4 October 2008

Analysts Cry Manipulation

Silver Summit: Analysts Cry Manipulation

By Melissa Pistilli -

Recently, I attended the Sixth Annual Silver Summit in Coeur d’Alene, Idaho where investors, mining executives, industry analysts, and silver aficionados met to discuss and learn more about what’s happening in the silver market. Needless to say, it was an interesting time to be at a precious metals conference given the critical events occurring in the US financial markets.

The days leading up to the conference were frustratingly disappointing for those in the precious metals sector, investors and mining exec’s included. September 16, the day before I flew from Vancouver to Coeur d’ Alene, Gold had dropped as low as $779/ oz and silver was trying desperately to stay above $10.50. I had a feeling the mood at the Silver Summit would match the level of precious metals prices: in the dumps.

The next day, all that turned around as silver jumped $2.50 and gold gained $85 on news that shares in Goldman Sachs and Morgan Stanley had plunged on waning investor confidence and the SEC announced it was taking action against naked short selling abuses. The surprising one-day gains in precious metals were enough to infuse the Silver Summit crowd with a much needed dose of optimism.

Amongst the Summit’s most influential speakers were Sprott Assets Chief Investment Strategist John Embry, noted metals analyst David Morgan, respected trader Roger Weigand, CPM Group Managing Director Jeffrey Christian, and chairman of the Gold Ant-Trust Action Committee (GATA) Bill Murphy. Also, Al Korelin hosted a segment of his nationally syndicated radio program The Korelin Economic Report, with a panel that featured Morgan, Embry, Murphy, and editor of the Silver Valley Mining Journal David Bond.

The market uncertainty and apprehension of what is to come brought on by the Lehman Brothers bankruptcy, Bank of America’s takeover of Merrill Lynch, and Paulson’s bailout announcement influenced much of the analyst presentations at the two-day Silver Summit. “Today is one of the scariest days in market history,” said Bill Murphy, “I think that what has happened today is the most staggering thing that’s ever happened for gold and silver. I think gold and silver very shortly will get overwhelmed by demand from the whole world. The American capitalist system is now changed. It’s gone.”

David Morgan expressed the same sentiments: “We are in the one place in financial history that will probably go down as the most memorable ever because it’s a worldwide phenomenon and as everybody bails out of the dollar the whole ship goes down.”

To John Embry, the government bailout on Wall Street would serve to further undermine the value of the US dollar and result in the debasement of other global currencies, which will ultimately lead to global hyperinflation; circumstances that will no doubt lead to more and more investors seeking safe haven in gold and silver.

Silver Optimism

It’s safe to say the Silver Bull was alive and well in Couer d’Alene Idaho and its likely the Summit’s attendees took that optimism home with them. The consensus amongst most at the conference-analysts, mining execs and investors alike-is silver will probably reach new price heights by the end of this year and explode throughout the next three to five years.

“When I say last chance that is exactly what I mean,” urged Embry. “When gold and silver clear a $1000/oz and $20/oz convincingly-and that day is coming very shortly-it is my opinion that they will never ever trade at those levels again.” Embry expects the precious metals to reach new price plateaus as they did during the seventies. Those who miss the boat on the current bargain basement prices “will absolutely rue the day.”

Why are analysts like Embry, Murphy, and Morgan so certain? Most believe, and rightly so, that the fall of the major U.S. financial institutions, the deepening housing market crisis, rising unemployment, the threat of hyper-inflation and a looming depression all point towards an extremely unhealthy U.S. economy on the verge of collapse. Many view the U.S. dollar as headed towards extreme devaluation, which will ultimately spell disaster for the rest of the globe as even today financial markets around the world are experiencing the same economic pressures.

Once the reality of the global economic crisis sinks in, precious metals are bound to regain their historical status as safe haven protection from economic catastrophe. However, how much worse does it need to get before gold and silver really take off? It would seem to most that time has already come. The financial climate was not even close to being this bleak back in March when gold broke $1000/z and silver reached $21/oz.

Manipulation in the Markets

So what’s holding the precious metals back from soaring over their earlier records this year? The widely held belief amongst the majority of silver buffs, the Summit crowd included, is that the U.S. Treasury, the Federal Reserve and various influential financial institutions are manipulating silver and gold prices in an attempt to hide the truth and stall the inevitable.

Seasoned precious metals investors are well aware of Bill Murphy and his organization’s (GATA) fight against what the group calls “The Gold Cartel” and their manipulation of the gold price. During the taping of Al Korelin’s radio program at the Summit, Korelin asked Murphy to explain how gold manipulation relates to the price of silver.

As both precious metals have historically held value as currency and safe haven assets, gold and silver prices are inextricably linked, and the Cartel knows this to be true. Gold is a barometer of the US financial market’s health, said Murphy. “Whenever it goes way up it’s bad for Wall Street as they perceive it. To keep it in line and not make it look too obvious, they make sure to go after the silver market in conjunction with gold as evidenced by Ted Butler’s report.”

Just who is The Gold Cartel? According to GATA, the group consists of the US Treasury, The Federal Reserve, and institutional heavies like Goldman Sachs and JP Morgan Chase. Why control the price of gold? To contain fear, control interest rates, and maintain a semblance of strength in the US dollar and the economy.

John Embry’s argument for the existence of manipulation in the precious metals market was the most convincing. Embry feels, as do many, that the dramatic drops in the silver price despite the seriously dire circumstances of the financial markets are proof positive of aggressive manipulation by western central banks to defend the fiat currency system in order to discourage investment in alternatives like gold and silver. But, said Embry, they are only delaying the inevitable. Every fiat paper money system in history has failed without exception, he continued. As Voltaire pointed in the 18th century, “paper money eventually returns to its intrinsic value-zero.”

Concerning silver’s unforeseen dive from $19/oz to below $12 in a matter of weeks and the events outlined in Ted Butler’s expose “The Smoking Gun“, Embry railed against attempts to rationalize the huge decline that has caused many to point at the rise of the US dollar during that period and the unwinding of short dollar long commodities trades by leveraged hedge funds and others. “Now to be fair,” he said, “I agree to extent that this phenomenon should have led to a correction in the precious metals. But to have triggered an outright rut strains credulity.”

Embry urged the audience to question whether or not they believe that the underlying fundamentals for the US dollar have improved enough to constitute a stronger dollar: “Does anyone truly believe that a country whose housing, automotive and airline industries are in a state of collapse, whose banking systems are in a shambles, whose retailing industry is sharply retrenching, and whose consumers are being eaten alive by rampant food and energy inflation while unemployment mounts, is actually growing?”

All of this price manipulation cannot be good for the gold and silver mining industry. But, what can they do about it? Embry received a fervent and boisterous round of applause when called upon industry executives to “get off their collective assess” and come together to combat the collusion occurring amongst the large financial players who are in effect destroying the industry.

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