The Silver Mining Cartel
The silence of the precious metals producers in the face of blatant, ongoing, illegal, and seemingly never ending price suppression has been deafening. How could the primary gold and silver producers sit by and watch as the price of their product is fixed by an illegal pricing mechanism?
But just when it seemed it couldn't be any darker, we got a glimpse of the dawn.
Last month Keith Neumeyer, the celebrated CEO of First Majestic, changed the game. He made a shocking and graceful statement that should cause shock waves to reverberate across the sector.
I've always assumed the following rationalizations for why the miners collectively remain silent while going out of business. Many of us have asked the question over the years.
Why have they sat by in silence all these years? Perhaps they are not traders. Maybe they get it? Those are the ones who view the COT's - the sole area that leaves a footprint for what really determines price.
Most traders accept it for what it is... rationalizing the decline with the rest of the spec commentary and thereby missing the point all together. They, like the specs themselves, are mainly concerned with the movement of price, that is, price performance - not actual price discovery.
Many technical traders make money despite themselves. They profit by price direction up or down. The pervasive belief is that despite evidence or conspiracy that may say otherwise, the market 'is what is' - and that is the "market".
Maybe the miners believe price determination arises somewhere more central than the COMEX? To truly understand price discovery would require digging through the Commitment of Traders data with a rare world view. Very few approach the Commitment of Traders reports through the prism of manipulation; Ted Butler being the prolific and consistent over the decades.
Very few have this skill, or the view toward that end. Clearly, not even the regulators themselves - as we've seen over the years and four 'investigations'.
Many traders use the data (but very few in any systematic way) under the premise that it's a scam. Adding to the murkiness, many who believe the price is directly managed will not look at the COT numbers for the fact that they are essentially government-generated.
Like all data reported by the government. Government reported numbers are suspect by definition. One finds it hard to envision primary silver mining company CEO's taking the time to trudge through the COT or Ted Butler's reports.
By definition, mining companies are operation intensive. It may seem obvious to us that the price of their product is declining, but valuations are complicated. They need access to and to employ financing, lines of credit.
Financial operations are huge parts of any operation, and the bigger the company, the larger the role.
Dependence on the credit and the hallowed halls of finance create "dis-incentive" to investigate price discovery formation that hinges on positions held by mining company masters of finance.
It is an unintended yet predictable consequence of a modern, high tech, service based economy. Therefore, it makes it easy to act if pockets are deep enough (illegally without upsetting enough observers, participants, investors, traders, users, or producers to matter much).
They may actually get the financing they need to stay alive - and most likely give up large portions of their future production as a result. This would benefit the very same cartels that control the price to begin with.
Everything flows from price discovery mech and yet very few make the effort to take a closer look. Lastly, because two thirds of world silver production is mined as a byproduct, silver prices are an afterthought, a cash account with very little leverage.
For a primary silver miner, it is a lonely effort required to investigate the truth of the matter. Therefore, First Majestic's Keith Neumeyer's urging his colleagues to hold back production was a pleasant and unexpected surprise.
A small shot across the bow, but a physical one nonetheless. A challenge to the confidence underlying the system. A well articulated portrait of the physical paper dichotomy from the largest 'primary' silver producer in the world.
He specifically mentioned the formation of silver cartel. Would a production cartel be large enough to take on the users? And how soon would revolving door regulators suddenly awaken?
That remains to be seen. Whether or not hope is merely fear gone badly is another story.
Perhaps the a few good weeks of rain will solve the drought issues. Likewise, perhaps a price rally to the upside will make it a moot point eventually.
But the Neumeyer's revelation was a welcome sign in these tired and broken markets.
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