By Jeff Nielson of Bullion Bulls CanadaSophisticated 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. First the bankers abolish the gold standard, to allow them to rapidly accelerate the speed at which they steal from us through currency-dilution. This, in turn, requires them to (illegally) manipulate the gold and silver markets -- in order to hide the true value of these metals from being expressed in the bankers' diluted paper. The government then makes it a "crime" for its own citizens to make a profit on their own money. In the bankers' scam of money-dilution, only the bankers are allowed to profit on their crimes. It was at this point in history that the bankers were able to largely forget about manipulating the silver market (for many years), and to focus their energies on gold-manipulation -- because basic market fundamentals created conditions that depressed the price of silver, with only minimal "assistance" from the bankers (and their servants in government). Clearly the price of silver has been driven in recent decades mostly by its industrial demand. And it is this industrial demand which (with a little help from the bankers) kept the price of silver well below its true value for more than thirty years (until early in this decade). This leads us to a fundamental "truth" in the precious metals sector: investment demand (i.e. "speculative" demand) does not stimulate mine production (except in a very belated manner -- only after inventories have been exhausted), while industrial demand does stimulate higher levels of mine production, because the bankers will finance new mine-production based upon that level of industrial use. As an aside, it was because gold is not used to a great degree "industrially" that the bankers had to "persuade" the world's largest gold miners to enter into vast "hedging agreements" -- which simulated the same market conditions for gold: maximizing production at the lowest, possible price. In a true "equilibrium", this industrial production and demand would not cause silver to trade at a price well below its fair-market (equilibrium) value. However, the bankers ensured that the silver market could never reach such an equilibrium by continuing to dump their waning stockpiles of silver onto the market. As I have pointed out on many occasions, between 1990 and 2005, official silver inventories plummeted by approximately 90%. It is simple economics that any good which is grossly under-priced will be grossly over-consumed. Faced with the abrupt end to their silver-manipulation (which would make it much more difficult to continue to manipulate the gold market), the bankers fell back upon their oldest and most-favorite swindle: they sold paper to people, and pretended that the paper represented actual silver -- and thus SLV ( SLV) was born. This is such an obvious sham that I simply lack the space to go until all of the clearly fraudulent implications of this fund, so I will restrict myself to just a couple of facets. From 2005 to the end of 2008, after silver inventories plummeted by 90% in just 15 years (due to being grossly under-priced), we are supposed to believe that inventories suddenly 'made a U-turn' -- and tripled over the course of just four years. Regular readers will be familiar with the following chart, which shows the progression of "official" silver inventories -- along with the small caveat attached to the graph. These official inventories include every ounce of ETF-silver, and SLV (by far the largest silver-ETF) was created at the beginning of 2006. As of the beginning of 2009, ETF-holdings represented roughly 2/3 of total "official inventories". Anyone with even a slight understanding of markets should recognize the obvious sham here. An "inventory" is the amount of a particular good warehoused and ready-for-sale. Conversely, the units of SLV (and all other bullion-ETF's) represent privately-owned silver which has obviously been taken off the market. As a matter of elementary logic, it is impossible for even one ounce of silver to be both an "inventory" and an "ETF". It can be one (silver-for-sale) or the other (privately-owned) but not both. Thus, at the end of 2008, two-thirds of official, global inventories of silver were nothing but an obvious paper-sham. Making this massive fraud potentially much more egregious, the supposed "custodian" for most of this silver is JPMorgan, which holds the world's largest "short" position in silver, the most-concentrated position in the history of commodities markets. In what is obviously not a "coincidence" the total size of the global short position has stayed roughly equal to the (supposed) total holdings of "bullion-ETF's." However, those massive short positions are never audited, meaning that JPMorgan (and the other bullion-banks) have never been able to show they have more than half the silver necessary to cover both their short-positions and "custodian agreements" with the ETF's. What this directly implies is that as of 2009, as much as 2/3 of total global inventories of "silver" was literally nothing but banker-paper -- and we can only assume that their massive fraud has expanded in the time that has since elapsed. While industrial demand for silver helped the banksters in their nefarious (and illegal) schemes for many years, it is now industrial demand which is certain to destroy the bullion-banks. While a gold investor might be capable of being duped into buying banker-paper, and mistakenly believe that the banker-paper is "as good as gold," you can't use banker-paper to make silver bearings, or silver mirrors, or silver batteries, or silver solar cells, or silver anti-bacterial products. The bankers' market-manipulation has progressed from merely dumping the silver which they held, to the much more fraudulent practice of passing off their worthless paper as "bullion". In doing so, they have eliminated the possibility of the price of silver merely "correcting." What has become totally inevitable after 50 years of constant manipulation of the silver market is that this market is poised for the most spectacular default in the history of commodities markets -- even more so than in the gold market. Companies that require silver to continue the existence of their businesses will be ready to bid up the price of the commodity to multiples many times greater than an investor merely making a discretionary purchase.
Jeff Nielson studied economics for four years at the University of British Columbia, before going on to attain a law degree from that same institution in 1989. He came to the precious metals sector around the middle of last decade as an investor, but quickly decided this was where he wanted to focus his career. After publishing his own, amateur blog for a year, in 2008 he founded Bullion Bulls Canada: a web-site providing information and analysis to precious metals investors. Today, bullionbullscanada.com reaches a global audience of precious metals investors in more than 120 countries.