Less than a month ago, when silver closed above $20, I posted an article titled "Silver Investing--Is it Too Late at $20?" On Friday, October 1st silver closed considerably higher than $20. I reasoned when I asked the "$20 question" that because of the massive manipulative short position that has existed for over two decades, the upward price potential was tremendous - if and when the manipulation was phased out.
Briefly; JP Morgan inherited the short position when it took over the failed Bear Stearns at the request of the U.S. government. Almost a month ago, JP Morgan announced that it will be closing its commodities trading desks. Those who knew of the huge short position are curious to know if it will be phased out. Early signs are promising. For over three weeks there has been no sign of manipulation, despite the steady price increase during that time.
During the month of September the price of gold increased about 4.9%, while the price of silver advanced about 9.9%! The price of silver made multiple 30-year records the past week and a half. After years of underperforming gold, some say because of silver price manipulation, it is telling that silver is outstripping gold recently. The price of gold is up because of fear of inflation and economic woes. However, economic woes should affect an industrial metal like silver adversely. And fear of inflation should not affect silver more than gold. Perhaps the price of silver has really been set free.
Speaking of inflation, there has suddenly been talk of deflation recently. Don't let it fool you, even if the talk gets traction. There is huge money at stake on Wall Street. Wall Street is not positioned for inflation. And because the precious metals markets are so small relative to the equities markets, and there is so much money to move, it will take months. I won't go so far as to say the government and Wall Street are conspiring, but if the public fears deflation, both the government and Wall Street win. The government wins because they hold off inflation that much longer. And Wall Street wins big by having time to reposition for inflation, that they know will come.
Despite public talk of deflation, private fear of inflation has pushed the price of precious metals higher. And the gold to silver price ratio moved from 63 to 1 down to 59 to 1 the last few days. Perhaps silver investing is getting back to the fundamentals. It's not too late now.
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