Political Metals

-
In 2011, silver averaged a loss of 6.8% against 75 selected fiat currencies, while gold charted a corresponding gain of 14.3%. That occurred in a year when gold itself saw a plunge of 20% in USD terms from its high of $1920.

Was there any fundamental change in the silver market that could account for such a drastic plunge in silver prices? I know of none, and industry watchers concur.

Not once, but twice in 2011 did the silver market plunge by 35% in a matter of days on deliberate price moves lower. It is impossible for a world commodity to suddenly plunge 35% in days without some radical change in real supply and demand in a free market. Aside from proving that the silver market is still manipulated, these price plunges would not have occurred had the Commission acted expeditiously in concluding its current silver investigation - Ted Butler.

-
Market manipulation. Price suppression. That’s why silver’s prices in all currencies did what they did in 2011. Ted Butler, in his most recent article “Enough is Enough” recounts the history of CFTC’s investigations into complaints of price suppression in the silver market.

The journey to justice and truth is often long and arduous, but must never be abandoned. The alternative is to live a life lacking substance. But neither should the journey be unnecessarily prolonged. These things tend to creep up on you day by day, but we have passed the point of the CFTC taking too long for deciding if the silver market has been manipulated in price. Enough time has passed.

Having started in August 2008, we are now at the 3.5 year mark in the current investigation into silver by the Enforcement Division of the Commodity Futures Trading Commission (CFTC). Never has a similar investigation taken this long. Considering that the current silver investigation is the third such inquiry by the Commission into alleged downside price manipulation by large commercial participants on the COMEX, the agency has spent most of the past decade investigating silver. As recently as this past November, the Commission reaffirmed that the silver investigation is ongoing. Still, the issue is unresolved.

The current silver investigation began due to revelations I discovered and wrote about in the CFTC’s Bank Participation Report of August 2008. This report indicated one or two US commercial banks held a concentrated short position which was unprecedented and uneconomic in terms of real world supply and demand. I asked the question – how can one or two US banks holding a short position equal to 25% of annual world production not be manipulative? That question has not been answered by the Commission to this day. Later, I discovered that it was basically only one US bank, JPMorgan, which was the big COMEX silver short.

Not for a moment do I believe that the CFTC initiated the current silver investigation (or the previous two) just because I wrote a few articles. The key was that so many readers took it upon themselves to write to the Commission and their elected officials about the issues of concentration and manipulation in the silver market. Simply put, there would have been no silver investigations had not great numbers of you petitioned the regulators. Please think about that for a moment. It is beyond extraordinary that the agency has investigated and continues to investigate such a small market like silver. That can only be because of public pressure and that the evidence was compelling. Most remarkable of all is that the core allegation in all three silver investigations has remained the same – manipulative short selling by large commercial interests on the COMEX.

In the two prior investigations of May of 2004 and 2008, the Commission’s Division of Market Oversight (DMO) concluded that the silver market was not manipulated.

Particularly puzzling in the 2008 report was the contention by the DMO that the concentration on the short side in COMEX silver wasn’t unusually large and that the biggest short sellers regularly changed places, so that there wasn’t one big permanent short. The report was issued on May 13, 2008 or two months after JPMorgan acquired Bear Stearns and its concentrated short position in COMEX silver. How the DMO could overlook the transfer of the most concentrated short position in the history of the commodity markets is beyond comprehension. Subsequently, I have come to believe that Bear Stearns’ forced acquisition was caused by the giant silver short position going against it (silver was at a 27-year price high at the time of the takeover) and not mortgage-related difficulties. In this article, I accused the DMO of lying.

Unlike the current silver investigation, the previous investigations were concluded by the Commission in months, not years. Timing aside, all three silver investigations share a commonality apart from stemming from the same basic core allegation of manipulative short selling. That commonality is the Commission’s refusal to conduct a fair and balanced investigation. I confess to being the instigator behind all three silver investigations (with you being the enabler). Not once, in any of these investigations has the agency ever contacted me or anyone I know who is familiar with the allegations. I even complained to the CFTC’s Inspector General about the one-sidedness of the process. How can you conduct a balanced investigation on manipulative short selling when you only question one side, the shorts?

The real problem with the findings of the CFTC of no manipulation in their previous investigations is two-fold. First, it provides a shield and comfort to the perpetrators of the manipulation in that they can continue to hide behind the agency’s findings in the furtherance of an active crime in progress. The longer the CFTC takes to act or report on its current investigation the comfort to the manipulators is maintained, at a cost to nearly everyone else. Second, the prior findings put the agency in a tricky spot. Because the Commission had previously found nothing amiss in the silver market on two separate occasions, if the agency uncovers any wrongdoing in silver in the current investigation it will, effectively, contradict its former findings. Obviously, it will be loath to do so.

The fact that the Commission will contradict its former findings should it now find something wrong in silver may explain the unprecedented delay on the part of the Enforcement Division to act. But the reluctance to reverse the former findings is a weak excuse for the Commission to fail in its most basic mission, namely, preventing fraud, abuse and manipulation. Most importantly, the silver manipulation is a crime in progress and the Commission’s delay in terminating it has allowed for untold continuing damage to thousands of market participants at the hands of the manipulators.

Full article at SilverSeek.com

Related articles:The latest on Silver Market Manipulation

• Silver manipulation
• The latest on Silver Market Manipulation

In contrast, you get some very established dealers offering much lower premiums in countries where the market is more mature. That’s why I mentioned you should look beyond your borders if you are dealing in larger quantities.

