I have written a few hundred grad school papers in over 6 years across 2 graduate degrees. One in business administration, the other in cybersecurity. I could posit that degrees like this do not make you “smart”. Nor, do they necessarily gauge IQ. I could perhaps say that someone like myself “does the work” and has had exposure to a lot of different areas of study, was able to digest it, and then write complex research papers on them. When you do these papers, you learn about types of information. For instance, if you told me that XYZ bank had manipulated the silver price, this is the least reliable – and called “anecdotal”. The gold standard for references would be the double blind study, but that is more or less in reference to scientific research – where you would need to replicate someone’s experiment and have control groups and the like. Within that range, is a wide variety of sources. By nature, my blog is on the less reliable spectrum, where the NY Times would be on the more reliable. Sources over the last few years with COVID got turned upside down – and you could have people like me accurate with things and linking scientific papers and have the NY Times be a government mouthpiece. Meaning, things I post in here should get their reliable from the sources I present. If I just told you there was manipulation, it really should not be taken seriously. But if I link dozens of articles, books, and charts – it lends credibility to a claim.
Why the cloak and dagger to start off? Because lawyers. I have no interest in getting sued, and I do not work for these large companies. WHEN POSSIBLE, I will use XYZ Bank as a straw man argument, which is also not great, but this keeps me from naming anyone specifically in any form of allegations.
What I can tell you is that there is evidence that the silver markets are manipulated. This, is factual. This is not tin foil hat as there are a ton of articles I’m going to link on this. Now, the question is to what degree they are manipulated. I can’t tell you that it’s 83% manipulation. Not possible. What I can tell you is that a body of evidence below suggests to me that:
- Silver prices are half their all-time high in 1980. Inflation adjusted, that would be a price of $600 today. It isn’t natural to be 50% of its all-time high 43 years ago. Either the price information today is wrong, or it was then, or a combination. With the small size of the silver market, it’s most likely the easiest commodity to push price around on.
- The silver pricing mechanism is determined by a futures market, and not a physical market. This is the “tail wagging the dog”, in that the people placing the bets are determining the price, and not the actual supply and demand of the metal.
- The price has been pushed so far, there are really not any miners left on the planet who can be a silver primary miner. This, along with the lack of mine supply and deteriorating ore grades suggest that silver is in a structural deficit. Anyone with two eyes can see this – yet people will spec bet at 8:30 in the morning, every day, that silver price is going down.
- Supply and demand fundamentals are off with respect to price.
- There are many articles out there which outline the ones who were caught moving the price.
Item 1: The price point
You can see in this chart from 2 years ago that silver is the only commodity that has languished its 1980 all-time high. As I mentioned, there could be some reasons for that. One is that perhaps silver got too high of a price. Maybe what happened with the Hunt Brothers pushed price too high on the COMEX? If you look at the gold to silver ratio, it was pretty low then…
On my chart, you can see 1980 having about a 17:1 gold to silver ratio. If you put that into today’s prices, you are looking at $112 silver. One can argue the historical ratio for 5,000 years was 15 or so to 1, putting it at $128. However, if they are still sourcing it as needed for industry at $24, surely the price is correct. Right?
A better argument might be that silver got too overbought to gold in 1980. That perhaps it should have only been maybe 40:1. If that’s the case, that’s $21.25 silver then. However, inflation adjusted you might still be looking at over $200 per oz today.
My contention is, and has been, that gold is the center of the financial universe and with this, all things derive value from it. You can make the argument that wages had a derivation from silver for thousands of years until 1971.
Is gold manipulated? The argument goes, that if it IS manipulated, going up 60x from 1971 prices is really bad manipulation. Well, one can argue that gold has an ability to be price managed short term, but then has moments of playing catch up. With gold, I need to understand it’s 100 year history. A reader pointed out to me that about 100 years ago, and today, the average house is roughly .08 oz gold per sq ft. Give or take, given the size of the houses and features that are different, this is a rough approximation. I did this chart to compare money supply, debt, gold, real estate, and the dow over 100 years…
This chart shows that gold was roughly a steady price for a long period of time, held there by a price fix while currency creation and debt went out of control. I believe 1980 was an overshoot of this, and this then corrected back. The key takeaway from this chart is that today, stocks are WILDLY overvalued to gold. Perhaps in 1980, gold was wildly overvalued to everything else. What this tells you, I believe, is that we are to have our first “official” recession since 2009, and stocks will correct towards the general line and gold will catch up to the line.
