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Hitting A Silver Brick Wall

By: Ed Steer

-- Posted 22 September, 2005 | | Source:

He who passively accepts evil is as much involved in it as he who helps to perpetrate it
 --- Martin Luther King, Jr.

I see that Phil Baker Jr., the President and CEO of Hecla Mining Company, has just been elected as the next president of the Silver Institute. In the accompanying press release, Baker had this to say...“The Silver Institute has done an excellent job of helping to unravel the mystery of what constitutes the silver market. Their studies have given us a much better understanding of the supply and demand picture for silver, as well as the fantastic plethora of uses for silver.”

If this is true, then the following question begs to be asked…If the Silver Institute “has given us a much better understanding of the supply and demand picture for silver” then why aren’t they questioning the current silver price based on that information. The entire article, posted at the Mining Weekly, is hyperlinked here.

Most precious metals investors that have a good working knowledge of the silver market fundamentals know perfectly well that the supply/demand equation has been out of whack for the last sixteen years or so. Both Ted Butler and Dave Morgan have written volumes about this. These facts are easy to confirm, because all the information they use comes from the annual reports of both Gold Field Mineral Services (GFMS) and CPM Group…and both these groups even acknowledge this deficit. Ted Butler goes even further than that…and rightly so. He says that demand has exceeded supply for sixty years…starting at the end of World War II.

That is also easy to prove, as the American government had stockpiles in the four billion ounce range at the time. Three years ago they announced that they had sold the last of this stockpile and, by inference, were announcing that they would become silver buyers in the open market for the needs of the U.S. Mint and other government departments who use it.

It is now common knowledge amongst highly informed silver (and gold) bugs that the price of both gold and silver is totally controlled by the paper market on the COMEX. Ted Butler’s weekly commentary at Jim Cook’s website and Dave Morgan’s Saturday commentary at Jim Puplava’s website deal extensively with this issue. At first, they were the only ones talking about how the interplay between the dealers and the tech funds controlled the price. Now everyone is jumping on the Commitment of Traders bandwagon as if they thought of it themselves. Wrong! Ted Butler was there fifteen years before anyone else…and was followed thereafter by Dave Morgan.

So what does all this have to do with the Silver Institute and its new president, Mr. Baker? Quite a bit actually, although I’m not singling him out specifically. This comment would apply to any past president or future president of the Silver Institute…and not only them, but all the primary silver miners or silver resource companies in North America.

First of all, you don’t become president of the Silver Institute unless you are recognized as a team player by all the other members of the Institute. Its many peoples opinion (mine included) that the Silver Institute is in bed with the Silver Users Association. No mining executive seeking any position of importance…such as the presidency of his own (or another) silver company….or an executive position with the Silver Institute would ever get past the front door if one of their stated objectives was to get to the bottom of the price fixing “conundrum” in the silver market. I’d be willing to bet some serious money that the low price of silver, based on its current fundamentals, is ever an issue brought before any meeting of the Silver Institute by any of the primary producers of the metal….even thought they are mining silver at a loss…or an insignificant profit. They know better than to do that.

After five years of beating my head against the wall with various and sundry silver mining companies, I’ve come to the conclusion that they all know what’s going on, but won’t deal with this issue with their own shareholders…or even admit that there is a problem. The fact of the matter is they just don’t want to go there.

But why not?

I believe that some of these guys have been bought off. Their silence is paid for. They are part of the establishment themselves. The rest just fall into line because, in the grand scheme of things, they know what side their bread is buttered on…and to hell with their stockholders.

This is the effect that the big ‘silver lie’ has had on the top players in all the major silver companies that we hold shares in. This lie has been going on for so long that it has become institutionalized all the way from the SEC, COMEX, NYMEX and the CFTC…and through the Silver Institute and the major silver producers/resource companies themselves. All of us that fired off letters to the CFTC and Eliot Spitzer at the behest of Ted Butler know that we received the standard reply that everything is fine. But…as Mr. Butler pointed out…that is the reply that they have to give. To admit otherwise is not an option. The following quote by Rabbi Wayne Dosick spells out exactly the situation that exists in the top echelons of the silver market today: "The reality is…if we tell the truth, we only have to tell the truth once. If you lie, you have to keep lying forever."

It’s that simple. As informed and educated stockholders, we can all see that the emperor has no clothes. And we can jump up and down…scream and point to the truth all we want…but nothing is going to happen. The Silver Institute et al, and the mining companies we hold shares in, are going to continue walking down the street buck naked on this issue until D-day and H-hour.

