Controlling copper and silver prices
There is an unwarranted assumption that market prices are always right, and represent “fair value”. In the case of commodities, particularly metals, this is not necessarily true, because regulated financial markets make it too easy for government agencies and large banks to game the system.
Take the case of a country like China, which is the largest consumer of copper. Does it passively buy its copper through the market? No. Instead it strikes a price with a supplier, such as a Zambian copper mine, based on the London market price, bypassing the market entirely. If China plays no part in setting the reference price in London, the Zambians can be satisfied the price is fair; but if China or her agents suppressed the price of copper in the market before the price is set, the Zambians would be right to be upset.
Now, we do not know if China or her agents drive the copper price down, by placing a relatively small paper order so that the large off-market physical deal is priced favourably, but it is obviously in her interest to do so. Another metal where this could apply is silver.
We need to bear in mind three things about China and silver. She is the world’s largest industrial user, she is almost certainly the world’s largest refiner, and the government owns all the refineries. China imports large quantities of doré 1 and also base metal ores containing silver. So how she goes about this business is highly relevant to the silver price, and the following is an example of how it works.
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