Meaning, money flows in and out of asset classes, and when money is flowing out of gold – it’s easy to beat it down with targeted sell times. However, since it is MUCH larger than the silver market, when “good times” for gold happen, gold can then be manipulated to the upside too. Over 100 year, it has the same relative value to real estate.
I could reasonably argue that gold WAY overshot in 1980, and then silver overshot that. However, this doesn’t explain its relative performance to all other commodities in 42 years other than it got more overstretched relative to gold.
However, Steve St. Angelo did some great work – as did others – putting a gold price chart together which essentially showed that gold price is tied to oil. Meaning, the cost of production is tied to it because of the extreme amount of diesel you need to extract gold.
The argument is, that gold cannot really go below its cost for any real sustained period of time. Why? Because no one sells millions of anything at a loss. Mines go on care and maintenance, less capital comes into the sector for investment to explore more mines. CAPEX dries up to build projects.
Well, the same exact thing can be said for silver. Except silver is far, far, far worse. The evidence of this I can tell you that in just 3.5 short years of jumping head first into this industry, I have witnessed just about every favorite silver miner I have become either a primary gold or primary base metal miner with a silver kicker. Name your favorite silver miner, then go look up what they mine, by revenue. Meaning, these companies would go out of business if they only mined silver at $24. Many people that quote a $15 or so AISC don’t realize that’s a mine metric, and doesn’t account for G&A, exploration, development, permitting, and capex at the corporate level. If these were so profitable, why are almost all of them now under 50% silver? OR – on the cusp of it.
The truth is that with the price as low as it has been for a decade, many of these silver miners had to cut exploration budgets. I recall some slides that First Majestic had put some mines on care and maintenance when I was researching them in 2020 due to $25 and $38 AISCs for the mines. This made sense to get it in 2011 perhaps, but not at a $17 silver price in 2019. This has starved a lot of these companies from more high grade ounces in the ground. Additionally, you can recently see with inflation, how wage costs have gone up, energy prices have gone up, and so has the cost of materials to build mines. Yet the price of silver hasn’t gone up.
Steve also pointed out that the ore grades have gone down over many years.
If ore grades are going down, less mines are being explored and brought online, mine lives are degrading, costs are going up, and supplies are going down, it makes one think that the price should go up, a decent amount to catch up.
But you see on the gold to silver ratio chart above that silver is around 80 or so today. That’s at the cusp of the red “all time high” numbers, relative to gold. Surely, smart investors understand that at 80 or above, they should be selling gold to buy silver. Yet, here we are.
Item 2 – pricing mechanism
I’m not a futures guy, in that I do not work in the industry. COMEX has certain hours, then there’s a “globex” mechanism that operates, then the price moves over to Asia overnight where it seems to go up every night, and then come down at 8AM. James Anderson put together a pretty cool chart on this.
This is the gold chart, but he has a silver one too. Essentially, the price appears to go up every night, then smashed in mornings. You could make the argument that those in the West wake up, see higher prices than yesterday, and forward sell mining supply. True. But who is doing all the buying overnight? My arguments have been that the East is physically taking possession of all of the silver that is discounted at 8:30AM. It could be Sony for electronics, solar power companies in china, etc. I don’t know. But overnight it appears there are buyers.
We also know that with the COMEX, you just need a certain amount in your futures account and you can buy/sell contracts. A futures friend of mine was very careful to say that you are “buying contracts, not silver”. You need to understand the language of the futures people. They see contracts. They do NOT see silver. They are buying and selling contracts.
This could be miners forward selling production. It could be SLV selling metal. But the VOLUMES are what the problem is. Let’s look at perhaps a daily trading volume of contracts – maybe 100,000 per day? Maybe 50,000? Each contract is 5,000 oz, so that means on any random Tuesday, you have perhaps 250m to 500m oz being sold into the market. Yearly mine supply is roughly 830m oz, and you get maybe 200m from recycling from tea sets and silver as a byproduct of gold recycling of circuit boards. That means, on any given day, about 1/4 to 1/2 of the entire years’ supply is sold into the market. This means, essentially, that this supply is then traded perhaps 260 days per year, which equates to about 100 billion ounces sold on the comex each year. The entire known supply above ground in all forms is about 60b oz. All investment grade silver of bars, bullion, coins, rounds – is about 5b oz.
And, apparently the OTC (over the counter) market is 10x the size of the COMEX. I don’t know about such things. But all of this indicates that there’s maybe 30m oz registered in COMEX for sale, and this is perhaps means each ounce is sold 2,000-4,000 times a year. Just wrap your head around that volume.
