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Does the Government Manipulate Silver Prices?
One of the natural questions that is so commonly asked by investors is “If silver is such an incredible investment and $100 silver is a no brainer, than why have the prices stayed so low for so long?” This is an important question to answer. From 1980 to 2007, silver prices traded between $3.50 and $8 an ounce. There were a few spikes that lasted a couple of months that pushed silver to $11 or so, but no consistent runs. So why has silver stayed so low?
In 1980, the US held the largest stockpile of silver in world history, over 3.5 Billion ounces! At that point in time, there were numerous other governments who held large stockpiles as well. However, from 1980 to 2007, both the US government and almost every other major nation in the world sold off their large stockpiles of silver. The United States sold so much that in 2007 they only had 20 million ounces of silver left and in 2010 that amount was down to less than 7 million ounces! Additionally, private investors net sold 1.7 Billion ounces during that same period. This means during this 27-year period somewhere between 5.5 Billion to 10 Billion ounces of silver were dumped on the market! Simply based on the law of supply and demand the only natural response was suppressed silver prices for decades.
One natural question that arises is “If 5.5 Billion to 10 Billion ounces of silver were sold from 1980-2007 than who were the buyers?” This question only accentuates the interesting nature of the silver market. The buyers of the silver were industrial manufacturers. At the same time the US and other major governments started their mass sell off of silver, the technology age began its major run. An absolutely massive amount of silver was required every year just to meet the industrial demand required for electronics and other equipment. Consequently, it was industrial usage that consumed the massive amount of silver that was sold between 1980 and 2007. So in 2007, when the massive sell off ceased the demand for silver continued to increase both industrially and from an investment perspective.
In 2007, most of the major governments around the world had exhausted their massive silver stockpiles and that stage of market manipulation came to an end. Was there additional manipulation and are there any other ways the US government or other agencies can manipulate the price? All of these questions are excellent and will be answered in 2nd part of this series.
Josh Renfro
President & Founder
Lone Star Bullion LLC
First released at www.livesilverprices.net
Goldman Sach’s Secret Prediction
During 2009, nearly every major financial firm was bullish on the market. Over the last several months we have started to see bank after bank and investment firm after investment firm predict a major global meltdown. However, there are still major investment firms that are still bullish overall. Or are they? While Goldman Sachs has been portraying a positive outlook to the broader investing public, action taking place under the table suggests that they are not as transparent, open, or bullish as they say. Recently Goldman Sachs released a 54-page document to their major institutional investors warning of an impending global meltdown. This document was only released to their largest institutions and private investors. However the Wall Street Journal managed to get a hold of a copy and has released some of the major information. The report was compiled by Alan Brazil, a investment strategist for Goldman Sachs. In the report Brazil specifically points to the European debt crisis as the ticking time bomb to set up a series of economic explosions. The US debt crisis was also mentioned in the report.
So why would Goldman Sachs not just come out publically with their view of the overall economy? The answer is quite simple really. Goldman Sachs is doing the same thing it has always done, publically propping up a particular investment in then investing against it privately. If we look back at 2008, Goldman Sachs packaged and sold large amounts of mortgage-backed securities and at the same time were betting against those same securities. Therefore they profited on both ends. Interestingly enough, US Federal Housing Finance Agency is set to file suits against approximately a dozen major banks and financial institution amongst which are Goldman Sachs. In the end, this report from Goldman Sachs should raise a huge red flag.
Josh Renfro
President & Founder
Lone Star Bullion LLC
First released at www.livesilverprices.net
China Downgrades US Debt
While most of the world was looking at the S&P and the downgrade of US debt, China made a move, which is far more important towards the United States in the long run. Dagong Global Credit Rating, the major credit rating agency of China, downgraded US-Treasury’s debt from A+ to single-A.
The Dagong Global Credit Rating Agency stated “The US decision to raise the borrowing ceiling will not change the fact that the growth of its debt has outpaced its overall economic growth and fiscal revenue. “It may further erode the country’s debt paying ability in the coming years.” It also issued a negative outlook: “The rise of the US-debt ceiling helped temporarily avoid a debt default but has not improved its solvency and the increasing government debt burden will deteriorate the US sovereign debt crisis.”
