Even though silver and gold are both up around 25% for the year, silver has been lagging gold’s recent spike. Plenty of folks have been asking what’s going on. In the big picture, what is happening is fiat money is in the process of dying. Can governments save the fiat system with austerity? I don’t think so because there is simply too much debt in the world. What I do know is the rich are turning to physical assets for protection from calamity and inflation. Silver is used for storing wealth and industrial production. It is only a matter of time before silver catches up with gold, and most experts say it will go up in price on a percentage basis much more than gold.
Today, Brandon Smith from Alt-Market.com is back with an extensive and well written post about the white metal. Please enjoy his work.—Greg Hunter–
Breaking The Silver Manipulation Barrier
By Brandon Smith
Guest writer for USAWatchdog.com
In 2011, so far gold has been the champion investment above and beyond any contender, including stocks and equities. At the announcement of the S&P downgrade of America’s credit rating, only gold showcased immunity. In fact, gold has thrived (as we predicted) in the face of any potential economic threat, from deflation in stocks, to inflation of fiat currencies. Some may wonder, though, where silver has been while its big brother is flexing its investment muscle? While traditionally, silver tends to follow market surges in gold, the past eight months have been rather confusing for the cheaper metal. Admittedly, silver has performed far beyond the predictions of slow witted mainstream skeptics, but it still has not come anywhere near its true potential, especially in light of gold’s incredible strides. Many may be wondering how it was possible for gold to stampede into the $1800 an ounce range after the downgrade while silver stayed completely static at around $40 an ounce. The behavior of commodities markets has been, indeed, very strange…
The common assertion by MSM pundits is that because silver has a larger industrial market than gold, silver is affected more negatively when stocks decline. This is absurd logic. Silver is still very much an alternative currency and just as much a hedge against market instability as gold is. All told, silver should actually be MORE apt to increase during economic uncertainty than gold, because of its wider industrial usage and subsequent decreasing supply. The “utility argument” for decreasing silver values just doesn’t fly.
As many are well aware, silver is a much smaller market than gold, with fewer primary players in control of tighter trade. Most of us are also well aware that one of these players, JP Morgan Chase, was exposed as a massive silver manipulator in 2010 by commodities trader Andrew Maguire. Gold and silver investors have been demanding a Commodity Futures Trading Commission (CFTC) investigation of such manipulation for decades. These demands fell on deaf ears, and claimants were quickly disregarded as “conspiracy theorists”. Issuers of ETFs (paper silver or gold) have long circulated silver equities supposedly backed by real metal, but when investors began to notice that the amount of paper issued far surpassed the amount of real silver in actual circulation, the scale of the manipulation in progress became quite clear. Global banks were purposely driving down the value of silver by creating the illusion that there is a greater silver supply than there actually is. JP Morgan has also been caught red handed initiating coordinated naked short selling of silver equities as a way to fool average investors into believing that demand for the metal is falling.
With the Maguire revelation, the hope was that the CFTC would finally do their job and take market manipulation seriously. So far, they have not. Maguire’s evidence and testimony have been ignored, investigations were limited to a few pointless committee hearings, and the global bank ETF fraud continues.
Another snake in the grass when it comes to precious metals investment is the COMEX itself. The COMEX is not a free market by any means of the term. It is in fact a highly micromanaged exchange owned and operated by an organization called the CME Group based out of Chicago. CME is the preeminent hand in the flow of trade in all commodities (at least until recently). Their main method for stifling the rise in metals is the use of “margin hikes”. Buying silver equities “on margin” allows investors to borrow capital from a company with a certain percentage of their own cash as collateral, in order to get more silver than they would using their personal funds alone. When the silver margin sits at 50%, for example, an investor with $10,000 can borrow from the company to buy $20,000 worth of securities (ETFs). However, if the CME increases the margin from 50% to 75%, that investor will have to quickly increase his collateral by 25% or lower his silver holdings. CME has the ability to make these changes at will, and such margin hikes have the ability to trigger massive sell-offs in metals, especially silver. In May of this year, as silver edged towards $50 an ounce, CME hiked margins four times! Three times in the span of only seven days! Investors scrambled to unload their ETF’s, which they could no longer afford to collateralize, and silver’s price plummeted to around $30 an ounce.
