Why Does The Price of Silver Matter?

Those of us even tangentially interested in silver will no doubt be aware of Ted Butler’s incessant allegations that JP Morgan is the major manipulator of its price on the COMEX future’s market, which it purportedly accomplishes by selling huge amounts of short contracts while simultaneously, but often covertly, accumulating massive amounts of the physical metal in various forms.  In a recently published article on SilverSeek, http://www.silverseek.com/commentary/unavoidable-comparison-14284, he alleges that the bank took on that role at the behest of the US Government back in 2008 when Bear Sterns went under, being rewarded by the tidy profits they routinely make in the futures market and the immense gains they stand to make if/when they unload their silver hoard at significantly higher prices.

It seems to me that the really important question is not whether Butler is correct in arguing that JP Morgan is acting on behalf of the government, with CFTC complicacy, but rather why those in authority would even be interested in the price of silver?  After all, it is not actually a monetary metal anymore, and  officially in most countries hasn’t been one for around a century and a half.  Of course, silver coinage remained in common use in many parts of the world well into the 1960s, but since before WW II no country (possibly apart from Ethiopia) has been on a silver standard since the Republic of China went off of theirs in the mid-1930s.  Since the 1870s, under the ‘classical gold standard’, in most countries silver coins had monetary value only as tokens mainly representing fractions of gold-backed marks, dollars, pounds, and francs, etc., their actual silver content being of no consequence*.  Otherwise, their universal replacement with look-alike base metal tokens, virtually complete by 1970 worldwide, could not have been accomplished with so little fuss and bother.

Silver, as an element with some special metallic qualities, does have some continuing, and even increasing ‘industrial and other practical uses despite its virtually complete replacement in photography, as it is an excellent electrical conductor and is particularly suitable for switch contacts.  It also has increasing medical uses, as it has well-recognised antibacterial and other useful properties.  However, it is not rare, or even particularly scarce, although readily minable primary silver deposits are not abundant and many are depleting.  Approximately 70% or more of newly mined silver is a by product of copper, tin, zinc, and gold mining, so more production will continue to become available so long as that goes on.  At present, all-in average mining costs are said to now be approximately at or even a bit above current spot silver bullion prices.  Nonetheless, it is generally not an economic proposition to attempt to reclaim and recycle very much of the silver that ends up in disposable waste (unlike that which was used in photography.).  I have seen estimates that approximately half of the new silver being produced ultimately ends up in land-fill.  However, there are very large stocks of above ground silver in various forms, including actual silverware and silver plate, obsolete silver coinage, and even old photographs and negatives (including X=Rays) in addition to bullion in various forms.  The ratio of existing silver stock to new production may not be quite as high as it is for gold, but it is certainly in second place and far, far above that for any other mere commodity, amounting to years and years of potential supply.

So, why should the US or any other government have any particular interest in the price of silver, which is, after all, the key motive in Butler’s alleged official manipulation policy?  Frankly, I don’t know.  If anybody out there thinks that they do know the reason, or even possible reasons, hopefully they will post a comment.

However, I do have a suspicion that the reason could have to do with the price of gold, which certainly is a major concern of western governments and their central bankers because, despite their vociferous denials, gold is still the ultimate denominator of the relative values of their fiat currencies notwithstanding the abandonment of the Bretton Woods Agreement in 1970.  Or so it seems to me, anyway.  But what does that have to do with the price of silver?

I was around in the late 1970’s and even owned what was, for me anyway, a significant amount of silver at that time.  As I recall what was going on during the Hunt bothers fiasco and the then climax in silver and gold futures prices, which I think is backed up by published narratives of those events, the price of silver was driving gold prices at the time, both up and then down.  The same thing happened in the 2011 bubble in both metals’ prices, but with a significantly longer lag in the rising price of gold, which also did not appreciate nearly so much proportionally.  I cannot say why the large gains in silver prices in those periods had such a contagious effect on gold prices, but perhaps the first episode was enough to establish the fear of such contagion in the monetary authorities’ hearts and minds, so that they dare not leave silver alone lest it again leads gold to unmanageable price levels.

Slow Loris Larry

*The same was true for non-fractional coins such as US silver dollars, which circulated along with paper dollar notes of various kinds including ‘Silver Certificates’.  Under the pre-Civil War bimetallic monetary standard (or other such) it is impossible to define the correct long-term silver/gold ratio, as relative prices vary from country to country and over time, and any imbalance automatically produces destabilising international flows of the physical metals, due to Greshams law.

