With the silver price now experiencing a correction after running up more
than $5 in the past three months, we now see more articles suggesting price
manipulation as the bullion banks hammer the metals. There continues to
be this notion put forth by many precious metals analysts that the bullion
banks, especially JP Morgan, are controlling the gold and silver prices.
While I have no doubt there is an intervention in the precious metals
markets, we must remember that the Fed and central banks are manipulating the
ENTIRE MARKET with money printing, bond purchases, debt issuance, and zero
(or negative) interest rates. However, the current price of gold and
silver, even with the supposed market rigging, are still priced higher than
their overall average production cost.
Unfortunately, the fact that the prices of most goods and services
are based on their cost of production tends to be overlooked by the majority
of the analyst community… whether they are from the mainstream or alternative
media. I can assure you that if you consider the price of a
standard pair of jeans (not a high-end name), it would be based on the entire
cost structure from beginning to end, when it finally shows up on the retail
shelf.
No company can sell a product for less than it costs for an extended
period of time, or they will go bankrupt. On the other hand, the market would
not pay 100% more than the cost for a typical pair of jeans, if the
competition was selling it at 10% over cost. Economics 101.
Now, if we want to understand the MANIPULATION of the market, we have to
realize where the extremely OVERVALUED or INFLATED prices are
contained. As I have stated many times, the majority of STOCKS, BONDS,
and REAL ESTATE are where the focus of the Fed and central banks manipulation
have been directed. Why? Because that is where 99% of the market
has invested its funds.
Thus, the overwhelming majority of goods and services, including
precious metals, are not overvalued, but this is not true for the majority of
stocks, bonds, and real estate. These supposed assets are
extremely overvalued. Which means, this is where the greatest degree of
market intervention is directed.
If we understand that the price of most goods and services are tied to
their cost of production, here is a chart of Pan American Silver’s estimated
break-even and its profit or loss per ounce:
The WHITE LINE represents the silver price Pan American Silver received
that year and the green, and red prices show the estimated profit or loss per
ounce (Green = profit, RED = loss). When the silver price shot up to an
average of $35 in 2011, Pan American Silver enjoyed a healthy $9.02 profit
per ounce. However, if we look at the majority of years, Pan
American Silver made a profit or loss of about $1-$1.50 an ounce.
So, should we expect Pan American Silver to earn $9-$10 profits per ounce
a year for an extended period?? That depends on how the market is
valuing silver. Currently, and for quite a while, silver has
been valued based on its COST OF PRODUCTION. And we can
clearly see this shown in the long-term silver chart:
The lower BLUE-DASHED trend line represents the silver cost of
production. While it was likely much higher in 2011 and 2012, the
silver cost of production trendline provides a good floor in the silver
price. If we look at the Pan American Silver chart above, we can see
that in 2004, the company lost an estimated 10 cents an ounce and in the 1H
2019 (first six months) it earned a 40 cent profit per ounce.
So, the silver price chart represents the REALITY taking place in the
silver industry if we look at the metal as a commodity, based on the cost of
production. However, silver is more than just a commodity used to make
Solar Panels and I-Phones. Silver is also a store of value and
money. But, the market is not valuing gold or silver as money
currently, BUT IT WILL.
Setting The Record Straight On Silver Manipulation
As I mentioned at the beginning of the article, several analysts are
suggesting that the bullion banks are manipulating the silver price… almost
as if the silver price was the only metal being manipulated. Of course,
they throw gold in there as well. Yes, banks have indeed used
“Spoofing” and “Other trading tactics” in the gold and silver market for
their own gains, but all of that manipulation does not change the simple fact
that the current silver price is ABOVE the cost of production.
Now, it would be one thing if the bullion banks and their shrewd
precious metals traders were pushing silver down to $8-$10 an ounce. That
would likely bankrupt a large percentage of the primary silver mining
industry. However, we have not seen that.
