Buy Silver Today – At A Discount
Written by Jeff Nielson Monday, 25 April 2011 12:58
Articles & Blogs - Silver Commentary
Having just written a commentary explaining why gold and/or silver “mania” is much more of an imminent event in Asia than in the West, when I saw silver leap more than $2/oz in early, Asian trading on Monday that definitely got my attention.
Silver was then unceremoniously slammed back down by about $3/oz – once Western markets opened and the predatory bullion-bankers went to work. The $2+ move higher was very close to being (in absolute terms) the largest upward move in this entire bull market, to date – likewise the $3+ move lower. It would only be natural for shell-shocked investors to ask themselves “what is the real price of silver?”
Before I get into that topic, I just want to spend a moment to discuss the “surprising” reversal in the silver market today. Obviously the pattern of bullion prices starting strongly (in Asian trading) and then “suddenly plunging” when Western markets open is as blatant as it is absurd.
The simple fact that bullion prices have moved relentlessly higher over more than a decade, while Western bankers have been consistently selling them lower, day after day, week after week, month after month can only lead to one of two conclusions: either Western bankers are grossly incompetent (and never learn from their mistakes); or they have been relentlessly manipulating gold and silver prices lower. On second thought, it is certainly possible that both conclusions are correct.
In this particular instance, the desperation of the bankers to push gold and silver lower is especially rabid. The bankers are absolutely determined to preserve the myth there are still ‘seasons’ in the precious metals sector (a topic I intend to explore in the near future) – and we are now (supposedly) entering the “off season”.
Seeing bullion prices surging higher at this time of year has them terrified, and has already resulted in the most massive shorting frenzy with the gold and silver miners since the Crash of ’08. The shorting of the miners has been all the more frantic given that the bankers have clearly failed to control surging bullion prices. This has resulted in a radical disconnect in the prices of the miners versus the price of bullion, or (put another way) the miners are now as cheap as they have been in close to two years. Obviously both bullion and the miners are heading much, much higher in the future, so it remains to be seen whether these “shorts” can manage a profitable exit from the miners – or simply a reenactment of “Custer’s Last Stand”. But I digress.
With there being “two prices” for gold and silver, the Eastern price and the Western price, confused investors/traders will be wondering which price is a valid reflection of the market. In fact, with the silver market being the most excessively manipulated market in the history of commodities, neither price is “valid” with respect to the true, fundamental value of silver.
Much has been written on this topic (including several of my own commentaries), so I don’t have nearly enough space to devote to why (even at close to $50/oz) silver remains grossly undervalued. Let it suffice to say that with there being less refined silver in the world today (relative to gold) than at any time in thousands of years, the price ratio of silver to gold is certain to descend to well below its long-term average of 15:1 – very likely lower than 10:1. If we were to assume that gold is “fairly priced” today, rather than still being seriously undervalued, this would put the present value of silver today at a minimum of $150/oz.
However, another simple way of illustrating the fraudulent “official” price(s) of silver is to point to the third price – it’s unofficial price in the large “cash settlements” which are now apparently taking place each month in the apex of silver-fraud: the Comex exchange.
Knowing that the huge “shorts” in this market (the bullion banks) are literally nothing more than “paper tigers”, with not nearly enough metal to back their massive (and illegal) bets, large traders are now engaged in a very fun and profitable game. While most of these traders have, themselves always focused exclusively on trading paper-bullion – rarely if ever taking possession of the “physical” metal – now many/most of them are demanding “delivery” each month with their Comex contracts.
These traders do this knowing that there isn’t nearly enough silver in Comex warehouses to satisfy these binding, legal contracts for the delivery of silver. In other words, Western bullion markets are already in “technical default” – an unheard-of situation for a major commodities market. To prevent this technical default from becoming an actual default, every month the bullion banks are forced to buy-off these traders with large cash-settlement bribes. The bankers “deliver” only paper to the traders rather than silver, and to get these traders to accept this, the bankers add a large premium – estimated to be as much as 25% (or more) of the official “spot” price.
This game has also apparently been taking place in the London gold market even before it started occurring in New York. The big difference is that (theoretically, at least) the charade in the gold market could go on and on indefinitely – while the silver market must “implode”, and likely sooner rather than later.
