Silver Will Skyrocket When The Leasing Scam is Revealed

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When you think about silver prices, you probably do not realize that there is a manipulation that goes on every day that has held them artificially low. This phenomenon is called the silver leasing scam. After years of turning a blind eye to it, the Commodities and Futures Trading Commission has finally opened an exhaustive investigation into the practice.

The effects of this investigation are wide ranging and could dramatically impact the market prices for silver in the near to medium term future. In the paragraphs that follow, you will learn what is involved with silver leasing, who is behind the unethical practice, and how it will cause the prices to skyrocket when the scam is banned.

What is the Purpose of Leasing Silver?

The first question that should come to your mind is why would someone want to lease out their silver in the first place? The mega banks hold enormous inventories of silver and gold to back up their financial institutions and reassure depositors and customers that they are stable. These precious metals preserve the long term wealth of the bank quite well. The problem that these bullion banks have with their large holdings is that they do not generate any wealth when they sit in the vaults and collect dust.

Greed entered the picture as the big bullion banks looked for a way to earn some revenue from these silver and gold holdings. They did not want to actually sell their precious silver stockpiles, but only to find a way to earn income on them while they are on the balance sheet. The answer to this dilemma that the bullion banks faced was to lease out the metals. If they could just find some smaller banks to loan the metals to at the rate of one to two percent of the actual silver metal value each year, then they would be able to realize revenues and profits while they still maintained a legal ownership of the precious metals.

How Can Silver be Leased?

It is easy to see how the major banks were able to lease out their silver, once they found willing customers. They would simply sign a contract for a period of time and interest rate. Then they would deliver the physical silver to a customer with the understanding that they did not have to receive the exact same silver back. This is what makes silver leasing possible. So long as they get the exact weight of silver bars back at the end of their lease, the major institution that owns the silver is perfectly happy.

The willing customers that the mega banks found to lease their silver to turned out to be smaller banks that also had an idea to make money from the silver lease. These small banks were willing to pay a one to two percent fee for the use of the precious metals because they would turn around and sell this silver on the open market. They could then take the money that they received and invest it into stable assets with a higher yield of three to four percent, such as Treasuries or other safe investments. This gave them the income to pay their lease fees and still make a percent or two for themselves.

How Does this Silver Leasing Affect the Price Right Now?

The main problem with silver leasing is that it creates a false scenario in the market. Most banks that do these leases never intend to return the metal. They just keep rolling their lease contracts over with the large bullion banks.

Since the small banks that lease the silver from the silver owning banks turn around and sell the metal without any plans to re-purchase and return it, it makes it look like there is far more silver on the world market than there really is. The additional supply that has been sold does not really exist, since it has been borrowed. Although the supply is a lie and unreal, the depressing effect that it has on the prices is very real. An appearance of too much supply serves to keep the prices of silver artificially low.

Who is Behind the Leasing Scam?

By this point, you probably wonder who could be involved in such unscrupulous activity as to loan out silver that they never intend to repatriate while they still show it on their balance sheet as inventory on hand. The Commodities and Futures Trading Commission’s ongoing investigation has helped to make it possible to name culprits and point fingers of blame. JP Morgan is considered to be one of the worst offenders for leasing out silver, but it is not alone. Goldman Sachs, HSBC, AIG, and the Bank of Nova Scotia are others whose names are on the list of habitual offenders.

What Will Happen When this Scam is Finally Fully Exposed or Even Restricted or Forbidden?

Since an investigation is already underway, the silver leasing scam is currently in the process of being exposed. You can see what has happened to silver prices in the meanwhile. They have rocketed up from under $20 per ounce to over $35 per ounce on simple conjecture that this practice will be broken up.

The longer term ramifications of the end of the silver lease practice are far greater than this. Should the point come where the activity is declared illegal and broken up, the banks that borrowed the silver do not have it and will not be able to return it. This is especially a problem because there is so little inventory of physical silver available for them to buy and return. In fact, there is an insufficient quantity of silver above ground for them to make good on their borrowed silver commitments.

To put it in perspective, an entire two years of silver production has been loaned out and sold for such industrial applications as medical products, electrical and computer goods, solar panels, military hardware, photography, and literally thousands of other applications. This silver has been used up and can not be recovered.

Meanwhile, there is not even an entire year’s worth of silver supply available above ground to be purchased. You can see that silver prices would have to go far higher in order for the borrowing banks to have any hope at all of returning their sliver lease metals. On top of this, it is easily possible that they simply would not be able to obtain this quantity of silver today at any price.

Besides potentially much higher silver prices and even silver shortages, there will likely be legal consequences when silver leasing is prohibited. There is already speculation that the firms from JP Morgan and Goldman Sachs to AIG and Bank of Nova Scotia that have engaged in it will be held liable and charged enormous civil and regulatory penalties, since they will have been found guilty of silver manipulation that went on for over fifteen years. It is highly possible that the principals at these companies who made the decisions to lease out the silver illegally will also face criminal prosecution and even substantial time in prison.

Can you see silver prices going lower when the silver leasing scam is about to blown wide open?

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