turk on silver

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    From The Gold Eagle site.
    One Piece of the Puzzle

    James Turk

    © 2003 by The Freemarket Gold & Money Report

    For some time I have been bothered by the fact that silver has been even weaker than gold. In other words, since 1997, their ratio has been in an uptrend.

    Since 1997 gold has been outperforming silver, both in bull and bear markets. Their ratio rose during gold's decline to the 1999 low and the near-double bottom reached in 2001. And their ratio continued to climb during gold's bull market rise since then.

    I've tried to address this uptrend in the ratio a number of ways. Since last year I have speculated that Warren Buffett was switching out of silver into gold. I have also speculated in the past that silver remains depressed for other reasons, ranging from a weak economy to the rise of digital photography.

    However, none of these reasons have been completely satisfactory to me, particularly in view of one important and overriding fact - that governments have been managing the gold price. They have been keeping gold from reaching the much higher price level that would prevail if the gold market had been left free and unimpeded by government action since 1997.

    I think you can see where I'm going with this point, and the question it raises. If governments are keeping gold at an artificially low price, and silver has been underperforming gold since 1997, then are governments also keeping the silver price at an artificially low level?

    I did not think that governments were in fact managing the silver price. The US Treasury and the ESF, which based on my analysis are at the hub of gold's price management, don't own any silver. Nor do the European governments also involved in the gold price scheme. So despite the several reasons that I have in the past proposed to explain silver's underperformance to an artificially low gold price, none of them were satisfactory. In short, I didn't have a good answer. Until now that is.

    This past Friday I was reading Bill Murphy's commentary on his www.lemetropolecafe.com, which I consider must reading for anyone involved with the precious metals markets. The light bulb clicked-on when I read the following:

    "It is interesting to note the price of silver has taken off right after the US has made noises about the Chinese letting their currency rise. Greenspan has spoken of it publicly also.

    As soon as I read that, I realized immediately what was missing from my analysis of silver. To explain my point, let's go back a few years when Bill Clinton was still in the White House and Robert Rubin was Treasury Secretary. It was during their tenure that the manipulation of the gold price began.

    Let's assume during their strategy meetings before making the decision to intervene in the gold market, they wanted to make sure that everything was covered. In other words, it was only logical that they wanted the manipulation of gold to look completely natural. That way they could profess that gold was falling because it was out-of-favor, not because of government manipulation.

    So let's say that during their planning someone raised a question about gold and it's close relationship to silver. How could they keep silver under control along with the gold price, even though they didn't have the silver they would need to manage its price? It is a logical question to have asked.

    Think about the implications of this question for a moment. While the feds were pounding on gold with the help of certain bullion banks, they also needed someone to pound on silver. What would it look like if silver were soaring to its natural free-market price while gold was dead in the water? It would smack of obvious manipulation of gold. So what to do? They needed to sit on silver at the same time they were sitting on gold, but how could the feds accomplish that objective without physical silver stocks in the Treasury or the Federal Reserve?

    To manipulate the silver price you need the same thing the gold cartel needs to manipulate the gold price - a big stock of physical metal. Therefore, the feds needed someone with big silver stocks, and the Chinese have (or at least had) the biggest in the world. So why not enlist the Chinese government in the precious metal manipulation scheme?

    Clearly, the Chinese were not going to participate out of the goodness of their heart. They would need a quid pro quo, and it is easy to see now what that would be. Let the renminbi remain linked to the US dollar even though the renminbi was and is undervalued, the result of which has enabled China to accumulate huge US dollar reserves. They have indeed built up their US dollar reserves - nearly $300 billion worth, more than half of which has been accumulated since 1997.

    Recent remarks coming from various Chinese government officials support my conclusion. They have been announcing the weight of silver exports coming from China, but so far, they have exported more words than metal. Is their stock of metal largely depleted, or has it dropped as far as the Chinese feel comfortable? Also, has the precious metal manipulation gone on longer than the Chinese expected, or were told to expect? Or as Bill Murphy asks above, could the sudden rise in the price of silver be China's response to unwanted jawboning coming from the US about their currency?

    At the moment, we have more questions than answers. But the market is beginning to tell a story. Last week's jump in both metals suggests to me that the ESF, the US Treasury, and those bullion banks that helped them pull off their precious metal price manipulation scheme are about to have their 'head handed to them'. Their price manipulation is about to unravel, like it inevitably had to do - no government or even a group of governments acting together are big enough to manipulate the free-market forever. The gold cabal is about to realize that truth as both gold and silver soar over the next 6-8 months.

    There is one last point I would like to make about the Chinese. I've noted this point before, but it bears repeating in view of my new observations above.

    In 1977 China began reporting to the IMF its gold reserves. That number remained essentially unchanged at 408 tonnes, despite the fact that since the mid-1990's it was well recognized and understood by dealers and others within the gold community that China had been accumulating more gold and held over 1,000 tonnes. Then in Nov 2002 China reported adding 109 tonnes and a further 103 tonnes one year later.

    So why the change in reporting? Why announce to the world the increase in its gold reserves? I think it's a message to the ESF and the US Treasury. It's a statement by the Chinese that there are limits on how long it is willing to participate in the manipulation of the precious metals markets. And I think it's a sign that the manipulation of the precious metals is near its end.

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