To give you an idea of how desperate ‘the powers be’ in the silver industry have become and how spineless and Pavlovian the Silver Institute and the silver companies are; let me quote a few paragraphs (more than a few actually) from recent essays by Franklin Sanders, Ted Butler and Dave Morgan. First I’ll start with Franklin Sanders over at

In a July 6th piece entitled “Where’s the Silver? A Review of the Silver Institute’s World Silver Survey 2005”, Sanders gets out his set of Ginzu kitchen knives and cuts this report to ribbons. I’m not going to get into all the gory details, as the essay is hyperlinked above, but I do want to highlight a couple of comments that he made in this essay….firstly,

“Too often the Survey merely alludes to some recondite controversy without data or explanation, offering a conclusion only, with its feet firmly planted in the air.

For example, over the past 16 years the silver market has faced a single giant riddle: how is the ongoing deficit of supply over demand being filled? Nearly one and a half billion ounces of silver doesn't just pop out of the ground. For the past couple of years the Silver Survey has concluded that China supplied the deficit silver. Well, that conclusion may be correct, and it may not, but the Survey doled out facts and arguments so niggardly that the reader could not rationally evaluate that conclusion. Therefore GFMS's conclusion sounded like "magic Chinese silver" that appeared and vanished according to their need to balance the Survey, even though it may very well be correct.”

And secondly…

“Since most everyone believes that price eventually balances supply and demand, that cumulative deficit is the first and best argument for higher silver prices.

But a related question must be asked: Is the deficit increasing or decreasing? For this reason I dislike very much GFMS’s unexplained diddling with past figures in the 2005 survey. Here’s the change in the structural deficits, according to GFMS changing figures:

2004--21.2 Moz
200372.0 Moz58.6 Moz
200262.6 Moz44.2 Moz
200189.5 Moz72.8 Moz
2000147.6 Moz136.3 Moz

These changes affect the shortfall’s chart even more dramatically. From a chart that appears to have bottomed and begun to climb back toward even, the structural deficit chart now ascends very steeply. This implies the deficit’s days are numbered.

I’m not accusing GFMS of fudging the numbers to make the deficit look smaller, but the change did accomplish that. I’m curious why they made those large changed, but GFMS remains silent.”

I have picked these two points only, but Sanders has many other similar comments about the GFMS report. However it’s his last comment I quoted that is so disturbing…at least to me. Not only was no explanation forthcoming for these monstrous changes in Gold Field Minerals Services’ report…but it doesn’t appear that any of the silver mining companies (or other members of the Silver Institute) even bothered to inquire about it. They just incorporated these numbers into their annual reports (and websites) like there was absolutely nothing wrong. A public statement from the Silver Institute or GFMS would have given this report a patina of credibility…but even better would have been an intelligent discussion in the annual (or quarterly) reports of at least one of the silver companies. You missed it too, huh?

It would be my guess that the Silver Institute pays a pretty big dollar for this annual fairy tale that comes out of London. Of course they would never publicly admit that all the information they have been using for the last five years wasn’t worth the glossy paper it was printed on. If I were the Silver Institute, I’d be looking for a large chunk of my money back…however the possibility does exist that GFMS got a bonus for printing this report exactly as they wrote it.

If you haven’t read Franklin’s article, the time to do so is now. It is hyperlinked above…and here.

One thing I should point out about Sanders’ deficit numbers is that he does not include GFMS’s supply figures for either ‘Net Government Sales’ or ‘Producer Hedging’. In a very recent telephone conversation with Franklin, he explained to me that he was only interested in the structural deficit which, for obvious reasons, wouldn’t include either of these two aforesaid mentioned numbers. When you examine Table ‘1’ on page seven of the 2005 GFMS Silver Survey, you will find yearly deficit and surplus numbers…yep, I said surplus…that are quite extraordinary. However, GFMS does not use words like ‘deficit or surplus’ in this table. They obviously borrowed their terminology from Sir Alan Greenspan. Deficit is now written as ‘Implied Net Disinvestment’ and a surplus is shown under ‘Implied Net Investment’.

To make a long story short…GFMS’s 2005 Silver Survey shows a year-ending surplus for three of the last five years! The surplus (Implied Net Investment) for 2004 is a whopping 42.5 million ounces! No wonder Mr. Sanders has questions. We will return to GFMS’s report a little later in this essay.