The big difference between the two markets is the massive “industrial demand” for silver, which (ironically) was created by the bankers. Decades of manipulating the price of silver to only a tiny fraction of its real worth has (naturally) over-stimulated demand. Unlike the paper-traders, industrial users of silver would never accept these cash bribes, since you can’t manufacture any of the countless products which now use/contain silver with Bernanke-bills.
Thus while both the gold and silver markets could “detonate”, due to the radical imbalance between supply and demand (and between their present prices and their real value), only the silver market has a lit fuse – and a short fuse, at that.
Understanding these dynamics, I hear many knowledgeable silver investors expressing frustration with the phony, official prices – and the secret unofficial price being paid to large traders. This attitude surprises me, since not one of these individuals wants to sell any of their silver today. They are simply annoyed that the “sticker price” on the silver they are already holding isn’t higher. Given that many of these investors are still accumulating silver, their attitude is irrational, if not childish.
What does it really mean when the “official price” of silver is well below its unofficial (but much more realistic) price? It means that this precious commodity, which has not been this scarce in hundreds of years is on sale – and ordinary investors can buy it at a discount.
Keep in mind that in this permanent era of high demand and inadequate supply that buyers of physical bullion frequently complain about the high “premiums” which we must pay to buy our silver from dealers. Given the reality of these cash settlements (and assuming the rumors about the size of these bribes are reasonably accurate), this means that even with these premiums ordinary buyers are still able to buy their physical bullion below the actual, current price.
As I continue to remind readers in replies to their comments and mail, the bankers now work for us (although for those of us who also hold shares in the miners, it may not seem like that at the moment!). I say that if the bankers want to make it possible for me to buy my silver below the actual, current price, then who am I to argue?
Indeed, if not for this cash-settlement charade delaying the inevitable implosion of this market, we would have already seen the price of silver skyrocket to a level where few of us would want to purchase it. Such an event would very likely precipitate the investor mania in this sector I wrote about – prematurely – and as I warned previously, this is not a desirable scenario, even for the holders of precious metals.
Consider the insanity of the world we live in. The bankers who are terrified that gold and silver will rise to their true, fundamental values (many multiples of current prices) continually push the price lower (rather than merely seeking to keep them stable). This radically over-stimulates demand, leading to much more buying and (over the longer term) much higher prices than if the bankers had not manipulated prices in such a rabid and predatory manner in the first place.
Meanwhile, gold and silver investors – who are still only wanting to accumulate bullion, and have no desire to sell any of it – are complaining that gold and silver remain too affordable. As I frequently point out to people in chats on our forum, few emotions short-circuit our capacity to act (and think) rationally as much as greed, and the attitudes in the bullion market (on both sides) illustrate this principle vividly.
“Be careful what you wish for – as you just might get it,” goes the old adage. Never were those words more applicable than with respect to the precious metals market today. Precious metals investors (most of whom still know they need to accumulate more bullion) are “wishing” for prices which more accurately reflect the value of their asset – while if they get their wish, all that it really means is that they will never be able to buy any more of this good at a discount.
Celebrate the fact that our most-scarce commodity remains affordable to us, even while it appreciates faster than any other asset class. Silver investors who are not satisfied with this current reality can only be characterized as “greedy”. It is a character flaw which invites self-destructive behavior, and thus we must rid ourselves of any/all such thinking.
Regular readers know how partial I am to the aphorisms of wisdom which have enriched our minds and our cultures, and so I will end this piece with one more of those pearls: “good things come to those who wait.” If we replace the vice of greed with the virtue of patience we will be doubly rewarded: not only will our self-improvement inevitably be reflected in a superior return on our investments, but we obtain the added “dividend” of greater peace of mind.
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written by SilverTrax, April 27, 2011
I suppose I'll just set up a trading account somewhere, but all the things I've learned since 2008 have made me wary of being involved in any of the mechanisms associated with wall street and the banking system.
Anyway - I'm off to read your latest article.
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written by Jeff Nielson, April 27, 2011
My background is not in trading, so I don't have a lot of expertise in share purchasing outside of exchanges. I'm assuming that you're looking to get in on an "IPO" or "private placement" - a new offering of shares by one of these companies.
This is basically an opportunity that only becomes available to "insiders", large shareholders, and sometimes the people involved in promoting these companies.
So the short answer is that as a private investor, your best hope to participate in an offering of this nature is to a) develop a significant position in a company FIRST; and then b) become very active in "networking" with the company's management, starting with their "IR" (investor relations) department.
