Palm Beach’s “Better Than Bullion: How to Make 550% From the ‘Paper’ Silver Crisis.”

Looking into the silver tease from Tim Mittelstaedt for the Palm Beach Letter about "How 'Proclamation 2039' Could Make You Rich…"

By Travis Johnson, Stock Gumshoe, November 7, 2013

“Shocking Investigation Reveals:

“How a tiny handful of institutions (including a branch of the Chinese government) are creating the greatest resource opportunity in over 34 years…

“Why thousands of unprepared investors could lose everything…

“Three specific ways to make serious gains as the price of this substance jumps 550% over the next year.”

That’s how today’s ad from the Palm Beach Letter folks caught my attention.

They’re talking about the mysterious “Substance 47” … which, as they do eventually go on to reveal, is silver, which has the atomic number 47. As you would know if you had memorized the periodic table like a good student — always handy for a stock sleuth, the publishers love to use these “secret” numbers in their pitches, whether it’s the “fourth element” pitch from Byron King for Beryllium or the “third element” lithium stories touted by the Money Map folks.

And to warn you up front, even the fully believable stories about the ridiculousness of the “paper” silver market manipulation, the Chinese demand, and the critical nature of silver as an industrial element don’t mean that silver is going to double this year. Silver’s price has pretty clearly been manipulated in the past at least, and is probably being manipulated now, but that doesn’t mean that any advisor can predict the moment when that manipulation stops … or, despite the attractiveness and logic of the story, the direction the metal might move if and when a “free market” in real, physical silver emerges to crush the highly levered “paper market.”

I say that not to tell you that silver will go down (or up), or to say that this pitch is wrong … just to share with you that we’ve seen essentially the same pitch for several years now from different newsletters. Tom Dyson runs Common Sense Publishing, which is putting this tease out, and his old colleague from when he worked at Stansberry a few years back, Matt Badiali, had much the same argument as he pitched the inevitable climb of “element 107” two years ago (107 is the atomic weight of silver, 47 is the atomic number) … and silver is down about 25% from when that pitch was made. So even if the argument that silver must eventually climb is right, and it may well be, I have a hard time believing that anyone can very accurately predict when.

But I’ve done my “but wait” bit before even really telling you the sexy part — my apologies. What is the pitch?

“… you may be wondering why you’d want to buy anything related to silver. Especially if, like many investors, you’re worried about the price collapse earlier this year.

“Well, it all fits neatly into China’s plan. The fear that so many investors are feeling right now is what creates this opportunity. It’s why China—and you—can grab silver at dirt-cheap prices…

“Before prices launch 4… 5… even 6 times higher.

“The Chinese have patiently waited for this opportunity for decades. They know that silver is the ultimate protection against financial crisis. In the 1930s, silver helped China avoid the worst effects of the Great Depression. Even the Communists couldn’t erase this deep-seated respect for the metal… despite their best efforts to ban private ownership.

“Now, 80 years later, the Chinese once again must rely on silver to avoid economic collapse.

“Xia Bin, an advisor to the People’s Bank of China, spilled details to the Economic Information Daily. China has publicly announced that its Central Bank is adding silver to its ‘official’ reserves….

“China is the catalyst that will tear open one corner of the silver market… possibly triggering a failure on one of the world’s largest futures exchanges.”

And yes, that “corner of the silver market” is the futures market — specifically, the COMEX silver futures market. The basic story is probably one you’ve heard before, and it’s true, that the futures market trades far, far, far more “paper” silver than is actually available for delivery — the assumption being, as usual, that those who are hedging and those who are speculating will effectively cancel each other out and roll futures contracts forward to future dates rather than accept (or demand) delivery of the actual metal. As with fractional reserve banking like we have in the US, the futures exchange holds only a portion of the physical silver that’s being traded on the exchange at any given time.

Which means that there could be the futures market equivalent of a “run on the bank” — with more contract holders demanding physical silver than there is physical silver in the COMEX vaults, and therefore, the theory goes, the price of silver will shoot up and the people who actually need silver drive prices up to lock up their supplies.

[The “Proclamation 2039” bit, by the way, is about how the restrictions set by FDR on physical silver trading to prevent hoarding, long since overturned, sent the physical markets to Europe and led to the “paper market” or futures market being the dominant way that Americans buy, sell and trade “silver.” Not sure how it worked in practice, since all US coins except nickels and pennies were 90% silver back then (or gold, of course, though the gold ones didn’t circulate much even before they were confiscated that same year to rejigger the gold standard). You can see the text of the proclamation here if you’re curious, the gold part of it was overturned in 1973 and the silver part of it was not particularly significant to the markets in the following years but was formally overturned in the early 1980s. I don’t know whether that proclamation and the underlying uncertainty about ownership led to the “paper” futures market being dominant or not, but I suppose it makes some logical sense.]

The silver market has been manipulated before, but t