Wednesday, October 10, 2007

The price of silver


A huge short position is a bet that silver is going to drop in price.

What if it doesn't? then the shorters will have to cover or buy...and all the leveraged longs make a killing.

From what I can tell the demand for silver is very high due to industrial use while supplies are very low...so there is massive hedging taking place

Those that need silver are leveraging both ways...and they are playing with those who want silver...

Manipulation? Of course...It's a free market...not a fixed market where the price is fixed and can't be manipulated except by the Government which in Fixed markets fixes the price. Like the 1792 Coinage act where the US Government attempted to fix the price of Silver and Gold and copper with...

"Dollars or Units—each to be of the value of a Spanish milled dollar as the same is now current, and to contain three hundred and seventy-one grains and four sixteenths parts of a grain of pure, or four hundred and sixteen grains of standard silver."

437.5 grains in a ounce...

So a dollar was 84% of an ounce of pure silver and 84% of an ounce of pure silver was one dollar.

In 1792 the price of silver per ounce was $1.293 in London but fixed in the USA by the coinage act at $1.178 per ounce.

That's just the retail price...still had to get it across the ocean/pay to construct coins...etc. and most of the early US coins produced were from Spanish milled dollars that the Government taxed out of circulation since at the time the USA did not have any significant silver mining operations...

Ultimately when the content of a coin becomes worth more than it's face value...it stops circulating...It's more profitable to sell the content than to spend it.

Around 1964 is where the content of silver coins in the USA began to become significantly worth more than the face value...Where the US Government was unable to fix the price of silver any longer...and all the silver coinage was removed and replaced with coinage constructed out of cheaper materials.

In 1932 silver hit $0.254 an ounce in London...The face value was worth more than the content...

Sure the demand for money in 1932 was high but the global system reached maximum potential and collapsed in 1929...the money supply growth rates around the world collapsed and there was very little money around to bid up the price of silver which was still being produced as if there was the same growth rate and demand.

2 comments:

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