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Precious Metals Manipulation Solution?


Does First Majestic’s holding back 35% of production amount to attempting to cure precious metals manipulation with more precious metals manipulation?

Terry Kinder precious metals analysisBullion.Directory precious metals analysis 29 October, 2014
By Terry Kinder

Investor, Technical Analyst

Upon reading the headline that First Majestic Silver Corp. would hold back 35% of its production I felt like I had awakened from a dream to discover I lived in some strange bizarro world. Did I understand the story correctly? What First Majestic proposes, and they aren’t the only ones who have proposed it, sounds a bit like the Bush refrain that “I’ve abandoned free market principles to save the free market system.”

If this really where things stand? Precious metals are viewed by many that hold them as the last bastion of safety from a corrupt and manipulated political and economic system dominated by the banking cartel.

Is the solution to precious metals manipulation more precious metals manipulation? Do miners really want their business model to be the OPEC cartel?

Is the solution to precious metals manipulation more precious metals manipulation? Do miners really want their business model to be the OPEC cartel?

For miners to propose, or suggest, that cartel behavior like seen with OPEC is the best way to break the grip the banking cartel has on precious metals prices strikes me as 180 degrees wrong. When you look at the list of OPEC member countries, they don’t exactly stand out as bastions of free markets and human liberty.

Advocating precious metals manipulation as the solution to precious metals manipulation seems akin to the idea of “destroying the village to save it”. Either companies that mine precious metals believe in free market principles or they don’t. As someone who holds precious metals I do so, in part, because I see a political and economic system that is broken. As a citizen of the United States, I see a country that has strayed so far from its founding principles that it is barely recognizable. For me, gold and silver, represent protection against a system that is largely out of control.

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Apart from the obvious facts that any effort by producers to manipulate prices higher will be undermined by cheaters, just as occurs within the OPEC cartel, it also amounts to a suicide pact where the large miners hand the small miners a loaded gun and tell them, “You first”. It is simply suicidal for marginal producers to withhold their production for any amount of time. Even miners like First Majestic can’t afford to withhold a substantial portion of their production for long.

Frankly, I’m disappointed that this dismal idea of precious metals manipulation to combat precious metals manipulation keeps coming back up. I would think the companies that mine precious metals and the people who buy gold and silver, if anyone, would understand that if we become like the manipulators, we all lose.

Price manipulation isn’t acceptable, whether on the COMEX, from a group of bankers sitting around a table fixing the price, or by miners who mistakenly believe that they can overcome the wrong of precious metals manipulation with more of the same.

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  1. Gotcha 😉

  2. I kind of agree to some point with Majestic. However, I think it is futile. The futures price of precious metals have never took into account physical demand, so why would they if product was withheld? As long as bullion banks like JP Morgan can issue naked short contracts, precious metals will go where institutions want them.

    I get what Terry is saying, but Majestic is a business with costs. Mining silver at $21 and then selling it at $17 is going to hurt.Take a look at the gold miners.

    However, the issue arises at what point do we wake up and precious metals will be prices not by banks or exchanges in a phony system but by consumer demand. Corn consumption goes down, prices go down. Sugar crops are hampered by drought, prices go up. Yet, mints record record sales in the last two years and gold hits multi-year lows three times.

    • From what one of the articles I read said, First Majestic’s cost of mining silver is $16.00. So apparently they are at least able to keep their head above water. If they more borderline it is unlikely they would hold back production as they would need every penny to keep the doors open.

      As a holder of precious metals, I don’t like these prices any more than anyone else does. The other side of the argument is that a supply shortage has been claimed for silver since Lyndon B. Johnson was president in the 1960’s. The supply shortage of silver was the reason given for no longer minting silver coinage.

      So, even with manipulation, the law of supply and demand would indicate that if a good is not priced appropriately that the price would be arbitraged by someone or a group of individuals. People will take advantage of a bargain and soak up the supply. Once the supply is exhausted, prices will be forced higher. This will bring out new supply and drive prices down.

      Yet, after a 40+ year supply shortage of silver the price remains lower than the miners would like. It remains lower than many holders of precious metals would like.

      Another aspect of this story – more from the gold side than the silver side – is that mint sales, production, etc. are not as important factors as you might think. Essentially all the gold that has ever been mined still exists. There is a huge supply of gold. The gold price is more influenced by factors such as the real interest rate, inflation expectations, the public perception of the health of the economy and political system, etc.

      So comparing how the gold price to how the price of corn is determined is not the correct comparison to make. The gold price isn’t set like the corn price. The manipulation distorts the price but even without manipulation the gold price is not, nor will it be, set in the same or similar manner as the gold price.

      Unfortunately, a lot of people have invested in gold without a clear understanding of how the price is set and why it moves. This is unfortunate and incorrect information about how the price is set is presented to members of the gold and silver communities by their own members on an almost daily basis. In my opinion it is a sad state of affairs and a real disservice.

  3. As a precious metals owner I have to agree with what First Majestic is doing. I hope that the other mining companies do the same. The price of ETF’s should not be the same as physical metal. After all I purchased silver coins in Australia at $31 plus a 30% premium. But when I sell back to my supplier I only get spot price less 5%. Where is the fairness in that?

    And while we are on the subject of banking cartels. I work hard for my money. I get 0.2% interest and the banks lend it back to me via my credit card for 20%.

    Its about time these mining companies stood up and showed the cartels what its all about. Which should be supply and demand, not paper high frequency trading. I purchased silver because it is an industrial metal and over 50% is used in industrial applications not hft manipulation.


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