Indirectly, the price of silver has become a central banking question. Proof of direct intervention is unnecessary. The overwhelming concentration of net shorts on the Comex, whether hedged or not, constitutes the basic violation of the fair market pricing mechanism.
That this concentration is allowed to exist — despite purported and publicized investigation into silver market manipulation — remains a testament to the power of those that stand to profit the most from it.
Whether one considers the actions of a large bullion bank that profits by cornering suckered weak silver longs — or the entire fiat currency system that depends on effectively limitless paper and electronic money creation — the success of these practices hinges on the increasingly tenuous acceptance by a largely brainwashed population of the country’s government-declared legal tender.
Easy Credit and Inflation
In the modern age, everyone wants to be a trader, and this is the mentality initially brought to the silver market by many people as they enter a market for a commodity that has become the last true portfolio diversifier.
Who can blame them, when any adult alive today grew up during the greatest credit expansion the world has ever witnessed? In this easy credit environment, “return on investment” was a badge of honor and a boutique industry available to just about anyone.
Now that the unraveling of this credit boom has started to occur, it seems the lesson’s impact was far too short lived, as the central banks of the world coordinate to re-inflate their economies once again by printing more and more of their local currencies.
The two fundamental problems with price targets are that the price is measured in a fiat currency, and that the price can be managed by manipulating the commodity futures markets that do not require the seller to deliver a physical commodity into a futures contract.
Price Drives Perception
Perhaps one of the most frustrating things about trading the precious metals is that price action unfortunately directs perception. As GATA's Chris Powell has pointed out, movements in the price makes market commentary.
So, as soon as the price of silver drops, investors start to think that silver is heading down to $4 again. Conversely, when the price of silver rises, then they tend to think it must be a bubble. This cycle seems crazy considering the ever-depreciating value of the U.S. Dollar.
Perhaps instead of looking at the price, investors could simply open up the COT report and follow the flow of paper futures and option contracts if they want to know the state of a currency or financial system.
The Fairy Tale of Fiat Currencies and National Debts
In the macro sense, to understand the modern world of debt-based money and ever increasing national debts, one needs to remember that the shark can never stop swimming when it comes to printing more paper currency.
Instead of watching the stock markets or the Russell 2000, investors can gauge the level of the underlying money creation process by looking at a country’s annual fiscal deficit, its debt to GDP ratio, the size of any ongoing monetary expansion or quantitative easing programs, and the level of its unfunded liabilities.
Price itself may have become meaningless, but investors seem wrapped up in the speed, drama and fairy tales told by commentators about a market steeped in self-delusion.
The challenge for the next generation of silver traders will involve not only understanding and embracing the concept of purchasing power, but in rediscovering an appreciation of the true value of monetary commodities like silver as investors come to terms with producing a meaningful return on investment in a persistently inflationary financial environment.
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