Nice Play!It's nice to see a bunch of ATC gold bugs join the silver rush. Since September my best silver play has provided me with 180% gains to date. Admittedly I did have a couple of stagnant silver picks as well but they didn’t see red like some of my gold picks. Anyways last week I took profits from two silver plays (up 88% & 36%) and invested half of it in CMA at 32 and 38 cents. I got in because I felt that unlike some of the silver plays I’ve been into over the last 2 months, CMA in comparison is still very much undervalued. IMO the sp will reach 60 cents very soon, but it’s the potential that’s further down the road that has me thinking much bigger gains. Anyways I’m completely invested in silver plays (at least until the Yukon starts up), for I see it to be amongst the top investments for many years to come. I’ll admit I’m a silver bug first and foremost and since there are quite a few conspiracy theories surrounding silver, it sure makes the silver believers appear to be a bit quirkier than the gold bugs out there - I’ll try to not disappoint!
History has proven to repeat itself time over time and it's quite possible silver is on such a move. Going back around 465 China became the first country to monetize silver - far back enough? Anyways since then there's been price fluctuations due to shortages from mining output to trade imbalances. But the most recent significant shortage that spurred it’s price to an all time high was back in the 1400’s. The chart below starts in the year 1344, but of noteworthy significance leading up to that date is England had 100 tonnes of silver in 1280 and by 1440 it diminished to 2 tonnes. This shortage was aided by the fact that many European mines were reaching depths that they could no longer mine and in response most of the North European mints ended up closing down by 1450. This of course made it highly lucrative to seek out new discoveries and by 1530 Spain plundered the America’s to become an Empire who’s backbone was silver. Jumping ahead to 1920 saw increased discoveries and huge advancements in mining techniques, thus silver’s strain started to ease to the point where stockpiles became abundant enough to suppress the price of silver. The double edged sword of course was that while the profit margins of silver producers were decreasing; world wide demand kept increasing. As a result the above ground stockpiles have been consistently dwindling to supplement annual demand over the last 25 years. Now factor in that the USGS estimates there’s less than 20 years of silver left in the ground; going by the current annual demand of almost 1 billion oz’s/year. So even though high prices have currently made it increasingly profitable to advance silver deposits once again, a looming silver shortage is still very much a reality no matter what happens. History has been known to repeat itself throughout time and it’s quite possible that this century could go into the books as being the greatest silver shortage to date.
650 year graph of silver prices and silver/gold ratio from 1344 to 2004.
The chart below shows that silver provided huge gains in a short time span, of course the huge surge in silver was largely attributed to the Hunt brothers attempt at cornering the silver market. Well it worked to the point that the Comex had to change their regulations to limit the amount one person or entity can own of the silver market. That in itself revealed how small of an investment market silver really is and considering that global population and silver demand has increased over 50% since 1980, it was inevitable that the demand would eventually make silver break away from it's price suppression. The million dollar question is what is the true value of silver? It’s commonly referred to being at a 16 to 1 ratio with gold, looking at the chart below and the recent price action; I’d say we are close to finding out.
34 Year Silver Price
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Silver bugs such as Israel Friedman, Ted Butler, and Jason Hummel have been preaching about silver during the last decade, while many brushed aside their arguments that supported a much higher price as conspiracy theories; the few that listened to date have done very well.
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A recent NY Times article:
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A Conspiracy With a Silver Lining
by William D Cohan
As Americans know all too well by this point, commodity prices — for corn, wheat, soybeans, crude oil, gold and even farmland — have been going through the roof for what seems like forever. There are many causes, primarily supply and demand pressures driven by fears about the unrest in the Middle East, the rise of consumerism in China and India,and the Fed’s $600 billion campaign to increase the money supply.
Nonetheless, how to explain the price of silver? In the past six months, the value of the precious metal has increased nearly 80 percent,to more than $34 an ounce from around $19 an ounce. In the last month alone, its price has increased nearly 23 percent. This kind of price action in the silver market is reminiscent of the fortune-busting,roller-coaster ride enjoyed by the Hunt Brothers, Nelson Bunker and William Herbert, back in 1970s and early 1980s when they tried unsuccessfully to corner the market. When the Hunts started buying silver in 1973, the price of the metal was $1.95 an ounce. By early1980, the brothers had driven the price up to $54 an ounce before the Federal Reserve intervened, changed the rules on speculative silver investments and the price plunged. The brothers later declared bankruptcy.
The Hunts may be gone from the market, but there are still plenty of people suspicious about the trading in silver, and now they have the Web to explore and to expand their conspiracy narratives. This time around —according to bloggers and commenters on sites with names like Silverseek, 321Gold and Seeking Alpha — silver shot up in price after a whistleblower exposed an alleged conspiracy to keep the price artificially low despite the inflationary pressure of the Fed’s cheap money policy. (Some even suspect that the Fed itself was behind the effort to keep silver prices low, as a way to keep the dollar’s value artificially high.) Trying to unravel the mysterious rise in silver’s price is a conspiracy theorist’s dream, replete with powerful bankers,informants, suspicious car accidents and a now a squeeze on short sellers. Most intriguingly, however, much of the speculation seems highly plausible.
The gist goes something like this: When JPMorgan Chase bought Bear Stearns in March 2008, it inherited Bear Stearns’ large bet that the price of silver would fall. Over time, it added to that bet, and then the international bank HSBC got into the market heavily on the bear side as well. These actions “artificially depressed the price of silver dramatically downward,” according to a class-action lawsuit initiated by a Florida futures trader and filed against both banks in November in federal court in the Southern District of New York.
