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The Great Precious Metals Managed Retreat

By Dr. Jeffrey Lewis

Many observers, notably GATA, have characterized the more than decade long run up in the precious metals markets as a managed retreat orchestrated by the big bullion banks.

These banks typically profit by using their large transaction size and deep pockets when the market is vulnerable to induce substantial price variations, often by triggering stop loss orders placed by short term speculators.

Price Suppression More a Reality than a Theory

Perhaps one of the more popular criticisms of price suppression theories is that if the silver and/or gold markets were so managed in this way by the bullion banks, why have their prices risen so steadily over time?

First of all, this critique is weak because even largest corporate banks would have a hard time holding back the long term flow of investment funds into the precious metals markets. They may be able to trigger short term fluctuations, but the long term trend will overcome those variations.

On the other hand, if the real mover and shaker behind the bullion banks’ notable precious metal selling activities and consistent large short positions is actually a central bank or another official agency suppressing the price in order to prevent rampant inflation due to a devaluing paper currency, then that makes a lot more sense.

Such an entity can print effectively unlimited amounts of dollars to pay for its losses, and it would never be forced to deliver physical metal it did not have because they would generally be trading futures on the short side. Since the seller of a futures contract controls physical delivery, they can simply opt not to deliver and cash settle instead.

Other Financial Scams Exist, so Why Not Price Suppression?

Furthermore, it is interesting to note in the age of the LIBOR scandal, FASB mark to market rule changes, HFT programs front running retail investors, MF Global’s dramatic demise, and Bernie Madoff’s outrageous Ponzi scheme, that it continues to be taboo to even entertain the idea that the precious metals markets could actually be managed.

Of course, the acceptance of price suppression in silver and gold futures as a reality, or even as a likely possibility, will immediately call into question the real value of every other commodity also denominated in U.S. Dollars.

Basically, if inflation can be controlled in this way by manipulating futures markets, this strategy is probably being employed throughout the commodity markets to artificially prop up the intrinsically worthless Dollar and manage inflation.

Do Politics Underlie Price Suppression?

If price suppression is in fact an unspoken public policy, then it really becomes a political issue, which may be the hidden factor here influencing price discovery and value. Certainly it is not a stretch to consider fiscal overspending occurring in the name of political agendas. Such a policy would also be facilitated by historically loose monetary policy and may have given rise to the ever-intensifying economic cycles that the world is now experiencing.

Already, regulators have been ‘captured’ as the game starts to become more exposed, which is consistent with the seemingly managed nature of the price suppression system.

In this scenario, the regulators are be left with the ability to make announcements and speeches only, and they have been further compromised as the financial system crumbles, where the impetus to exert political influence has become especially acute as the State is running out or has run out of the means with which to impose its financial power on its own people.

Participants Increasingly Aware of Price Suppression

Although many market participants would still not dare to imagine that ultimate eventuality actually happening, keen observers are increasingly witnessing that process occurring in its early stages.

The market also seems to be progressively reaching the point where 'everyone knows' that the price of silver, gold and just about every other commodity is being politically managed to the point where underlying fair value across the board has become remarkably distorted.

Furthermore, it is no coincidence that this price suppression theory fits the facts so well, despite the sheer complexity of the manipulative methods employed and the instruments traded in what has essentially become a black hole of shadowy derivatives markets.

Ignorance need not be conscious, so there’s no need to turn a blind eye to an issue just because very few people actually understand what is going on all over the world today as fiat currencies gradually make a managed retreat to their true value - zero.

For more articles like this, and to stay updated on the most important economic, financial, political and market events related to silver and precious metals, visit http://www.silver-coin-investor.com

 

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