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Silver: Is The Manipulation Finally Ending?

Published 05/31/2022, 03:03 AM
Updated 07/09/2023, 06:31 AM
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By every comparative metric, silver is cheap. It is so cheap that no other commodity has such industrial importance yet still sits over 50% under its all-time price highs. And let us not forget this is in a macro environment of severe currency debasement where virtually all other commodities have posted multi-year or all-time highs in the last two years.

Mining silver isn’t that easy, and it tends to be a byproduct of other metals. It also comes out the ground at a ratio of under 10/1 against gold – another indicator that the current 84/1 metric is far stretched and silver should be more expensive. Silver’s existence is far less prolonged than gold, as it is consumed in industry, where gold tends to sit in vaults or is used as jewelry and recycled.

So given its importance in industry, the green future initiatives across the globe where masses of silver will be needed (for solar panels alone, the forecast numbers are more or less half a year’s production), and many other reasons, why isn’t the price of Silver higher? That's because of the futures market.

Derivatives are essentially made-up instruments to trade a representation of any market. They are a paper price setter and are susceptible to mass rigging, often not allowing a fair value due to contracts being made of thin air. Gold and particularly silver have been victims of this manipulation for years, and this hasn’t been more prevalent than in the last two years.

Silver appears to have a rigged price ceiling of $30/oz that would have the paper shorts in serious trouble should it be breached. The CFTC even admitted live on air they were able to “tamp it down” and prevent a massive problem in February 2021 when the Silver squeeze movement attempted to run this price higher.

Much like the huge run that ended in August 2020, silver nudged $30/oz before being blatantly slammed back down, where we have since traded sideways in a range between $21-$28/oz. The premiums on buying silver from your well-established bullion dealer now sit at eye-watering levels, particularly in the UK. Buying a 1oz Silver coin, you are looking at a 50% premium. The paper price is not the actual price.

JP Morgan – a name hideously synonymous with metals manipulation continues to be fined for rigging prices in the futures markets. You or I would have had our trading licenses removed. Still, when penalties dished out by governing bodies are not proportional to the illegitimate proceeds made, they have little incentive to stop.

According to live statistics from the US Debt Clock, the paper-silver ratio sits at an incredible 344/1, with gold at 111/1. How can the CFTC claim its sole purpose is to allow free-market price discovery when you have a derivatives market with absurd figures like these?

Gold, claimed by the LBMA, sees 95% of its daily trading non-delivered. This means that forward contracts are settled for cash or rolled over. A day’s trading in London alone just in Gold totals the yearly production from mining it. The settlements for this would be logistically impossible to deliver, yet it never gets investigated.

Furthermore, derivatives give a reasonable indicator of the gulf in physical to paper. For many years, it has been questioned how much rehypothecating goes on in these markets. Put, the physical Gold and Silver available for delivery is minuscule in comparison to the paper contracts, each claiming to be backed against them.

The example of gold’s trading figures above reinforces this. Organizations have been able to loophole this by using leases and swaps. However, the last two years have highlighted the gulf in unallocated accounts. Claims for metals could be hundreds of times over. It seems whatever rules are imposed, traders have found a way to mask this deceit.

But do not despair because we appear to be very close to a defining juncture that somewhat ironically has been brought about by the US government. The sanctions imposed by the west on Russia have led to a major hurdle in the Forex markets for the US dollar.

The Russian currency is now sitting at much higher levels than before the invasion as they have demanded payment in anything other than US dollars. They have started the charge, which could lead to an enormous fallout of the US dollar coupled with inflation causing mass debasement and a current falling US dollar index all work in silver’s favor.

There isn’t a lot to eke out further lower at these price levels, but also falling open interest against a backdrop of rising price levels. Silver appears to have bottomed. Have the shorts begun exiting their positions and covering? Each day at the open for months, we have seen silver gap lower only to be bought back in the following hour. This is textbook contract dumping.

Silver has also been in backwardation for nearly a month. Backwardation essentially means prices are being bid up against forward futures prices. This is almost an acknowledgment that delivery demand is being knocked upon due to there being a lack of faith that metals will be available in the forward months. This is a bullish indicator.

Finally, I was asked recently why I think that manipulation will end in metals, and my answer is twofold: Look at palladium which for years was the most shorted metal and when they threw in the towel it ended up trading to highs of five times its suppressed price, and secondly, nothing goes on forever. Silver is so cheap this should be used as an opportunity to stack more.

One day this house of cards event will come crashing down. We may be very close to this.

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