You can clearly see about 600m oz have been sold, but 32m or so in COMEX now, so you have roughly 20 times the paper as to the physical product. This is insane. And, the only people who can defend this are the people at the trough getting rich off of this mechanism. Not that poor bastard miner working 12 hour days to feed his family scraps in some 3rd world country. It is clear with the pricing mechanisms that the mining companies themselves WANT to pay the highest wages they can, but they are being squeezed out of the industry.
The pricing mechanism is broken, and I detailed this in a piece I wrote earlier this week.
What I can tell you is this. Our markets, in reality, are supposed to be based on supply and demand. When supply runs low, the price goes up. You get the idea. The problem is, in these markets, the supply/demand of the underlying commodity are being obfuscated or ignored. Why? It had been alleged that a big XYZ bank was shorting on COMEX, driving prices down, then buying this silver at lower prices. Since they had a pile of silver, they could then short at will into the markets, stating they were hedging their supplies. Then would buy more. It was alleged that this bank had over 1b oz of silver at one point and then was kinda sorta ordered to break up the band, behind closed doors. A lot of this type of stuff was written about by Chris Marcus in his book – The Big Silver Short. This has a lot of first hand accounts from regulators, industry analysts, miners, and those in the business who were fighting the CFTC.
The way I look at it, it’s like my Eagles playing this Sunday. They are expected to go out and play the Niners close. I hope they win. I haven’t looked at the betting line yet, but I hope they are favored. Futures markets are kind of like 60,000 people in the stands betting on teams to win, and the outcome of the game is determined by the people in the stands, and not the game on the ground. Consider if everyone bet for the Eagles, and Jalen Hurts breaks his ankle right before the game. The bettors don’t care about that information, they want the eagles to win, so they will win. But the game needs to be played. And if you are using bad information to make bets, and you bet the house on the Eagles with Hurts having a broken ankle – that might not turn out well for the bettors IF the performance on the field eventually matters to price.
Today, the bettors are driving price. And they have 20 slips of paper on every single oz of silver. Now, if people SAW the price of silver go up, it’s called a Giffen Good. Meaning, as price goes up, it’s more attractive for people to buy. So – the argument here is daily prices need to be managed because IF prices were to not be managed, one can argue that more would want it, and with this, the ability to service all of the paper slips they sold at $23 would not be able to be serviced at $26, $28, $35 – not only does only 5% of the silver exist, but all of these people would be blown out and need to buy back their shorts into a market where no one is betting against the price going lower.
Item 3: No silver primary miners left
What you can make a rational argument here is that while gold has hours/days/weeks of manipulation, the Godzilla sized $12T market WILL catch up, eventually. However, silver markets are a fraction of the size of the gold markets – and you can actually see a form of price “management” over a period of time. At issue is this – as long as it comes out of the ground, the bettors don’t care how it is done. If it is done by a primary silver company who can do it at a profit, cool. However, if it has to be done by a gold producer or zinc producers as a byproduct, they don’t care – as long as it is coming out of the ground. But THAT is where the STRUCTURAL issue is. When metals are a BYPRODUCT with decreasing ore grades and less primary mines coming online – you can reasonably predict that the silver “dial” cannot be turned up to increase mine supply. Rather, the game continues until it doesn’t.
However, one has to look at the trend over the last decade which was mentioned above. You have companies like First Majestic who were “silver primary miners” perhaps at 50-50 with gold today. Fortune was maybe 60% silver and 40% gold which is, by the end of the year, 19% silver, 70% gold, and the rest zinc and lead. Pan American Silver is maybe 26% silver and 40% base metals. What this kind of means is this – these companies I just mentioned CAN experience high upsides in profits IF silver moons, but silver is no longer their primary business model – in that they need to rely on another metal to keep the lights on and HOPE to catch fire with silver. You may have massive base metal miners that produce silver as a byproduct of lead that just sell into the market or forward sell production to capture a price, and silver is not a driver of their business model so to them it doesn’t matter if it’s $4 silver or $40 silver. Meaning, they can’t really just “turn up the dial” with silver production to any real degree.
One of the last silver primaries I play is Endeavor, but I’ve read they struggle to be profitable until silver is $24. So they might be wildly profitable to play silver at $40, but at $22 they could be losing money and holding back silver supply for better times. I had read they were a 60% silver 40% gold play as well.
