Of Silver Shortages And New Cartels

Question from a fellow silver highwayman.

“I don’t understand why the major silver producers don’t set their own prices – why let the brokers set the prices. If the producers stop selling forward contracts, this nonsense all stops.”

In other words, set up a cooperative that guarantees a price floor with the agreement that miners never sell production for less. The price is reset instantly. In essence, that’s what the speculators are doing in reverse with paper.

What would the producers say? Would they suddenly awaken?

This reminds me of another email I received that day. It was a response to an email from my Silver Investing E-Course about Nanosilver and the Food Industry. Here’s a quote from that piece:

“The amount of silver used in nanosilver-embedded products is very small, so it’s unlikely that the food industry will become a major consumer, but silver’s use in this area is expected to increase in coming years. Silver’s use in food hygiene applications was estimated at fewer than one million ounces last year, and is expected to at least double in the next few years”.

Jeff: What might happen, I wonder, when silver users realize there may be a shortage around a corner? If I were in charge, I’d be happy to buy and store for future use, a healthy store. One business only, say, buys a million ounces to protect his business. Now this business may be set for five years. And so does another, and another! And these businesses are all in the same industry! Other industry users realize that maybe, just maybe, there may be no silver to use. So they too start to stockpile. These people alone might be strong enough to push prices way up, regardless of the ongoing manipulation.

Another thought:

Industry may usually only use a very small amount of silver for each individual application. I do not mind buying a small insurance policy to make sure that my business will continue to operate with the needed silver.

Yes, all it takes it one or two big players and the jig is up.

All the major users use just in time inventory practices – so they have no clue about how dire things are. Maybe some will eventually retool or use a substitute, but not until we’ve moved back toward natural prices based on supply and demand, which will likely overshoot in a dramatic way.

Of course, it’s hard to see how a violent correction to the upside wouldn’t send ripples across the entire financial derivative landscape. But then again, the formation of any counter cartel would be short-lived to say the least.

Can you imagine the ripples that would send through the halls of justice – applied, of course, through terrifying screams of litigation attorneys from the biggest financial institutions to have ever roamed the earth?

As much as I’d like to see these guys pay for their sins, the formation of a new producer carter – a “de Beers of Silver” – simply risks being viewed as another monopoly. Probably in that case commodity law would actually be (unevenly) applied and said producer would be busted for price rigging.

In essence, the price of all major commodities are determined by using paper or electronic derivatives traded by speculators who have nothing to do with production or consumption. Just another symptom from years of untethered finance and power consolidation.

All are rigged in this way – only silver much more so than them all.

Ultimately, they can’t set prices on their own; if that were the case, they’d be forming their own cartel.

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