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INTRODUCTION
The
purpose of this article is to explore several diverse variables that have an
outsized impact on the silver market and then explain how these factors are
currently converging towards setting Silver, finally, free from
official price suppression. A serious student of today's Silver market misses
the mark completely unless a full thirty to fifty years of American history
are taken into account. Only when one comprehensively understands how these key
issues over the decades are now bringing the crucial focal point of the
Silver market clearly into view does tomorrow's price projection for Silver
become obvious.
THE
PAPER TRAP
Let me
ask you some key questions. What percent of Americans do you believe
understand the infamous monetary act performed by its own government in 1971?
Of course, I'm referring to President Nixon's refusing to continue honoring
the US commitment to exchange Gold for Dollars redeemed by foreign holders of
our currency. What percentage of American, or global investors for that
matter, comprehend that since that event there is absolutely nothing, nada,
zippo backing any worldwide currency? These are rhetorical questions for any
thorough student of hard money issues but the rest of the planet has long
been locked in a Fiat Haze or a Fiat Mentality.
Quite
frankly, all most people know about "money" is that they desire a
lot more of it than they have and they also want the 'good life' having more
of it allures them into believing it will bring them. The Masters of Fiat
have subsequently mastered most and we now live in an Age of Fiat,
though few recognize this fact and fewer still live differently for having
recognized it. Because the populace doesn't understand Fiat money they are
subject to its multitudes of abuses.
Instead
of having our 'money' backed by the Constitutional mandate- Gold and Silver,
or anything else of substance for that matter- we are left with the
inevitable manifestations that Fiat brings with it….. confusions,
distortions, and even dishonest weights, measures and markets. The Silver
market has been especially prone to these Fiat maladies as will be shown
subsequently.
Let's
look at the way the unenlightened perceive Fiat money. The simple fact is
that 99 plus percent of the population cannot accurately explain the
mechanism by which a 5 cent Coca-Cola in 1960 now costs approximately 85
cents other than to just parrot the word "inflation". The Coke
hasn't changed but the morphing monetary unit certainly has. Most people are
simply bewildered by monetary mechanisms and cannot perceive them as being
little more than a hidden tax as well as an illusion of "wealth".
How about the effects of the variable rate Fiat entity on the art and science
of Technical Analysis {TA} in the precious metals arena? If Robert Prechter's
1990 or so Elliott Wave Analysis call for $100 Gold ever made any sense----
it certainly doesn't now. The unit of measurement has changed {depreciated}
so much that this long standing call now borders on the absurd……
no offense to Mr. Prechter intended, this is just business as usual in the
Fiat Haze we live in. All of us tend to adapt to a Fiat mentality or an
attitude of Fiat and never realize we are trapped within this matrix.
How
about Silver? I first bought bars of Silver just a couple of years after
Pres. Nixon reneged on Gold and happily paid somewhere near $4.30 per ounce
for them. Hmmmm…. it seems as though Silver could have been had for
that same amount of Fiat currency pretty much throughout the 1990's and even
into late 2001. Did the amount of Dollars change per ounce of Silver
purchased? No. Did the ounce of Silver change? No. The Dollar did change,
dramatically so, over that twenty to twenty eight year period of time in
spite of this Silver purchase anomaly. How does one continually rationalize
the slip sliding Dollar and its impact on goods and services transactions?
According to the murky world of Fiat, all other things being equal, something
that cost $4.30 in 1973 should cost roughly $18 or more twenty eight years
later. I'm making an estimate here and not making any form of Silver price
prediction……just showing the folly of Fiat. Fellow Silver
advocate, "Galearis", showed me a website where Dollar inflation
costs can be readily calculated over the years…………….
http://eh.net/hmit/ppowerusd/ He
also precipitated this essay with some of our Silver ideas being exchanged.
Thanks.
Several
Silver experts have recently been discussing how difficult it is to use any
form of Technical Analysis in the Silver market when the unit of measurement,
the Dollar, is a fluctuating variable. There was even legitimate debate as to
whether or not Silver is even in a bull market post 2000. In reality, one
would need to see a graph of Silver priced in a form of "constant Dollars"
in order to even make a certain call…….. the Dollar changes
considerably even over a four or five year period of time. Is it a true
Silver bull market if all Silver did was go up the same percentage the Dollar
went down? Yes, it is confusing, but if you will look at the Silver graph at
the excellent website www.the-privateer.com you
will likely also see that Silver indeed has been in a clear bull market, at
least a US Dollar based Silver bull, since late 2001 when it was priced near
$4.30. A "true value" graph would factor in the variable Dollar
issue and show a more accurate picture, but still a bullish one from my
perspective. It is also important to know how Silver stacks up in terms of
other key global currencies other than the one it is always priced in
{US$}.