Whereas Franklin at least tries to be somewhat diplomatic (and humourous) about the GFMS report, Ted Butler will have none of that. Here’s a collage of comments from an interview that he had with Jim Cook over at Investment Rarities

Cook: The World Silver Survey claims that the shortage or deficit between supply and demand is only 22 million ounces. Do you agree?

Butler: No. This whole report is a hodge-podge of inconsistencies. You must remember that GFMS does this report the way most people do their tax returns. They decide on the bottom line first and work backwards to prove what was decided initially.

Cook: They point out that this is the 16th year of deficits. If there was a similar deficit in oil, or corn, or copper, wouldn't the law of supply and demand make the price go higher?

Butler: Of course. This is the most basic of economic principles and, in silver, it’s a development never seen in any commodity ever before. The silver miners in the Silver Institute should be screaming their heads off that something is very wrong in the silver market. It shouldn’t just be me. And you are correct. If there weren't games being played, the price would be much higher.

Cook: Well, what do you think the actual deficit is?

Butler: Somewhere between 50 and 100 million ounces.

Cook: In a nutshell, what’s holding down the price of silver?

Butler: Unrestricted paper short selling, primarily on the COMEX, and central bank dumping and leasing, primarily from Red China.

The important point is that Chinese dumping of official government holdings is what is satisfying the deficit, not free market inventory liquidation in response to higher prices. This Chinese dumping is against every precept of the free market. What I can’t understand is how the Silver Institute can calmly report that the Red Chinese government is dumping official inventories and not do anything about it.

Cook: Like what?

Butler: Let’s face it; these Chinese stockpile sales have single-handedly satisfied the deficit for almost six years. In other words, without this Chinese dumping, the silver price would have been much higher, and the Silver Institute can’t (or won't....Ed) connect the dots.

If this Chinese dumping had taken place in any other commodity from lumber, to steel, to anything, the producers in those industries would be all over that dumping, like white on rice. Only in silver do the producers sponsor a report that proves the dumping and then they do nothing about it.

Cook: The World Silver Survey sounds a note of authority on their supply and demand figures. I’ve seen that getting accurate numbers on production and usage figures from around the globe seems daunting. Actually, these figures could be only guesswork or purposely falsified. Don’t you think there’s more secrecy than openness in determining the real supply and demand numbers for silver?

Butler: This is one of my pet peeves. When you read this report, you can’t help but come away with the feeling that it is authoritative, given the precision of the numbers. There is never any rounding, every number ends with a fraction or decimal point. That’s preposterous. Not one of the numbers recorded could be independently verified and documented. How the heck could one rinky-dink London outfit know everything from what farmers are doing in India to what the central bank in China is selling to what investors are buying? This report is written with an agenda in mind.

Cook: What’s that?

Butler: The Silver Institute is not just comprised of miners. Users are members and they have a different agenda. That’s why the survey is so middle-of-the-road, and doesn’t rock the boat. It stays away from controversy. The fundamental question of silver market manipulating is never addressed. The manipulation is like a dead body lying on the floor of a fancy cocktail party and people are stepping over it and discussing the quality of the wine being served.

Neither Sanders nor Butler have anything nice to say about Gold Field Mineral Services and the Silver Institute, so why should Dave Morgan be any different. He isn’t.

Here is what he had to say recently in an article he posted on the internet. First he quotes what GFMS misstates to the great unwashed, then he follows through with a one-two punch.

“Silver prices in 2004 averaged $6.65, a sizeable rise of 36% year-on-year and a 17 year high.”
World Silver Survey 2005 page 11.

This month’s quote may seem to be a cheerful note to all silver investors but upon further examination it is not as good as it appears. Silver at $6.65 seventeen years ago would need to be $10.80 in constant dollars. In other words, if the inflation lie was taken out of the data silver at $6.65 average price in 2004 is not a new high; in fact silver would have to rise another SIXTY PERCENT to equal its high of seventeen years ago.

Readers may like to know that the Executive Chairman for Gold Field Mineral Service (GFMS) that produces the Silver Survey for the Silver Institute was questioned by David Morgan two years ago at the Silver Institute Conference in Scottsdale, Arizona, and Dave pointed out that five dollar silver in 1979 did NOT EQUAL five dollar silver in 2003. Mr. Klapwijk briefly acknowledged this, and then went on with his presentation. It was obvious that he did not take Morgan’s comments to heart, nor did he tell the World Silver Survey reader that the reference in this years’ survey is in nominal dollars only.

