Silver’s “Historic Price Glitch” — will it jump to $208 in six months?

Sniffing out Sara Nunnally's "Silver Fever" tease for Macro Trader

By Travis Johnson, Stock Gumshoe, November 20, 2012

I’ve had quite a few readers write in to ask me about silver lately — there was a spurt of “silver will be better than gold” newsletter teasers over the Summer, and this latest pitch from the Insiders Strategy Group folks for their Macro Trader newsletter has been filling up the inbox …

… so let’s have a look and see what Sara Nunnally says we should do to invest in the shiny stuff.

And just up front, I should also let you know that I don’t follow silver slavishly, so I’ll tell you what I can but I don’t follow the conspiracies or the silver production numbers every day.

Here’s the hook that they use to get you on the line:

“Why This Historic “Price Glitch” Could Force Silver to Jump From $33.50 to $208 in the Next Six Months…

“Did BIG BANK CHEATING Create This Glitch?

“Here’s How You Can Take Advantage of It Today.”

Which pretty well sums up the big picture argument they’re making for silver having a big run — the “price glitch” is a reference to the fact that the silver/gold ratio is out of wack and a return to the “average” would mean a huge silver spike (or a huge fall in the gold price, naturally); and the “big bank cheating” stuff is a reference to the manipulation of the silver futures markets by JP Morgan and others.

The silver manipulation conspiracies basically revolve around a few large banks dominating the futures markets in silver, and holding huge short positions which they use their trading to buttress, trying to keep prices down whenever they show signs of taking off. I don’t know or care much about the mechanics of this, but there have been plenty of very detailed articles about it and plenty of things to make the conspiracy story seem like it’s ripe for a TV movie — including the (loose) connection to the downfall of Bear Stearns, and the fact that the prime whistleblower in this case was injured by a hit and run driver just as his testimony was getting attention. There was a good blog post at the NY Times on the whole conspiracy/price manipulation foofaraw last year, it’s dated now but he explains it all much better than I can so you can check that out if you don’t know the basic story.

I know many people feel strongly about this silver manipulation story — I’ll leave it to you to go read up on it and decide what you think. Certainly silver has been manipulated before, most famously when the Hunt brothers tried to corner the silver market (which in turn led to some of the futures trading position/leverage limits) about 30 years ago, back when silver had its all time nominal peak near $50 an ounce … whether it’s being actively manipulated now, the nature of that manipulation, and whether that manipulation will stop, is an open question.

The other part of the argument put forth here for silver is that the manipulation has kept the lid on a per-ounce price that should be dramatically higher because of the gold/silver ratio. Here’s a longer excerpt from the ad explaining (or selling, at least) that basic point:

“The value of silver throughout history has been tied directly to gold.

“As far back as the Roman Empire, the value of silver was set at 12 ounces for every ounce of gold.

“And when the U.S. fixed its own gold standard in 1792, that ratio was set at 15 to 1.

“Silver is often referred to as “poor man’s gold” for that reason.

“You see, it has intrinsic value like any other precious metal. That’s what makes it a reliable store of wealth…

“But you can get it at a fraction of the cost of gold.

“That means it’s much easier to build a position in silver without having to come up with $1,730 or more just to buy a single ounce of gold.

“Part of the reason it’s so much easier to get into silver is the silver glitch I talked about earlier.

“The silver glitch is pushing the price of silver down way below where it belongs.

“Silver should track gold’s performance… for example, let’s use the Roman standard of 12-to-1…

“At $1,730 per ounce of gold, history tells us that we should be seeing silver prices at $144 per ounce.

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