A major Chinese news agency made another statement reflecting the sentiment of the Chinese people “China has every right to demand the US address its structural debt problems and safeguard China’s dollar assets. Washington needs to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone. To cure its addiction to debts, the US has to re-establish the commonsense principle that one should live within one’s means.”
This major move by the Chinese rating agency was hardly noticed or reported on any major news network, but its implications are far more reaching. China is a major holder of US debt and the statements show that the US is running out of time before China will no longer tolerate US debt and fiscal irresponsibility. In the long-term this has a very positive impact on gold and silver, because China will eventually be forced away from holding US debt and dollars. This will force them into additional asset classes and China in the past has favored both gold and silver.
The Stock Market is Falling and the Decoupling of Gold and Silver
In the last three weeks, the DJIA has dropped over 2100 points. That is a 16.4% drop in three weeks. After QE2 at the end of June, the market has been extremely unstable and with both the sovereign debt problems in Europe and the US debt being downgraded to AA+ the stock market has begun to dive.
It came as little surprise that the stock market began to fall, but what did come as a shock was what we saw in the precious metals market. In 2008 when the stock market began its fall, precious metals followed within a few days. Investors, financial institutions, and many other organizations began to sell precious metals as well. Consequently we saw precious metals fall in price significantly. However, with this last major fall in the stock market, both gold and silver either soared in price or staid stable. What we may be witnessing is a decoupling of precious metals from the generic movement of the stock market. While it is still too early to tell, there is a good chance that this could mean that gold and silver prices will not be nearly as volatile during another major stock market crash like 2008.
One question that is being asked about gold is “How much further it will go before facing another major resistance point?” Back in 2007 and 2008, gold struggled to break above the $850 mark because it was the highest price gold had ever reached. This is called the 100% Fibonacci resistance level. After breaking through, gold hit a number of smaller barriers, which it overcame in a much shorter period of time. The next major Fibonacci expansion level comes in at the 261% mark or approximately $1900. That will be another major point to watch for a slight pullback provided no major economic news is forthcoming during that period of time.
Josh Renfro
President & Founder
Lone Star Bullion LLC
The Importance of the Historical Ratio of Gold and Silver
Today, gold is at $1615 and silver is at $40 an ounce. This is a ratio of 40 ounces of silver to one ounce of gold. So what is wrong with this picture? The only way to see through these numbers and realize the true impact of the ratio of gold to silver is to take a walk back through history.
“For the first two thousand years that gold and silver were the primary form of money across the globe, the exchange rate between the two metals averaged 12 ounces of silver to one ounce of gold. In other wards silver’s value was 1/12 that of gold. Of course it would vary by region and time period. In China in during the Ming Dynasty for instance the exchange rate was 4 ounces of silver to 1 ounce of gold, and in ancient Egypt silver had the same value as gold; but, on the average, the ratio has been about 12 to 1.”—Mark Maloney, Gold and Silver Expert for the Rich Dad Poor Dad Advisory series.
Another important fact to know is that the United States pegged their own ratio of silver to gold at 16 ounces of silver to 1 ounce of gold when the United States was still on the gold and silver standard. So what is the implication of all these ratios? Ever since 1973 when the United States went of the gold standard, the ratio of gold to silver has gone crazy with the highest ratio of gold to silver being over 80 ounces of silver to one ounce of gold. The current ratio is 42 ounces of silver to 1 ounce of Gold?
So what is the practical impact of all this? If silver were to return to its 16 to 1 ratio in the United States, silver would currently be worth $101 an ounce! If silver returned to its 12 to 1 ratio we would see the price at $134 an ounce! If this occurred we would see a 347.5% rate of return. This is one of the reasons why I am much more bullish on silver in the long-term than I am gold and believe that $100 silver is a no brainer.
Josh Renfro
President & Founder
Lone Star Bullion LLC
713-855-2039
Josh@lonestarbullion.com
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