The CME (and the idiots who defend the CME) often claim that they must raise margins aggressively in order to offset market volatility caused by “speculators”. Strangely, though, there was NO VOLATILITY in silver markets in May. Not until the CME actually increased margins, creating an engineered dump of equities. This forced reduction in silver prices also greatly benefits consistent short selling manipulators like JP Morgan and HSBC, but that’s just a coincidence, I’m sure.
Obviously, someone out there does not like the idea of silver crossing the historic $50 an ounce mark…
So, the next logical question is; how long will this manipulation go on, and how can we fight back? The keys to the end of commodities manipulation may already be in play, while methods for combating centralized control of metals are increasing. Here’s why…
China Competes With The Comex
As of this summer China now has its own Comex, called the Hong Kong Mercantile Exchange. The exchange opened for trade on May 18th (the CME’s incredible margin hikes in silver began only weeks before, which suggests to me that they were trying to preempt the positive effects the HKMEX would have on metals). The HKMEX moved into action only five months after the Chinese Pan American Gold Exchange was instituted. The exchange issues its own ETF’s in gold and silver. These securities, though, are not based on leverage or derivatives like most Comex based ETFs. The bottom line; the Comex global monopoly on commodities trade is over:
This would explain gold’s unstoppable expansion into the $1800 range, and how silver was able to climb back after the CME’s brutal margin manipulation into the $40 range. Only last week, the CME issued a margin hike on gold of 22%. Despite this the fall in gold was minimal, showing that their influence, though vast, is beginning to wane. With competition, manipulation becomes more difficult, and room for growth is created.
The new Hong Kong Exchange coupled with the now explosive buying of physical PM’s by Chinese consumers is slowly but surely overriding the long prevailing manipulations of corporate robber barons intent on ensuring gold and silver are never treated as a currency alternative to the dollar. Silver markets in the East were set into motion a bit more slowly than gold markets were, but given a little more time, I suspect that the resultant spike in silver prices will be the same.
Global Silver Investment Growing
World investment in silver rose by an impressive 40% in 2010 and industrial use increased by 12%, while global supply from mining production only increased by 5%. Growth of demand severely outweighs the growth of supply. After the opening of the HKMEX, China rushed into silver markets. The CME margin hikes that caused the substantial drop in silver spot price in May only served to create a buying opportunity for those investors smart enough to see the writing on the wall. After the S&P downgrade of the U.S. AAA credit rating, silver values did not skyrocket like gold’s, but in the face of extensive manipulation attempts by the CME and major banks, silver’s steadfast hold to its current prices says quite a bit about is resiliency.
One very important factor to consider is that silver is the common man’s currency, and has been for thousands of years. Both gold and silver are solid hedges against financial crisis, especially inflation. However, silver retains more accessibility. As gold continues its climb into the thousands of dollars per ounce, silver will become more appealing to those of us who want to protect our savings, but can’t afford gold. Being that the economic crisis we currently face is unfolding in almost every nation, the demand for a safe haven will increase exponentially. It is only a matter of time before silver is engulfed by an enormous surge of buyers.
With the Federal Reserve continuing to print progressively devaluing dollars, the European Central Bank announcing its own TARP measures, and China in the midst of a full-on inflationary battle royale, national currencies are undoubtedly losing market favor. Gold’s price will soon become unreachable for common people, but silver will be there to fill the void.
How To Break The Barrier
Methods for smaller investors to fight back against the market manipulations of large banks have been sparse, and often limited to desperate appeals to the CFTC and the government, who are bought and paid for, and who have no intention of ever stopping global financiers from dragging their unwashed behinds across the face of the planet. Relying on bureaucrats to mend the wounds they themselves encouraged or inflicted is foolhardy, to say the least. Top down solutions are NOT an option now, and I’m not sure if they ever were. This leaves us with only one other choice; to fix the problem with our own hands from the bottom up. This is, of course, easier said than done…
In the case of silver manipulation, what we are faced with is an unprecedented effort to subvert and suppress an alternative system so that the mainstream system can continue to assert control over our financial lives. To effectively confront this issue, we must first end our reliance of the mainstream system. The longer we continue to participate in the fraud, the longer it will go on. Here are just a few strategies for decoupling, and walking away from the rigged game…
1) End The ETF Casino: If you play the ETF lottery, for god sakes, STOP! You are only perpetuating the con-game that is paper silver. While the allure of speed of light silver trade can be overwhelming, the bottom line is that even though you may think you have the market right where you want it, you don’t. ETFs are an amazing rip off. Trade fees can nickel and dime smaller traders to death. ETFs being held, even without trade, lose value through numerous surcharges as companies nibble away at your holdings. Most ETFs also will NOT allow you to take physical delivery of silver when cashing out your equities unless you have extensive holdings, and even then, it may take months for the silver to reach your doorstep. Because banks issue ETFs for silver they don’t actually have, they would never allow you to exchange them for physical if they can help it. Otherwise, the scam would be exposed, and they would be out of business.