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written by SilverTrax, April 27, 2011
I've enjoyed reading your commentaries for a while so I thought it was time to create an account, and I have a question about investing in mining companies. BullionBulls and KWN have led me to believe that it may be wise to place a little funds in select miners so I've been doing research over the last few weeks. Your series on mining companies and your Mining Company Database have been very useful resources.
Is there any easy way to identify which mining companies sell shares direct?
I'd like to avoid established financial channels when investing if at all possible so I'd prefer to buy shares direct, but whether or not they sell direct doesn't seem to be commonly posted info. I'm guessing I'll have to contact each of them individually, but I was hoping you'd have some insight into a simpler way to get this information.
Thanks a lot and I appreciate what you do!
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written by Jeff Nielson, April 27, 2011
Part of the reason WHY these junior miners are feverishly working to expand their land holdings and production is BECAUSE they still represent a minority of the silver market.
With any other commodity (including gold), a bull market like this causes a FLOOD of new mining companies ("primary miners") into the sector. However silver was SO depressed for so long, that even this surge in price still hasn't been enough (yet) to move silver production from primarily a "byproduct" model to a primary production model.
Until that time arrives, not only are the existing silver miners going to profit from the surging price in the commodity they sell, but they will ALSO benefit from the relatively sparse competition.
Despite there being about 17 times as much silver in the world as gold, gold miners currently outnumber silver miners by AT LEAST 4:1 (and probably more). Yet, as Eric Sprott tells us, even in the U.S. they are spending more DOLLARS on silver than gold bullion.
In other words, the surging INTEREST in silver as an investment (or "insurance") is substantially exceeding the rate at which the silver miners are able to ramp-up production.
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written by debsyl, April 26, 2011
Debbie
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written by Jeff Nielson, April 26, 2011
Given the complete destruction of inventories (by the shorts), and the fact that silver is clearly still significantly under-valued, there are only TWO possible drivers which could push prices lower: a large, "secret" stockpile of silver is suddenly revealed, OR if silver SUPPLY increased radically.
We have absolutely no reason to believe there are any large, secret stockpiles. The bankers have been very systematic in seeking to plunder all silver from the global economy.
As for mine supply, MOST silver is STILL produced as a "byproduct" of other mining (although that will change over the course of the next five years). Because of that, the PRICE of silver is still only a MINOR driver of mine-supply. Until that dynamic changes, it is IMPOSSIBLE for vast amounts of silver to suddenly land on the market.
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written by Chad McNamara, April 26, 2011
So what happens if JP Morgan collapses and their short's go in default?
The market price would dramatically rise?
Pardon my ignorance!
Is there a market force (even if theoretical) that could bring the price down? Other than the manipulation -- I mean is there an "normal" event that could drive the price lower?
Only up?
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written by Jeff Nielson, April 26, 2011
Thus we don't use words like "can't" or "must" over the SHORT TERM. Over the short-term, ANYTHING can happen in rigged markets, run by psychopaths - and populated with clueless sheep.
In the summer of 2008, I went "all in" in the miners, because I decided that they "couldn't" go any lower. Then Wall Street went to work creating the Crash of '08.
While it's UNLIKELY they would attempt that same reckless gambit, NEVER use the word "never" when it comes to psychopaths.
The miners SHOULD move higher right away. They WILL move higher over the long term. TODAY, anything can happen...
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written by navderek, April 26, 2011
Here is the one I meant to post...
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written by navderek, April 26, 2011
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written by Posthumous, April 25, 2011
All good things must and shall come to an end!
I would first like to the Kevin Drost of Asset Strategies who first suggested Silver as a diversification...I was a 100% Gold Bug till then.
Second...to an anonymous newspaper blogger, who suggested this site.
...and lastly to the Masterful Jeff Nielson who has explain the Silver "predicament" so wonderfully...Thanks Jeff...although the only down side...is the only "Friend" Who acted on my Preaching...Annoyingly persists in phoning and Texting me almost Daily...from Australia to basicly express his Thanks.
...But in the back of my mind... Somehow... The inexorable fall of the Dollar... is very unsettling...forboding even
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There are things we can do to enhance our return WITHOUT taking on much added risk.
For instance, you might want to start reading-up on "warrants". Warrants are even MORE volatile than the shares of the miners, BUT in the right circumstances offer greater reward for similar risk.
This isn't something to IMMEDIATELY jump into if you haven't bought these instruments before, but definitely an area where the "little guy" can level the playing field somewhat.