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    David Morgan on Silver Price Manipulation, Delivery Default & Supply Shortage Risks

    by Adam Taggart

    Thursday, July 21, 2011, 2:05 AM

“I have little doubt that most of the silver that is on the SLV’s web site with a bar number is there somewhere. But what I am really concerned about is if it is hypothecated or not, meaning is there more than one owner on that same bar. And I can almost guarantee that there are multiple owners for almost every bar that they report. It does not mean that that bar does not exist.

It takes ten contracts to be a market maker.* (*See retraction and clarification in the comments below.) So I have got ten contracts, I have got fifty thousand ounces, and I ship it to my buddy who is a hedge fund manager over in Idaho. That is my silver. I have just sent it over to him on a lease. I have leased it to him. Now he has taken that silver and he has swapped it with somebody at the SLV, so they have got bars there. And he swapped for those and now those are on the exchange showing as part of the deal. So you can have a lease and a swap, so you could have two or three claims on those same bars. And that happens over and over again.

So the reason I used “purportedly” is that is the correct word. There are very few bars that are actually one-to-one correspondence that are sitting on the SLV and that is their only purpose. That is not the way banks operate. That is not the way the whole system operates. So I am not against the SLV, but I also state very clearly that if you follow what I teach, you would not want that to be considered a primary silver investment. That is a paper investment. That is not silver. That is paper. It only settles in paper. People ask whether I think there is going to be a default on the SLV. I say, how could there be? I mean, read the prospectus, they settle in cash. Think they have any trouble printing that stuff up? I haven't seen any problem with that lately.”

So cautions David Morgan, publisher of The Morgan Report on precious metals and proprietor of Silver-Investor.com. More so than perhaps any other, the silver market has been loudly and visibly accused of rampant price manipulation. And more recently, suspicion is growing that the exchanges and ETFs dedicated to trading the metal do not hold sufficient volume of it to meet their obligations. Is the silver market free and fair? Chris delves deeply into these important questions with one of the best-known silver experts.

In this interview, David explains why:

  • The silver market is definitely manipulated, though likely not as rampantly as some believe. And despite this manipulation, he believes the overall upward trend in silver (and gold) cannot be suppressed in the long run.
  • Holding physical bullion as a core part of one's precious metal portfolio is absolutely critical. Many of the bars pledged to tradable securities (ETFs, futures, etc) are assigned to multiple owners – meaning there is much less actual bullion underlying these securities than the market thinks. 
  • Why his long-term outlook for silver is so bullish. Annual industrial demand for silver continues to outstrip supply from new mining, while increasing investment demand for silver as a monetary vehicle only takes more tonnage out of the market. At some point, the market will wake up to the fact that silver is in much shorter supply than currently appreciated. At that point, the price will go much, much higher.

Click the play button below to listen to Chris' interview with David Morgan (runtime 35m:58s):

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Or start reading the transcript below:

Chris Martenson: I am really pleased to have you here today and very interested in your views on silver, of course, naturally for you. The first thing I would like to start with, there is a lot of talk out on the Internet, on my blog and at other blogs, where people are wondering what is going on with the silver market. Is it a fair and free market? I guess this could be asked about the larger precious metals markets as well, and maybe the commodities markets, too, which people are concerned about. But with your experience and what you have seen – you have been looking at the silver market for a long time – tell me how you think the market currently is constructed and whether you think it is free and fair.

David Morgan: Okay, well, it is definitely not a free market in the true since of the word, and it is manipulated, but probably not at the level that a lot of people consider it to be manipulated. This question comes up fairly often. One of the more recent times it came up was in a very large public forum at the Silver Summit in 2009. The Silver Summit was actually a creation of mine, and [is] one of the mining guys in the Silver Valley that is fairly close to where I live in Spokane. The Silver Valley is in the Coeur d'Alene mining district in Idaho, and I am about an hour and a half from there. Anyway, we started Silver Summit several years ago, and it grows every year. And 2009 had a pretty good turnout. I am going to guess probably 800 to 1,000 people. And during one of the intermissions, Al Korelin, who has his own radio show, gathered us as the MC. Us meaning myself, Bill Murphy from GATA, Roger Wiegand, Trader Rog, and Jeff Christian from CPM Group, and I believe that was it, those four. It might have been one more – and if I am leaving someone out, forgive me, but… – and I wanted to get the debate going between manipulation and non-manipulation. 

So Murphy went first and gave the GATA position, and then Jeff Christian gave the CPM position and then it was my turn. And I said, well, I am in the middle, and I didn’t really plan to be in the middle, but you cannot manipulate the overall trend of a market. The free market forces that remain are large enough to take a market higher or lower depending upon what the real market forces are. The forces underlying the silver market are tremendously huge from two aspects, both industrial and monetary, and those forces have been showing from basically 2003 to present day. Where you can really make the case that the manipulation that exist certainly takes place – and I will explain that in a moment – but you can really say that [where] what is left of the free market really has an effect is from the advent of the ETFs in the silver market. If you look at what the silver price has done since April 2006 when the SLV was implemented – actually, before that, because there was some anticipation in the market –  'til present day, you will see a huge increase, not only in the amount of physical metal purportedly bought by these ETFs, but the overall trend of the market price-wise, of course.