The idea that the nominal price is the true price is propaganda used by the establishment to convince the population that commodity prices over several years can be compared. The truth is silver is far below where it should be in inflation adjusted terms. The other consideration is that the “adjustment” to a $10.80 silver price is using the official government inflation rate, which in Morgan’s view understates the true inflation rate.

In my opinion these gentlemen, Sanders, Butler and Morgan…individually and collectively…have more knowledge of the real goings-on in the silver market than the rest of the silver industry combined.

In this essay both Sanders and Butler have talked about the huge amounts of silver coming out of China, and Dave Morgan has done the same in quite a few of his writings over the years. In case some of you are wondering where China might be getting all this silver, here’s an essay written by Bill Walker over at The essay is entitled “How China Was Stolen”, and is a must read…well worth the five minutes it takes to run through it.

In an another interesting aside, readers might like to know that there is no love lost between GFMS and their North American competition…CPM Group out of New York. CPM thinks that GFMS are snobs and part of the London establishment. Many years ago, CPM Group used to provide the yearly silver report to the Silver Institute, but were dropped in favour of GFMS because CPM was starting to sound too upbeat about how high silver prices might go…at least that’s the scuttlebutt I’ve heard from someone who is very much in the know. However, in my humble opinion, this is just another classic example of the pot calling the kettle black…but I digress.

In a paragraph close to the beginning of this essay, I mentioned how institutionalized this rigging of the precious metal prices has become and the Pavlovian responses that the silver companies have to give to their shareholders.

I’ve had face to face discussions/confrontations with a couple of well known people in the silver mining industry within in the last four years that I’d like to share with you. Since these conversations took place a while back, I feel that I can now comment on them objectively. The conversations started out amiably enough, but didn’t end that way. The first was with Ross Beaty over at Pan American Silver.

It was my first visit to their head office since I had become a shareholder several years prior. I owned 5,000 shares back then. Rosie Moore was their most excellent public relations person at the time, and she introduced us. I was eager to meet Ross, as I wanted to approach him for a donation to GATA…the Gold Anti-Trust Action Committee…of which I am now a director, but wasn’t at that time.

I’m sure you can figure how far this conversation went. He looked like a man who desperately wanted to be anywhere but where he was. Poor Rosie, she had to cover for him when he finally left. It was at this time that I got my first inklings that executives of silver mining companies were not interested in what their shareholders thought…even though they were supposed to be running the companies on their behalf.

My second face-to-face was at one Joe Martin’s investment conferences in Vancouver a couple of years back. Hecla Mining had a booth there with Vicki Veltkamp, their Investor Relations Manager. At the time…but no longer…I was a shareholder, so I had every right to ask her what Hecla was doing about the rigging of the gold and silver price by the “paper hangers” on the COMEX. Well…she looked at me like I had just handed her a bucket of warm spit.

I’ve talked to other executives at other silver companies and no matter how politely I ask, they just won’t go there or admit that a problem even exists.

In the ‘target rich’ environment that all the major silver producers inhabit, it’s pretty easy for me to pick on Pan American Silver, although all of them are equally guilty. However, I’m more than qualified to flick boogers at Pan American than the rest of them. First of all, I’ve been a shareholder for about five years. It’s the largest holding by far in my precious metals stock portfolio. Secondly, Ross and I had a rather nasty verbal/e-mail exchange a while back that somehow ended up in the public domain. I’ve always followed the company closely, which is not surprising considering the financial position I hold in it.

First of all, Pan American Silver…like other silver producers…continues to produce silver at a loss or virtually no profit. And to make matters worse, Pan American is now hell bent on becoming the largest primary silver producer in the world….producing more of their shareholder’s silver at a loss…or little profit. What do they expect to do…make it up on volume? Just asking.

And if the yearly silver deficit is shrinking/gone (according to the new silver ‘cook book’ from GFMS), why is Pan American so anxious to close the gap between consumption and production that has existed for almost sixty years? Any rational intelligent silver mining executive would not produce one ounce more than they had to (at a loss) until there was a high enough price to justify it. This logic is obviously lost on Mr. Beaty…which is probably one of the reasons there has been almost a 100% senior management turnover at the company in the last couple of years.

