The dollar, gold, silver, debt and manipulation.

 ARE DOLLARS BEING USED TO BUY METALS WORLDWIDE?

IS IT THE END OF MANIPULATED MARKETS?

In recent weeks we have seen extraordinary rise in the price of gold and now silver. Gold has risen to the  all time high of over $2700 and silver has gone to $34. It is becoming clear that many foreign countries and their banks are exchanging their holdings of U.S. dollars and treasury bonds for gold and silver. This could be a response to the increasing debt of the U.S. government. Remember that these metals are sold for different prices in other currencies, depending on the currency exchange rate.

Consider this, If you were not an American and you had a choice of doing business in dollars or Chinese currency which would give you a larger choice of items that you could afford to buy, goods produced in the U.S. or goods produced in China. While this may be one example, this could apply to many other countries.

Most countries have a trade deficit in their dealings with the U.S., meaning that they sell more goods to the U.S. than they buy. So, either they need to buy products made in the U.S., buy U.S. stocks, which many are doing, invest in U.S. debt or liquidate the dollars and buy a strong store of value. It seems that increasingly both individuals and central banks are choosing to put their money into precious metals.

For many years there have been accusations that the commodities markets are manipulated by primarily U.S. major banks, possibly in cooperation with the U.S. government. The reality is that there often are more paper contracts being sold in gold and silver than metal that is in existence. This is in the futures contracts that are often in the short market and some wonder if physical possession ever takes place. The price of these commodities is mostly set by these contracts.

In recent years there is now the Shanghai commodities market and a soon to come Moscow commodities market. The Shanghai market is becoming the biggest market and is surpassing the Comex. The vast amount of these sales are being consummated with the taking of physical possession.  In the U.S. there are claims that a full year of silver production is being shorted in the commodities market. Most of this is held by 5 major banks and if they lose their  ability to control this market they will be forced to cover all their short positions with major losses.

Historically, the ratio of the gold to silver price has been between 10 and 16. This is consistent for over 4000 years. The ratio for U.S. money was 15 to 1, until we scraped the standard and just printed as much money as we wanted. Today the current ratio is 80 to 1. Is the historical ratio now irrelevant? Is gold vastly overpriced or silver underpriced? With gold at $2700, at 15 to 1 silver would make  $180 an ounce, or if gold is overpriced $510 gold.  I suspect that $510 gold will not be seen in the near future, but I will not speculate at what the honest price will be. The cost of mining these metals is very expensive, there is floor below which no metal will come on the market.

Silver is used in more ways today than in the past and we may soon see a more honest and relevant price for these metals on the world market.