SILVER PRICE MANIPULATION: Setting The Record Straight

With the silver price now experiencing a correction after running up more than $5 in the past three months, we now see more articles suggesting price manipulation as the bullion banks hammer the metals.  There continues to be this notion put forth by many precious metals analysts that the bullion banks, especially JP Morgan, are controlling the gold and silver prices.

While I have no doubt there is an intervention in the precious metals markets, we must remember that the Fed and central banks are manipulating the ENTIRE MARKET with money printing, bond purchases, debt issuance, and zero (or negative) interest rates.  However, the current price of gold and silver, even with the supposed market rigging, are still priced higher than their overall average production cost.

Unfortunately, the fact that the prices of most goods and services are based on their cost of production tends to be overlooked by the majority of the analyst community… whether they are from the mainstream or alternative media. I can assure you that if you consider the price of a standard pair of jeans (not a high-end name), it would be based on the entire cost structure from beginning to end, when it finally shows up on the retail shelf.

No company can sell a product for less than it costs for an extended period of time, or they will go bankrupt. On the other hand, the market would not pay 100% more than the cost for a typical pair of jeans, if the competition was selling it at 10% over cost.  Economics 101.

Now, if we want to understand the MANIPULATION of the market, we have to realize where the extremely OVERVALUED or INFLATED prices are contained.  As I have stated many times, the majority of STOCKS, BONDS, and REAL ESTATE are where the focus of the Fed and central banks manipulation have been directed.  Why?  Because that is where 99% of the market has invested its funds.

Thus, the overwhelming majority of goods and services, including precious metals, are not overvalued, but this is not true for the majority of stocks, bonds, and real estate.  These supposed assets are extremely overvalued.  Which means, this is where the greatest degree of market intervention is directed.

If we understand that the price of most goods and services are tied to their cost of production, here is a chart of Pan American Silver’s estimated break-even and its profit or loss per ounce:

The WHITE LINE represents the silver price Pan American Silver received that year and the green, and red prices show the estimated profit or loss per ounce (Green = profit, RED = loss).  When the silver price shot up to an average of $35 in 2011, Pan American Silver enjoyed a healthy $9.02 profit per ounce. However, if we look at the majority of years, Pan American Silver made a profit or loss of about $1-$1.50 an ounce.

So, should we expect Pan American Silver to earn $9-$10 profits per ounce a year for an extended period??  That depends on how the market is valuing silver. Currently, and for quite a while, silver has been valued based on its COST OF PRODUCTION.  And we can clearly see this shown in the long-term silver chart:

The lower BLUE-DASHED trend line represents the silver cost of production.  While it was likely much higher in 2011 and 2012, the silver cost of production trendline provides a good floor in the silver price.  If we look at the Pan American Silver chart above, we can see that in 2004, the company lost an estimated 10 cents an ounce and in the 1H 2019 (first six months) it earned a 40 cent profit per ounce.

So, the silver price chart represents the REALITY taking place in the silver industry if we look at the metal as a commodity, based on the cost of production.  However, silver is more than just a commodity used to make Solar Panels and I-Phones. Silver is also a store of value and money.  But, the market is not valuing gold or silver as money currently, BUT IT WILL.

Setting The Record Straight On Silver Manipulation

As I mentioned at the beginning of the article, several analysts are suggesting that the bullion banks are manipulating the silver price… almost as if the silver price was the only metal being manipulated.  Of course, they throw gold in there as well.  Yes, banks have indeed used “Spoofing” and “Other trading tactics” in the gold and silver market for their own gains, but all of that manipulation does not change the simple fact that the current silver price is ABOVE the cost of production.

Now, it would be one thing if the bullion banks and their shrewd precious metals traders were pushing silver down to $8-$10 an ounce. That would likely bankrupt a large percentage of the primary silver mining industry.  However, we have not seen that.

Furthermore, there is this idea that the massive amount of paper silver trading is substantially above the physical supply of the market.  Thus, several analysts state that paper trading does not provide an accurate measure of the physical silver market.  While that may be true, it’s also the case for the other metals and energy.  Silver is not the only asset class with a tremendous amount of notional trading volume.

If we look at the next series of charts, you will see the monthly notional trading value for each.  Stockchart’s volume of the metals and oil is taken from the U.S. futures markets.  All I did to calculate the monthly notional trading volume was to multiply the peak monthly volume, by the contract size and price.

