Silver….Anatomy Of A Crime

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Published : January 19th, 2005
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Category : History of Gold







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.




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……………. 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 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.




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 website:


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 {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.




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…… 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:




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.






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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Dr. McDougal writes about natural resource investing for Investor's Daily Edge and has been an active investor for 25 years, holding everything from stocks, bonds and mutual funds, to options, futures, currencies, limited partnerships, private placements and rare coins.
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