Playing the margins is shear stupidity when you realize that global banks are hell bent on suppressing silver values. There is no rhyme or reason to silver ETFs and margin hikes beyond the whims of corporate puppeteers. Mainstream analysts can pretend as if there is a hard science to this brand of investment, but in reality, it is a large and very expensive joke. Unless you have a crystal ball, your only other tactic for discerning when to sell is pure luck. The very idea of the CME being able to control the price of physical by hiking the margins of paper securities that represent silver that doesn’t even exist is a farce beyond reckoning.
Buy physical, not paper. Be a part of the solution, not part of the problem.
2) Vault Storage Depositories: If you aren’t a buy and hold investor, and insist on participating in short term selling strategies, there is an effective (and smarter) alternative to ETFs and the fake paper market. Silver and gold vault storage depositories allow you to buy and store large quantities of physical metal while having the option of liquidating your holdings for cash just as quickly as if you were selling ETFs. Depositories do not charge hidden fees and do not reduce your silver holdings while they are in the vault. What you put in is what you get back. Period.
Because your silver is already sitting in their vault, a mere phone call allows you to liquidate a portion or all of your stock into cash whenever you wish, just like ETFs, but without the fraud. On top of this, depositories will deliver any or all of your silver or gold on demand to your doorstep, usually within 48 hours. If a sizable number of silver investors switched from ETFs to vault depositories, the ETF market would crumble, and market manipulation would end.
3) Encourage Physical Trade: Max Keiser’s ‘Crash JP Morgan’ campaign was an excellent first step in encouraging silver investment by showing average Americans that they can hurt the big banks simply by purchasing something they don’t want you to have. The next logical step would be to, of course, encourage larger ETF investors to demand physical delivery on their holdings by showing them the folly of the market itself, and, to encourage average investors to actually utilize the silver they buy not just to crash the banks, but for organized trade.
The construction of silver based barter markets must become a priority. Owning silver is not enough. We must start to use it in place of dollars if we are to have any control over our own economy. Barter efforts like this are becoming much more common, but we are still a far cry from full scale utilization of alternative currencies. With the implosion of
the dollar, it will only be a matter of time before metals take primacy as a means of trade, so why not get a head start now? Eventually, the increased circulation of physical will allow the free market to determine the natural value of silver and gold, instead of the subjugated paper market, until finally, the mainstream spot price is completely irrelevant.
4) Offer Incentives: For business owners or for those who are involved in private barter, offering incentives to those who pay in physical would encourage more silver investment, and by extension, more silver circulation as a currency. Add a certain percentage above spot price for silver trade, or, offer a discount on goods or services to those who pay in silver. Businesses, for that matter, could very well give their employees the option of being paid in silver, completing the currency circle and the flow of commerce. The more silver is used day to day, the harder it is for banks to control, and the more its value will rise.
All economies larger than a small village need a unit of trade beyond the barter of goods and services. They also need a unit of trade that maintains its value and buying power, instead of devaluing, inflating, and destroying the savings of those who hold it. Precious metals are the only existing option that can take on this role, and silver is the most attainable for average people. There is a reason why MSM analysts and establishment economists have been trying to crush interest in PM’s for years. There is a reason why global banks have gone out of their way to suppress the market values of metals. The second Americans realize there are other choices, other systems for living and working beyond the controlled paradigm we have been handed, the illusion slips away, and centralization becomes a memory. This is true for all aspects of economic structure, social structure, and political structure, not just for silver or gold. Ultimately, though, we have to start somewhere, and silver is as good a place as any.
You can contact Brandon Smith at: [email protected] Click here if you want to go to Alt-Market.com.
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