Furthermore, there is this idea that the massive amount of paper silver
trading is substantially above the physical supply of the market. Thus,
several analysts state that paper trading does not provide an accurate
measure of the physical silver market. While that may be true, it’s
also the case for the other metals and energy. Silver is not the only
asset class with a tremendous amount of notional trading volume.
If we look at the next series of charts, you will see the monthly notional
trading value for each. Stockchart’s volume of the metals and oil is
taken from the U.S. futures markets. All I did to calculate the monthly
notional trading volume was to multiply the peak monthly volume, by the
contract size and price.
Let’s start with silver. A silver contract on the COMEX is for 5,000
oz. With 225 million in volume in August, at $18 an ounce, the
notional trading volume was $20.2 trillion:
Please understand, I am just making a simple calculation here and with the
other charts. No need to get too sophisticated. The silver
trading volume in the chart above may include the smaller 1,000 oz Mini, but
I am not sure. So, in August when silver shot up more than $2.00, the notional
trading volume was a whopping $20.2 trillion. Sounds insane… ah?
Well, let’s look at copper. If we use peak copper volume back in
2018, of 250 million contracts, it traded $17.5 trillion in notional value:
So, we can plainly see that silver’s $20.2 trillion in notional trading
volume isn’t that extreme now when we compare with copper. Now, let’s
take it a step further and look at how much WTIC Oil (U.S. West Texas
Intermediate) traded in a single month:
The market traded an astonishing $101.5 trillion in notional value in the
WTIC oil that month. If we thought silver trading 225 million in
monthly volume and copper at 250 million, well, WTIC Oil blowing through 1.75
billion contracts in a month… that TAKES THE CAKE.
And lastly, we have gold. Last month, gold’s notional trading volume
was a stunning $135 trillion:
While it is true that gold is trading more than oil in monthly notional
trading volume, THEY ARE ALL QUITE HIGH. Furthermore, the top gold
miners cost of production is about $1,200 an ounce, and at $1,500, they are
now making some decent profits, regardless of the 900 million (rounded
higher) in volume traded on the markets.
I just wanted to point out that the majority of the market is experiencing
a tremendous amount of trading. And let’s not forget, the NASDAQ Index
is trading over 40 billion in volume every month. Thus, the
NASDAQ’s monthly trading volume is more than 10 TIMES the peak trading
monthly volume of Silver, Copper, WTIC Oil, and Gold combined.
How about them apples?
So, we need to put the market trading and manipulation of silver into
perspective. While it is likely true that silver and gold are being
manipulated… so is just about EVERYTHING else.
The key to understanding when the Fed and central banks lose control of
manipulating the markets, we need to pay attention to what is taking place in
the Oil Industry, especially the U.S. Shale Oil Industry. Why? How
much economic activity would be generated if the OIL TAP was suddenly shut
off?? How would that impact the trillions in Financial Paper Assets???
Precious metals investors need to become a bit more sophisticated in
understanding the dynamics of the overall market and stop just focusing one
aspect of Silver Manipulation and the supposed coming BIG SHORT
SQUEEZE. Yes, we could see a short squeeze in silver, but the coming
huge revaluation of silver and gold will occur when global Stocks, Bonds, and
Real Estate really begin to crumble due to the central banks losing control
of the massive debt and leverage.
And how will the Fed and central banks lose control of the market?
That’s right… OIL. While the central banks can print money, they can’t
print barrels of oil. Take a good look at Venezuela, and you
will see how money printing works as oil production plummets… the result is
HYPERINFLATION on steroids.
Lastly, the U.S. Shale Oil Industry is in serious trouble. According
to the estimates I have seen, $137 billion of debt will come due by these
U.S. oil and gas companies over the next two years. How are they going
to repay or roll over this debt? Good question. And, on top of
that, it seems as if production is now leveling off in several of the major
shale oil fields.
With the U.S. Shale Oil industry accounting for 75% of global oil
production growth since the 2008 financial crisis, they are the CANARY IN THE
COAL MINE.
SRSrocco Report
