At any comparison metric is cheap. It’s so cheap that no other commodity has such industrial importance, yet it’s still over 50% below its historical high prices. And let’s not forget that this is happening in a macro environment of severe currency depreciation, where virtually every other commodity has reached multi-year or all-time highs over the past two years.
Mining silver is not that easy, and it tends to be a by-product of other metals. It’s also coming off the ground at a ratio of under 10/1 – another indicator that the current 84/1 metric is way off and silver should be more expensive. Silver’s existence is far shorter than gold’s as it is consumed in industry where gold is more likely to be stored in vaults or used as jewelry and recycled.
Given its importance in the industry, the green future initiatives around the world, where vast amounts of silver are needed (for solar panels alone, the projected figures correspond to more or less half a year’s production) and many other reasons why isn’t the price of silver higher? It’s the futures market.
Derivatives are essentially instruments constructed to trade a representation of any market. They set the price of paper and are vulnerable to mass manipulation, which often doesn’t allow for fair value as contracts are made out of thin air. Gold, and silver in particular, has been a victim of this manipulation for years, and no more frequently than in the last two years.
Silver appears to have a rigged price cap of $30/oz which would put the paper shorts in serious trouble should it be breached. The CFTC even admitted live on air that it was able to “contain” and prevent a massive problem in February 2021 as the silver squeeze attempted to push that price higher.
Similar to the huge run that ended in August 2020, silver surged to $30/oz before blatantly slamming back down where we have since traded sideways in a range between $21/oz and $28/oz. The premiums for buying silver from your established bullion dealer are now at staggering levels, particularly in the UK. Get a 50% bonus when you buy a 1oz silver coin. The paper price is not the actual price.
JP Morgan – a name horribly synonymous with metals manipulation continues to be fined for price manipulation in the futures markets. You or I would have had our trading licenses revoked. However, if the penalties imposed by governing bodies are disproportionate to the ill-gotten proceeds generated, they have little incentive to stop.
According to live US Debt Clock stats, the paper-to-silver ratio sits at a whopping 344/1, while gold sits at 111/1. How can the CFTC claim that its sole purpose is to enable open market price discovery when you have a derivatives market with absurd numbers like these?
Gold, claimed by the LBMA, sees 95% of its daily trading undelivered. This means that futures contracts are cash-settled or rolled over. A day traded in London alone adds up to annual production from gold mining. The accounts for this would be logistically impossible to deliver, but it is never investigated.
In addition, derivatives give a reasonable indicator of the gap between physical and paper. Questions have been asked for many years about how much re-referencing takes place in these markets. The physical gold and silver available for delivery is tiny compared to the paper contracts each claims to be backed against.
The above example of gold trade numbers reinforces this. Organizations have been able to circumvent this by using leases and swaps. However, the past two years have highlighted the gap in unallocated accounts. Claims for metals could be a hundredfold. It seems that whatever rules are imposed, traders have found a way to cover up this deception.
But don’t despair, because we seem to be very close to a crucial point, ironically engineered by the US government. The sanctions imposed by the West on Russia have created a major hurdle in the forex markets for the US dollar.
The Russian currency is now at a much higher level than it was before the invasion, as they have been demanding payment in anything other than US dollars. They have started the accusation that could lead to a huge fallout in the US dollar coupled with inflation causing mass debasement and a recent fall in all work in favor of silver.
At these price levels, there isn’t much further down to hit, but also falling open interest on a backdrop of rising price levels. Silver seems to have found its bottom. Have the shorts started exiting and covering their positions? Every day at the open we have seen silver gap lower for months only to be bought back the following hour. This is textbook contract dumping.
Silver has also been in backwardation for almost a month. Backwardation essentially means that prices are bid against forward futures prices. This is almost a confirmation that supply demand is being buoyed due to a lack of confidence that metals will be available in the coming months. This is a bullish indicator.
Finally, I was recently asked why I think this manipulation will end up in metals and my answer is twofold: look at which metal was the most cut metal for years and when they threw in the towel it eventually got to highs traded at five times its suppressed price, and second, nothing lasts forever. Silver is so cheap that this should be used as an opportunity to stack more.
One day this house of cards event will collapse. We may be very close.
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