You probably haven’t noticed it, but the price of silver has been on a tear lately.
I have written before about the price of silver, not as financial advice, but because it is possible that movements in the price of silver could be cataclysmic for our entire financial system, or even our civilisation.
The primary use of silver for the last 5,000 years or so, was as money, or jewellery. Often, the two were almost interchangeable.
During the last century or so, and particularly the last 50 or 60 years, silver (as well as gold) has been removed from its monetary function and replaced by paper money which has value due to government decree, or fiat.
The effect of this change has been profound, as well as being profoundly misunderstood by just about everyone.
Instead of circulating as money and being held by members of the public as a store of value, silver is now largely held by large financial institutions which operate through Government consent.
The degree of interconnectedness between these large financial corporations and the Government cannot be overstated.
Who’s Printing the Cash?
The banks essentially counterfeit money. This would be highly illegal if the banks didn’t cut the Government in on the deal.
They also pay off the media (except for The Richardson Post of course) and the economics profession to pretend that this is an economic benefit to the rest of us.
In reality, nothing could be further from the truth. When you print money, you steal from the existing holders of money. This is not a benefit.
The system is intentionally complex, of course, to prevent the great unwashed from realising the truth.
I don’t want to dive too deeply into this cesspool though one anomaly, is that rises in the price of gold increase the borrowing costs of the Government.
Larry Summers proved this as part of his PhD thesis. He would go on to become US Treasury Secretary.
The US Government understood, therefore, that rising gold prices would raise their borrowing costs. When you borrow as much as the US Government, that is not an inconsequential fact.
So, Uncle Sam had a powerful motive to keep a lid on the price of gold. Having the largest stash of gold and silver in the world gave him the means.
Despite establishing means and motive, it isn’t easy to determine whether this crime is actually happening, although there is a mountain of circumstantial evidence suggesting that Government departments work hand in hand with the banking sector to keep a lid on gold and silver prices.
Well, if you are manipulating the gold price, it pays to start with silver. Gold traders watch the silver price as an indicator. When silver prices begin to plunge, gold traders tend to pull back, expecting gold to follow.
Since the silver market is so much smaller than the gold market, it is much easier to manipulate prices.
What makes it really easy, is the fact that most of the silver sold on the large exchanges is never consumed, it is bought simply for investment purposes.
Consequently, buyers rarely take delivery of the gold and silver that they buy. Instead, they merely accept contracts which assert ownership of precious metals.
What they don’t realise, or don’t care about, is that the financial institutions are allowed to issue multiple contracts for ownership of the same precious metal to multiple buyers.
How Is That Legal?
If that sounds illegal, you are correct – or at least you would be if the Government weren’t involved. The ability to write multiple contracts for the ownership of a single ounce of gold or silver gives bullion banks the ability to wildly vary supply and demand, which has enormous bearing on price.
Contracts for gold and silver can be created or removed at will.
One of the tactics which is constantly alleged, is the dramatic lowering of prices, in order to force large owners of silver or gold to sell their contracts at a loss.
Large institutions such as hedge funds or insurance companies may take a position in silver, expecting it to go up in price.
These institutions use something called a “stop loss” to protect themselves from excessive losses. What that means is, that if the price drops too far, they will sell automatically.
By depressing prices to the stop loss, nefarious actors can cause multiple institutions to begin selling at their stop loss price which puts even greater downward pressure on prices.
The price goes into a negative spiral, finishing at a ridiculously low point where the nefarious actors can scoop up the undervalued metals and then simply wait for the price to rise once again.
The original depression of price is often achieved in the “Futures” markets. Contracts here are “sold short” meaning that silver is sold in advance, to be delivered in the future.
In fact, delivery rarely takes place and the contracts are merely rolled over. What silver exists simply sits in a vault.
Whilst this practice is profitable for the players involved, it results in the bullion banks in question holding a large short position in silver.
What that means is that if prices rise, they will be forced to “cover” ie. Deliver silver at the new, increased prices.
Alternatively, they can try to depress prices even more, but that means increasing their short position, effectively doubling down, and if the market moves against them too strongly, they can be crushed.
Ted Butler Had It Right
According to Ted Butler, this is what happened to investment bank Bear Sterns and Lehman Brothers.
Their huge silver short position was then transferred to JP Morgan at the behest of the Fed.
According to Butler, JP Morgan continued the shorting game, along with the other bullion banks but with one small difference. They surreptitiously began buying actual silver bullion which balanced out their “paper” short position.
This means that if the price of silver does move explosively upwards, JP Morgan will not just be OK, they will likely profit handsomely.
The other banks, which weren’t as smart as JP Morgan would be destroyed. These are huge banks and the ramifications would be enormous.
Of course, they could simply keep printing more and more contracts, but this increases their risk exponentially.
The big danger is that people will lose faith in the contracts themselves and begin demanding actual silver which does not exist.
The bullion banks would likely pay them out in freshly printed dollars, but the amount involved could trash the currencies and destroy the reserve currency status of the US dollar.
I think the banks are aware of this situation. They know it has to happen and the one thing they can do, is to control the timing of this event.
Remember that the big banks are Swamp Central. If they had to choose a time to crash the entire financial system, what better time than a few months before Donald Trump steps up for re-election.
Maybe this is all just idle speculation and I have been wrong about this for well over a decade. But in US dollar terms, silver has almost doubled in price since mid-March.
This could be a black swan event that no one is expecting.
Let’s hope it isn’t.