More "Isn't That Special" Economics

Dana Carvey’s “isn’t that special” phrase has been been ringing in my ears almost constantly of late. The newest Carveyism comes in the form of an announcement by the U.S. Mint that not only has it been cleaned out of silver coins due to high demand but supply is difficult and will continue to be until August. Tuesday, the last day it offered silver Eagles, customers bought 1.001 million ounces.

As a reminder, the U.S. Mint is mandated to produce precious metal coinage. Logically one would think that the US Mint ought to have the best bead on supply. But apparently not in the world of isn’t-that-special-economics.

I wouldn’t be half surprised if this demand didn’t shift to gold now. Elsewhere the Bullion Vault index which tracks European gold buying is at a two year high.

As a reference, not only does the U.S. Mint have no silver stockpiles to draw upon but neither does anyone else. Globally government silver stockpiles are zilch. So the mints will need to either go to producers directly, the Crimex warehouses or try to import it. Does the Crimex have any silver product to dispense?

Keep in mind that all of this is happening as the price of silver is being slammed to 2015 lows. Forget the supply-and-demand economics you learned in school. “Isn’t that special” economics are in play, and this is just one glaring example. Honestly, I am not sure how one times Carveyism economics. My instincts say just stay with basic economics and this will sort itself out in very dramatic fashion.

So are China margin calls causing the crazies out there to sell gold to meet calls? Let’s put it in perspective. So far the 1929 style Chinese crash has evaporated $4 trillion in fictitious capital. The global bond markets are tens of trillions more of inflated assets. Global equities are tens of trillions more yet. By comparison, 1,000 tonnes of gold is worth all of $40 billion. That’s a drop in the bucket relative to inflated paper assets.

Is that how margin calls are going to be met anywhere in the world, let alone in China? Really? Is that why the U.S. Mint is out of silver? Really? Hey, Suzie, go get that kilobar and sell it, we have a margin call on that pie-in-the-sky stock we gambled on. We need to keep that one. Really?

No, in looking at the open interest (OI), it is clear that most of yesterday’s sell off was yet more managed-money naked shorting. Gold OI expanded by 7,152 contracts. If it was long liquidation, you would expect OI to drop, not expand. Silver OI expanded by 2,640. Were a few more longs stopped out as well? Sure, but the driver is spec naked shorting, and that position at this juncture is monumental — even unimaginable. There is zero evidence of physical liquidation; in fact, the complete opposite.