#TinfoilTuesday – Ron Hera Explains Silver Price SuppressionAugust 21st, 2012
This is a bit of a Tinfoil followup up on a story from two weeks ago. On Tuesday, August 7th we reported that the Commodity Futures Trading Commission investigation of silver price suppression was probably being dropped based statements allegedly made by US regulators that they had “failed to find enough evidence to support a legal case.” Immediately after that CFTC commissioner, Bart Chilton came out and vehemently denied the story. Jesse from 24hgold reported that Chilton called it an “Erroneous Report” even though those who reported on it at the Financial Times attributed the claim to emails they’d received from him. Seems fishy doesn’t it? Jesse wrote:
This could have been a ‘trial balloon’ to gauge the reaction and blowback if they did ditch the investigation, not wanting to expose the findings, or expose a coverup to later instances of perjury. This leak to the FT (Financial Times) *could* just be a ‘trial balloon’ by Mr. Gensler and his crew to see if they can get away with it. But that seems more like the plot of a novel.
So, perhaps in our zeal to catch the crooks in the act we prematurely reported a nasty piece of government malfeasance, or perhaps we’ve all been duped into participating in a financial psyop. It’s not like we’re above accusing bureaucrats of lying… or they’re above lying to us.
To get to the bottom of this fiasco we contacted Ron Hera, a close friend of the Silver Circle team. Ron is the founder of Hera Research, LLC, and the principal author of its newsletter. He’s an outspoken advocate of the free market, and Austrian economics. He holds a master’s degree from Stanford University and is a member of Mensa and of the Ludwig von Mises Institute. His articles provide deeply researched analysis to help investors in commodities and precious metals. So, of course we went to him for answers about silver price manipulation.
Here’s a look at the highlights:
Q: What is the basis of claims that the silver market is manipulated?
A: Claims of silver market manipulation in the United States date back to July 23, 1965 when, speaking in the Rose Garden at the White House, U.S. President Lyndon B. Johnson said, regarding the Coinage Act of 1965:
“If anybody has any idea of hoarding our silver coins, let me say this: [The U.S.] Treasury has a lot of silver on hand, and it can be, and it will be used to keep the price of silver in line with its value in our present silver coin. There will be no profit in holding them out of circulation for the value of their silver content.”
At the time, there were concerns about an eventual silver shortage because silver consumption was more than double silver production. Hoarding silver would have been a reasonable investment but might have both accelerated the onset of a shortage and impaired the value of the U.S. dollar. President Johnson clearly indicated that the U.S. government had the means, motive and willingness to suppress the price of silver. Beginning in 1965, silver investors have suspected U.S. government involvement in the silver market.
Q: Why is the CFTC’s investigation into silver market manipulation allegedly going to be dropped?
A: An article published on July 2, 2012 in the London-based British financial newspaper the Financial Times (FT) claimed that the four-year CFTC investigation into possible manipulation of the silver market “looks increasingly likely to be dropped after U.S. regulators failed to find enough evidence to support a legal case.” Both the title of the article (“Four-year silver probe set to be dropped”), which was written by FT journalists Jack Farchy in London and Gregory Meyer in New York, as well as its conclusion are speculative. The CFTC publicly commented on two prior investigations into silver market manipulation in 2004 and 2008, where it found insufficient evidence. A new investigation began in 2008 and is still ongoing. A quoted source in the article (an unnamed CFTC spokesman) told the reporters that “The investigation has not reached its conclusion.” Therefore, the CFTC has not made any public statement to indicate that the investigation is to be terminated.
In 2010, CFTC commissioner Bart Chilton said he believed there had been fraudulent efforts to control the price of silver. The FT article therefore appears to have no basis in fact and should be disregarded. Nonetheless, silver investors and investment analysts have reacted to the article. Additionally, questions have been raised regarding why Farchy and Meyer wrote an obviously questionable piece and why the FT would run what is probably a specious article.
Q: Why would anyone want to manipulate the price of silver?
A: Market manipulation, such as the manipulation of the London Interbank Offered Rate (LIBOR) by Barclays PLC and other banks, gives an unfair advantage to the manipulators and can be a source of limitless profits. Ockham’s razor suggests that if there is manipulation in the silver market it is most likely an example of market rigging for financial gain, rather than for any other purpose.
Notwithstanding the foregoing, commentators in the blogosphere have speculated that, although silver is a secondary monetary metal, compared to gold, it continues to be regarded throughout much of the world as money because it serves as an effective medium of exchange and store of value without any governmental or central bank declaration to require, legitimize or perpetuate its adoption and operation as money. In fact, the U.S. state of Utah recently re-monetized gold and silver in order to provide a safe store of value to Utah residents versus Federal Reserve Notes. As such, precious metals are allegedly anathema to government sanctioned central bank currencies like the U.S. dollar.
Commentators in the blogosphere have speculated that JPMorgan Chase’s client is either the U.S. Treasury or the Federal Reserve and that intervention in the silver market (as well as in the gold market) is designed to manage the purchasing power of the U.S. dollar vis-à-vis other currencies and global commodities. Commentators in the blogosphere have also speculated that the U.S. dollar is implicitly backed by crude oil and that the ratio of oil to gold is crucial to maintaining the U.S. dollar as the world reserve currency. Of interest to commentators in the blogosphere are the relatively flat 200-day moving averages for gold and the U.S. dollar versus crude oil.
Former Federal Reserve Chairman Alan Greenspan wrote in his article “Gold and Economic Freedom” (The Objectivist, Volume 5, Number 7, July 1966, edited by Ayn Rand and Nathaniel Branden) that:
“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. This is the shabby secret of the welfare statists’tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.”
Q: What would the implications of silver price manipulation be for the U.S. dollar?
A: Any disruptive move to the upside in precious metals is negative for the U.S. dollar and for other un-backed currencies. While a higher gold price would reflect directly on major currencies, a higher silver price would both reflect on currencies and also have a ripple effect through several industries. A sharp rise in the silver price could be a leading indicator of broad price inflation. The U.S. dollar would lose value specifically relative to products that require silver in their production and generally relative to global commodities. In other words, sharply higher silver prices would destabilize the U.S. dollar and undermine its strategic role as the world reserve currency.
Here’s the full FAQ. You won’t find information like this anywhere else: FAQ’s on Silver Manipulation. You should also check out Ron Hera on You Tube.
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