Releasing a second study in four years, the Commodities Futures Trading Commission (CFTC) denies that the major bullion houses are or have manipulated the price of silver. Basically, the CFTC study said that price of silver is not and has not been manipulated because the price of silver has risen substantially over the last few years.

The study found that “. . . silver cash and futures prices have risen dramatically between 2005 and 2007, with silver outperforming the gold, platinum and palladium markets, suggesting that silver future prices are not depressed relative to other metals prices.”

The study’s position is plausible. In early 2005, silver was trading below $10. In March this year, it topped $21. In 2003, silver was trading below $5. Still, in March 2008 it topped $21. So, how could there be a manipulation of the price of silver, the study asks.

Further, those that allege price manipulation also assert that the actions of the major bullion houses have depressed the price of silver. Here, the CFTC says that the facts simply prove otherwise, and the CFTC’s position seems reasonable.

I am not here going to enter the debate as to whether the large commercials (LCs) have manipulated or are manipulating the price of silver. Others have studied the situation extensively and readily make their opinions known.

What is will say is that in the end market forces will win out. When silver was $5, I believed that the large short positions in silver (and gold) depressed prices, but I was not concerned.

I firmly believed that in time market forces would win. The fundamentals were there for a bull market in silver. Actually, when silver was below $6, what I said was that the silver was a “gift,” thanks to the LCs large short positions. Now, investors at the $5 level have four fold price increases.

Now, regardless of what the LCs do, I believe that investing in silver would be a good move. Maybe the LCs, with their present large short positions, will see lower silver prices in the short-term, and therefore reap large profits, but in the long-run market forces will push the price of silver much higher.

GFMS Ltd., a metal consultancy headquartered in London, says that silver will climb back to $20 this year, primarily because of investor demand. The prediction came with the release of Silver Institute’s annual World Silver Survey, which GFMS compiles. GFMS, formerly known as Gold Fields Minerals Services, publishes the one of the two respected annual reviews of the silver market. CPM Group, New York City, produces the other.

GFMS bills itself as “the world’s foremost precious metals consultancy” and claims contacts around the world. GFMS also boasts of having “a research team of fifteen full-time analysts that comprises qualified and experienced economists and geologists; while two consultants contribute insights on important regional markets.” Because of GFMS’ standing among professionals, this prediction will receive much publicity and, perhaps, become self-fulfilling.

Based on my observations of market activity at CMIGS, silver back to $20 this year seems reasonable. Although sellers fed the market from about $8 up until silver topped $20 in March, few sellers are around now. Actually, selling dried up before silver hit $20, and with the drawback below $17 sellers have just about vacated the market.

Meanwhile, silver buyers, although many express optimism of $30 to $40 silver within a year or two, seem content to be long-term investors, expressing a willingness to hold for much longer that two or three years. Many silver buyers are new to precious metals investing, having been driven by concerns about the dollar, not because of silver fundamentals.

New buyers often talk of “passing something real” to their heirs. Silver purchased by such investors is said to be “in strong hands.” They are not likely to turn their silver for small, quick profits.

And, anyone with any knowledge at all of the financial state of affairs of the U.S. government knows that the causes of the problems with the dollar will not be solved anytime soon.

Further, silver is becoming a much more accepted investment than it was years ago. Many establishment firms no longer denigrate silver as they used to. When silver becomes a mainstream investment, the price could skyrocket.

Resourceinvestor.com published a review of World Silver Survey 2008. The Survey itself costs $225. Of further interest to investors, the Silver Institute has on its website a free summary of the 2007 Survey.

Reuters, a major financial data provider, has attempted a hatchet job on silver, a piece is so bad that should be ignored, but already I’ve seen copies of the release on two major online news sources. Undoubtedly, because of Reuters’ wide acceptance as a mainstream news provider, the piece has spread around the financial world.

Unfortunately, the article will have some damaging effect on the price of silver because it will keep investors who are not familiar with the true silver story from even taking a look at the metal.