Let’s start with silver.  A silver contract on the COMEX is for 5,000 oz.  With 225 million in volume in August, at $18 an ounce, the notional trading volume was $20.2 trillion:

Please understand, I am just making a simple calculation here and with the other charts.  No need to get too sophisticated.  The silver trading volume in the chart above may include the smaller 1,000 oz Mini, but I am not sure.  So, in August when silver shot up more than $2.00, the notional trading volume was a whopping $20.2 trillion.  Sounds insane… ah?  Well, let’s look at copper. If we use peak copper volume back in 2018, of 250 million contracts, it traded $17.5 trillion in notional value:

So, we can plainly see that silver’s $20.2 trillion in notional trading volume isn’t that extreme now when we compare with copper.  Now, let’s take it a step further and look at how much WTIC Oil (U.S. West Texas Intermediate) traded in a single month:

The market traded an astonishing $101.5 trillion in notional value in the WTIC oil that month. If we thought silver trading 225 million in monthly volume and copper at 250 million, well, WTIC Oil blowing through 1.75 billion contracts in a month… that TAKES THE CAKE.

And lastly, we have gold.  Last month, gold’s notional trading volume was a stunning $135 trillion:

While it is true that gold is trading more than oil in monthly notional trading volume, THEY ARE ALL QUITE HIGH.  Furthermore, the top gold miners cost of production is about $1,200 an ounce, and at $1,500, they are now making some decent profits, regardless of the 900 million (rounded higher) in volume traded on the markets.

I just wanted to point out that the majority of the market is experiencing a tremendous amount of trading.  And let’s not forget, the NASDAQ Index is trading over 40 billion in volume every month. Thus, the NASDAQ’s monthly trading volume is more than 10 TIMES the peak trading monthly volume of Silver, Copper, WTIC Oil, and Gold combined.

How about them apples?

So, we need to put the market trading and manipulation of silver into perspective.  While it is likely true that silver and gold are being manipulated… so is just about EVERYTHING else.

The key to understanding when the Fed and central banks lose control of manipulating the markets, we need to pay attention to what is taking place in the Oil Industry, especially the U.S. Shale Oil Industry.  Why? How much economic activity would be generated if the OIL TAP was suddenly shut off??  How would that impact the trillions in Financial Paper Assets???

Precious metals investors need to become a bit more sophisticated in understanding the dynamics of the overall market and stop just focusing one aspect of Silver Manipulation and the supposed coming BIG SHORT SQUEEZE.  Yes, we could see a short squeeze in silver, but the coming huge revaluation of silver and gold will occur when global Stocks, Bonds, and Real Estate really begin to crumble due to the central banks losing control of the massive debt and leverage.

And how will the Fed and central banks lose control of the market?  That’s right… OIL.  While the central banks can print money, they can’t print barrels of oil. Take a good look at Venezuela, and you will see how money printing works as oil production plummets… the result is HYPERINFLATION on steroids.

Lastly, the U.S. Shale Oil Industry is in serious trouble.  According to the estimates I have seen, $137 billion of debt will come due by these U.S. oil and gas companies over the next two years.  How are they going to repay or roll over this debt?  Good question.  And, on top of that, it seems as if production is now leveling off in several of the major shale oil fields.

With the U.S. Shale Oil industry accounting for 75% of global oil production growth since the 2008 financial crisis, they are the CANARY IN THE COAL MINE.

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Bob
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Bob

Where I have trouble with your argument is in the relative sizes of the individual markets compared to the amount of trading that goes on in them.It seems like $135 trillion in oil, $17 in copper, and $20 in silver only makes the silver trading more suspicious due to the tiny size of its market compared to the others. Not true?

Peter Harris
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Peter Harris

Yes, I was thinking the same thing myself.

Jessy James
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Jessy James

Sounds to me like it’s the concept of paper trading and settling in a fiat currency, not just the amounts. Can you imagine what would/WILL happen when the dollar is longer the accepted medium of settlement??? The U.S.indexes will plummet relentlessly.

philipat
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philipat

First, Gold is “the canary in the coalmine” exposing the fiat scam for what it is. Second, the Bullion Banks have carved out a highly profitable niche in paper futures trading on Comex because they are allowed to maintain excessive concentrated positions by CFTC (Why?) and because they know where the stops are for the long holders, who must also trade PMs through the same Banks. Third, the Central banks are now in a corner. They need to get rates down to or below zero and are doing everything they can to eliminate cash so as to allow negative rates… Read more »

DisappearingCulture
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DisappearingCulture

One of your best articles IMO. Good perspective.

