Guest Post: David Morgan On Silver Price Manipulation, Delivery Default & Supply Shortage Risks

Tyler Durden's picture

Submitted by Chris Martenson

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

“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. 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 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 current appreciated. At that point, the price will go much, much higher.

Click here 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 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 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—till 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 the market a 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 is a lot of buyers that want to buy it. Conversely, if there is 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 the 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 a $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.

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XenoFrog's picture

Your authority is not recognized behind the silver walls of Fort Kickass

disabledvet's picture

Is it the surfer or his board that you're into?
if you say "it's the music" that's okay, too.

bankrupt JPM buy silver's picture

Listening to Morgan is like listening to Batman.  Great call on silver going to $20.

Careless Whisper's picture

the latest member of the silver liberation army calls for people to CRASH JP MORGAN - BUY SILVER

Music courtesy of Mister Gene Pitney; Lyrics courtesy of Mister Greg Diablo



DoChenRollingBearing's picture

I really, really need a silver expert / silver bull to write a "Guest Post" at my blog.  I erally do not know silver well at all, and I have seen some here at ZH who DO know silver (fundamentals, etc.).

Anyone who is interested in writing an article ("The Case For Silver" or whatever) please send me an gmail at my name above.  Same if you want my blog link.

HungrySeagull's picture

I am not an expert. I managed to buy some PM at the top and learned from that and bought some at the dip. Now I am sitting waiting for a certain price and that will take a while. I am a patient man.

Probably that is why I love Silver and Gold, the prices move slowly and you can actually see it coming sometimes.


Always buy low and sell high.

Now with that said, I think our Nation thanks to Harry Reid in our Senate who wills it to have the cap, cut and balance bill go away tomorrow morning. If that happens we default.

thepsilocircus's picture

I like to think of silver as a store of purchasing power that has the possibility (what percentage chance I doubt anyone can predict with too much certainty) of greatly increasing in value- not value in terms of number of dollars but in terms of amount of goods that can be purchased.


Basically exactly how I see gold, which is probably not the correct way to be approaching silver.


Some insight would be nice =).

DavosSherman's picture

With 110 trillion of unfunded liabilities hiding -- a la Enron --- in OFF balance sheet debt ---- hearing Comex default and manipulation is a real shocker.

As always, Chris does and excellent job and David Morgan who has been on FSN is a good listen. 

FMOTL's picture

of course ,what else?

caerus's picture

holy shit a silver price manipulation thread?  maybe i should put down my whiskey...

DavidPierre's picture

For those that still have a shred of confidence in the integrity of our markets, it is worth pointing out that each time a new level of fraud is reported the damage has always been done.
No one ever steps in and catches the crooks in the act before the big losses rattle the market. Think back to the big scandals of the last few years. Enron is one obvious candidate. The Madoff ponzi scheme. The subprime fiasco. One could even go all the way back to the S&L crisis.
In each case the criminals achieved huge profits and there were plenty of red flags but no one had the will to step in and halt the fraud before the billions in dollars in losses were long gone. The regulators always insisted 'nobody could have seen this coming...'
And note how with each new outrage, the amount of money that is stolen just gets bigger, but the number of people thrown in the slammer are fewer. When you have inept enforcement it encourages corrupt people to pull a fast one.
The message here is that crime pays.

This is why the obvious daily manipulation of the metals has become more intense in recent months. It is clear that no one has any intention of putting a stop to it. And it is immensely profitable for the crooks that are throwing the market. On monday someone dumped 50,000 silver contracts in one minute. The silver spot market plunged by over $1 during that session. Whomever was responsible likely covered the position at enormous profits.

Bang your head against the wall arguing with apologists that claim there is no manipulation in the silver pits. Even these pinheads must be squirming a bit today if they review the trading data. There is no room for any other interpretation except a blatant abuse of free market trading that should have immediately drawn a response from the regulators. And yet not a peep has come from this. For anyone that was stopped out of a position during that carpet bombing, do not seek resolution from those entrusted to enforce the rules. You are on your own...

And so when this silver scam eventually breaks down and the losses start piling up, as usual we will hear the lies and nonsense that no one could have seen this coming.
Its all bullshit!
The evidence is right there in the market data exactly what is going on in real time. What is most disgusting about this entire sham is that when the last ounce of silver is long gone from the Comex, the manipulation collapses, and the shortage is driving prices to scary highs for silver, it will all be blamed on the greedy specs that have hoarded silver and caused the crisis.