We now
live in an environment that has a hard time financially differentiating
illusion from reality, crooked market from honest market, or dishonest money
from honest money. There will be much more in the latter parts of this piece
about COMEX Silver, but it is quite apparent that a lot of Silver 'investors'
don't know the difference either between the Fiat Silver offered up on CRIMEX
and owning the real thing. The Age of Fiat has also taken its toll on the Silver
market.Is it really that big of an extrapolation to go from $100 Bills with
no backing to contracts of five thousand ounces of Silver without adequate
backing? I can assure you COMEX knows Fiat well and they are simply one more
leg of the Paper trap.
THE
DUMPING/GIFTING/PILFERING VARIABLE
Now
that we've pretty much maligned the official monetary units across the planet
let's move on to other elitist misdeeds over the last one half century. What
caused Silver to sell for $4.30 in 1973 and for the same $4.30 again twenty
eight years later in 2001? Why exactly didn't it "inflate" like the
Coke did during that time period {except for the rare spikes}? There are
multiple reasons why this transpired but the key reason is that the Unites
States' historic above ground stockpile of Silver has been supplied to the
market over the last fifty years.
This stockpile,
which belonged to the citizens of the USA, has been reported to be as high as
five Billion ounces in the 1950's. Calling it the proverbial overhang
is quite the understatement, especially when various players closely
connected to government desired possession and outright use of this treasure.
They got their wish and have since dumped this amount of Silver onto the
marketplace over these fifty plus years--- it's now essentially gone.
That was quite the obstacle for Silver to overcome, no?
Why call this act
"dumping" when that term connotes putting excess supply into a
market to gain competitive advantage? Did someone gain competitive advantage
via this action? Yes indeed, they surely did. You can start out by looking at
the infamous Silver Users Association to see who profited from pilfering the
US strategic Silver supply. For an historical perspective of the Silver Users
Association and their affinity for attaching public Silver on the cheap you
may want to review Charles Savoie's informative article entitled "The
Silver Raiders" at the Silver-Investor.com website: www.silver-investor.com/charlessavoie/raiders.htm
In the interest
of brevity, let me just state that these Silver transactions obviously didn't
hurt the bottom lines of Kodac, Du Pont, Dow Chemical or any other Silver
Users Association member to have assured access to the public's strategic
metal, Silver, at dirt cheap prices over decades. I guess one man's Silver
Users Assoc. is another man's Silver Abusers Assoc. --- the dumping, gifting
and pilfering lines get pretty blurred in all the haze.
There are other
clear winners in this Silver dumping scheme-quite obviously those forces that
prefer control of the easily printed Federal reserve Notes over
Constitutionally mandated real money, Silver and Gold. Both metals have long
ago been deemed to be in competition with Fiat and they are accordingly
"governed" or suppressed. Silver and Gold are tiny markets in
comparison to the near infinite supplies of Fiat and a little influence used
to hold these metals down in price gives quite the bang for the buck {pun
intended}.
The most commonly
used form of money over the centuries is SILVER … it's not real wise to
leave Billions of ounces of that particular competition lying around just
waiting to be re-monetized, is it? Let's keep that old Constitution hidden in
the closet as well. Here are a few key quotes from the always exceptional
Privateer:
"In any
discussion of the future of Gold, or of the price of Gold, the first thing
that must be realized is that Gold is a POLITICAL metal. In the true meaning
of the word, its price is "governed"."
"This is so
for the very simple reason that Gold in its historical role as a currency is
fundamentally incompatible with the modern worldwide financial system".
"Up until
August 15, 1971, there has never in history been an era when no paper
currency was linked to Gold. The history of money is replete with instances
of coin clipping, printing, debt defaults, and the other attendant ills of
currency debasement. In all other eras of history, people could always escape
to other currencies, whose Gold backing remained intact. But since 1971,
there is NO escape because NO paper currency has any link to Gold".
"All of the
economic, monetary, and financial upheaval since 1971 is a direct result of
this fact".
"The global
paper currency system is very young. It depends for its continued functioning
on the BELIEF that the debt upon which it is based will, someday, be repaid.
