Silver investors: our time has finally come…
A perfect storm is emerging in the silver market this week. Between the stock market teetering on the edge of a correction, the global turmoil gripping damn near every region in the world, and the announcement of a more transparent “silver price fix”, silver has nowhere to go but up…
Despite being the best performing world asset last month, I feel that these recent developments will push silver even higher. While each of these events is enough to nudge silver higher on their own, when they all hit at the same time, silver could finally have the breakout we’ve all been waiting for.
Here’s why these pieces are greater than the sum of their parts…
The Fix is Out…
For over a hundred years, a group of bankers have met at the stroke of noon to “fix” the price of silver. Once they conspire with one another and decide what they think the price should be, they publish their consensus to the markets and that is the gospel for metals that day…
It is called The Silver Fix.
As if there could be a more Orwellian name for the silver manipulation tool. While fix can mean “to fasten something securely in a particular place or position”, in the case of London Silver Price Fixing, it is far more like this definition: “Influence the outcome of something by illegal or underhanded means.”
It has recently been proven that this shady arrangement has been suppressing silver prices for decades. University of Western Australia researcher Andrew Caminschi has been studying the silver fix for the past 14 years. And what he uncovered should make any silver investor furious…
Those banks in on the fix have routinely traded on big advantages over the rest of us…
“This study finds a 10-12 (basis point) downward bias in the intraday price of silver around the time of the fixing. This represents three times the average daily return on silver over the same period,” Caminschi told Kitco.
That essentially means that anyone using the benchmark price is doing so at the lowest price of the trade day. The insidious part is that those banks on the fix phone call have a daily average advantage of 25 basis points over people like you or me who are trading after these guys have already made their massive silver purchases — or unloaded their assets before we even get the news.
You see, the banks can actually trade while on the call! You can tell by the flurry of activity as soon as the call starts.
Now, the advantage may sound slight when taken on a daily basis, but if you annualize that, it is around an 87% return for those in on the fix… according to Caminschi’s research. The researchers found the same thing when they dug into the gold fix last year:
Caminschi and Richard Heaney, a professor of accounting and finance at the University of Western Australia, analyzed two of the most widely traded gold derivatives: gold futures on Comex and State Street Corp.’s SPDR Gold Trust, the largest bullion-backed exchange-traded product, from 2007 through 2012.
At 3:01 p.m., after the start of the call, trading surged to 47.8 percent above the average for the 20-minute period preceding the start of the fix and remained 20 percent higher for the next six minutes, Caminschi and Heaney found. By comparison, trading was 8.7 percent higher than the average a minute after publication of the price. The results showed a similar pattern for the SPDR Gold Trust.
“Intuitively, we expect volumes to spike following the introduction of information to the market” when the final result is published. “What we observe in our analysis is a clustering of trades immediately following the fixing start.
So, we can be somewhat hopeful that the new system couldn’t be nearly as easily manipulated. But what is the new system?
Taking the place of that one shady phone call is a new system run by the CME Group (Chicago Mercantile Exchange) — one of the world’s largest options and futures exchanges — and Thomson Reuters Corp. — the global media firm.
The new benchmark is “an auction-based, auditable electronic system that will match buying and selling orders to reach a benchmark for the price of silver.”
Does Caminschi think this will make things better once that switch gets flipped?
“Moving to something that is transparent will certainly reduce the likelihood of collusion, the likelihood of manipulation and allow a broad range of participants to participate in setting the price,” he said. “Unless you’re one of the founding members (of the London Silver Price Fix), I don’t think there’s anything to cry about here.”
We’re certainly not crying about it — though we’ll maintain a healthy dose of skepticism until we see how the new fix actually plays out with the prices. But from what we can tell so far, it can’t possibly be any worse than letting three banks decide the price — and buy and sell while doing so — in the time it takes them to release their results.
I think it’d be best to load up now, before August 15th hits and silver prices are changed for the foreseeable future…
The Sky is Falling
Everyone knows that global turmoil is a precious metal investor’s best friend. So let’s take a very quick tally on the world burning around us…
Iraq is backsliding into a vicious civil war. Militants now control massive areas in northern and western parts of the country. Thousands of foreign fighters are rushing in to aid the militants, not only in Iraq, but in neighboring Syria. Some estimates put 10,000 new foreign fighters in Iraq and Syria combined.
This is scaring the hell out of the powers that be. Attorney General Eric Holder admitted “In some ways, it’s more frightening than anything I think I’ve seen as attorney general.” FBI Director James B. Comey noted that he can’t sleep at night thinking about the area as a “launching ground” for a potential 9/11-style attack.
And the rest of the Middle East isn’t looking much better…
Palestinians have launched over 1,600 rockets into Israeli territory this month. In retaliation, Israel is raining hellfire on the Gaza Strip, killing over 500 Palestinians — including a disturbing number of women and children. After a ceasefire proposal went up in smoke, yesterday marked the single worst day in the conflict, with at least 120 Palestinians killed, along with 13 Israeli soldiers.
We don’t see any end in sight…
And the elephant in the room is the downing of Malaysian Airlines Flight 17. Overnight, the Russian/Ukrainian standoff went from an alarming regional conflict to the prelude of a total global engagement. We’ll see how things play out over the next few weeks, but right now it couldn’t look much worse.
Any way you slice it, the world is a complete mess right now, and that has always been great news for precious metals prices.
Stocks Teetering at All-Time Highs
Trees don’t grow to the sky. This Fed-fueled market has run up higher than any of us anticipated. The fundamentals just aren’t there for it to keep on trucking. In fact, we’re likely headed for a serious correction. Even Fed Chair Janet Yellen admitted as much in a congressional testimony last week:
“Too many Americans remain unemployed, inflation remains below our longer-run objective, and not all of the necessary financial reform initiatives have been completed.”
While we’ve been saying that for over a year now, it’s nice to hear straight from the horse’s mouth. It may be high-time to short the market or hedge your positions with precious metals when the house of cards comes tumbling down. And it sure looks like those cards are getting pretty wobbly.
As Jason Simpkins told you Friday:
Since 1928, the average duration of a bull market is 57 months, and the average return is 165%. Well, this one is now 64 months running with a return of more than 190%.
In fact, the current bull market is the second-longest in the last 80 years and third-longest in the market’s 100 year history.
That’s exuberance, and it’s building at exactly the wrong time and for exactly the wrong reasons.
The time has come, my friends. Start getting defensive. Sell off a few of your best performers. Set aside some cash. And load up on precious metals. The stars have aligned; don’t wait until the world burns down. Don’t wait until the new silver fix pushes prices back to their natural levels. Don’t wait until the market crashes.
Act now…
