Silver Shakes Off Gold

A year ago I posted that it wastime to be seriously bullish about silver because all historical inventorieshad been finally worked of and that the new price structure now needed to makemine development an imperative.  At thetime, silver was trading $15 - $17. Today it is trading at $30 and is rising after a month long period of consolidation.

This report pretty well spellsout the reality that demand is rampaging while the present pricing does nothingto slow it.  I think this Bull Run is capable of hitting n unbelievable $100,though the price will stabilize much lower around perhaps $50 - $75.

My sense is that this move ispresently underway.

This report makes quite clearthat the linkage to gold prices is effectively broken and is strongly diverging.Thus a move on silver will not need to drag gold although hedgers will findthemselves on the wrong side of the trade. I think it is time to be a bull and to be greedy.  It is rare for that to be a good idea.

Silver Breaks its Golden Shackles

By Adrian Douglas

On September 21, 2010 I published an article entitled “MoreForensic Evidence of Gold & Silver Price Manipulation”. In that articleI showed how silver from 2003 to 2010 had never traded freely at all; I showedthat silver was algorithmically traded with gold and there was a very clearrelationship between the price of gold and the price of silver. For those whohaven’t read the previous article the following figure 1 (figure 4 in theprevious article) demonstrates the inter-relationship. 

Figure 1 Cross-plot of Silver versus Gold 2003-2010

Figure 1 is a cross-plot of the price of gold against theprice of silver for every trading day from June 2003 to September 2010. Thereare two linear relationships, one is pre-2008 (black line) and the second ispost 2008 (green line). The best fit equations for the two data sets are alsogiven on the chart. 

The stunning revelation from the data analysis was that if on any day I knewwhat the price of gold was I would be able to calculate the silver price fromthe equation of the relationship! How is that possible in a free market? Itsimply is not possible and so the conclusion is that silver is not in a freemarket but is manipulated to move algorithmically with the price of gold. I havewritten many articles that show that gold is itself manipulated and suppressed(for example, see GoldMarket is not “Fixed”, it’s Rigged)

I have updated the chart of Figure 1 which is shown in Figure 2. 

Figure 2 Cross-plot of Silver versus Gold 2003-2011

Since September 2010 silver has broken its golden shackles.The algorithmic trading that kept the price of silver subdued for seven yearshas been completely annihilated. 

On Friday silver closed in complete backwardation on the Comex. Spot silverclosed at $29.075/oz while FEB 2011 closed at $29.064/oz and DEC 2015 closed at$29.026/oz. I believe this is the first time in history that this has happened.Silver traded in backwardation between the spot price and futures contract upto one year out during the blatantly manipulative precious metals bashing ofJanuary, but now the entire futures structure is in backwardation. This is asure sign there are shortages of silver because it means that buyers will pay apremium for silver delivered sooner rather than later. 

Signs of shortages have also been apparent from a shrinking silver inventory onthe Comex in the face of rising prices. The registered inventory stands at apaltry 43 Mozs. In addition there is lots of anecdotal evidence that there aretight supplies everywhere. There are reports of refineries refusing to take neworders due to insufficient silver feedstock. 

News out of China recentlyshowed that China'snet imports of silver quadrupled in 2010 to 3,500 tonnes (112 Million ozs). China hastraditionally been a silver exporter. For example, in 2005 China made netexports of 3,000 tonnes of silver. 

The USmint reported last week a record month in silver eagle sales in January of 6.4million ozs. 

This update of my previous work adds more fuel to the fire that the dynamics ofthe silver market have dramatically changed. Because silver has been suppressedfor so long we do not know what its free market price should be, but we aregoing to find out soon and I strongly suspect it will be many multiples of thecurrent price. 

Adrian Douglas
Editor of Market Force Analysis
Board Member of GATA

February 5, 2011

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