I BELIEVE I found that Fresnillo is probably the largest silver primary out there, and when I did the math on it, it was maybe a 52% silver miner by revenue. Many of these companies now aren’t extremely transparent about their silver by revenue. With Fresnillo, I think I had to go mine by mine to add up all of their revenues and then do spot prices for all metals to then determine revenue by percent. And – my numbers could have been off depending what day they sold what mineral to who at what price. You then look at the next largest “primary” which may be First Majestic – is floating at 50/50. Hecla is about 43% silver today. I once calculated that Newmont produced 54m oz of silver one year – but as a byproduct of gold. Given how much gold they produced, it was kind of tiny compared to their gold revenues – but sizable in the overall silver market.
What this tells me is that unless we have a higher silver price, by a lot, many of these silver primary miners will become base metal or gold producers with a silver byproduct. Over time, silver primary mine lives will deplete. Less and less silver will come to market with deteriorating ore grades. That day, is not today.
That being said, if some rube like me can understand the structural issue, it then has you asking why large banks would spec short silver – without legit hedging. I have a theory at the conclusion which illuminates the “why”.
Item 4: Supply and demand fundamentals makes no sense with price
There is no doubt lots of silver in the ETFs. Steve tried to point out the error in the silver institute numbers – which could have been a lot of SLV or PSLV or any of the silver ETFs selling silver into the markets. It’s a fair point. Let’s assume the largest concentrated holdings of silver over the course of the year, decided to sell this into the markets. Steve suggested it might have been 100m oz. OK. That’s 20,000 contracts. Meaning, that’s a random Wednesday morning sell. Put that into perspective. Steve was suggesting that 100m oz sold into the market kept the silver price down the last 2 years. That number, in reality, is 1/5th of any normal paper trading day, by volume. Even at 20:1 leverage, that’s 4 days worth of selling those ounces. Where is the supply for the other 256 trading days come from?
The answer to the above is it is the same ounces being sold dozens of times a day with high frequency trading. Bix Weir is NOT a double blind level source, but he on his show talks a lot about Virtu financial. Likewise, he has talked about how the same banks people are putting their orders in for futures and placing their stops – the banks have full view of where everyone’s stops are. They would even perhaps go on hunts to trigger stop losses of a lot of people. This could be the violent sell downs you see at 8:30.
Maybe XYZ bank sells 3,000 contracts at ONE time. This pushes price down, which triggers tight stops at 1% for User A, and his lots then sell. This triggers a 1.5% sell order from User B. This has a violent chain reaction for perhaps 15 minutes, at which XYZ then immediately buys back the 3,000 contracts they sold 20 minutes ago at a profit. This may have the “hook” at the price bottom you see, and seasoned traders may then recognize that hook and buy back in and ride it up. This then may have another 1,000 sell off to wash out these guys.
This is what happens, all day, every day. None of these people have any idea about mine stuff. At all. It’s one trading house trying to take another trading house behind the woodshed. It’s hedge funds playing the bullion banks. It’s retail trying to look at tech charts and get blown out either way.
None of this is read trading based on the fundamentals, and this is noticed in the silver commodity more than others due to the tiny size of the industry. I believe I read once something like at peak Apple a few years back, they had enough cash on hand to buy every ounce of available silver above ground that has ever been mined, along with every silver miner on the planet. I don’t think those numbers hold true today, but it gives you an idea about how one large equity in one large exchange dwarfs every ounce of silver mined or ever will be mined.
Put simply, this is ideal for those who want to make money trading.
With the above chart, you can see the pink where silver was managed in a range, for a VERY long time. At some point, the people in the stands all saw the ACTUAL game being played and then went the other direction up. You can see now perhaps over the last 20 years there is a sloping upward trading channel. However, this slope doesn’t match the rate of ascension like the price of gold, the M2 money creation, debt, or the stock markets.
Meaning – prices here are structurally lower, artificially, than everything else around it. As mine lives are depleting, ore grades degrading, and costs of everything are rising faster than the silver price.
Another way to perhaps interpret some of the stocks leaving the LBMA or ETFs is that companies like Sony use a bank to buy a million oz through them to hold – and eventually take it out. It is then shipped to their warehouses in Japan. Or, perhaps you are seeing silver being bought from ETFs and then taken out and put in warehouses in China. Remember, the ETFs can also lose ounces by big players destroying the shares and taking the metals out.
IF you followed Ronan Manly a few years back, he showed that during silver squeeze that SLV changed their prospectus to state they may not have all the silver they say. This fact alone could cause a Sony or the like who may have held shares to then take physical possession of the silver, and let God sort it out for others.
Item 5: Articles on manipulation
If you click this link, I believe you will get a lot of results for this you can look at yourself. This is the google search for “silver manipulation fine”. This comes up with 14.4m results, but my guess is there are probably thousands of repeats and blogs like mine that mention it.
