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Silver price: Sprott hatches an OPEC for silver industry

In a gesture of highlighting the glaring impediments and equally exciting opportunities facing thesilverindustry today, Sprott Asset Management CEO Eric Sprott issued a “A Call to Action” letter to 17 of the world’s largestsilverproducers, posted on one the world’s leading sources of breaking news in the bullion markets,King World News.

As a synopsis of the 1,876-word letter, Sprott outlines a compelling case for producers to hold back inventory for the sake of supercharging its balance sheets as well as maximizing future profits in the wake of drastically changed global market conditions from years past—namely, an environment, in which:

1)   The dollar’s value is expected to decline more rapidly than it did during the 1970s.  Through the Fed’s policy of negative realinterest rates, the CRB Index has risen at a 10.3 compounded percent rate since 2002, already rivaling the decade of the 1970s and expected to get worse, as Bernanke has stated that ZIRP rates will last through June 2013,at least, in an effort to mitigate the effects of the crisis in Europe to liquify U.S. banks;

“Fitch Ratings recently warned that the U.S. banks may face severe losses from their exposures to European debt if the contagion escalates,” Sprott stated in his letter.  “There’s very little at this point to suggest that it won’t. The roots of the 2008 meltdown live on in today’s crisis.”

2)   A U.S., European banking and sovereign debt crisis, which has many years left to monetize, already shows signs of systemic failure, post QE2.

“Given the current environment, we see much greater risk holding cash in a bank than we do in holding precious metals,” stated Sprott,   “And it serves to remember that thanks to 0%interest rates, banks don’t pay their customers to take on those risks today.”

3)   And to the backdrop of currency destruction of the West lays a top a eye-popping emergence of demand forsilverfrom a combined additional population of 4.3 billion people of Asia and South America for both industrial applications forsilverand as an investment.

“During the month of September, the U.S. Mint reported the second highest sales of physical silver coins in its history, with the majority of sales made in the last two weeks of the month,” stated Sprott.  “Reports from India in early October indicated that physical silver demand had created short-term supply issues for physical delivery due to problems with airline capacity.

“In China, which reportedly imported 264.69 tons (7.7 million oz) of silver in September alone, the volume of silver forward contracts on the ShanghaiGoldExchange was more than six times higher than the same period in 2010.” See BER articles on Chinahereand on Indiahereandhere.

So far, nothing new here—just a recap of the known demand profile of silver.  But what is new and mighty interesting about Sprott’s Call to Action letter is his solution to the CFTC’s obvious delay tactics regarding a resolution to thesilver pricesuppression scheme still in progress at the CME—a solution to a similar problem that the Saudis have already implemented as a response to an artificially high US dollar against its sacred and depleting commodity, oil.

FromReuters, April 13, 2008:

Saudi Arabia’s King Abdullah said he had ordered some new oil discoveries left untapped to preserve oil wealth in the world’s top exporter for future generations, the official Saudi Press Agency (SPA) reported.

“I keep no secret from you that when there were some new finds, I told them, ‘no, leave it in the ground, with grace from god, our children need it’,” King Abdullah said in remarks made late on Saturday, SPA said.

Though the Reuter’s article received nearly no play in the U.S., the gravity of King Abdullah’s decision to retain his kingdom’s oil inventory in the wake of global peak oil productionanda declining dollar is a natural and understandable business move by him.  Why would the Saudis want to give away oil so cheaply when discounting today’s present value of the dollar is so artificially low.

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Posted by on Dec 1 2011. Filed under Silver Analysis. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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