silver price mega pop may be gleaned from the exciting silver rally of July 2010 to April 2011.  That monstrous rally could easily be rivaled soon, as Sprott apparently gears up for a whale of a purchase, $1.5 billion of silver bullion—a nearly three times last year’s $580 million purchase and coincidental 177 percent explosion of the silver price.

“Today the Globe and Mail announced Eric has filed a short form follow up Prospectus for a billion five physical silver,” respected bullion market blogger Harvey Organ wrote in a Nov. 21 post.  “holy jeepers, it could be approved in as little as two weeks people tell me, and he can trigger it OVERNIGHT without warning. Just bang, if he has got the orders. WE all know what happened with his last Physical Silver Issue, it was 580 million and blasted Silver 18 to 50 bucks in 5 months.”

Considering the fundamentals underlying the raging bull market in silver and the confident predictions of, in some cases, another double in the silver price, at least, by spring from industry peer James Turk of Goldmoney, as well as other hard money heavyweights, Ben Davies of Hinde Capital, Jim Rickards of Tangent Capital Markets, Euro Pacific Capital CEO Peter Schiff and QB Asset Management Co-founder Paul Brodsky, it appears the industry insiders to the tiny world of silver anticipated Sprott’s need to replenish—and when Sprott needs silver look out.

Get ready for explosion in gold and silver, says James Turk

James Turk again asserts that gold and silver will soar this summer, citing his conviction that at least a hint of a QE3 announcement is just around the corner.  The last time a hint of a Fed policy move in the direction of monetizing debt was uttered, the risk-on trade to dollar weakness that had ignited the precious metals sector last summer will return with a vengeance this summer.

“When they [Fed] start QE3, the U.S. dollar index will plunge to new lows,” Turk told Eric King of King World News.

In agreement with PIMCO’s Bill Gross, who said Bernanke is likely to at least hint of a QE3 at next month’s Jackson Hole meeting, Turk expects the Fed will make some kind of overture to the markets before the summer is out.

Jackson Hole is an annual central banking conference where central banking policymakers meet to discuss the global banking system.  Last year, Fed chairman Ben Bernanke said U.S. policymakers were contemplating an expansive debt purchasing scheme if the U.S. economy and asset markets warranted further stimulus, which is Fed parlance for preparing the market for the official announcement in the near future.

Following Bernanke’s speech in August 2010, gold rallied $400 and silver skyrocketed more than $30 before settling back off the highs set on May 2.

Curiously, the dollar hasn’t rallied to hold above the 76 level (a critical juncture, according to the Richard Russell of the Dow Theory Letters) during all the turmoil in Europe and the euro, according to Turk.  He thinks that ominous sign of profound underlying dollar weakness will become more apparent to all now that much of the euro’s weakness has been discounted throughout the latest crisis in Greece and its implications for Portugal, Ireland and Spain.

Another sign that the market is calling Bernanke’s bluff can be gleaned from last week’s powerful equities market, Turk suggested.

“I think the dollar chart basically confirms my point that quantitative easing will be started again soon,” he said.  “Last week’s big jump in the major stock market indices is basically saying the same thing.  All we need now is an indication from policy makers that QE3 is imminent.  The effect this will have on gold and silver will be nothing short of spectacular given how sold out both of the metals have become during their correction over the past two months.”

Moreover, the budget battle regarding the U.S. debt ceiling won’t be won by the Tea Party, according to Turk.  The stakes are truly too high.  Many prominent economists claim that the effects on the global banking system and the world economy would be catastrophic and most assuredly usher in a deeper Great Depression than the one during the 1930s.

Instead, the democratic system will be subverted to prevent a U.S. treasury default, according to sources in Washington close to Turk.

“The scary thing is they are going to shove through this debt limit increase one way or another,” concluded Turk.  “If there is an impasse in Congress with Tea Party Republicans holding the line, word has come from Washington that President Obama will use the 14th amendment to declare the debt limit as unconstitutional.  By removing this last piece of discipline, that will open the floodgates and will be the tipping point to send the dollar into oblivion and gold and silver into the stratosphere.”

Silver Inventories Dangerously Low; 3 Stocks to Consider

One would think that as prices dropped sharply in the silver “market” during the month of May, the Comex would contain more silver in inventory as big players fearing some form of run on the Comex soon lost their appetite for the precious metal amid the mini-crash of a more than 30% in price in the first week of May and wouldn’t stand for delivery.