Sunday PM pre-game, 4/19/2015

Greetings friends!

Figured I'd post an update since I started building a short position in gold and silver Friday. Simple idea: I will close it if gold crosses the 2-yr moving average on this monthly chart.

It's not easy being an animal

Hello everyone. After several years of reading and commenting here, I’m pleased to have been given the opportunity to provide some posts for your perusal.
I’m going to start by sharing some thoughts on some apparent ironies and paradoxes of evolution on our planet. I’m going to focus specifically on the Darwinian theory of natural selection, also commonly known as ‘survival of the fittest’, and how this may apply to humankind in particular.
We humans are so much further down the evolutionary path than every other species aren’t we? We have amazing technologies, we are self-aware, we have governments to organise things, and we seem to continually be making great strides in improving our living standards, as well as our average life spans, especially in the developed (part of the) world of course. There also seems to be a continuing and growing desire to move towards humankind sharing its resources more, and looking out for those who are in need, especially within national borders.
Some call this socialism, which I believe means being friendly and caring to your fellow humans, and sharing with them (unless they’re very rich or foreign of course), ideally via a government agency, as opposed to getting one’s own hands dirty. The desire to see a fair society and a fair world, where everything is shared via central planning is perhaps not a good fit with the ‘survival of the fittest’ principle. Also, the internet seems to be enabling people from around the world to join together in a way never seen before, sharing information and views. In many ways it is a whole new world these past 20 years.

The Wheels on the Bus go ...

Over lunch last week, the Australian branch of the Screwtape Files team got talking world matters. Big topic: 'How is it that the wheels have not yet fallen off?'. Here we are in 2015 and the horrific financial collapse and devastation predicted by many - take your pick of the massive smorgasboard of potential disaster: Armstrong's Big Bang 2015.75, Australian Property Crash, China Economy Collapse, Revaluation of Physical Gold, Hyperinflation, Global Derivatives failure, Grexit from Eurozone, Kondratieff Winter, Bond Bubble Busting (etc) ... all of these are big ticket items so the fact that none of them have yet come to pass in finality (despite appearing to be constantly on the brink) seems to indicate that Ben Bernanke and his ilk really have worked some magic, albeit arcane and unholy.

Checking in

Hello friends,
As I mentioned in a previous comment, I'm on a brief sabbatical from STFU. But I see our friend Gary requested a chart a while back, so here are six (no financial repression here!).

First, a big picture view of gold.

Looking at 5 wk exponential moving averages in 5 major currencies, we see (1) the 2013 crash was minor in the big picture, but (2), (as I've been saying since then) that marked the end of the bull market of 2001-2011, and consequently, it would take some time before the next up-leg. Regarding which (and I'm in complete agreement with the most rabid gold bugs here) is on its way. Just not yet.

Incidentally, I have to laugh at the establishment types and apologists who think gold has no tie-in to macroeconomic fundamentals anymore. I.e. the blinkered ones who willfully refuse to see the tie-in between the growing debt (and consequent income inequality) since the 1970s and the jettisoning of what was left of the gold standard.

... e.g. note when the wage curves actually flatten, and where the New York Times puts the vertical demarcation here:

If you integrate under (Productivity - Wage),  you get ($$ stolen by Financial Parasites)
As I predicted it would do when I unveiled this chart many months ago, gold hit the MA-rainbow and has turned, just as it has done in previous corrections. Keep your eye on the horizontal green RSI line above.

Australian Data Retention Proposal = Stalin's Wet Dream [updated]

I barely have time to look up these days but when I do it's normal to discover Australian Politicians finding new ways to waste public money on inefficient and unecessary things. The 'data retention' scheme is one such, with the added of bonus of highlighting what an oppressive communist country we have become. It's back in the news because our government has estimated the cost - they want to spend over AUD$400 Million to systematically retain national communications 'metadata'¹ for a period of two years. Exactly which element about the proposal most offends me is difficult to determine ... possibly that whoever has the motive to circumvent the monitoring will definitely have the means to do so, and that for the most part the ability to track all this stuff is already in place and can be obtained should the target be important enough. The cost is apparently an ongoing one, in terms of sheer economic brilliance it's right up there with Kevin Rudd in 2008 giving out free 'stimulus' money to everyone including backpackers and some on temporary work visas.