30 years ago, before the internet, it would have been fair to call this stuff “tin foil hat” because there was no real internet to see all of these articles. Today, it’s a cost of doing business. One discussion on that is “Nate, it’s just spoofing”. It’s the pushing of the dominos above – whether they were fake or real orders, it’s the same thing in the means of concentrated sales or buys in a short period of time.
The allegation is not so much as “suppression” as it is “managing price” within trading ranges. You can clearly see with the COT reports that when silver starts to run up, the BB start to have a lot more net shorts. One can make the argument that this is miners forward selling production and using these banks. I get that, but again, you have to look at daily volume.
When you have all of these high frequency trades, this lends to a lot of volume every day. You may have analysts like Jeff Christian talk about how maybe silver could be hedged in 8 different steps of the process. I get that. However, if you are Sony and need to consume the silver, are you really hedging the downside volatility of something you don’t care the value of – as you will be using it?
The Jeff Christians of the world also have a LOT of high-priced analysis reports I can never get access to. So to some degree, you have to listen to the information he provides because he’s the one advising people to do all of these hedges on buying the metals.
Why do they do it?
The fact remains that a lot of people deny silver manipulation as a form of price suppression. I think it’s more accurate that the price of silver is “managed” within a range. This range allows these HFT to then make millions of dollars a day buying and selling these contracts for fractions of a penny profit on each trade. I once read how one of these high frequency trading firms hasn’t had a losing trade in 7 years. That’s……not a free market. It’s a casino with odds stacked in their favor to cheat the system. Someone from the SEC needs to look at the business model of a company that hasn’t lost a trade in 7 years and either ban or regulate this type of trading.
I felt that the PROCESS of manipulation is not done by people selling silver into the market. It’s not done by miners hedging production. It’s not done by some retail guys wanting to bet the price of silver is going higher or lower. The PROCESS of manipulation is by endlessly managing silver within a price range, regardless of the underlying fundamentals of the markets.
Meaning, if you took away the ability to do a lot of this HFT, and severely capped contract trading limits, you’d have a much healthier price discovery mechanism. But what is lost here is these companies that haven’t lost a trade in 7 years do not buy silver at $16, hold for a year hoping it goes to $24 for a 50% gain. No. They are buying and selling thousands of contracts a day to push price directionally to their choosing – washing out the most amount of retail and specs both up and down. These firms are making perhaps millions of dollars a day on this volatility – all while mines halfway across the world struggle to pay their miners a fair day’s wage. It isn’t right. And this is why I see these markets as a joke.
I was just about to his send on this and this Twitter link showed up.
He talks a lot about the gold paper games, and how that may end on a credit crunch. This is the kind of stuff I’ve been hearing about for years, and with interest rates going up and things getting sketchy, it’s quite possible that perhaps higher margins are needed, by a lot, and this might dry up a lot of the HFT. Who knows.
I don’t work at these places, so I can’t tell you HOW they are doing things, step by step. However, I say a lot of this is like you are a homicide detective showing up – the body is gone, there’s a chalk outline, and you have spatter on the walls and a bloody knife on the ground. No one SAW what happened, but you can reasonably draw conclusions of what MAY have happened, with a degree of certainty. With these types of things with manipulation, it’s just hard to understand how 500m oz can trade hands in paper each day, yet mine supply is 830m per year.
I feel this will correct itself to the upside. Very much so. I have played 8 hour games of Chess in the World Open in 1990. I have patience for the Rick Rule type of waiting game for the inevitability. What’s the saying – “Something is rotten in the state of Denmark”? Something is not right, and I feel that eventually the price will go up, or assembly lines around the world will shut down.
January 28, 2023 at 1:39 pm
Great article Nate. Here is something that I have wondered that maybe you or your readers can comment on. If silver costs currently costs roughly $18 an ounce to pullout of the ground and process into market form (per Steve St Angelo at SRS Rocco), what then is the “market/fair” price of silver? Aside from occasional potential spike in supply/demand, should not the price generally revert to the mean of fair market value? This is the problem I have with the $100+ per oz folks–if one can pull it out out of the ground and process it for $18oz, what is the fair market value? Unless there is a sustained long-term rise in demand, would not the price per ounce be maybe a few dollars more than the production costs like it is now?
January 29, 2023 at 7:26 pm
Great article Nate, much appreciated. I’ve been watching all this go on for over a decade with huge frustration, as I KNOW what’s going to happen, but I can’t say WHEN. But I know that if you have a dog in this fight that it’s going to be a case of better 10 years too early than one day too late…..