It would be my bet that virtually every shareholder in Pan American Silver (and every other silver company for that matter) just wishes that the silver companies would spend as much time trying to bring the silver price manipulation to an end as they spend time digging our silver out of the ground at a loss. Don’t expect that question to ever show up on the yearly proxy vote that you get in the mail…but hope spring eternal that at least one company will consider their shareholder’s wishes on this issue. However, I can absolutely guarantee it won’t be coming from Pan American Silver.

While the subject of digging precious metals out of the ground at a loss is still on the table, I’m reminded of an incident that happened at the natural resource conference in New Orleans last November. Rick Rule…who may have been born at night, but it wasn’t last night…was introducing three mining company executives who were to speak on the merits of their respective firms.

During the introductions, Rick appeared to be taking great delight in admonishing mining company executives that were digging silver and gold out of the ground at a loss, and leaving nothing but a big hole in the ground and no profits for their shareholders when prices finally did rise. Then he introduced the person from the first company who was seated right beside him…his ‘good friend’ Ross Beaty. While Rick was speaking, I thought I could see that same look on Ross’s face that I saw when I was in his office many years prior…he didn’t want to be there. The next person at the speaker’s table was the president of Silver Standard Resources, Mr. Bob Quartermain. He looked pretty happy to me; and rightly so, as all his shareholders’ silver is still in the ground…which will only be mined when the price warrants it. The third executive was from Cambior, a poster child of the hedge book blow-up when the first Washington Agreement was signed.

Pan American Silver once again came to the fore on July 3, 2005 when Ross Beaty was interviewed by Paul Luke, a reporter for The Province, a British Columbia newspaper. Here are the first seven paragraphs of that story…

Silver zealots might be a little worried about Pan American Silver Corp. chairman Ross Beaty's attitude.

Beaty shows few signs of believing the zealots' scenario that coming financial chaos will trigger a stampede into precious metals.

"A doctrinaire silver bull believes gold and silver prices will go to the moon because everybody will panic and get out of other asset classes," Beaty says from Pan American's Vancouver head office.

"A lot of our shareholders have that view and, God bless them, I think that's great. I'm not in that category." (Highlighting is mine – Ed)

Beaty does believe silver will show a strong price increase, based on growing global demand, restricted supply and shrinking inventories.

Silver fanatics might wish Beaty would testify more rhapsodically on behalf of the metal. But they can't question his faith.

He kept that faith during the dark days of the 1990s. The University of B.C. geology grad founded Pan American in 1994, convinced the metal would begin a sustained climb.

"I was wrong, quite frankly, for the first nine years of our company's life," he says from a desk bearing a statue of Buddha, a religious leader revered for his patience.

"In fact, silver ended the decade lower than where it started."

The thought that silver prices have been artificially kept low over all the years that Pan American has been in business is not something that Mr. Beaty will entertain or admit to…regardless of the reams of evidence to the contrary. That’s why he was a perfect candidate for the position of President of the Silver Institute. That’s why Phil Baker over at Hecla will be another perfect president…as will his successors. They are already a ‘known quantity’ by the silver powers that be. The boys know that those selected as president will never rock the boat by acting in their shareholder’s best interests.

I guess that I would feel happier about that newspaper article if Ross shown any signs of acknowledging the past history of precious metals. They have always been a safe haven in times of currency turmoil. I wonder what Charles de Gaulle would have to say to Ross on this issue if a heavenly phone call could be arranged. It was the action of the French government that almost single-handedly forced Nixon to close the gold window back in 1971…throwing Bretton Woods onto the trash heap of history. Look at what happened in the early 80s with silver...and gold. Back in the early 30s, before the Roosevelt confiscation, gold coins were disappearing out of circulation at an alarming rate…and that was when the price of gold was fixed at $20 U.S. the ounce. The U.S. public and the French government knew better…and acted accordingly.

In the same…pardon the pun…vein, this recent Bloomberg story is also interesting…

Sept. 14 (Bloomberg) -- Argentina's central bank may increase its gold reserves as a hedge against inflation and to protect it against financial crises, said Juan Ignacio Basco, the bank's head of market operations.

“We don't rule out increasing our gold holdings in the future, which would depend on the economic environment,'' said Basco, in an interview during a conference in London today. “Gold is recovering its role as an asset protecting the portfolio against inflation and international financial crises.''