The one thing, above all others, that could shake that faith, and therefore
the foundations of the modern financial system itself, is a rise (especially
a sharp rise) in the U.S. Dollar price of Gold." END
Copyright
2005-the Privateer www.the-privateer.com capt@the-privateer.com
{Reproduced with permission}
While these
quotes are directly related to Gold they are also pertinent for Silver.
One of my ongoing projects is to encourage Bill Buckler and his highly
recommended Privateer not to overlook Silver. Personally, I think Silver had
a much greater chance of being turned into a valuable but common commodity
than Gold ever did, but the mere fact that Silver is also
"governed" like Gold makes that a moot point. Quite apparently,
those in control of global currencies fear both Gold and Silver
{unlike Palladium for example} and have thereby inextricably linked them
together as true competitors to Fiat, a.k.a. real money. So be it!
To sum it
up…….Billions of ounces of US citizens' Silver has been dumped
onto the market sub economically to the benefit of elitist insiders as well
as paper un-backed money.
THE SILVER MINING
VARIABLE
No discussion of
the future Price of Silver {POS} is complete without a comprehensive
understanding of the Silver mining supply factor. My strong beliefs are that
neither current nor future Silver mining supply can rapidly dampen the coming
spikes in the POS. No help here for the Silver suppressors.
I continue to say
that the Average Cost of Production of a particular commodity holds the key
to successful long term investing in that commodity. Most commodities
do not have the existing above ground supply factor that both Silver
and Gold have had to deal with over the years. Both Silver and Gold are
therefore harder to make future price projections for because of the unusual
'overhangs' of supply. Now that the largest known stockpile of Silver is GONE,
the Average Cost of Production for an ounce of Silver can resume its normal
influence over the POS. Clearly stated--- when you can purchase a commodity
well below the average cost of producing a unit of that commodity and you are
able to hold it on a long term basis……..you are making a high
percentage favorable speculation. This is exactly the current case with
Silver, especially now that Billions of ounces of Silver overhang have been
used up.
What exactly is
the average cost of producing an ounce of Silver? That is a pretty tricky
question in actuality and it will require analyzing different types of Silver
production as well as doing some extrapolations. OK? Silver is produced both
in primary Silver mines as well as in secondary Silver mines where it is
produced as a byproduct of extracting other elements. By far the largest
amounts of Silver are mined secondarily as a byproduct
………..estimates for secondary Silver mining range from 70 to
80%. This secondary Silver comes forth to a large degree regardless of the
POS. Still, that leaves an approximate 25% or so for primary Silver
production……..nothing to sneeze at and I'll tell you why shortly.
Would one not expect a relatively lesser amount of primary Silver production
during the decades of a Silver Bear market?? Of course, and, as the
POS increases in the coming years we will see a larger and larger percentage
of primary Silver being produced. Why? It is because the secondary Silver is,
once again, produced pretty much at the same level regardless of a low or
high Silver price. I'll continue with this line of thought.
What's the most
commonly known cartel that has largely controlled the price of their
particular commodity for some thirty plus years. You got it right, OPEC. Do
you know that OPEC only has control of 40% of world oil production per their
own website? How do you reconcile their supposed iron grip control over the
world oil price via this 40% influence yet see so many people totally dismiss
primary Silver mining with its approx. 25% influence. It really makes no
sense………until you, once again, recognize the historic
anomaly in the Silver side of the equation-----the now gone Billions of
above ground ounces. If there had been above ground oil inventories since the
1970's on the same scale as Silver's glut------- there is no way OPEC could
have maintained their stranglehold over these several decades. It is a huge
difference and Silver is just now beginning its new era because the vast
horde is gone.
Do you still want
to dismiss primary Silver mining production as a non factor? These guys are
starting to look more and more to me like the marginal or swing producer that
eventually sets the price of production. Their influence is destined to be greater
and greater each passing year. Unlike the secondary Silver producer the
primary silver producer is acutely concerned about the average cost of
production for an ounce of Silver…………he has to be or
he will soon see his mine be closed. I have long heard that the average cost
of producing an ounce of Silver is in the $7 range- in fact I've heard it so
long I no longer believe it to be accurate but too low. Again, we're
no longer talking about the same Dollar that world Silver is priced in {it's
shrunk} and energy, environmental, and other key production expenses continue
rising significantly. The recent spikes in Silver in 2004 to the $8 level
hardly caused a stir amongst potential primary Silver
miners………..they need sustained higher prices to even consider
advancing developmental projects into production.