Well, one would think incorrectly.  As the silver price dropped, the rate of depletion of available silver dropped as well, but the rate of depletion still remains at a near free-fall rate.

In fact, according to the Comex’s Metal Depository Statistics report, just released, registered silver bullion at the Comex has dropped again to a record low of 29.6 million ounces in May, a drop of 3.5 million ounces in one month.  That drop comes off the heals of a 8 million plunge in inventories in April, from February.

At today’s silver price of $37, the value of total Comex silver available for delivery equates to a miniscule $1.1 billion.

Compare the 29.6 million ounces with the Comex’s inventory of registered silver reading of 86.6 million ounces in July of 2008, or a decline of 1.7 million ounces, on average, each month.  So, the raid on the silver stock has escalated markedly during the last two reporting months of April and May.

At the present rate of offload, the Comex stores approximately six months of inventory of silver bullion.

Click here for a graph of the trend in Comex silver inventories since August 2008.

Rick Rule, founder of Global Resource Investor, told Eric King of King World News that the paper market in silver is a tool for institutions to trade the white metal, but the underlying physical shortage available to fabricators and retail investors continues at prevailing prices.

“Yeah I think there is absolute shortage in the physical market,” said Rule.  “There has been some softness (in the price) which I think is mostly a function of two things, generally a sort of risk off trade as institutional investors in particular have found credit conditions more difficult, and of course the tightening of the margin requirements in the futures markets.”

Rule added, “But I don’t think that has obviated the near-term physical shortage, which has come about from very, very strong retail end user investment demand and a shortage of coin strip.”

3 Silver Stocks to Watch

Pan American Silver (Nasdaq: PAAS)

Coeur d’Alene Mines (NYSE: CDE)

Hecla Mining (NYSE: HL)

Richard Russell says get back into the Silver Pool

Hi-ho silver!  The coast is clear; it’s everyone back into the silver pool for more profit fun in the sun, Richard Russell recently stated.

Richard Russell, the octogenarian publisher of the 53-years running Dow Theory Letters, wrote in his newsletter last week that the silver market will benefit from the currency crisis playing out in Europe.  Investors are now looking past the hopeless situation in the smaller nations of Europe to some of the much bigger member states of the European Union—those members that will overwhelm the ECB and IMF money hole-plugging efforts.

“Europe — Aside from France and Germany, Europe appears to be falling apart. First it was Portugal, Ireland, Greece that were in trouble, and now you can add Italy, Belgium and Spain,” Russell wrote.  “Wait Spain? Spain is the fourth biggest economy in Europe. Thus the U.S. dollar and the euro are perched on a see-saw, juggling back and forth, first one is up and the other is down, then it’s vice versa.”

When the crisis in the three weakest nations, which make up the PIIGS (Portugal, Italy, Ireland, Greece and Spain), surfaced in March 2010, the precious metals, instead of softening in the wake of a strong dollar began its remarkable rise of a near triple in a one-year period—from $17 in March 2010 to $50 in late April 2011.

Threats of another collapse in GDP around the globe has some silver investors wondering if a replay of 2008 is in the offing,  taking all assets cascading in a heap of horror, including gold, and especially, silver.

Silver’s historical R-squared correlation runs approximately 0.9, with 1.0 as a perfect correlation to the gold price.  So, as gold goes, silver goes, history shows.  Both are monetary metals, while silver enjoys the added feature as an industrial metal, but the silver price isn’t as highly correlated with copper—the quintessential industrial metal.

Russell expects the crisis in the euro will favor gold, taking silver up with it. And as the euro weakens, the prospects for the U.S. dollar now looks bleaker than ever, as well, because of the globally interconnectedness between European and American banks.  Further Fed intervention beyond QE2.5 is nearly assured, which could further play out the “see-saw juggling” of currencies that Russell points out.

“Remember I said that during recessions, silver is treated as an industrial metal, but during periods of inflation silver is treated as a monetary metal,” explains Russell.  “With inflation built into America’s future, I see silver following gold to higher levels. And I see the public once more rushing in to buy silver as a safe-haven currency against a shaky dollar.”