Saturday, September 13, 2008

Manipulation in the Silver Market

Another topic I wanted to bring up was silver and the notion that there is a manipulation in the futures market. I have read and listened to many experts, such as Bill Murphy, who have always stated that the gold and silver markets are manipulated. I felt that this could be true, but at the same time also felt skeptical. However, after witnessing what has happened over the last month with regard to silver prices, I know without question that silver does not operate under a free market.

One way that I became aware of this chicanery was through the realization that, over the past month, every coin shop I went to was completely sold out of silver, which previously was something that I rarely experienced.

A basic understanding of how the law of supply and demand operates will tell you that if a price of a good or service is held artificially low, shortages will appear, as supply and demand are mismatched.

Another interesting development occurs when there is artificial price controls or manipulation in free markets, and that is a black market tends to occur. In a black market, a buyer and seller, through the forces of supply and demand, will reach a price for a good or service that is quite different from the manipulated price.

This is in fact what is happening in the physical market for silver at this time. The price of paper silver, which is traded on the futures exchange, is becoming divorced from the price of physical silver. If you want evidence of this, check out the random Ebay auctions outlined below, and you will see what the real value of silver is.

In this blog I have always advocated physical silver over paper silver, such as ETFs. Because, as I said in the comments in this post, having physical silver is money, and everything else is just paper.

1) 5 ounce NWT bar:
$81.00 plus 15.95 shipping = $19.39 an ounce

2) 30 Canadian 80% silver fifty cent pieces (contains 9 ounces)
$158.49 plus $7.50 shipping x 1.06 exchange rate = $19.56 an ounce

3) 10 ounce JM bar:
$170.00 plus $10.00 shipping x1.06 exchange rate = $19.08 an ounce

4) 20 silver eagles
$345 plus $20.00 shipping x 1.06 exchange rate = $19.34 an ounce

Gold analysis will follow tomorrow.


Aaron said...

I fully agree with you 100%. I would like your input on whether or not you believe the manipulation that pushes the paper price of silver and gold down could be sustained forever. If so, for those of us who own gold in silver, are we fighting a battle we cannot win?

Danny Merkel said...

Hi Aaron,

I do not think that the manipulation in the paper market can last forever. Whether it's manipulation in the futures market in silver or naked short selling for the gold juniors, eventually the true market price emerges.

There has never been a case in history where the price of a good or service was kept artificially low for any length of time before the manipulation fell apart.

That being said, I still prefer physical ownership, since that cannot be manipulated at any time.

It takes blood and sweat to produce gold or silver, and it cannot be created en masse by a printing press, or a click of a mouse.