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TheStreet Open House

Silver's History of Suppression

Stocks in this article: SLV

By Jeff Nielson of Bullion Bulls Canada

Sophisticated precious metals investors are well-aware of the rampant manipulation of the gold and silver markets. They are also generally aware of the reason for such manipulation. A rapid rise in the price of gold and silver is like an economic "warning siren" -- alerting savers that their wealth (i.e. the purchasing power of their currency) is being rapidly eroded by the monetary depravity of bankers.

At the same time that the bankers were trying to prop up the U.S. dollar while on the gold standard, these same bankers (and their allies in government) were making their first efforts to defuse a "silver supply crisis" -- caused by pricing silver at only a fraction of its true worth. In the 1960's, the U.S. government had kept the price of silver frozen at $1.29/oz. However, whenever an asset is under-priced, there will always be a group of investors who will identify such an under-priced asset -- and then accumulate it. Thus, the U.S. and other governments were rapidly squandering their entire stockpiles of silver, as they had to dump ever-increasing amounts onto the market to maintain the artificially low price.

Ultimately, the bankers capitulated, and the U.S. government ceased its efforts to keep the price of silver frozen at $1.29. However, as is usually the case with any illegitimate scheme, every time the schemers take action to deal with one flaw in their plans, that produces unintended (and undesirable) consequences -- which then require further acts of manipulation.

Once the price of silver was allowed to rise, very quickly the actual value of the silver contained in our small denomination coins (primarily the 10-cent and 25-cent pieces) greatly exceeded their face-value as legal tender. This created a huge incentive to melt-down these coins and make a very profitable arbitrage trade of "buying" these coins at their face value, and then selling them for their metal content.

The U.S. government responded in two ways (and was quickly copied by the Canadian government). First, it changed the composition of all newly issued coins -- removing all their silver content. U.S. dimes had 90% silver-content up until 1964, while Canadian dimes contained just over 80% silver. Meanwhile, the U.S.'s 1965 Coinage Act made it a crime to melt-down any legal tender coins (in order to profit on their metal-content), and a duplicate measure was passed in Canada. Consider the true dynamics of this measure.

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