No one is surprised anymore when they hear that another big bank has been manipulating markets. It feels like every other week there is a $100 million settlement with the Forex market. The precious metals markets are no different. Recently, an ex-UBS employee was arrested for spoofing the gold markets. UBS was of course immune from the trial because of a deal they worked out during the LIBOR scandal. Google any big-name bank and put silver manipulation behind it and you’ll find multiple results for settlements because of unfair practices. We know they are doing it, but most people do not know how much it affects their investment.
The Supply and Demand Facts About Silver
The Silver Institute is a major source of information on supply and demand needs for silver. After 2012, the supply and demand for silver fundamentally broke. Silver hit its all-time high in 2011 – with an average price of $35.12 per oz. In 2012, the world mined a bit more silver and a little less was used in most industries. 2013 showed us just how much banks do not want people investing into this metal. The world mined 823.7 million ounces, almost every sector that the metal is used in increased in demand. In 2013, the demand for silver outpaced the demand in 2011, which was the highest silver has ever been and what happens? Silver plummets in price going from $31.15 to $23.79 an ounce.
How does this make sense? The first law of economics we are taught in elementary school is that if demand outweighs supply than the price of a good should go up in value. This has broken the laws of economics. It is comparable to dropping an apple and expecting to hit the ground but watching it go to outer space. How can the world deficits increase by 50 million ounces between 2012 and 2013, and the price drops by $8? In the following years the same pattern continues. Similar or increased world demand and the price plummets to $13.70.
Why the Banks Don’t Want Us to Invest in Physical Precious Metals
It comes down to control. Every cent that an investor puts into physical metals is a cent that is not going into the banks. When money is in their banks, it is being traded through their systems. If you want to buy a stock. There is a fee for that. Sell a stock, usually there is a fee for that. The list of ways bank fee you are getting extensive. Overdraft fees to bank wire fees, it seems these days there is a fee for everything.
The masses are incredibly sheeple minded. We have been taught to buy low and sell high but the fear of missing out is a strong emotion. Back in 2005-2006, everyone had a hand in real estate. Some people were making a killing on rentals while some were flipping houses faster than McDonald’s can flip burgers. The amount of money coming into investors hands were staggering. This also pushed the market into a bubble territory. It didn’t help that banks were still lending at incredible rates so new and uneducated investors could now get a piece of the profits. In 2008, the real-estate bubble burst and many Americans lost their homes and retirements. This is the effect of bubble markets.
The banks cannot allow the physical metals markets to grow in value. If they allow the gold and silver markets to boom then the masses will run to that market just like they did in real estate. Some will purchase ETFs and the banks will continue to control investors’ money, but some will buy physical metals. Once the cash is in a physical product, there are no continued fees that can be charge. There is big money in everything from ATM fees to wire transfer fees, but the real money comes from managed mutual funds.
The Money-Making Power of Mutual Funds
Forbes wrote an article revealing the actual cost of owning a mutual funds. To sum up the report, the average mutual fund owner is paying 1.19% in disclosed costs and 1.44% in hidden costs. This doesn’t even touch that stocks in mutual funds can be traded everyday causing the investors to pay short term capital gains tax on anything that makes profit. These fees are yearly and as your money grows so does the compounding effects of the fees.
To put the power of fees into perspective, let’s say you had $100,000 in a mutual fund charging you 2.6% a year in fees for 25 years with an average return of investment at 8%. At the end of the 25 years, you will have $354,460, but you will have paid $137,620 in fees. Had you paid no fees at all your balance would be at $684,848. No wonder banks don’t want your money to leave their hands.
The banks aren’t going to stop. At this point, it seems like getting caught influencing these markets and getting slapped with settlements is just the cost of doing business. Actively suppressing the silver markets increases the bottom line for all banks and it is here to stay until we see another major market collapse.
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