I guess there’s still time for Mr. Beaty to get on the phone to the Central Bank of Argentina and straighten these guys out before they foolishly squander their valuable fiat on Mr. Keynes “barbarous relic.”

If Mr. Beaty believes that there won’t be a stampede into precious metals in times of financial or economic crisis, then why are he and Pan American so excited about this new line of Pan American Silver bars that are being struck for them by the Northwest Territorial Mint?

On Pan American Silver’s home page under “What’s New” is a link to their page on investment products.

On that page and under the heading of “Why Invest in Silver” are these three paragraphs...

Economic Forces: The economic forces that affect the price of precious metals are different from, and often are opposed to the forces which determine the price of most common financial assets. This independent movement of precious metals to other financial assets can reduce overall portfolio volatility and contributes balance.

The Declining Dollar: The purchasing power of the U.S. dollar has steadily declined over time and is expected to continue to do so. Precious metals can often provide a “hedge against inflation” capability. For example, between 1971 and 1981, the U.S. dollar lost more than half its value, while silver prices rose nearly five times. Economies fluctuate between inflation, recession and expansion, precious metals investment helps diversify and lower overall risk.

Asset Allocation: Whether you are conservative or aggressive in your investment approach, precious metals can represent an important part of your asset allocation. Some experts suggest that 10-15% of portfolio assets be in precious metals. No matter what level of risk an investor wishes to take, every portfolio needs a secure foundation.

Excuse me for thinking otherwise, but this sounds like the exact description of a flight from paper assets to precious metals in time of economic and financial crisis. How about you? I thought so! The “Why Invest in Silver” page at Pan American is hyperlinked here.

And it just goes downhill from there. Nine weeks before he spoke to that reporter from The Province, Mr. Beaty had this to say on April 26th at the press conference announcing Pan American Silver’s venture into the silver bullion investment market that I just described several paragraphs before...

"Silver is money, as it has been for millennia. These pure silver products will enable individuals and institutions to easily purchase Pan American's beautiful silver coins and bars for long term investment and enjoyment. Silver has always been important as a hedge against inflation and devaluation of paper currencies, and these Pan American "silver hammers" will, I hope, become industry-standard bullion products for silver investors for a long time to come. Silver is a wonderful and immensely useful metal and I am very pleased that we can provide our shareholders and other investors with an easy, inexpensive way to purchase silver directly from our purest silver mine."

If you doubt me, or wish to read the news release itself, it’s hyperlinked here. Mr. Beaty believes in one thing on April 26th and another on July 3rd. I’ll leave it up to you the reader to divine where Mr. Beaty really stands on this issue. If you are a shareholder in Pan American as I am, you can call Mr. Beaty and ask. Pan American Silver’s business phone number is 1-604-684-1175. You can call him during normal business hours. Vancouver is in the Pacific Time Zone. Or you can e-mail him at However, I must warn you in advance that Mr. Beaty is a lawyer as well as a geologist and no matter how intelligently or diligently you present your case or your concerns, you will likely be no match for him. I wasn’t.

Now Mr. Beaty might argue vociferously that investment demand warrants Pan American Silver coming out with silver investment bars because that’s what the shareholders are telling him they want. I never got asked. How about you? I wonder if these same shareholders were asked if they want Ross to continue digging their silver out of the ground at virtually no profit as well. My guess would be…probably not.

I want to end this diatribe about Pan American Silver on a lighter note. Please don’t get the idea that Mr. Beaty is all bad. He’s a very charming and likeable guy…as long as you’re not talking about the manipulation of the silver market. If you do, then there is a Mr. Hyde to Dr. Jekyll transformation that is awesome to watch. It comes through on an e-mail real good too.

Anyway, as I said, I’m going to end this on a lighter note and here it is. On May 12, 2005 there was a major fundraiser for the B.C. Children’s Hospital in Vancouver. Both Ross Beaty of Pan American Silver and Bob Quartermain of Silver Standard Resources were in attendance. They had a little side bet that whichever one of them could raise the most money would get to ‘pie’ the other…and it’s my guess that it was Quartermain’s idea. My source told me that Ross raised $88,000 and Bob raised $97,000. This was an admirable effort on the part of both men…my congratulations to them.

However, Bob was the winner, and the photo below by Andy Clark of Reuters is the result. And yep…that’s Bob Quartermain’s hand in the picture.