The headline alone is damaging: Spotlight falls on silver’s poor fundamentals. And, sadly, many people will read only the headline and draw the inaccurate conclusion that silver’s fundamentals are poor. How ridiculous.

CPM Group just released its annual Silver Survey, one of the two major annual reviews of the silver market (The other being produced by GFMS Ltd.) Ironically, the mineweb.com reviewed the CPM survey today and only Monday carried the Reuters release. Consider silver’s demand side fundamentals as viewed by CPM Group.

* Total silver fabrication demand is projected to rise modestly by 2.2% to 740.2 million ounces in 2008.

* Demand for silver use in jewelry and silverware is projected to rise 4.6% to a total of 273.5 million ounces in 2008.

* Silver use for electronics and batteries is forecast to rise to 125.8 million in 2008, up 5.3% from current levels.

* Silver used for mirrors, brazing alloys, anti-bacterial medication, solders, biocides, and superconductors and other similar applications is expected to rise around 3% to 167.7 million ounces in 2008.

Take a look at the wide array of industries that use silver. Truly, silver has become essential to today’s way of life. No longer is photography the driving force behind the demand for silver. While photographic demand is down, other fields have picked up the slack. The mineweb.com review did not even comment on photographic demand, which is becoming less important.

Further, Tuesday the mineweb.com ran an article about Hong Kong University researchers who believe that silver may hold a solution to one of China’s worst health concerns, the spread of hepatitis B, which can cause liver cancer and liver failure. With increased regularity, research is showing silver’s value in the medical field.

What does Reuters see as “poor fundamentals” for silver? “From an industrial and jewellery point of view, there has clearly been a decline in demand.” Yet CPM Group says that “demand for silver use in jewelry and silverware is projected to rise 4.6% to a total of 273.5 million ounces in 2008.” So, where does Reuters get its information? Certainly not from CPM Group.

Further, consider this bad piece of analysis by Reuters:

“Silver is often a byproduct of other metals such as lead, zinc and copper, where miners are trying to ramp up production with some success. That means more silver on the market and together with scrap recycling, supplies are set to jump this year. . .”

Hasn’t Reuters heard of the increasing likelihood of a worldwide recession? If the world’s economies slacken, that will mean less demand for lead, zinc and copper, which will mean less silver hitting the market. How can a financial news provider miss discussing the possibility of a recession when reporting of demand for base metals?

Perhaps the article was a “plant,” with the aim of putting downward pressure on the price of silver? More on this theory later, but first a look at a ploy that was used to make silver’s fundamentals appear bad.

The article accurately reported that a decline in the dollar caused silver and gold to rise in price. That’s fundamental in itself. But, in mentioning gold, the article compared the production of silver to gold in a manner that could only have been designed to make silver look like a bad investment, or at least to make gold look better.

“More than 20,000 tonnes of silver were produced globally last year compared with around 2,500 tonnes of gold.” However, glaringly missing were some basic calculations. A ton of gold (a metric ton) contains 32,151 ounces of gold, which means that 2,500 tons would be 80,377,500 ounces of gold. At $880 gold, that would be a dollar value of $70.73 billion.

Now, do the calculations for silver. Twenty-thousand tons of silver would be 643,020,000 ounces. At $16.85 silver, that would be a dollar value of only $10.84 billion.

So, while the annual production of silver (in ounces) is eight times the production of gold, the annual dollar value of newly mined gold is 6.52 times that of silver. Obviously, it takes a lot less money to move the price of silver than it does gold, but Reuters failed to note that. Perhaps for a reason. Maybe the article was a plant with the aim of still lower silver prices.

The large commercials were short silver in a big way during silver’s run-up to $21. As silver prices fell over the last few weeks, the LCs reduced their short silver positions hugely. Perhaps, though, the big boys want still a little more on the downside before they take their short positions back to economic levels. Perhaps the big boys want to go long at more favorable prices.