I think it bears repeating that the overall trend in both gold and silver cannot be manipulated. All right, so what does that mean? Well, that means that what remains of the free market forces have influence, but within that main trend, the market is manipulated quite a bit. How often? I do not know. Daily? I doubt it. But I think there are some extreme cases. And I think it is good to look at the extreme cases, because if they can do it in an extreme way, they could probably do it the subtle way as well. So one of the extreme cases was brought out. And I think, again, GATA probably did one of the best jobs of this, because I think they filmed a lot of this, of one of the traders – I forget his name – but he talked about 25% of the world’s silver markets being sold at one mouse click. Now anyone that knows anything about how the market moves understands what he just said. All markets move based on buying or selling pressure. If there is more buying pressure, the price of whatever, the commodity or the stock or the automobile or the Rembrandt painting, it does not matter – whatever is being purchased will force the price higher because there are a lot of buyers that want to buy it. Conversely, if there are a lot of sellers selling something, the price will move down, be it a stock, be it a commodity, be it an abundance of Taurus automobiles. No one wants a Taurus anymore. There are lots of sales signs on them.

So that is how markets move. So if you have a huge supply on paper of silver and you say to the market, “I am selling 25% of the world’s supply now”, there is no way that that cannot do anything but manipulate the price downward in a huge, huge way. Because if you understand commodities, and most people that listen to these types of programs do, it is a zero-sum game. For every winner there is loser, and all orders have to match. And so that took the market down substantially, and that was brought out in the CFC hearing. Chris, if you might…well, you might have a question or two, but I also want to give another good example of how the market is manipulated.

Chris Martenson: Yeah. Oh, absolutely.

David Morgan: Let us take the floor trading. Now just to be very clear with everyone, the amount of floor trading that takes place in commodities these days is rather small relative to the amount of what they call “off-floor trading,” which really means electronic trading. I mean, the amount of computer trading that goes on in these markets is huge relative to what is still done on the floor. But nonetheless, this serves as a very good example of how the price of silver actually operates, pretty much from an objective perspective. And I want to emphasize the word “objective” because I have given this rendition, which is factual, many times, and it is always amusing to me the reactions I get. I did this, actually, for a bunch of Casey’s researchers at a mining trip I was in in Mexico. There were about six of them, myself counting as number seven. And – I am going to give this out – but three of them were convinced that proves without a doubt the market is manipulated, and the other three said, no, that is just how the market works.

So here it goes. And this really, really applied earlier on in the silver market. It still applies to some extent now, but the market has many more participants, as I said. The ETFs, more offshore participation, and India has always been there, but China… There is just a lot more interest in the market, so the market is more diverse, which is good for any market. But regardless, here is how it works. So, especially in the earlier days, you have, let us just say, two main parties. And this really is a good breakdown of it. I will give Ted Butler plenty of credit here – he has explained this many, many times. I do not know if he is explaining it the way I am going to. But he talks about the commercials or the banks, they are synonymous, and the trading funds.

So I am a trading fund and I am long silver, meaning I am buying. I am bullish, I think the price is going up. So I am in the silver market, I am buying, buying, buying. Well, there is buying pressure, and for every buy there has to be a sell, so the banks are selling, selling, selling, selling. So now, hypothetically, and you can look at a chart, but you can see the price when we broke out at $5.55. The price went up to $8.40. So there is all this buying pressure and the market moves up, up, up, and the price is up roughly $3 from the break out of $5.55. And now what happens is the trading funds have shot all their bullets. In other words, they have no more money available to them at all to put in the silver market. They bet $5.50 and $5.75 and $6 and $6.25 and $6.50, and they are buying all the way up. And the banks are selling to them all the way up. But now there is only – really, there are several ways, but I am just going to focus and keep it really simple. There is only one way for these trading funds – I hope I did not say banks – the trading funds buying all the way up, the banks selling all the way up. The trading funds have a huge profit on paper. The only way for the trading funds to get out of their position with a profit is to do what?

Chris Martenson: Sell the position.

Click here to read the rest of the transcript.


Note: Listeners interested in the conclusions expressed within this interview will also want to read Chris' recent report on The Screaming Fundamentals For Owning Gold And Silver, which takes a deep dive into the data behind the supply and demand imbalances in the bullion markets.


David Morgan is publisher of The Morgan Report on precious metals and proprietor of Silver-Investor.com. He is also the author of "Get the Skinny on Silver Investing"

David is a long-time expert on the precious metals markets and how they operate and actively consults for investors, hedge funds, mining companies, depositories, and bullion dealers.



Our series of podcast interviews with notable minds includes:

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  • Fri, Jul 22, 2011 - 10:52pm


    David Morgan

    Status: Member

    Joined: Jul 22 2011

    Posts: 0


    In the interview I made a mistatement:

    It takes ten contracts to be a market maker.

    It is required that I correct the fact that a "basket" is 50,000 ozs. of silver. This does not qualify anyone as a market maker.  I was thinking of the amount at a bare minimum a qualified market participant can transact in the SLV ETF. My apology to everyone for my error. 

