David Morgan on Silver Price Manipulation, Delivery Default & Supply Shortage Risks

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“I have little doubt that most of the silver that is on the SLV’s web site with a bar number is there somewhere. But what I am really concerned about is if it is hypothecated or not, meaning is there more than one owner on that same bar. And I can almost guarantee that there are multiple owners for almost every bar that they report. It does not mean that that bar does not exist.

It takes ten contracts to be a market maker.* (*See retraction and clarification in the comments below.) So I have got ten contracts, I have got fifty thousand ounces, and I ship it to my buddy who is a hedge fund manager over in Idaho. That is my silver. I have just sent it over to him on a lease. I have leased it to him. Now he has taken that silver and he has swapped it with somebody at the SLV, so they have got bars there. And he swapped for those and now those are on the exchange showing as part of the deal. So you can have a lease and a swap, so you could have two or three claims on those same bars. And that happens over and over again.

So the reason I used “purportedly” is that is the correct word. There are very few bars that are actually one-to-one correspondence that are sitting on the SLV and that is their only purpose. That is not the way banks operate. That is not the way the whole system operates. So I am not against the SLV, but I also state very clearly that if you follow what I teach, you would not want that to be considered a primary silver investment. That is a paper investment. That is not silver. That is paper. It only settles in paper. People ask whether I think there is going to be a default on the SLV. I say, how could there be? I mean, read the prospectus, they settle in cash. Think they have any trouble printing that stuff up? I haven’t seen any problem with that lately.”

So cautions David Morgan, publisher of The Morgan Report on precious metals and proprietor of Silver-Investor.com. More so than perhaps any other, the silver market has been loudly and visibly accused of rampant price manipulation. And more recently, suspicion is growing that the exchanges and ETFs dedicated to trading the metal do not hold sufficient volume of it to meet their obligations. Is the silver market free and fair? Chris delves deeply into these important questions with one of the best-known silver experts.

In this interview, David explains why:

  • The silver market is definitely manipulated, though likely not as rampantly as some believe. And despite this manipulation, he believes the overall upward trend in silver (and gold) cannot be suppressed in the long run.
  • Holding physical bullion as a core part of one's precious metal portfolio is absolutely critical. Many of the bars pledged to tradable securities (ETFs, futures, etc) are assigned to multiple owners - meaning there is much less actual bullion underlying these securities than the market thinks.
  • Why his long-term outlook for silver is so bullish. Annual industrial demand for silver continues to outstrip supply from new mining, while increasing investment demand for silver as a monetary vehicle only takes more tonnage out of the market. At some point, the market will wake up to the fact that silver is in much shorter supply than currently appreciated. At that point, the price will go much, much higher.
Note: Listeners interested in the conclusions expressed within this interview will also want to read Chris' recent report on The Screaming Fundamentals For Owning Gold And Silver, which takes a deep dive into the data behind the supply and demand imbalances in the bullion markets.

David Morgan is publisher of The Morgan Report on precious metals and proprietor of Silver-Investor.com. He is also the author of “Get the Skinny on Silver Investing”

David is a long-time expert on the precious metals markets and how they operate and actively consults for investors, hedge funds, mining companies, depositories, and bullion dealers.

 

 

This is a companion discussion topic for the original entry at https://peakprosperity.com/david-morgan-on-silver-price-manipulation-delivery-default-supply-shortage-risks-2/

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In the interview I made a mistatement:

It takes ten contracts to be a market maker.

It is required that I correct the fact that a "basket" is 50,000 ozs. of silver. This does not qualify anyone as a market maker.  I was thinking of the amount at a bare minimum a qualified market participant can transact in the SLV ETF. My apology to everyone for my error. 
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David,
Thanks for letting us know.
Don’t be a stranger.  We would enjoy you joining in on our conversations here.  I’m glad to know you are a participant.  … dons

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 As long as 50 people are happy with the 100 OZ they all think they own (when they buy paper silver and there is really only 100 oz held) then the price of silver (or any commodity) can be kept low. Only when we ask for possession will the true value be seen. This is true for all commodities and when paper markets collapse only those with physical will have anything of value. If there is a collapse of the dollar then poof…all paper assets cannot provide the owners with the ‘stuff’ they thought they owned. It will be ‘a run on the real world’. It would make a run on the banks look mild.

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"This is true for all commodities and when paper markets collapse only those with physical will have anything of value."
That’s an interesting topic that begs a few more questions, in terms of how to generate a profit. So if hypothetically I own a house today along with a few other minor real world assets, and no paper assets of any kind, then when the paper collapse happens, all else being equal, then I SHOULD have not made any profit or loss off the monetary collapse because I still own a house. If a house is tradeable for 500,000 tomatoes now, and it is also equal to 500,000 after the collapse, then it hasn’t gone up in absolute value even though its dollar value will have skyrocketed.

But I think some physical real assets will go up relative to other assets that you’d like to buy like tomatoes or gizmos, and others will go down. Suburban house prices will probably go down (inflation adjusted — they will go down in terms of how many tomatoes they can be traded for), and we all know about the big housing bubble underway. Energy related real assets will likely go up. And I think gold and silver will also go up for obvious reasons, as all of the paper wealth of the world pours into any money-like asset it can find.

And there are also the tax issues, specifically the inflation tax where the nominal value of something you own goes up in dollar terms, but this is all due to inflation, and the number of tomatoes it will buy stays the same. But technically it qualifies as a capital gain so you have to pay tax on it if you sell it to buy other things of value. This could also complicate matters, but then again under a hyperinflation scenario things would be in such shambles that these taxation issues may just disappear.

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 I believe that hyperinflation is already here. It simply has not been acknowledged yet. When all of the dollars and folks who hold assets that entitle them to dollars decide that now is the time to get out of paper and into ‘stuff’ then we see typical Weimar inflation. In view of the already staggering number of dollars (or equivalents) in existence it may just happen in a flash. One day a dollar buys one a hamburger, the next day no one wants your dollar. It took Germany 2 to 3 years to ramp up. Our hyperinflation will probably be quite different.
And yes somethings will go up (relative to whatever we value things in at that point) and some other things less so. I suspect there is already a new currency ready in waiting (unless our politicos are as stupid as they pretend to be, which I do not think they are). That currency will get its value relative to gold. It will hold gold in reserve just like the Euro does. If the government wants its people to cooperate it will make the new currency readily exchangeable to gold. All printers of currencies will then have to behave or their paper will rapidly decrease in value and it will cost more to buy gold. This will make the holders of said currency unhappy and they will begin to hold other forms of wealth. 

When this situation follows a hyperinflationary collapse of the dollar paper markets will never be trusted though. I doubt we will see nearly as many derivatives any time soon. Folks will want physical stuff, near at hand. Trust will not return until generational forgetfulness kicks in.

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Hi guys.
 

im a new registrant, but ive been a fan of mr. martenson for about a year now.  anyway, i listened to the morgan interview( i am a subscriber to his service) and i couldnt help but ask why doesnt anyone cross-check the numbers on these bars?  i mean if you are someone, or happened to know of someone who owns investment grade bars, you can check to see if your bar has been leased out to the slv etf.  if we get one person to prove this, this will crack open the fraud that is the SLV.

If morgan is right, and the inventory at the SLV has numerous owners, we should do our due diligence and expose these guys. it will allow us to escape the manipulation and embark on a true price discovery for silver.

 

here is the list of serial numbers for the bars on the SLV:

https://ebts.jpmorgan.com/metalicsWebApp/ebts_downloads/BONY_SLV.pdf

(it takes a couple of minutes to download)