One of the more significant things that I have seen so far this year is
independent confirmation from a credible source that there is price
rigging in the silver markets, and that this knowledge is being
suppressed by the mainstream media in the US.
You can read about that here.
I think the fact, given all the rigging scandals from Madoff to LIBOR, that
there are major mainstream publications which will refuse to run an
article showing evidence of rigging in the silver markets from a credible
source is probably as profound as the report itself might be.
They know what is happening, and they are afraid.
So what does this imply.
It implies that powerful financial interests are engaged in an attempt to
manipulate the value of certain precious metals to artificial
targets. They frequently do this with certain things we know.
Dollars and bonds are amenable to this sort of financial engineering, because
the financiers are able to create enormous amounts of money
using their balance sheets, and with it buy bonds and other financial
paper. So they can raise and lower interest rates and other
benchmarks at will provided that they can do it in secret and with
plausible deniability.
They can rig LIBOR, and the ISDAFix, and any number of benchmarks, because
these are creatures of their system, without a hard reference or a firm
anchor to anything in the real world. LIBOR and the amount of money they have
in their vaults can be almost whatever they wish them to be, as long as
the people believe.
Their nemesis, however, is when they foolishly tie themselves to something
external, something that is beyond their system. It is when they overreach,
and try to extend their mythology of pricing fixing to things that are not
completely under their control.
Gold and silver are two such things. Yes, they can engage in all sort of
gimmickry on their own exchanges where they make the rules and keep the
records. Paper and paper money can symbolically represent
precious metals both in quantity and value. Tonnes of imaginary
and hypothecated ounces of bullion may be traded all day long, but
without requiring a single physical ounce of gold or silver having to change
hands. The pricing has been divorced from
the constraints of supply and demand. As always, the devil is in
the leverage.
Longer term of course there will be effects, very powerful effects. Leverage,
that being the amount of actual gold and silver that is represented by
their paper, continues to dwindle. Physical bullion will
flee their system, as it is doing already. That which is
unmined will be left in the ground. This is Gresham's Law in action. The
'bad money' will drive out the good.
And they are foolish! There is no real civic need for them to have done this.
What does it matter if gold and silver are priced at 1200$ or 3200$ as long
as the price increase is orderly and not a panic? All sound economic
theory suggests that as the price of gold and silver increase, economic
activity will increase to make more supply available. People might
choose it as a store of value, or not. It has its advantages and
disadvantages, depending on the context of its environment.
You can say that this would cast doubts on the value of the
financiers paper, but again, not in any practical sense as long as
supply of metal was not constrained and the supply of money was
not expanded recklessly without reference to the productive
economy. Even Greenspan admitted this.
By aggressively seeking to manage the price of the metals, by continuing to
press their leverage and their perceived successes, the Banks have created a
façade and blindly run to the precipice of an inevitable
reckoning, as the London
Gold Pool had done in the early 1970's.
The BRICS see this hubris, like the traders who saw the folly of attempting
to hold the British Pound to an untenable valuation. And they will continue
to keep pounding the Banks' positions with their trades,
accumulating more and more of their physical metals, until the trade is
unwound, or a failure comes to stand and deliver.
This is what I think is happening. I do not think a serious market failure is
inevitable. But a better outcome would require a level of humility, wisdom,
and self-awareness of which our ruling class may longer capable.
Wall Street has become maddened with greed. And by stifling all criticism and
dissent, their enablers have only enabled them to go further and
further, until the point of no return is reached.
We observers are almost like Harry Markopolos, who wrote of his frustration
in Madoff: No One Would Listen. We are like those who warned of
the growing housing bubble, and took steps to protect ourselves from it.
We only need to abide, and if we can abide, then we will
prevail. Their schemes will eventually fail And in
that failure there is both risk, and opportunity.
Have a pleasant weekend.
