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Thirty Years of Zero Price Discovery in Silver
Written for Sprott Money by Jeff Nielson (CLICK FOR ORIGINAL)
A recent commentary presented readers with a shocking reality for which there was finally unequivocal data: there has been a supply deficit in the silver market for roughly thirty consecutive years. Such a deficit is unprecedented in the history of human commerce. Indeed, in almost any other market, it would be absolutely impossible.
What is necessarily implied by any supply deficit? Demand exceeds supply, and excess demand can be met only by encroaching upon stockpiles. Only one other commodity market on the planet has sufficient stockpiles to supply the market through thirty consecutive years of supply deficits: the gold market.
What makes precious metals unique in the world of commodities is that they are “precious,” and they tend to be conserved (and hoarded). This is still a reality for gold, but in recent decades the world has been “consuming” silver. That is, using it in small quantities in countless billions of consumer products and then throwing it away in landfills.
However, for thousands of years the world produced silver but did not consume it. Thus, like with gold, the world has (or had) large stockpiles of this precious metal, and those stockpiles have sustained global demand through three decades of supply deficits. But all stockpiles are finite. Indeed, known stockpiles of silver (primarily government holdings) have dried up, and official sales from silver stockpiles are now near zero.
It is for this reason that earlier commentaries have postulated the existence of a “secret stockpile” of silver. There was a cataclysmic 90% plunge in silver inventories from 1990 – 2005 that projected a formal default in this market in 2007, yet no collapse has occurred. The roughly one billion ounces of additional silver required to keep this market supplied had to come from somewhere.
Note how the mere existence of large stockpiles creates the potential for price manipulation. As already explained, in virtually every other market, stockpiles are very limited (in relative terms). Even a couple of consecutive years of supply deficits would put significant stress on those stockpiles, and that “stress” manifests itself in the form of upward pressure on prices.
Where large stockpiles exist, however, such supply/demand dynamics do not exist, and thus neither does the pressure necessary to correct the imbalance between supply and demand. This pressure is known, in economic terms, as “price discovery.”
How is a supply deficit corrected? Buyers and sellers meet in the marketplace. During this commerce, it becomes apparent that the current demand exceeds the current supply and that buyers are competing for insufficient supply. Inventories are depleted, and stockpiles are encroached upon.
What is the definition of a “stockpile?” It is a reserve of some particular commodity that may become available, but only at higher prices. Price discovery is the process by which excess demand leads first to encroachment upon stockpiles and then to higher prices. Through legitimate commerce, buyers and sellers jointly discover that higher prices are necessary to restore balance to the market.
How do higher prices restore balance ? Simple. Eventually, as prices rise, buyers become discouraged by the higher price, and demand falls. As prices continue to rise, more producers enter the market, enticed by the potential for profit, and supply rises. Supply meets demand, and balance is restored.
This is why price discovery is an absolutely crucial mechanism in all markets. This is why price discovery is automatic in all legitimate markets. This is why thirty consecutive years of supply deficits in the silver market is supposed to be an impossibility. Price discovery must correct any supply/demand imbalance in any market in the short (or, at most, medium) term.
Despite these economic dynamics that are automatic in any legitimate market, there has been no price discovery in the silver market for three decades. Because price discovery must occur in all legitimate markets, this alone is proof that we do not have a legitimate silver “market” and have not had a legitimate market for (at least) thirty years.
Instead, what we have is a facade. We have a crooked price-suppression operation disguised as a “market.”
How? How could we have gone from a “free and open market” for silver to a closed, systemic, price-suppression operation? This brings us to the banking crime syndicate’s premier tools for market manipulation: futures trading and short selling.
First, we’ll define the terms. “Futures trading,” very simply, means turning a market into a casino. What is a “futures” trade? It is a bet on the future price of that good/commodity.
Why would our governments have permitted the creation of these casino-markets? The irony here would be hilarious if it were not so perverse. It was (surprise!) the banking crime syndicate that lobbied relentlessly for the creation of these casino-markets.
The pretext given by the One Bank for the necessity of futures trading was to improve price discovery in our markets. The reality, as we have seen for three decades with silver, is that futures trading is a corrupt form of gambling that can be (and has been) used to prevent price discovery in markets.
