The Silver Market - The
Same Thing All Over Again
By Dr. Jeffrey Lewis
The recent price
drop in silver was severe, but not exactly like silver’s Black Thursday in 1980.
It was different this time, but some aspects of the decline seemed the same.
This time, a
different demand character prevailed. Also, the overall level of market
awareness and underlying sentiment was stronger.
Awareness of the
persistent value of precious metals is growing, though mainstream sentiment is
chronically low and therefore true investment interest still seems a galaxy
stock piles of silver have been drawn down and this is directly related to the
silver users’ once powerful lobby.
Another key factor
was the great easy money credit expansion. This suckered so many people (and
governments) into accumulating debt levels that they could not really afford or
into slaving away at their jobs to service the debt.
steady and often unnoticeable inflation has eaten away at the purchasing power
of paper currencies, while the authorities have subsidized one asset bubble
after another. All of this has created the illusion of prosperity via paper
millionaires and housing barons.
Also, the silver
market is dominated by the largest naked concentrated short position ever seen.
This situation has developed over decades and has evolved to control the price
and trading structure. By gaming, the big speculative traders have juiced on
easy money in their desperate search for yields that seem increasingly harder to
achieve by investment alone.
Manipulation - Then and Now
Remember why the
price of silver dropped so sharply in 1980. At that time, the Hunt brothers
were trying to corner the silver market, but they were forced out of their
dominant long positions and were later prosecuted for their actions.
Then, the shorts
were the exchange board members and the silver users, but this time, no one
quite understands why the market fell so sharply. Also, the market regulators
are involved in the opposite ways to how they should be.
market, like most commodity markets, sees trading dominated by concentrated
short sellers who often move the market at will to profit from their influence.
Their manipulation of the silver market is ongoing and pervasive, and this
situation has resulted in chronically low pricing for silver.
These large, deep
pocked shorts are typically fleecing the weak longs and profiting from their
weakness by buying in the longs’ positions when they finally choke.
Nevertheless, people who prefer to take ownership of silver are a diverse and
backdrop to this latest decline in the silver market is a worldwide balance
sheet blow out and a virtually zero interest rate policy or ZIRP.
governments have seemed increasingly eager to participate in the “race to
debase”, as their countries’ paper currencies fall in unison. Only their
notable decline against the precious metals shows how essentially worthless
these paper currencies really are.
If interest rates
rose by only small amount, the interest payments on many countries’ national
debts would easily eclipse their tax revenue.
employment participation has fallen to multi-decade lows, and waves of baby
boomer retirees have been exiting the workforce.
Basically the Same?
The key factor
that has remained the same is that governments always run deficits, and then
borrow to print money so that they can fund the difference. This is one reason
that you can read so many articles about currency debasement today.
get first dibs on cheap credit via their debtor relationship with privately
owned Central Banks.
Over time, this
situation has resulted in massive sovereign debt burdens since legislators have
very little incentive to cut government spending, which is typically unpopular
with their electorate. Furthermore, politicians continue to promise more popular
programs to help them get elected.
As the Greek
sovereign debt crisis has shown the world, there is a limit to how far this
overspending can go before investors lose confidence. That limit is now fast
approaching for numerous other nations, thereby making owning hard assets like
silver seem increasingly attractive, especially at today’s bargain prices.
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