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About Me

Darren Winters is a self made investment multi-millionaire and successful entrepreneur. Amongst
his many businesses he owns the number 1 investment training company in the UK and Europe.
This company provides training courses in stock market, forex and property investing and since
the year 2000 has successfully trained over 250,000 people.

Monday, 13 October 2014

The Deal Behind The Curtain

It is a Sherlock Holmes mystery. Why would the price of a valuable commodity fall below the cost of its production? Silver spot price is now currently trading at 16.8 USD, which is now below the cost of mining the precious metal. Silver mining costs during Q3 2013 had averaged at USD 21.39 per ounce, according to a special report on Silver published by the commodities firm, Ventura Commodities. Production costs have increased further since then with higher mining wages in the main silver mining regions and the appreciation in machinery.

Apply the simple laws of supply and demand and at the current spot rate of 16.8 USD many of the smaller silver mining pits will no longer be economically viable, unless they have hedged their positions-unlikely. So while silver spot prices remain below the cost of mining the precious metal, simple economic logic tells us that the global mining output is most likely to fall. Business is rational, if there is no profit to be gained from an activity, that activity ceases.

If the supply of silver is likely to fall and the demand for the precious metal were to remain the same, then the price should rise.

But the demand for silver hasn't been static over the last year, in fact it has been buoyant. “Total physical demand for silver stood at a record 1,081 million ounces (Moz) last year,” according to the Silver Institute. The economic global slow down has had a slightly negative impact on the component of physical silver demand with industrial applications, dipping by a little less than one percent to 586.6 Moz. However, that figure was offset by Asia, which experienced a 3 percent increase in silver industrial demand. This was led by China, where a continued recovery in the electrical and electronics sector, along with gains in the Chinese ethylene oxide industry, helped industrial demand for silver remain buoyant. Japan also experienced gains in silver industrial demand.

What about the demand for silver as a store of value?

Recently, the US mint has managed to sell in just one day as many eagles as it used to sell in the entire month. Demand for silver as a store of value was stagnated over the summer. Silver price dropped below the support level of 19 USD, nevertheless, retail investors just weren't buying. The lack of demand probably was not due to seasonal reasons alone. Perhaps retail investors weren't buying because they were bleeding money on the continuing price falls. Buying silver on the dips felt like catching a falling knife.

It is perplexing, supply of silver is likely to tighten due to spot price falling below production costs while total physical demand for silver remains at record levels. But now, in the last few days, there’s been a frenzy buying of the precious metal by retail investors. Simple laws of supply and demand would indicate that the spot price of silver should be blasting to the moon. But that is not happening? Why?

Well to some extent the man behind the curtain has been revealed. Look at the lawsuits HSBC is facing across the pond for new accusations of rigging the gold and silver markets. It is public knowledge that the cartels, the dons in other words, get together regularly and set the price. Remember the LIBOR rate rigging scandal. The reality is that markets are not that free and text-book economics is more often than not a waste of time in the real world.

So for a while the cartels “fixed it” so that silver traded between the range of 19 to 22 USD. Now the 19 USD support level has been breached.

What has happened since then?

A pretty big event, actually. On August 15 the silver fix ended after 117 years as prices went electronic. What that meant is that silver become the first of the precious-metals markets to ditch a daily "fixing" procedure where dealers agree to a price over the telephone. Since the new electronic silver fix, which was rolled in August 15, silver is down 15 plus percent in just six weeks.

So the banking cartels will be doing anything to kill the interest of real money, since it would be a contender to the fiat monetary system which is enriching them. Maybe that is the reason why gold, silver and other precious metals are not being allowed to float freely.

If we look at what is happening in the Far East in the Shanghai silver exchange, we see the Chinese acquiring the physical asset in overdrive.

Now here is the 64 million dollar question.

Is it possible that the central bankers have cut a deal with their counterparts in China to suppress the silver price and other precious metals deliberately?

Remember back in February when China stood up to the US and said “the US economy is fake, the dollar is backed by nothing and the US has no manufacturing to support its ...”

Bearing in mind that the role of any US Foreign Secretary is to beg the Chinese not to unload American paper debt and plead with them to please buy more and more US paper debt.

So the deal behind the curtain could have gone something like this; China promises not to flood the market with US paper debt and in exchange the US artificially fixes the price of silver at well below true market value. The Chinese then buy up silver at artificially low prices in an attempt to recover their losses. Is that the game?


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