By FXEmpire.com
As many of our reader realize in April, we started tracking silver and started providing daily fundamental analysis, charts and recommendations.
When we start proving analysis on a new asset, be it a stock, commodities or currency it takes a while to get a complete grasp of the picture and the feel of the market.
Silver, also known as the devils metal, follows often in the footsteps of gold, and most of the data and information, can only be found in articles and news written on gold where is silver is a side item or a page filler.
It was not until recently that I started to inquire about silver and wondered why futures prices for silver seem so low when demand for the physical metal continues to increase in the face of an ever dwindling supply of the precious and industrial metallic commodity. More so, just common sense will tell an observed that demand in the jewelry market and fashion industry, has to be climbing as gold has become over priced during a time of economic hardship.
The basic economic model of price determination by supply and demand factors would seem to indicate a considerably higher equilibrium price for silver than what markets are asking.
When we discuss buyers, there is a difference between, retail purchasers, industrial users and speculators or investors. Retail consumers would like to see silver remain in the 30.00/oz range where it is affordable, industrial users, would like to see the price remain low, so their expenses can remain reasonable. Miners, of course would like to see the prices climb which would make them more profitable, but it is the silver speculators, the investors who conclude that the silver futures market is simply being manipulated by those with a compelling interest in seeing the price of silver at unrealistically low levels, perhaps so that they can more easily purchase the physical metal themselves. Seems to be sometimes they are just happily on the opposite side of the coin (the most recent example is when crude oil was just the opposite, huge supplies, reduced demands and high prices)
According to the basic supply and demand model of price determination, the price per unit of a commodity will fluctuate until it stabilizes at the level where the amount demanded at that price is equal to the amount supplied at that price. The result is an equilibrium state in terms of price and quantity. In other words where buyer s and sellers can agree.
The traditional relationship between supply and demand is often depicted by a graph plotting quantity on the x-axis against price on the y-axis for both the inclining supply curve and the declining demand curve. This is the basic text book explanation we all learned in school, except once you introduce speculators into the market place, this relationship changes and so do the curves.
Overtime many investors have reasoned that the silver market is indeed being secretly manipulated by the use of paper futures contracts to keep physical metal prices artificially low, then the market may well be a ready to snap and propel silver prices upward.
The thing about silver is it is a small market that is controlled by several large buyers, which is true, but there doesn’t seem to be a conspiracy to hold prices down, there might be a need or reason that prices stay down, perhaps, at a certain price, the demand will fall and therefore will not support price increases.
If metal futures exchange rules were changed so that all silver futures contracts were required to be settled in physical metal, rather than just having physical delivery be at the option of the future contract’s seller, then any manipulation of the silver market by those excessively rich in printable paper currency would very likely have to stop. This option would then have to be consistent throughout the entire market and this would push the speculators out of all commodities markets, but price speculator is important to a market and speculators are necessary.
The way I see it, the price is at a point where buyers and sellers can agree. If the only buyers are the users and the consumers, and the only sellers were the producers and miners, then who is complaining. It seems that price manipulation is usually done by speculators.
Originally posted here