There is a great scene in the movie Casino, after a big fraud goes down, and the security staff failed to prevent it. The boss states: "Either you were too stupid to stop it, or you were in on the scam." That pretty much sums up the CFTC.

Manzilla's picture

Boy what a genius comment. Care to share something else every one already knows?

Pladizow's picture

Dont know your background but:

1. as you have only been on ZH for 13 weeks and

2. based on your questions below that I offered info on....

Your statement above is unwarrented!


MsCreant's picture

You really are a "nice" pair of tits. I'd of told him to FUCK OFF!

chumbawamba's picture

Ok, that was fucking clever.  I quietly LOLed.

- Chumblez.

Misstrial's picture

Ecclesiastes 8:11 KJV

"Because sentence against an evil work is not executed speedily, therefore the heart of the sons of men is fully set in them to do evil."


francis_sawyer's picture

Ms. Creant is right...

& if your tits hadn't been so nice, I might have challenged you to a spelling contest...

Now... a dude who uses 'hypothecated' in a sentence (& spells it correctly)... Now THAT's a daisy!

SilverIsKing's picture

Please tell us something that no one else knows.

XenoFrog's picture

I like you and would like to subscribe to your newsletter.

r101958's picture

These frauds are ongoing though.

PulauHantu29's picture

So why don't the commodity gurus pass a law that contract holders must take actual delivery? Wouldn't that stop the hanky panky?

HungrySeagull's picture

Suppose they did that and became law within the hour.

Contracts by the pile will be closed down because insufficient silver.

Price will fall. And will result in PM Buyers like me demanding EVEN MORE Delivery cash paid right fucking now.

Back up the price goes and going and gone.

SilverIsKing's picture

Paper price down, physical price up.

HK's picture

Like a number of commenters here, I hold physical and never plan on selling, the kids and grandkids get it.  However, I do buy the miners occasionally and I thought this might be appropriate as the similarities between 2008 and now are eerie.  Again, it may or may not be different this time around, but with the manipulation, the wash, rinse, repeat mantra comes to mind:


SilverIsKing's picture

I read profitimes too and saw those charts. The similarities are indeed eerie but the circumstances are very different. Regardless, it's worth keeping an eye on.

Raymond Reason's picture

Pulau...regulations and laws aren't going to stop the hanky panky.  What will stop it is a default.  Because the market will then recognize that selling futures on margin does not discover price.  I've made this analogy before...

Real estate appraisers do not use deposits as comparables.  (Banks and State Govts do not accept it).   Deposits are not sales.  Margin is a deposit. 

IMO there will come a day when the market will recognize what a sale is, and what it is not.  And it won't make any difference what the rules are.     

Rodent Freikorps's picture

That sounds kinda crooked.

Manzilla's picture

"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."

Is there actual physical proof of this? I'm curious to see if this is really the case or just some talking point that people are pushing. I'd like to see it if anyone can provide it. An interesting and possibly deadly situation.

Pladizow's picture

Adrian Douglas of Market Force Analysis has put out some of the best work on this - his papers are available on ZH.

Also research Ted Butler and listen to King World News Interviews.

I'm sure other ZH's can recomend several other sources.

firefighter302's picture

Read the 10 year silver and gold charts and compared to the other asset classes.

Has anything changed to improve the debt and currancy problems? (no, they are worse.)

Investing in metals is increasing around the globe.

Proves it in my mind and for me.

Help Is Not Coming's picture

Go and get the prospectus for SLV and sit down and read all 48 pages. All of what you are buying and what they can do is buried in there. They're not going to trade it, lease it multiple times unless is says they can in the prospectus.

I also find it curious that the share price which is supposed to reflect the price of silver has a discount to the melt value of silver instead of a premium to the melt value. Accounting, Storage Vaults and guards cost money in addition to the actual metal. The cost of the share should be MORE than the cost of the melt value of silver. That simple fact should tell you that something is wrong with SLV.

caerus's picture

The word "manipulation" has come to have an ugly sound, It needs an alias.

- Jesse Livermore Reminiscences of a Stock Operator

BrianOFlanagan's picture

Is there not a single person in the silver bug community that understands a lease arrangement?  Just curious, anyone?

