As scandal after financial scandal take their toll on public confidence in the economic morass curiously called the financial system, what will be the trigger for a short covering panic in the metals markets?
With countries the size of Spain lining up to get bailed out and a lagging global economy, the United States is not that far behind Europe as individual states and local governments find it harder to stay afloat. Consequently, what you can purchase with a US dollar will continue to diminish.
The inventories for precious metals are dwarfed in relation to the amount of paper silver contracts used to keep prices controlled. When the eventual covering of contracts occurs, heavy buying will come from the large entities that unofficially represent or are literally the working arms of the central banks, exacerbating the panic.
Chilton Refutes FT Article
On Aug. 5, the UK financial daily, the Financial Times published an article entitled, “Four Year Silver Probe Set to be Dropped.” The article began with, “A four-year investigation into the possible manipulation of the silver market looks increasingly likely to be dropped after US regulators failed to find enough evidence to support a legal case, according to three people familiar with the situation.”
Responding to the article, CFTC Commissioner Bart Chilton stated on Aug. 6 that, “The Financial Times report related to silver is not only premature, but inaccurate in several respects.” He went on to say that, “I continue to believe, consistent with my previous statements and information from the public, that there have been devious efforts related to moving the price of silver.”
He included the gold market being manipulated as well, stating, “There have also been silver and gold market anomalies outside of the silver investigation window that have raised, and continue to raise market concerns.”
Chilton added “I think the public deserves some answers in the very near future.” While the commissioner may be pursuing the issue publicly, elements within the CFTC are trying to get the investigation dropped. Cui bono?
According to the FT, “The conclusion of the investigation will come as a relief to JPMorgan. Although no company or individual was named in the CFTC investigation, the Wall Street bank has suffered a torrent of allegations from silver investors on the blogosphere.”
Silver, the Confidence Lynch Pin
Unwinding the enormous paper positions that have been established for decades to keep metals prices in check will create an enormous demand for precious metals. As more people see the value of hard assets, silver could be the lynch pin against which people determine economic value.
With metals prices maintaining current levels, a clear base has been established in the prices of silver and gold, with enormous pent up demand underlying the apparent lack of direction. If prices were allowed to be “set free” – either through ending the short influence (forcing the shorts to close out) or by enforcing position limits, prices could skyrocket.
The pent up demand for sound money comes in large part from the ease in which that money can be obtained. Exchanging paper for silver can still be accomplished with relative ease. This may not be the case once supplies are exhausted by disproportionate demand.
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