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  • Fri, Jul 22, 2011 - 11:14pm


    Status: Silver Member

    Joined: Jun 27 2008

    Posts: 149

    David Morgan wrote: In the

    [quote=David Morgan]

    In the interview I made a mistatement:

    It takes ten contracts to be a market maker.

    It is required that I correct the fact that a "basket" is 50,000 ozs. of silver. This does not qualify anyone as a market maker.  I was thinking of the amount at a bare minimum a qualified market participant can transact in the SLV ETF. My apology to everyone for my error. 
    Thanks for letting us know.
    Don't be a stranger.  We would enjoy you joining in on our conversations here.  I'm glad to know you are a participant.  ... dons

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  • Sat, Jul 23, 2011 - 10:56pm



    Status: Member

    Joined: Jan 13 2011

    Posts: 19

    Only physical really moves the market

     As long as 50 people are happy with the 100 OZ they all think they own (when they buy paper silver and there is really only 100 oz held) then the price of silver (or any commodity) can be kept low. Only when we ask for possession will the true value be seen. This is true for all commodities and when paper markets collapse only those with physical will have anything of value. If there is a collapse of the dollar then poof...all paper assets cannot provide the owners with the 'stuff' they thought they owned. It will be 'a run on the real world'. It would make a run on the banks look mild.

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  • Sun, Jul 24, 2011 - 4:42am



    Status: Bronze Member

    Joined: Apr 30 2010

    Posts: 397

    "This is true for all

    "This is true for all commodities and when paper markets collapse only those with physical will have anything of value."

    That's an interesting topic that begs a few more questions, in terms of how to generate a profit. So if hypothetically I own a house today along with a few other minor real world assets, and no paper assets of any kind, then when the paper collapse happens, all else being equal, then I SHOULD have not made any profit or loss off the monetary collapse because I still own a house. If a house is tradeable for 500,000 tomatoes now, and it is also equal to 500,000 after the collapse, then it hasn't gone up in absolute value even though its dollar value will have skyrocketed.

    But I think some physical real assets will go up relative to other assets that you'd like to buy like tomatoes or gizmos, and others will go down. Suburban house prices will probably go down (inflation adjusted --- they will go down in terms of how many tomatoes they can be traded for), and we all know about the big housing bubble underway. Energy related real assets will likely go up. And I think gold and silver will also go up for obvious reasons, as all of the paper wealth of the world pours into any money-like asset it can find.

    And there are also the tax issues, specifically the inflation tax where the nominal value of something you own goes up in dollar terms, but this is all due to inflation, and the number of tomatoes it will buy stays the same. But technically it qualifies as a capital gain so you have to pay tax on it if you sell it to buy other things of value. This could also complicate matters, but then again under a hyperinflation scenario things would be in such shambles that these taxation issues may just disappear.

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  • Mon, Jul 25, 2011 - 3:00am



    Status: Member

    Joined: Jan 13 2011

    Posts: 19


     I believe that hyperinflation is already here. It simply has not been acknowledged yet. When all of the dollars and folks who hold assets that entitle them to dollars decide that now is the time to get out of paper and into 'stuff' then we see typical Weimar inflation. In view of the already staggering number of dollars (or equivalents) in existence it may just happen in a flash. One day a dollar buys one a hamburger, the next day no one wants your dollar. It took Germany 2 to 3 years to ramp up. Our hyperinflation will probably be quite different.

    And yes somethings will go up (relative to whatever we value things in at that point) and some other things less so. I suspect there is already a new currency ready in waiting (unless our politicos are as stupid as they pretend to be, which I do not think they are). That currency will get its value relative to gold. It will hold gold in reserve just like the Euro does. If the government wants its people to cooperate it will make the new currency readily exchangeable to gold. All printers of currencies will then have to behave or their paper will rapidly decrease in value and it will cost more to buy gold. This will make the holders of said currency unhappy and they will begin to hold other forms of wealth. 

    When this situation follows a hyperinflationary collapse of the dollar paper markets will never be trusted though. I doubt we will see nearly as many derivatives any time soon. Folks will want physical stuff, near at hand. Trust will not return until generational forgetfulness kicks in.

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  • Mon, Jul 25, 2011 - 5:44am



    Status: Member

    Joined: Jul 25 2011

    Posts: 0

    How about some Due Diligence?

    Hi guys.


    im a new registrant, but ive been a fan of mr. martenson for about a year now.  anyway, i listened to the morgan interview( i am a subscriber to his service) and i couldnt help but ask why doesnt anyone cross-check the numbers on these bars?  i mean if you are someone, or happened to know of someone who owns investment grade bars, you can check to see if your bar has been leased out to the slv etf.  if we get one person to prove this, this will crack open the fraud that is the SLV.

    If morgan is right, and the inventory at the SLV has numerous owners, we should do our due diligence and expose these guys. it will allow us to escape the manipulation and embark on a true price discovery for silver.


    here is the list of serial numbers for the bars on the SLV:


    (it takes a couple of minutes to download)

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