Silver Standard
Resources Inc {SSRI} is an excellent example of a finely managed company that
has spent the last twelve or so years building up a stable of global Silver
properties that, hopefully, one day, can be brought into production {I own
shares of this co}. They now have in the vicinity of a Billion {!} ounces of
Silver resources and only one of their current fifteen global projects
is being fast tracked to production…..the ultra-rich La Pitarilla project
in Mexico. Every other project, out of this Billion ounce portfolio, remains
under wraps or a 'steady as she goes' progress because they are simply not
economic enough for production at this level of Silver price. That speaks
volumes to me. Sure, there are presently producing primary Silver mines but
they absolutely have to be of uncommonly rich grade or they couldn't make a
go of it.
I will also
advise you that the Silver miners that I talk to have an avowed non
hedging stance…………they await higher prices before
production and they will not slaughter their own market by dumping future
production onto it. Extra kudos are extended to those like Silver Standard
Resources that are also parking large amounts of their cash holdings in physical
Silver. These are smart and determined managers and these are your coming
swing producers in Silver. Get ready for higher Silver prices first.
If you are
interested in reading a past Silver article I wrote that also delved into the
particulars of Silver mining you may read:
www.silver-investor.com/misc_articles/SilverHitsWall.htm
COMEX
PECULIARITIES
The COMEX
division of NYMEX is certainly an interesting place……….that
much I'll readily grant them. I do take issue with many of their practices
and will, once again, explain my particular perspective on their future as it
does differ from other Silver advocates to a degree.
Plainly, as the
oft mentioned 5 Billion ounces of above ground Silver inventory were
squandered in defense of Fiat {plus other reasons} the game had to be
switched to one of mostly paper manipulation through COMEX derivatives. Much
like OPEC controls the world oil price via their swing production
variables…………COMEX now controls the world Silver
price through their paper games. Let's just call it Fiat Silver because that
is the normal extension of the Fiat standard we've been on since 1971.
COMEX grants
particular insiders ****authority to sell**** paper Silver contracts
on a pretty much unrestricted basis. COMEX claims these short sellers
actually have sufficient physical Silver backing for these outsized trades
but have declined to fully disclose or clarify. It is quite obvious this
claim is just one more fabrication. Anyone else notice the current cleanup
regarding naked short selling in some of the US stock markets?? Hmmm.
For now, and for a little while longer--- unbacked Silver paper is the swing
producer and this is used as a price setting mechanism to keep the globe
{yes, the globe} away from any form of honest money. What you are
seeing here is the natural extension of the failed process that brought us
Long Term Capital Management, Enron and accounting by Artie Anderson. The
haze is metastatic.
There is no need
for me to repeat all the fine investigative work performed by Ted Butler and
others as it is all well documented and quite accurate. COMEX Silver has
received more than sufficient notice that reformation is
overdue………………yet the CFTC and those in
charge of supervising COMEX metals take zero action. Personally, I don't
believe that complaining, pleading, documenting, reasoning, letter writing or
mounting campaigns with this particular institution will ever bring it
back to what could legitimately be called an honest market. Sorry. They had
every chance under the sun to do the right thing and clean up the mess.
Where exactly
DOES this process end? There is no end to a paper game w/o someone calling
the BLUFF. COMEX Silver has been a paper game for longer than I would care to
guess........well past a decade now. It is nothing but a private play ground
where those closest to govt. extract their due profits from the unsuspecting
public and other parties foolish enough to participate in this charade. If
you don't have a hotline to Robby Rubin and some of his buddies you likely
should stay home. Collusion by insiders is the name of the game at this
'private club'.
Physical is the
only thing that trumps these paper games. I have yet to hear of any paper
Silver shortages and never will ......... all the shortage reports are about
physical Silver..... Silver someone, some where is trying to get their
clutches on. Delays and shortages eventually lead to defaults and then the
game is up. The entire globe is afraid of calling the CRIMEX paper
bluff.........content participating in the game and content not taking home
some of the dwindling COMEX Silver supply of a scant 100 Million plus ounces.
Exactly how long DO you believe the COMEX Silver boys can continue to
showcase 100 Million ounces of silver or even a 'credible' 80 or 60 Million
ounces????? Do you really doubt they can find storefront silver with all
their global network of contacts?? This particular paper game may just go on
for what you personally might consider a LOOOOOOONG time. It is one thing to
force the commercials into covering their shorts------ something altogether
different to get them to take their bloody hands off this market. Good luck.
