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Who Is Manipulating the Silver Market, and Why?

It is painfully obvious that the silver market is being manipulated. Supply is down, and demand is up. Any business man can tell you that that is a recipe for higher prices. But instead, we see the price of silver continuing to drop.

But who is manipulating the silver market, and why? There are a myriad of contenders. Could it be the leaders of industry who use silver in manufacturing of everything from electronics to medical supplies? Could it be a government that is trying to keep prices low while it hoards away as much as it can? Or could a government be trying to keep the price of silver down to give the populace a false indication of financial stability in a turbulent financial time?

Silver in History

silver-certificateTo better understand why the price of silver is important, it is necessary to understand the history of the relationship between silver and currency.

Silver was the first metal used as currency. Over 4,000 years ago, ancient Greeks used silver ingots for trade. After the Greeks, the Romans continued to use silver as currency. With the Roman Empire covering most of Europe, North Africa and the Near East at it’s height, silver became the recognizable means of currency for most of the known world. (China, who traded along the Silk Road with Europe, also used silver as currency dating all the way back to the Han Dynasty in 206 BC.) After the fall of Rome, the new nations of Europe continued to use silver as a currency. In England, the Anglo-Saxons used a system of coinage where 4 farthings equaled 1 penny, 12 pence (pennies) equaled 1 shilling, and 20 shillings equaled 1 pound sterling. This literally meant that 240 silver pennies weighed 1 pound. At the time, the symbol for shilling was “s.”, not for shilling but for Solidus, and the symbol for penny was “d.” for denarius. Shilling and Denarius were the names of Roman coins. Silver was the legal basis of British coins until 1816. In 1971 the decimalization of the British pound turned 1 pound into 100 pence and changed the symbol of penny from “d.” to “p.”

During the colonization of north and south America, the Spanish peso de a ocho (or “piece of eight”) became the de-facto trading currency of the new world. A “piece of eight” was a 1 ounce silver coin that was worth 8 Spanish “reales” (or “royals”).

In the United States of America, the 1792 Mint and Coinage act attempted to put the country on a bimetallic standard using both silver and gold. Gold and silver coins (including coins from other countries) were legal tender. In 1857, the US stopped accepting foreign gold and silver coinage as legal tender. In 1934, the US ended bimetallism, and switched to a strictly silver standard. (giving rise to the now famous “Silver Certificates”.) In 1971, the US announced that it would no longer redeem currency for precious metals in what became known as the “Nixon Shock” This put an end to the state sanctioned practice of silver backed currency.

Silver in Industry

fine-silver-1-ounceThe silver standard fixed the price of silver to the dollar, and removing the silver standard allowed prices to fluctuate in the market. This seems like it could have been provoked by industry who was becoming increasingly reliant on silver for manufacturing. The Silver Institute states:

“From non-corroding electrical switches to chemical-producing catalysts, silver is an essential component in nearly every industry. Its unique elemental properties make it impossible to substitute and its uses span almost every sector of industrial application.”

However, if the manufacturing industry did conspire to remove the silver standard, it was a major miscalculation on their part considering the rise in silver prices since the end of the silver standard.

The demand in the industrial use of silver seems to be far outweighs the demand for jewelry or bullion. Industry consumed 487.4 million ounces of silver in 2010, and that amount increased to 665.9 million ounces in 2015. By comparison, the bullion market had a larger percentage increase (from 87 million ounces in 2009 to 245 million ounces in 2013), but its demand is still a third of industrial demand. So, industry should still be considered a top contender for the current price manipulation.

The use of silver in industry may likely be a leading reason for the current price manipulation we are experiencing. However, the question still remains “is it the buyers or sellers that are manipulating the prices?” Common sense would claim that if the prices are being kept artificially low, then the buyers would be the manipulators. However, the sellers could be keeping prices low in an effort to keep buyers from switching to a different material that the sellers do not have control over.

Government Interference

Another possible contender for the manipulation of silver prices is the US government. As we know, during the most recent financial crises, the Federal Reserve resorted to quantitative easing as a means to pump cash into the economy. Traditionally, adding more currency to a fiat currency system creates inflation. Investors usually buy commodities (like silver) as a hedge against inflation. Keeping prices of silver low would force investors to either sell at a loss, or hold on to their silver investment. Therefore, artificially devaluing silver could be a way to either eliminate, or at least lock up, some of the additional currency injected into the market by the quantitative easing.

If this is the case, a change of party in the White House may reverse the policy and allow silver prices to correct at the end of 2016 or beginning of 2017.

Who do you think is manipulating the silver prices, and to what end? I would love to hear your opinions in the comments below.

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