Posted last below is the latest chart on the Silver ETF. Over the last 3 days, there supposedly has been over 78 tonnes of silver added to its inventories. As a few of us here have stated before, just where are they obtaining the large amounts of silver as the shelves are almost bare globally?

About an hour ago, top trader Bill Cara posted the following comments on today's action in the gold pits..."What happened to Gold at exactly 2:56pm ET was an organized naked short-selling Bear raid by central bankers and HB&B. That was timed with the publishing of the announcement that the Brits too were going to ban legal short-selling on Financials. If anybody thinks this is a fair game and a level playing field after seeing this action today, then I can say you suffer credulity syndrome." Interesting too that PM's have hit another air pocket in Asia a short while ago that is similar in time to last night's bear raid. Odd since the NIKKEI is soaring by over 3%.

Also, the short article below does a reasonable job sorting out silver as being an industrial metal or a currency. And lastly, the Financial Times is reporting tonight that Washington Mutual has yet to receive any bids since putting itself on the auction block a couple of days ago. I guess Bank of America has collected enough garbage for the time being!

Cheers - VHF

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How Precious Is Silver?

September 18, 2008

Josh Patt

There is an ongoing debate among investors whether silver is a precious metal or an industrial metal. Yesterday’s unique market action gives us an opportunity to answer this question.

Yesterday the price of gold rose from $777.70 to $862.90 an ounce for a total rise of $85.20 or nearly 11%, which may be the largest single day rise in the dollar price of gold since gold started trading in US dollars. Or if you want to look at it the other way, it represents the US dollar’s largest single day devaluation, in terms of gold, since President Nixon closed the gold window in 1971.

On the other hand, the prices of nearly all industrial metals fell yesterday. Copper fell $.03/lb. (1%), nickel $.018/lb. (2%), while lead, zinc and aluminum all fell by about $.01/lb.

If silver is indeed an industrial metal, you would expect it to have fallen along with copper, nickel and all the rest. So, what did silver do yesterday? It rose from $10.45 to $12.06 an ounce for a gain of $1.61 or over 15%. The major silver miners like PAAS and SSRI jumped along with silver and SLV, the silver bullion ETF.

It would seem to be a clear cut case – precious metals went up, base metals went down, silver went up, hence silver is a precious metal, case closed. Of course it’s not that simple, so let’s try to understand better what happened yesterday.

Over the past month, gold has been falling along with other commodities and equities as market players were deleveraging to raise cash and cover open positions. This hit everything, including gold, raising some doubts about gold’s status as a safe haven in times of market turmoil.

This all changed suddenly yesterday, with gold’s sudden jump while the markets continued their decline. Before yesterday the desire was to raise cash, and gold isn’t cash, so it was sold. Overnight, the fear of a systemic failure became greater than the need to raise cash, and gold is insurance against disaster, so it was bought. Apparently so is silver.

The vast majority of silver mined today is used in industry. On your average day, silver’s price is driven by industrial demand, but the monetary element is there too. On days like yesterday it’s silver’s monetary element that drives demand. Because, when things get really bad, silver provides disaster insurance just like gold. Maybe even better.

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