Is the silver market the most manipulated market in the world?
by GS Early
Recently, my colleague and publisher sent me an interesting article about how the price of silver has been manipulated to the point of totally distorting its current value from its real value.
Now, there are plenty of people who are regularly talking about how much more gold and silver are supposed to be worth. But this was different.
In recent years, it has become pretty well established that the precious metals markets have been fixed for a long time. Usually, reports are more about gold-market manipulation than silver. Part of the reason for this is because gold is so much more highly valued.
Gold sells currently for about $1,050 an ounce. Silver is selling for about $13.50 an ounce.
Part of this disparity is the fact that silver is viewed as an “industrial” metal as well as a precious metal. Half of annual demand for silver in the past five years has been for industrial purposes. Gold demand for industrial use hit only 10 percent to 15 percent over the same time frame.
That split for silver means its price is more variable since it carries some value as precious metal and an industrial metal. When economic growth is slow and industrial production is down, it hurts silver prices more than it does gold, since half of silver’s demand is hurt.
Silver is in high industrial demand in industries like photovoltaic cells for solar panels and across the medical industry because of its antibacterial effectiveness with few side effects. It is used, as silver nitrate, in virtually every mirror made. And it is essential in building electronics like mobile phones, routers and laptops.
What’s more, because silver is so relatively cheap now, it is being substituted for other more expensive metals and conductors.
The problem for silver is its price is being manipulated. And it has for some time. Some people would argue that it’s been manipulated for the past four decades.
Two of the largest banks in the world, JPMorgan and Citibank, are sitting on enormous amounts of silver contracts and derivatives. They are, essentially, the silver market makers for the world.
Now, imagine if the U.S. government were interested in maintaining the price of an important strategic commodity but couldn’t be seen actively manipulating it. Perhaps it would allow a major financial institution or two to accumulate massive influence over that commodity market and, as a quid pro quo, have them do the government’s bidding.
Remember, if silver were actually valued where it should be (or even just an order of magnitude from its current level), prices would soar and completely upset the currency and commodity markets. That would be disastrous to the powers that be.
You could even make the argument that the U.S. government has every reason to keep silver prices low during this current zero-rate environment so it can keep the strength of the dollar up. If silver were to go on a run to its demand-based value, it would certainly hurt the dollar and have enormous implications for the U.S. recovery, now eight years in the making.
So they maintain control.
But as you well know, control is an illusion. And the more tightly you grip something the more easily it slips through your fingers.
If you remember 1980, then you’ll also remember how, after the inflation-ridden 1970s, investors were buying up precious metals. Silver peaked at $52 an ounce. Adjusted for inflation, that’s about $14 an ounce in today’s dollar value.
Also remember that the billions of people in China and India love silver and gold. As their economies recover, you can be certain that they will not be going along with U.S. plans for manipulating down the price of silver.
While gold is certainly going to see a major move in 2016, silver is the better long-term play because its upside is huge. A simple way to invest in silver is to find a silver exchange-traded fund that tracks the market price and also owns bullion. But many people don’t trust ETFs and want to possess the physical silver themselves. In that case, you can still buy silver.
Sometimes, newer coins and bars are sold for over the spot price of silver because they are considered “mint” or somehow of a greater value due to collectors, whatever that might be. That’s why it’s also a good idea to look for older silver coins considered junk by collectors, but which are still pure silver and can often be bought for the price of silver itself with no premium added.