• Difference between Investing and Owning Gold & Silver
• Buying & Storage Options

Since the recent price take down, we’re inundated by stories of retail buyers not being able to buy physical coins and bars at the ridiculously low spot prices painted by the paper futures markets. For those fortunate enough to get their hands on any physical bullion, it will be at relatively large premiums over spot with long delivery lead times. The disconnect is growing with each dramatic take-down..

“Sold Out”

KH of InvestSilverMalaysia reported that,

Back in Malaysia, it has been a wild ride. With the recent collapse of gold & silver prices, PM suddenly becomes very hot. Lowyat is having comments like 5 pages/per day ever since that crash. Physical silver bullion dealers are not selling. They are either: holding up the stock or, stock have been completely drained. Replenishing takes 2-3 wks. Even so, many bigger supplier from the states are having the same problem too! Too many orders! I am guessing even those at the top of the food chain are having problem processing massive orders. Many smaller local websites just shut down - refusing to take orders. 1cheapsilver has yet to recover from that 26-dollar-fall. It is really a war zone here.

Here’s what greeted him at UOB when he personally went there to buy his gold bullion. Read his story here.

Here’s another story along the same line from the UAE, courtesy of ArabianMoney.

Several readers of ArabianMoney have written to us over the past two weeks to express their astonishment at the current price of silver because demand where they live is so high that stocks have run out.

Consider this comment: ‘I used to buy silver from a shop in Kobar in Saudi. From the last four weeks they said they ran out of silver. I cannot find anyone who sells silver in Saudi now. I asked them from where do they get their silver. They said the UAE. The problem is they only have 1kg bars…and I still cannot find any supplier.’

No stock

Well don’t bother coming to the UAE. Our information is that the 1kg bars mentioned here and featured in a video on the website last month (click here) are all sold out too. We’ve also had feedback about low or no stock in Texas and Australia from big private bullion dealers there.

Now what would normally happen when a commodity is in short supply is that the price would go up to encourage sellers to put some more into the market. That is presently not happening because the silver price is being artificially suppressed in the Comex futures market by the bullion banks acting on instructions from the Fed presumably, so why would you sell that silver cheaply if you happened to own some?

But something has to give and it is the price of physical silver rather than the Comex price of the shiniest of metals. If you can find any silver these days you will pay quite a substantial premium over the spot price. But pay it because that is probably still a bargain compared to where silver prices are going.

The truth is that silver is a rare metal, more rare than gold. Silver reserves have been estimatated at one-hundredth of gold reserves. Silver is after all consumed by industrial processes and reserves have dwindled over the years because the price has been kept so low for so long by market manipulation. Why is that?

Silver price fixing

This market manipulation dates back to the last silver boom of the late 70s and the spectacular $50 spike in the price in 1980. The central banks then saw suppression of the silver and gold price as a part of their war on inflation. They clearly lost that war but kept gold and silver prices down until this decade.

Thirty-one years later and we are still not back to those silver prices despite a seven-fold increase in the global money supply. On that reckoning silver ought to be $350 an ounce, not $30 today.

However, the snap back for silver prices now has the capacity to be sensational, and far beyond the mini-spike in the first few months of this year from $30 to almost $50 again. So those who go seeking out physical silver to buy at current prices are going to be very well rewarded and soon, not in 31 years!

ArabianMoney continues to stick with silver as our top tip for 2011 (click here) and that means a big rebound in the price before the end of the year.

-End-

.. and watch what the Chinese are doing

-

It is evident from the stories above that trying to catch the absolute intermediate bottoms during corrections and expecting to buy physical bullion at those prices may be illusionary. So, if there are no gold vending machines nearby, what can the ordinary man on the street do to take advantage of the recent violent take-downs (expect more to come) and the increasingly volatile paper gold & silver prices? Consider these 2 options.

(1) Cost averaging

While there’s a possibility that that PMs prices may be forced to step into the elevator shaft yet again, the probability of that happening is anyone’s guess. For serious savers who understand that physical bullion is the only financial asset with no counter-party risks and that the fundamentals for owning PMs have not deteriorated one bit, the recent market intervention by the Powers That Be (PTB) should be viewed as a generous gift and an opportunity to start (or continue) accumulating on a cost averaging basis.  Here’s an excellent article on Ounce Cost Averaging buying strategy.

(2) Buy bullion like a professional

Retail buyers of physical bullion are so very far down the food chain that it’s very difficult to take full advantage of the sharp (deep and fast) drop in paper prices. This has driven some to consider PM derivatives like ETFs and pooled accounts. While these vehicles offer the advantage of capturing the narrow window of opportunity presented during price smashing operations by the PTB, the danger lies in the fact that these players end up buying and owning paper claims to PMs instead of owning the real thing. Living in the current financial system teetering on the verge of collapse, the more prudent among us would like to stay away from these investments carrying counter-party risks.

That leads us to the option of buying and owning physical bullion like professionals do - at the London Bullion Market. Of course we can’t do that directly. The way around is to use the services of established bullion dealers that act as the only middleman between us and the London Bullion Market. BullionVault, GoldMoney and AFE are 3 of the more reputable companies in this industry I’m familiar with, and they are reviewed here.

Learn more about buying and storage options, including discussions about Allocated Bullion Accounts in the comments section.

Updated: Oct 9

• Global Demand for Gold & Silver at Unprecedented Levels - KWN