By Stuart George
Over recent months (since the FED`s qe3 "to infinity and beyond" began last September we have seen the paper price of gold and silver smashed down repeatedly almost every day by not for profit paper sellers who seem intent on getting the message of "you shall not buy gold and silver to protect your savings from inflation".
These price drops occur at almost the same times every day, namely in thinly traded overnight asian sessions, immediately on Comex open, or after London market close.
For this article I will concentrate on silver however, and I will go into some details that you may or may not be aware of.
I believe very strongly that the price of silver is heavily manipulated (on a daily, even hourly basis) to be many, many times lower than it should really be, and I will explain why.
The Last 4 Months
During the last 4 months we have seen the paper price of silver decline some 15% from $35 to where it is today at around $28.60. I don`t believe we have seen either -
a: A 15% increase in the mine supply of silver or;
b: A 15% decline in demand for silver.
If there had been a 15% decline in demand for silver, as silver is the second most useful and needed commodity on earth after crude oil, this would have shown itself up as a massive decline in industrial activity especially in the production of electronic items, solar panels, cars, the list goes on.
Silver is the most reflective, most conductive metal on earth and it also has unique antibacterial properties which means it has applications in the medical field, as well as water purification and as an odour killer in nano particles in clothing.
For some of the uses of silver
Investment Demand
This is, by all accounts, rocketing. The us mint alone has sold a record amount of silver eagles for any January and February combined of almost 11 million silver eagles, and this with the mint shut down for almost half of January because they could not source blanks for production. I don't know what the figures are for the RCM maple leaf but I know a lot of buying went to the Royal Canadian Mint (RCM) during the us mint shutdown, forcing the RCM to begin rationing silver maple leafs just as the us mint is now doing with its silver eagles. Bearing in mind that worldwide mine supply is around 800 million ounces and around 60% of this goes to industrial use, this leaves only around 350 million oz available for investment.
If the us mint continues selling eagles at this pace we could easily be looking at around 60 million eagles sold in 2013. Then we have the RCM maple leaf which is the 2nd most popular silver bullion coin which usually sells about 10% less in numbers than the eagle. So we could be looking at around 110 million oz in just eagles and maples for 2013. Then we have the Perth mint, the royal mint, as well as the Austrian philharmonic and Chinese panda, not to mention the various other mints around the world that mint silver coins for investment, and I haven`t even mentioned bar demand yet.
Direct link to us mint sales figures page
Make of this what you will but this shows record demand so far this year.
Physical premiums and dealer buyback prices
A quick look over at apmex shows a premium of $4.40 per coin on buying between 1-19 coins, and a buy back price of $1.70 over spot.
for maple leafs it is a premium of $4 over spot on buying 1-19 coins and a buyback of $1 over spot.
Even Austrian philharmonics are $4 over spot.
Junk silver 90% bags containing 715 oz silver are even selling at over $2 per oz over spot.
Physical Shortages??
There are also reports of several industrial users not being able to obtain silver for their production, most notably Apple, who have delayed production of their IMAC 5 27" due to a reported silver shortage, and a German car maker reported to be hoarding silver whenever they can get it because they cannot obtain it at the point of need in size.
The paper markets
There is, in my opinion now no true price discovery mechanism for silver or gold, and I will explain why. The total worldwide mine supply on a daily basis is approximately 2.5 million ounces of silver. One contract is 5000 ounces meaning that 500 contracts worth of silver is brought to market each day. Yet look how many contracts are traded on just the COMEX alone each day. On the 19th of February 2013 a new record as set of over 320 k contracts traded in one day. The cme later adjusted this figure down to under 97k (huge error there boys)
However I will go with the 320k figure. Lets work that out. 320,000 divided by 5000 equals some 1.8 billion ounces traded on paper on comex alone in one day. This is around 2 and a half years worth of worldwide mine supply of silver. On the same day there was a year`s worth of mine supply of gold also traded in one day. If this isn`t for the purpose of price manipulation extreme, I don`t know what is..
Gold and silver - Fiat money competition
Our monetary system is unbacked by anything of real value. All that backs up the paper in our pockets are the promises of governments that are, for all intents and purposes stoney cold broke. The us is over $16.5 trillion in debt, and the sequester, a measly $85 billion in cuts over 10 years is the equivalent of a raindrop in the ocean. The deficit is still going to rise, just at a slightly slower pace. Nothing has been done, nor will it be done to confront America`s addiction to spending money it doesn`t have.
The uk is the same. There they have only slowed the rate at which the debt is increasing. In this system of money backed by nothing, gold and silver have the job of exposing the reckless behavior of governments and central banks with a printing press. In a slowing or contracting economy, there is less demand for cash, so the money supply should therefore be reduced, but with qe and a contracting economy we have the exact opposite happening, and this will only result in one thing, and that is INFLATION.
Rigged inflation numbers
I do not believe government inflation figures for a second. The us doesn't include food or energy in this calculation and so the figure reported is meaningless. Oil and energy prices are going up at at least 10% a year, and this affects everything else as everything is transported around the planet using oil.
If the price of a product stays the same, you can bet the pack size has been reduced, this is hidden inflation. Gas has risen from $3 to $4 a gallon just this year in the us. Yet this isn`t classed as inflation! The price went up - it`s inflation.
In an unbacked monetary system, gold and silver must be controlled or they expose very quickly the problems in the system, and this is what we are seeing every day with these vertical drops in price on comex opens etc. It is also why we are now seeing shortages in silver and huge premiums on buying bullion coins. While prices remain at these artificially low levels this problem will only get worse until we have two prices for silver and gold, a paper price and a physical price.