If you’ve suddenly developed the urge to throw some pies at Mr. Beaty (plus a lot of other silver…and gold…company executives as well)…I empathize, sympathize and feel your pain, as I’m sure your numbers are legion. However, the line starts right behind me.

After skewering Pan American Silver in general and Ross Beaty in particular, some may ask why I hold shares in this company at all. Well, there are some very good's a big producer, it has big reserves, and it’s a very liquid stock....and it's Canadian based with no mines in the United States. Not that I believe that either gold or silver will be confiscated by the American government...but why put oneself in harm's way if you don't have to. There’s also the matter of holding stocks that are denominated in U.S. funds. When the bear market in the dollar reasserts itself this fall, that’s not the currency you want to hold any stock in. When silver finally breaks free of the COMEX paper chains that bind it, Pan American Silver will be one of the few 'go to' stocks that precious metals funds will be able to buy in any kind of quantity. So I’m not…as the saying goes…going to cut off my nose to spite my face. Pan American Silver belongs in everyone’s silver portfolio…as does Silver Standard Resources.

Going back over the years that Butler, Sanders, Morgan and GATA (and so many others) have spent trying to get the silver (and gold) miners to do something…anything…about the rigging of the precious metals market, I must admit that I’m getting tired of beating my head against that silver brick wall…which is the title to this essay. Bob Landis over at (when describing the Reg Howe law suit against the BIS et al) in his classic essay “The Skunk at the Garden Party” had this to say…

“In any event, one would expect that representatives of an industry which is in desperate financial condition, who produce a fungible product the price of which has been at historic lows for the past several years, and who are gathered in formal and informal congress, might express a passing interest in ascertaining the truth of allegations made in pending legal proceedings that their product has been the subject of an illegal price fixing scheme.”

“One would be wrong.”

And then this…

“Either way, producers will be put to an election: contribute toward a search for truth and justice, inside or outside the courtroom, or abandon your shareholders and your industry to their fate. Turn in your options on your way out.”

This was written about the gold price, and except for the lawsuit mentioned, the circumstance surrounding the silver miners and the silver price is identical.

Nothing has changed with either the silver or gold producers since that article was written almost four years ago. Well, almost nothing. One company mentioned in this essay did send a representative to GATA’s Gold Rush 21 earlier this month, and that was Silver Standard Resources…and I thank them. Silver Standard Resources is also sitting on about two million ounces of silver bullion that they bought with our company’s money…and money well spent it was. (Note to Bob Q: please Sir…buy some more.)

As I put the finishing touches on this essay, which has been a work in progress for the last couple of months, I see that CPM Group just released their 2005 Silver Survey…and it’s quite the set of figures too. Their method of data presentation is a lot different than the one that comes out of GFMS. Here they actually show the deficit numbers and call them exactly that. On page seven of their Silver Survey, they show a deficit for 2004 of 55.0 million ounces, and they project a deficit of 43.4 million ounces for 2005.

If you remember back to the paragraphs on GFMS’s “deficit” numbers for 2004, they showed a surplus of 42.5 million ounces. That is a difference of 55.0 + 42.5 = 97.5 million ounces between the GFMS & CPM reports for just that one year. That’s within an eyelash of the production of the two largest silver producing countries in the world during 2004…Mexico and Peru. On page 19 of GFMS’s 2005 Silver Survey they state that Mexico’s silver production was 99.2 Moz and Peru produced 98.4 Moz!

And it gets even more incredible than that. If you add up the deficit/surplus numbers for the last five years (as reported by both these companies) you come up with the following...

GFMS - 2000-2004 Inclusive  Total 5-year Cumulative Deficit 33.6 million ounces
CPM - 2000-2004 Inclusive  Total 5-year Cumulative Deficit 434.9 million ounces

Yep, you read those numbers right. Don’t forget, GFMS reported a silver surplus for three of the last five years…but not CPM. Do the silver producers or the Silver Institute attempt to explain this ongoing dichotomy? Is it any wonder that the Silver Institute dropped CPM as the source of their silver information? These numbers were probably far too bullish for the silver users at the Silver Institute. Here’s what CPM had to say about the future price of silver on pages 17 and 18 of their report…

“Thus, the silver market has entered a period where the combination of a persistent short-fall of newly refined silver relative to fabrication demand has led to a draw-down of inventories from historically high levels to historically low levels. Basic economics dictate that the market will need to come back into balance. For this to happen, prices will have to rise sufficiently to stimulate increased supplies of silver to be developed and/or discourage fabrication demand. Much of silver supply and demand is relatively price inelastic. As a result of these price inelasticities on both supply and demand for silver, prices may have to rise and stay at relatively high levels compared to recent prices to bring the market back into balance.”

