Something fishy happening in the physical gold and silver market

December 9th, 2010

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Have you noticed something fishy going on in the silver market? Take a look at this chart:

gold_1_year_silver

This chart shows the ratio of gold to silver prices over a period of a year. As you can see from the trend, silver is getting more and more expensive relative to gold since before September. If you extend the period to 36 years, you will see this:

gold_all_data_silver

The latest move is pretty major, even when you see it from a time-frame of 36 years.

So, what is the story behind this major move? Remember what we wrote in page 59 of our book, How to buy and invest in physical gold and silver bullion? There, we wrote about the possible fuses that can ignite silver prices. In that section of our book, we mentioned the colossal short silver positions of JP Morgan.

Well, according to J.P. Morgan and the Great Silver Caper,

?A viral campaign (Crash JP Morgue Video [below]) to buy a physical silver and ?crash? the bank is now spreading like wildfire on the Internet,? SFGate reports

Even more fishy is that the futures market for gold and silver are in backwardation (see Investors to Silver: ?Let?s Get Physical?). In case you do not know what "backwardation" means, you may want to take a read at How futures price affect market price. What does this mean?

Well, in theory, backwardation is not supposed to happen. But if it happens in reality (as it is happening right now, which is rare), it is a sign of distrust in the paper gold/silver markets as traders/investors are queuing up to take physical delivery of the precious metals.

Another interesting observation: as you know, we are an affiliate partner of GoldMoney.com. We noticed that all the customers that we referred to them are buying silver. We have yet to see a gold purchase.

Note: This article is not financial advice. Take it as a piece of juicy ‘gossip’ from the financial markets that we are passing to you.

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  • DavidL

    Have the powers that be given up silver price suppression so they can concentrate all there effort on gold price suppression? Or is there an other reason? Silver is an element that is actually used in many applications. Even though the silver market is a lot smaller than the gold market, the dynamics of a metal that actually gets used in industry is a lot different than one that is mostly a monetary one. Maybe someone finally realized that if we want an future with alternative energy technologies we were going to need to actually have to pay people to dig up the silver instead of doing it for free based on the price of paper silver. Maybe they thought higher silver prices would make gold look bad. Who knows what this is an unintended consequence of, given how much they haven’t told us they are doing. Maybe the Chinese are going to switch back to silver money…. Gold has been in backwardation for months and silver for longer. If there was ever a time when having assets outside the banking system made sense, this is the time–and this time is just starting… The next time I buy a stock will be when everyone on CNBC and the guys on Money Radio talk shows are only talking about gold silver and other commodities, and only show stock charts to illustrate how bad an investment stocks are. Until then I will stay in tangibles.

  • Richard

    Maybe the powers to be are losing the battle to keep silver prices suppressed?

  • matto

    As an aside, if the US was to go back to the gold standard whereby they divide their gold into their money supply, gold in the US would be $6,300 p/ounce

    http://www.zerohedge.com/article/albert-edwards-gold-mania-and-why-gold-very-very-cheap