"We" get a buck or two in Silver price appreciation here and there.............they
make money on the upside and the downside as well as retain control of the
global price of Silver via this profitable 'market' {for them}.
What if
"Silver Hit the Wall" and no one was around to hear it.....?? As
long as COMEX remains the world's Silver price setting
mechanism.........there will be no crashing noises from the Silver
'accident'. It will be business as usual as long as the 100 Million ounces or
so are showcased, right? There are credible rumors of global delays and
shortages and there have been now for a couple of years.............still the
COMEX boys don't flinch because they maintain their playground. Who loses?
Silver miners, silver investors and anyone who gets offside the collusive
CRIMEX silver moves. Who wins...? The COMEX collaborators win over and over
again and long term Silver investors also win. If you don't know who
the 'mark' is at the CRIMEX table-----guess who it is?
Here are a few
questions to ponder in relationship to COMEX Silver. Who exactly is stupid
enough to continually play the patsy in this ongoing NYMEX ripoff? We hear
that the "Commercial" entities pretty much have their way whether
they go in a long direction or a short direction. The "Technical
Funds", "Hedge Funds", and "Small Speculators" are
portrayed as chronic victims…………..when exactly are
they going to catch on that their odds of success are quite slim indeed? Are
these repeat victims or is a new batch being regularly supplied? How long
will it be until the Silver market is generally seen to be as controlled or
manipulated as the Orange Juice market reportedly is? Are we there already?
These are some of
the reasons why I have such disdain for CRIMEX. They are a gnat's arse in the
big picture of the entire silver phenomenon and they deserve to get flicked
away {delivery would do it}. Those who live and die with every COMEX Silver
move and statistic are investing themselves in this crooked Silver process
when they should just step back, call a spade a spade, and call for the end
the ridiculous paper fraud. Just maybe, at one time, COMEX actually was a
'fine American institution'. Those days are long gone. They've gone, once
again, the way of Enron, Artie Anderson, Long Term Capital Management and the
other national disgraces we've come accustomed to over the very recent years.
RUN IT HONEST OR
SHUT IT DOWN!
ARE WE THERE
YET…..?
Exactly how close
is Silver from truly being set free from its governance? You've seen how
Silver has fallen prey to a paper trap in an Age of Fiat. The classic endgame
of Fiat historically is in debt spiraling out of control and in
obtrusive shenanigans becoming commonplace…………any
bells ringing? Any stress to the Fiat {Dollar} system will automatically play
out in one of its arch rivals-Silver.
There should be
little debate concerning the now gone Billions of ounces of Silver
supply and this dramatically changes everything in the Silver market.
Silver is an awesome speculation on this factor alone. I repeat this variable
intentionally.
The current mine
supply absolutely won't bail out the Silver
suppressors……….not until long after you see the likes
Silver Standard's Billion ounces and the other new worldwide Silver mines and
projects coming into production. This will only happen with a significantly
higher POS. The prudent activities of the group of Silver developers waiting
for higher prices are a sight to behold and they are a force to be reckoned
with.
What more can be
said about the COMEX Silver manipulators other than, one way or another,
their days of credibility are approaching endgame. Maybe no one will call
their bluff any time soon------- it really doesn't
matter………for you see…….they have been found
out. COMEX Silver has become a stigma and an embarrassment as more and more
sophisticated worldwide players have learned the facts. More and more Silver
and Gold advisors and people in the 'know' are flat out telling metal
investors to buy physical metal and stay away from paper. This is
snowballing now. Let me pose another question or two. If you are a silver
aficionado and you either don't own physical Silver or you participate in
some paper scheme like the one on COMEX……what the hell are you
thinking?? You have two polar opposite bets here. If you run a Hedge Fund
or Technical Fund and you are taking a repeated beating on COMEX
Silver…….what the hell are you thinking?? The days of
COMEX setting the global price of all Silver transactions are numbered.
The very thing
that silver adversaries have no answer for is knowledge and intelligent
action by advocates of Silver. The precious metal authorities have
exceedingly strained the boundaries of the Laws of money, markets, mining and
nature and it is my sincere belief that all of these factors are now
converging to restore what just might be termed order in the Silver
niche. Something has to and will give…….soon. These unleashed
forces have already placed us squarely in a Silver bull market and promise a
spectacular one just ahead.
Russel McDougal
Investor’s Daily Edge
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articles by Russel McDougal
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