What If Silver Isn’t Manipulated After All…


by Chris Marcus, Miles Franklin:

There’s a headline to get the silver bugs riled up!

But take a deep breath. As far as I can see there is still every reason to thoroughly believe the market has been manipulated. And that there is a large short position that will eventually have to be resolved with a significant move higher in price.

I personally still largely subscribe to the Ted Butler school of thought. As based on his work, as well as my own research and trading background, I still believe that there’s a lot of paper silver that cannot be delivered at anywhere near today’s prices.

Yet while it’s always good to seek out the best most informed opinions you can find and learn what you can, I also have this other strategy that has served me well over the years. Which is basically to figure out what makes sense, and then spend the rest of my time trying to see where I may have missed something in my analysis.

Along those lines, while both my research and intuition lead me to believe the reason the price of silver isn’t already over $50 is due to the manipulation, it can still be useful to think about where we might stand if somehow that assumption is incorrect.

Because even in that scenario, there are a few reasons why buying silver at anywhere near $16 dollars an ounce could still possibly be viewed as the trade of a lifetime. Perhaps because the reasons are so simple and can also be easily verified.

Consider that last year First Majestic Silver CEO Keith Neumeyer mentioned:

“The cost of maintaining existing silver projects comes out to about $13-15 per ounce. In other words, to keep getting silver out of the ground from projects that are already up and running, it costs $13-15 per ounce.

So with the price of silver currently around $16, the margins are already so small that should the banks attempt to manipulate the price lower, some mining projects will no longer be economically feasible and are at risk of being shut down. Of course if that happens, that means less supply, which only adds to the positive factors supporting an eventually higher silver price.

Keith also mentioned in his interview that the cost of exploring and developing new mines is closer to $20. Which means that right now, projects which would be worthwhile with higher silver prices are not being explored. Again translating into less supply than there otherwise would be.”

Now I’ve never worked in a silver mine. But having spent a lot of time listening to guys like Rick Rule and others who I consider to be informed on the topic, I hear it’s not exactly the easiest business to be involved in. Certainly not the kind of thing that people are going to line up to do for free, or at an overall cost.

What this means is that there’s simply a natural market floor for how low the prices might go. Which is one of the main factors that’s always left me feeling comfortable owning silver at these levels. Manipulated market or not.

So while we are reminded more than ever that markets can do all sorts of quirky illogical things in the short-term, at some point, if the price of silver went down to $10 dollars an ounce, there’s eventually going to be less supply.

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