While many are beginning to realize that the gold and silver markets have indeed been manipulated, it’s interesting to consider what might happen when that manipulation is resolved.
Because while the wait has been frustrating for many, that’s not to say it will not end without due reward. Especially when you think back about what actually happened in 2011, and consider some of the dynamics involved.
When silver was soaring in April of 2011 and reached $49 per ounce, there was some attention being paid by the market. CNBC added gold and silver to its bottom of the screen ticker, and even some in the mainstream were at least temporarily aware of what was happening with the metals pricing.
Yet in a recent conversation with friend who’s also a silver investor, something occurred to me that I’ve not heard anyone comment on. In particular, how even when the prices were moving, I wonder how many people actually owned gold or silver.
Keep in mind that for a bubble to form, the generally agreed-upon definition includes that a large percentage of the investment community already owns the asset. Yet in 2011 even as prices were rising, there were still relatively few investors who actually held any physical metal.
At the time I was trading equity options on the New York Stock Exchange, and outside of myself, there wasn’t anybody else I talked to on the floor who was actually buying gold or silver. In fact when I think back to my Wall Street days, I still can’t think of anyone who ever even spent any time thinking about gold and silver. Outside of if they were hearing about it from me.
So if silver went to $49 per ounce while relatively few in the greater population were actually invested, what’s going to happen when you reach the point where precious metals become a popular asset again? Especially given how there really isn’t that much physical silver to go around. Certainly not compared to the amount of paper silver that’s out there.
Some analysts (myself included) wonder whether the physical metal that’s supposed to back GLD and SLV is actually in place and being safely stored as advertised. And should there be some sort of break in the market where that turns out to not be the case, or if there’s some sort of default on the COMEX contracts, the potential for a run on the bank for actual physical silver looms large.
So if silver hit $49 per ounce without any of these conditions occurring, what kind of prices are we talking about if they do? Add on that when we finally reach the point where there is a break in the dollar and foreign creditors are looking to re-allocate their capital into sound money, where does the price of silver go then?
In recent years Deutsche Bank, JP Morgan, and the Bank of Nova Scotia have all been involved in court cases with varying degrees of admissions of precious metals market manipulation. With my own internal belief being that if the primary reason silver was hammered down from $49 per ounce was due to illegal trading behavior, that the $49 level would be somewhat of a floor. With a true free market price trading somewhere north of that. Then when you factor in how that was with relatively few actually owning any gold and silver, and it becomes fascinating to think about what that price might be.
I can certainly understand the frustration many feel in waiting for this ultimate outcome. But given the fundamentals and factual developments that have occurred in recent years, it continues to seem like a worthwhile wait.
If you have questions about any of the points raised in this article, as always you are welcome to email me here. Or if you are already seeing a similar perspective and are interested in purchasing precious metals, you can do so by calling Miles Franklin at 1-800-822-8080.
In either case it will be truly stunning and fascinating to see how the market is ultimately resolved. Yet for those with the fortitude and patience to stay with their trade, I continue to believe that the payoff will be well worth the wait.
And with the Federal Reserve already starting to backtrack on future interest rate increases, which means more money printing is likely on the way (perhaps as soon as 2019), aren’t gold and silver far better options than the paper dollar and treasury alternatives?
Miles Franklin was founded in January, 1990 by David MILES Schectman. David’s son, Andy Schectman, our CEO, joined Miles Franklin in 1991. Miles Franklin’s primary focus from 1990 through 1998 was the Swiss Annuity and we were one of the two top firms in the industry. In November, 2000, we decided to de-emphasize our focus on off-shore investing and moved primarily into gold and silver, which we felt were about to enter into a long-term bull market cycle. Our timing and our new direction proved to be the right thing to do.
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