How does (corrupt) futures trading operate to prevent price discovery? Just ask Jeffrey Christian of the CPM Group, an ex-Goldman Sachs banker. When this self-proclaimed expert on the precious metals markets was testifying before the Commodity Futures Trading Commission (CFTC) in 2010, he astounded the world. Christian proclaimed that what the bankers called the “market” for gold and silver was only 1% actual metal, while the other 99% was the paper-gambling of the banking crime syndicate.
The CFTC is the supposed “regulator” of the U.S. casino-markets, the largest (and most corrupt) markets in the world. Jeffrey Christian had just told the chairman of that commission, another ex-Goldman Sachs banker, Gary Gensler, that the Big Banks had drowned the gold and silver markets in paper, a move which prevented (necessary) price discovery.
What did the CFTC do after being presented with this proof of futures trading corruption in the gold and silver markets? It did nothing. Well, technically, it “probed” the silver market for five years (or so it claimed). And after studying the most corrupt market in the history of human commerce for five years, it proclaimed that it had found nothing. Absolute corruption.
Note the effect of such futures trading as confirmed by these banking insiders themselves. Futures trading operates to effectively create a gigantic, artificial supply of a commodity – a fraudulent supply. This is the bankers’ world of paper-called-gold and paper-called-silver, where investors entering the marketplace are told that they are being sold “silver” or “gold” when all they have actually purchased is a (worthless) piece of banker-paper.
This brings us to another primary tool of fraud used constantly by the banking crime syndicate: short selling. Again, it’s necessary to define this term. “Short selling” is, literally, selling something that the seller does not own.
As with the banking fraud known as “fractional-reserve banking,” short selling is prima facie fraud, meaning that it is fraudulent on its very surface. As with fractional-reserve banking, short selling is illegal for any individual or entity outside of the structures of the banksters’ pretend-markets.
As with futures trading, short selling creates an artificial supply of a commodity, another fraudulent supply. To create a veneer of legitimacy for this fraud, short sellers are supposed to “borrow” what they sell onto the market, effectively selling something that they (at least) possess, even though they don’t own it.
Despicably, this is not what usually happens. Instead, we see the systemic crime known as naked shorting, when short sellers do not borrow what they are selling but instead perpetrate naked fraud – thus the term “naked shorting.” As with all other systemic financial crime perpetrated by the One Bank, our pretend-regulators and pretend–justice officials simply ignore this blatantly illegal activity.
Why would our governments have allowed the introduction of short selling, let alone the illegal devolution of naked shorting? Once again, we can thank the bankers. And, once again, we see more of their Machiavellian inclinations.
“Give us short selling,” they hissed, “and we’ll give you better price discovery.” In fact, the silver market perennially reports the greatest amount of shorting in any commodity market (in proportionate terms), and yet – as we have seen – the result is no price discovery, ever.
Notice how both futures trading and shorting are tools of financial crime with an obvious downward bias in terms of their principal effectiveness. Create an artificial increase in the supply of anything, and you automatically put downward pressure on the price of that commodity.
This pattern would be obvious to any child competent in arithmetic. Yet what do we see in silver? We see thirty years of consecutive supply deficits and zero price discovery. We see proof of systemic crime.
We also see two tools of obvious financial fraud placed into the hands of the banking crime syndicate. Those tools have an obvious/systemic price-suppression bias, and we see them being used more – and often illegally – in the silver market than in any other market, year after year.
A previous commentary pegged today’s “fair price” for silver at $1,000 (USD). At this moment, we see the price of silver below $14/oz (USD). After three decades of this comically obvious fraud, perpetrated by a single crime syndicate, what do the officials in our governments and regulatory institutions tell us? It’s just business as usual.
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Thirty Years of Zero Price Discovery in Silver
Written for Sprott Money by Jeff Nielson (CLICK FOR ORIGINAL)
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Jeff Nielson is co-founder and managing partner of Bullion Bulls Canada; a website which provides precious metals commentary, economic analysis, and mining information to readers/investors. Jeff originally came to the precious metals sector as an investor around the middle of last decade, but soon decided this was where he wanted to make the focus of his career. His website is www.bullionbullscanada.com. |
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