OutLookingIn
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OutLookingIn

“Notional: not real or actual; ideal or imaginary” Six years ago the estimated “notional” global value of the derivative sphere was +$700 trillion. Today its well north of one quadrillion dollars in “notional” value. The financial world just keeps on getting more weird with each passing day. Like why is Apple siting on a huge pile of cash, yet is borrowing more? Ford downgraded to junk? European banks profitable, yet have negative rates? Holding gold & silver valuations due to cost of production is a misnomer. They are money. True money that has no counter party risk. The ultimate safe… Read more »

Javier
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Javier

Inorganic, monopolistic and usurious money (AKA “bank money”) is, by far, the worst thing humanity has ever allowed. The sad truth is, it doesn´t matter if there are septillions of derivatives in notional value floating around. As long as it is contained in the criminal operation known as the “financial system” (lol) they are just accounting entries. Meanwhile, in the real world, you have to die to make a bunch of this garbage, buying you less and less every day, because the companies that provide the goods and services you need are a part of the mob, wether they want… Read more »

DisappearingCulture
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DisappearingCulture

“My own view is the bullion banks plus the Comex and the LBMA, are up to their dirty hip pockets, along with the CB’s in this manipulation, and have been for the past half century.”
This is true. They MUST try to avoid gold & silver [even non-historically monetized metals like platinum] exposing the weaknesses of their fiat currencies, and markets based on the creation & easy manipulation of fiat [credit, interest rates,etc.]
But Steve does provide some perspective from the focus that metals are the only manipulated market.

OutLookingIn
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OutLookingIn

September 11 – The overall open interest in silver trading during the past seven trading days, has fallen by 6,756 contracts. With only 78 contracts being withdrawn in the past 24 hours.
It seems like both sides (longs & shorts) are faced off ready for… what?

ray kayal
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ray kayal

steve, I think you have mixed up some numbers. look at nasdaq index…greater than 40 billion in a month. Gold trading 135 trillion in a month. something is wrong.
Also, this statement is difficult to grasp….US shale oil accounts for 75% of global oil production since 2008. From what level?????
ray

Adam
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Adam

One main reason I buy pm’s is a bet against thermodynamic oil collapse. Also to barter for goods and services during that time. Hopefully it will never happen but I haven’t seen any information that has changed my mind.

Bracken
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Bracken

I understand what you are driving at, but there is a profit margin that is a wildcard. An iPhone may be able to command a higher profit margin than a product from company xyz. If two vendors are selling the exact same product, then low price should win, all else being equal. When unique products or products with an absolute limit to supply are sold, things can change a bit. Personally, I don’t think there is enough gold/silver to go around and there is definitely a limited supply, whatever that may be. During times of increased demand, profit margins can… Read more »

Northwest Resident
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Northwest Resident

Diesel Consumption Is Down 500,000 Barrels/Day Since January according to Art Berman. That fairly significant decline in diesel usage is proof of declining economic activity on a noteworthy scale. If that trend continues, somebody somewhere is going to call it like it is: RECESSION!

Peter Harris
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Peter Harris

So Steve, do you reject entirely Ted Butler’s argument about JP Morgan manipulating and cornering the silver market?

DisappearingCulture
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DisappearingCulture

The question is how much manipulation is for themselves (trading profits & physical accumulation), or as a proxy for government or quasi government entities, and how much is for private clients.

ActionT
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ActionT

As a PM bug (long in physical silver in particular), I tire of the PM price manipulations of JP Morgan (the worst abuser) and 3 other major financial institutions engaged in the same. However, I believe that these crooked financial institutions will eventually have to pay the piper. The longs in PMs, will eventually rule the day. Until then, buy on dips and sell when the prices are best. Hell, I’m not selling silver at today’s spot prices, I’m a buyer. Frankly (if I may call you Frank), I’m still buying silver. I have no doubt whatsoever that silver –… Read more »

marko
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marko

Thanks for the analysis steve, how do you calculate the estimated silver income per oz for Pan Am Silver? Du you use AISC? Thanks

rftulak
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rftulak

Shale oil was only a band aid until the other oil and gas fields (being set up and operational) come on line. https://www.reuters.com/article/us-usa-drilling-permits/under-trump-u-s-drilling-permits-on-federal-lands-soar-idUSKCN1RO18A

Warren ammerita
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Warren ammerita

The justice department and the silver spoofing of the crimex for 9years and the 80 million dollar fine of JPMorgan and Deutsche bank and Merrill Lynch and SCOICA CAPITAL and UBS and is not market rigging The guilty pleas for John Edmonds and Christian trunz for thousands of fake contracts and hundreds of times is not market manipulation but the guilty parties should be not allowed in the market

John
Guest
John

I see many below also bring up the same issue that I had with this presentation. I did a quick calculation of global mine supply of silver at $12.6 million. Copper is 10x that yet less trading volume. How is that a level playing field. Can you imagine comparing oil???? the volumes are not even close as it was done in dollar value as if that some how evened the playing field. How about doing the same comparison based on yearly global production.