“The conspiracy and scheme was enormously successful, netting the defendants substantial illegal profits” in the billions of dollars between June 2008 and March 2010, according to the suit. The suit claims that JPMorgan and HSBC together “controlled over 85 percent the commercial net short positions” in silvers futures contracts at Comex, a Chicago-based exchange on which silver is traded, along with “25percent of all open interest short positions” and a “a market share in excess of 9o percent of all precious metals derivative contracts,excluding gold.”
In the United States, trading in precious metals and other commodities is regulated and closely monitored by a federal agency, the Commodity Futures Trading Commission. In September 2008, after receiving hundreds of complaints that silver future prices were being manipulated downward by JPMorgan and HSBC, the commission’s enforcement division started an investigation. In November 2009, an informant, described in the law suit only as a former employee of Goldman Sachs and a 40-year industry veteran, approached the commission with tales of how the silver traders at JPMorgan were bragging about all the money they were making“as a result of the manipulation,” which entailed “flooding the market”with “short positions” every time the price of silver started to creep upward. The idea was that by unloading its short positions like a time-released capsule, JPMorgan’s traders were keeping the price of silver artificially low.
Soon enough, the informant was identified as Andrew Maguire, an independent precious metals trader in London. On Jan. 26, 2010, Maguire sent Bart Chilton, a member of the futures trading commission, an e-mail urging him to look into the silver trading that day. “It was a good example of how a single seller, when they hold such a concentrated position in the very small silver market can instigate a sell off at will,” Maguire wrote.
On Feb. 3, 2010, Maguire gave the futures trading commission word about an impending “manipulation event” that he said would occur two days later, when the Labor Department’s non-farm payroll numbers would be released. He then spelled out two trading scenarios about which he had been told. “Both scenarios will spell an attempt by the two main short holders” — JPMorgan Chase and HSBC — “to illegally drive the market down and reap very large profits,” Maguire wrote in an e-mail to a trading-commission investigator.
On Feb. 5, Maguire took a victory lap, writing in another e-mail to the trading commission that “silver manipulation was a great success and played out EXACTLY to plan as predicted.” He added, “I hope you took note of how and who added the short sales (I certainly have a copy) and I am certain you will find it is the same concentrated shorts who have been in full control since JPM took over the Bear Stearns position … I feel sorry for all those not in this loop. A serious amount of money was made and lost today and in my opinion as a result of the CFTC’s allowing by your own definition an illegal concentrated and manipulative position to continue.”
In March 2010, Maguire released his e-mails publicly, in part because he felt the trading commission’s enforcement arm was not taking swift enough action. He was also unhappy over not being invited to a commission hearing on position limits scheduled for March 25. Then came the cloak and dagger element: the day after the hearing, Maguire was involved in a bizarre car accident in London.As he was at a gas station, a car came out of a side street and barreled into his car and two others; London police, using helicopters and chase cars, eventually nabbed the hit-and-run driver. Reports that the perpetrator was given a slap on the wrist inflamed the online crowds that had become captivated by Maguire’s odd story.
In any case, the class-action lawsuit contends that between March2010 and November 2010, JPMorgan Chase and HSBC reduced their short positions in the silver market by 30 percent, causing the metal’s price to rise dramatically, but leaving them still with a large short position. Now, with the value of silver rising nearly every day, the two banks are caught in a “massive short squeeze,” according to one market participant, that appears to be costing them the billions they made originally plus billions more. Whether these huge losses will show up on the books of JPMorgan Chase and HSBC remains to be seen. (Parsing through the publicly filed footnotes of derivative trades is no easy task.)
Nonetheless, the conspiracy-minded have claimed that the Fed must have somehow agreed to make JPMorgan and HSBC whole for any losses the banks suffered if and when the price of silver rose above the artificially maintained low levels — as in right now, for instance.(About all this, a JPMorgan Chase spokesman declined to comment.)
Some two-and-a-half years later, the Commodity Futures Trading Commission’s investigation is still unresolved, and at least one commissioner — Bart Chilton — thinks that after interviewing more than32 people and reviewing more than 40,000 documents, there has been enough investigating and not enough prosecuting. “More than two years ago, the agency began an investigation into silver markets,” Chilton said at a commission hearing last October. “I have been urging the agency to say something on the matter for months … I believe violations to the Commodity Exchange Act have taken place in silver markets and that any such violation of the law in this regard should be prosecuted.”
What’s more, Chilton said in an interview last week, that “one participant” in the silver market still controlled 35 percent of the silver market as recently as a few months ago, “enough to move prices,”he said, and well above the 10 percent “position limits” the commission has proposed to comply with Dodd-Frank financial reform law. Since that law’s passage last summer, the commodities exchanges have issued waivers permitting the ownership of silver positions above the limits the C.F.T.C. has proposed, and which were supposed to be in place by January of this year. Yet the waivers remain in place, and the big traders have not been penalized, much to Chilton’s frustration And the mystery deepens: last Thursday, the price of silver fell $1.50 per ounce in less than an hour before recovering. “This was robbery at its most obvious and most vindictive,” wrote Richard Guthrie, a London-based trader, in an e-mail to Chilton. “How many investors lost money and positions to the financial benefit of an elite few?”
It’s getting harder and harder to continue to brush off Andrew Maguire’s claims as the rantings of a rogue trader with a nutty online following. The Commodities Futures Trading Commission should immediately release the files from its investigation into the supposed manipulation of the silver market so the public can determine whether JPMorgan Chase and HSBC did anything illegal, with or without the help of the Fed. In addition, the commission should start enforcing the 10 percent threshold on silver positions it has proposed to comply with Dodd-Frank law.Basically, the other commissioners must join with Bart Chilton to do the job they are required to do: Protecting the sanctity of the markets and preventing the sorts of manipulation we’ve seen all too often.
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SOURCE: https://opinionator.blogs.nytimes.com/2011/03/02/a-conspiracy-with-a-silver-lining/