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FX Street: Paper Silver Vs. Physical Silver

February 05, 2021
Image for FX Street: Paper Silver Vs. Physical Silver

Article by Alexander Douedari in FX Street

The silver short squeeze in physical silver at present is unprecedented.

Even so, the spot price of paper silver is not even close to the real physical equilibrium price of silver. Many bullion dealers of Silver may soon have no option but to abandon setting prices based on silver spot prices altogether and move to fixed prices. Thanks to r/WallStreetBets (WSB) and related spin offs, the wider public is starting to open its eyes to the corruption and cronyism in the financial markets including in the paper gold and paper silver markets.

The shortage of physical silver is exposing a tear in the precious metals market unlike any we have seen before. Various executives from bullion dealers have explained that huge demand has left them with no supply (and no source) for physical silver.

For years, many critics have been calling out the manipulated precious metals markets, where paper issuance of silver (out of thin air) exceeds the physical availability of real silver at a multiple of at least 100 to 1.

Suppressing the paper price of gold and silver goes to the very core, not only of the financial system, but to the whole monetary system.

By siphoning off demand for real gold and silver and channeling it into unbacked or fractionally-backed credits and futures, the central banks and their bullion bank counterparts have done an amazing job in creating an entire market structure of futures and synthetics trading that is unconnected to the physical gold and silver markets. This structure siphons off demand away from the physical precious metals markets, and in doing so, creates a system of price discovery which has nothing to do with physical gold and silver supply and demand.

Silver Price Suppression

Another contributor to the suppression of the paper price for gold and silver is the government manipulation of inflation figures. Using ShadowStats Alternate CPI, the real inflation-adjusted All-Time-High for silver is $ 966.77. Yes, nearly $1,000! After this post on the real inflation-adjusted ATH for silver, many followers of WSB have referred to US$ 1,000 as the price target for silver.

It’s important for banks, central banks and governments to ensure that precious metals’ prices remain subdued. This is so because precious metals still indirectly backstops the whole monetary system. If the price of gold and silver were to skyrocket, it would expose that the emperor has no clothes, i.e. that fiat currency is intrinsically worthless.

Central banks and governments have employed a two pronged approach, where on one hand, the money supply is increased via Quantitative Easing to prop up bank and vested interests while on the other hand, the paper price of gold and silver is suppressed.

Paper Silver Price vs. Physical Silver Price

Silver price discovery, which is how the price of silver is established by the market, is akin to a game of charades. Price discovery is based on paper silver spot trading in London and paper silver futures trading in New York. The whole charade is based on the premise of little to no real physical silver ever changing hands. If holders of paper silver were to demand delivery of physical silver, supply would quickly run out, which is exactly what is happening right now. 

Historically, however, almost all paper silver transactions have been digitally cash settled without anyone ever seeing any silver.

As there is no central market place for the trading of physical silver, the price for physical silver has been inherited from the spot and futures paper markets with an added premium covering the costs for refining, minting, shipping, storage, insurance and retail. With the developments over the last few days of investors shifting away from paper silver and taking delivery of physical silver, the whole .....

To read this fascenating and informative article in FX Street in its entirety, click here.

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