GFMS is much more subdued about their hope for future silver prices. Here’s what they had to say about it on page 14…

“The view that silver is more closely related to industrial commodities has recently gained many supporters. This is mainly due to the fact that indeed correlations of the silver price with prices of some of the base metals as well as other commodities have been particularly high in the last few years. Furthermore, the idea has solid backing. The bulk of silver demand is used in industrial and photographic applications, in contrast with gold, which is primarily an adornment and investment commodity. Furthermore, gold is a safe haven asset, a property that would be difficult to argue for silver.”

Whoever wrote the above was obviously not the same person at GFMS that wrote about silver under investment demand on page 16 where they say…

 “We expect that the relationship with gold should ultimately be more significant that the one with base metals. In this regard it will be important for the development of the silver price whether GFMS’ expectations of higher gold prices in the second half of 2005 materializes or not.”

No wonder Franklin Sanders tore this report apart.

Ted Butler, in another interview with Jim Cook dated September 13th, had this to say about the CPM Silver Report…

Cook: Anything else new?

Butler: Well, the annual silver survey from the CPM Group was released.

Cook: Any revelations?

Butler: The CPM study showed the deficit is double what the Silver Institute indicated. CPM pegged the deficit at around 43 million ounces.

Cook: What’s your take on that?

Butler: I think the CPM deficit number is closer to the real number, but I think the deficit was probably higher. But, it’s not worth arguing about.

Cook: Why?

Butler: I can make the case for silver using the numbers reported.

Cook: Please do.

Butler: If you examine the numbers, you must conclude that silver has been artificially depressed in price and must explode.

Cook: Please explain.

Butler: The 43 million-ounce deficit, according to the production and consumption figures reported by CPM, is 8% of world mine production and 5% of total world consumption. These are shockingly high percentages that are unprecedented in other commodities.

Cook: What does it mean?

Butler: It means that a supply/demand deficit of 5% to 8% in any other commodity would be earth-shaking and result in a profound increase in price. Imagine such a deficit in oil. We’re in a panic because of the sudden loss of two million barrels a day, due to Hurricane Katrina. That’s 2.5% of world production and consumption. Can you imagine the impact of a shortfall two to three times that amount? Oil would be $200 a barrel. Yet that’s exactly the kind of deficit we have in silver and the price doesn’t even exceed the primary cost of production.

Cook: Smells fishy.

Butler: Not only is the silver deficit unprecedented compared with any other commodity, this deficit has been ongoing for decades, not just a few days.

So, on the basis of these two reports, who would pay good money for either one of them? Why would anybody believe either set of numbers? But the Silver Institute and the miners pretend like this is perfectly all right. Well, it’s not ‘perfectly all right’. It stinks. If Franklin Sanders and Ted Butler can figure this out, then why won’t the individual or collective members of the Silver Institute ask these same questions?

I think John Embry over at Sprott Asset Management had the most succinct commentary on silver and gold producers to date. In an interview on ROB-TV with Jim O’Connell a couple of weeks back, he had this to say about the precious metals mining executives regarding the ongoing manipulation of the gold and silver price…“They are either ignorant, naive…or complicit.” John had mentioned that to me privately on several occasions, but it was still a shock to hear him say it in a public forum.

And all of the above dovetails nicely with the Martin Luther King, Jr. quote at the beginning of this essay where he says that “He who passively accepts evil is as much involved in it as he who helps to perpetrate it.” We just have to choose into which of John Embry’s categories each silver (and gold) mining company falls.

I’ve already made my decision on Ross Beaty and Pan American the rest of the primary silver producers as well. With friends like these looking after their shareholder’s best interests…who needs enemies?

The “eight or less traders” on the floor of the COMEX silver pit must be pleased.

© Copyright 2005 Ed Steer

Contact Info
Ed Steer, Director
Gold Anti-Trust Action Committee
Edmonton, Alberta

-- Posted 22 September, 2005 | |

Last Three Articles by Ed Steer

A Last Desperate Act?
21 April, 2006

Hitting A Silver Brick Wall
22 September, 2005

Going To the Wall - The Franklin Sanders Story
19 March, 2004

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