BrianOFlanagan's picture

If I lease silver to you and you sell it, I have no claim against whoever bought the silver.  My only claim is against you.  In a lease, the title is passed to the borrower (lessee) and if he sells it, it passes to whoever buys it.  The buyer (SLV in this case) does not care whatsoever whether the silver they bought was leased 10x or 100x over.  They own it free and clear.


Global Hunter's picture

in your example if SLV is free and clear what happens to the first 9x or 99x who thought they owned it?

BrianOFlanagan's picture

if their lessee's are unable to source any silver somewhere else to cover the lease, their only recourse is the cash collateral the lessee put up plus damages.  But as far as getting metal, if the lessee can't deliver, they are out of luck.

Bay of Pigs's picture

LOL. Damages? Yeah, no shit. No problem there with lawsuits or anything like that.

Thanks for making the case of possible massive and pervasive fraud though.

BrianOFlanagan's picture

if you lease your silver - you are taking risk.  If your lessee fails to deliver, that is a default.  There could be massive and pervasive defaults, but there is no fraud whatsover with those arrangements. 

CD's picture

The entering into a contract with full foreknowledge and intent to default WOULD be fraud, but difficult to prove. However, the massive, concentrated, systematic and coordinated nature of said activity to with intent to manipulate regulated markets is what makes it especially repellant.

Difficult to prove or prosecute in a court or before a regulatory body? Perhaps, especially as the participants own said tribunals. If you don't mind my asking, WTF is your point? That you are indeed fully aware of the the fundamentally immoral, corruptive and unfair nature of these practices, but since the participants are above the law that makes it OK? As a member and practitioner of this wonderfully profitable and multi-purpose group, you are superior to us peons who are convinced that this is NOT THEIR (NOR YOUR) RIGHT?

Bravo, point well made sir. So as long as you wear a ski mask, gloves and a condom, you are perfectly within your rights to taser a passerby in the dark, drag them into an alley, rape, rob and murder them -- because prosecution is all but impossible, right?

LoneStarHog's picture

Well...let's take the very real scenario where the one leasing the silver to the SLV is the CUSTODIAN of the SLV...and...the leased silver is encumbered 100:1...and...SLV does not actually receive the PHYSICAL silver, but merely a lease agreement...and...the physical leased silver is used to satisfy physical delivery on a CRIMEX contract...and...GET THE PICTURE?

BrianOFlanagan's picture

SLV does not borrow silver.  If they did, you would see a lease liability on their balance sheet.  This only liability I see on their balance sheet is for sponser fees payable (a very small number).

Bay of Pigs's picture

You take the Banksters at their word, although it's a fact they lie, cheat and misrepresent many things. It pretty much explains why you think everything is on the up and up in the silver market.

Leasing isn't the problem. Fraud and manipulation is. But you are correct that many, many people will be SOL on their silver holdings.


Urban Redneck's picture

Look at the process of how "silver" enters and leaves SLV, it doesn't prevent leased silver from being used by authorized participants(?) to create baskets.  The issue is on whose balance sheet the liability lies.  If anyone has a competing claim on bars of silver "belonging" to SLV and things go south and SLV winds up in court- then will be NO silver in SLV- as it will ALL be encumbered by the courts and arbitrators in London while they try to sort out who owns what, and whose claims are superior and inferior.  Several years later, owners of SLV shares would receive a fractional fiat payment based on the value of the determined actual and unencumbered SLV assets at the time the shit hit the fan.  Shareholders of SLV have no claim on the underlying assets "silver bars" of the investment vehicle.  Unless a shareholder has a TBTF membership card to Dr. Berankenstein Bailout Club, or a gun to the head of certain executives of the TBTF club involved with the operation of SLV, then the shareholder goes to the back of the line, and receives the scraps.  The prospectus is too long, has too many loopholes, too many conflicts of interest among the parties, and a painfully contorted definition of "silver" itself.  A prospectus is a legal document, and a shareholder is responsible for reading and understanding the consequences of that document, regardless of whether they actually do.  The last time I read it was probably three years ago, and based on what I read- I wouldn't use SLV as even a proxy for silver for leveraged day-trading purposes with monopoly money, because that shit hitting the fan would not be a black swan event.