Even if my theory is wrong and the article did not get planted, with the resources at Reuters’ disposal they should do a better of job of analyzing the silver market. As I write this, the thought keeps coming: Why would an otherwise respected news service such as Reuters release such a report? It certainly wasn’t to inform its clients.

As noted in today’s earlier post, the U.S. Mint is allocating Silver Eagles to its distributors. Also as noted in the post, I speculated that the Mint may find that it does not have to allocate because demand may be much lower than it was in March. Still, premiums were up as renewed trading in Silver Eagles began.

One distributor kicked premiums .55/coin; another increased premiums only .15/coin. The increase in premiums necessitates that CMIGS raise its premiums .15/coin on Silver Eagles. As long as we can get Silver Eagles at the lower premium, we will maintain the lower price increase. If premiums fall back to where they were before the Mint ceased production, CMIGS will lower its premiums.

The Mint did not raise costs to the distributors. However, the distributors raised premiums because they expect to sell out quickly. (The distributor that raised premiums .55/coin expects to sell his allotment today.) Indeed, if investors eagerly pay the jacked-up premiums, we may see two developments.

One, the distributors may decide to make their premium increases permanent. Two, the Mint may note what’s happening and increase its premium. (The Mint has increased premiums on Silver Eagles only once in about the last six years.) Either way, a lot of eager Silver Eagles buying this week may cause a permanent increase in the Silver Eagles’ premium.

Although today may see brisk trading in Silver Eagles, I still believe there is a good chance that demand over the next week or so will be a lot less than what it was in March, when the Mint ceased production. If so, we can expect Silver Eagles premiums back to where they were before the ceased production, or at least close to where there were.

Good alternatives to the 2008-dated expensive Silver Eagles are backdated Silver Eagles and 1-oz silver rounds. As this is written, we have a good supply of Engelhard Prospectors, generic silver rounds and even some circulated Silver Eagles. Circulated Silver Eagles are treated as are silver rounds, usually packaged in bags and are priced the same as Engelhard Prospectors.

Late last week, the U.S. Mint notified its distributors that it will again take orders for its American Silver Eagle bullion coins on April 21, 2008. Interestingly, the Mint further said that it will be allocating coins to its distributors because of “the unprecedented demand for American Silver Eagle Bullion Coins.”

At first it may appear that Silver Eagles will again be in short supply considering the Mint disclosing the need to allocate. However, the Mint undoubtedly decided to allocate based on the brisk demand for the popular 1-oz silver coins at the time the Mint ceased production. Since then, the demand for all forms of silver has subsided as the price of silver has fallen.

Typically, steadily rising prices, such as the silver market enjoyed from the middle of December 2007 through the middle of March 2008, causes increased interest, which results in increased sales. With the drawback in silver prices, interest in all forms of silver is reduced. Consequently, I do not expect the demand for Silver Eagles this week to be anywhere near what it was when the Mint ceased production. In fact, the Mint may find that it has no need to allocate.

Although the Mint will start taking orders today for Silver Eagles and CMIGS will take retail orders, I do not anticipate shipping to retail customers until the end of the week, and maybe not until early next week. By the time anyone reading this places an order, CMIGS should have a better idea when shipping will actually begin.

In announcing that it was again accepting order, the Mint did not reveal why it shut down production in March. It’s our guess that the Mint had production problems or could not get the blanks from which Silver Eagles are stamped. Some dealers speculated that the Mint diverted its resources to other areas, such as collector coins, but I doubt that.

The U.S. mint American Eagle Bullion Coin program has been a tremendous success, with more than 160,000,000 Silver Eagles and 11,000,000 1-oz Gold Eagles being turned out. Interruptions in the production and sales of Silver Eagles and Gold Eagles have been infrequent since their introduction in 1986. The U.S. Mint has virtually a lock on the market for new 1-oz silver coins and new gold coins. There is no reason to believe that the Mint would open the door for competition from other government mints by diverting resources to other areas.