The physical market has become a derivative of the paper market. It is a case of the tail wagging the dog. The method of control is via the use of paper contracts for lower than market rates(spot price) ie short selling. The huge number of short contracts has the effect of putting a stop or downward pressure on the price of silver. I strongly suspect many of the contracts are between the bullion banks themselves and as a single contract is supposed to represent 5000 oz of silver then the market has to follow. We recently saw the ridiculous situation where 6 months worth of silver production was "sold" in a couple of hours with absolutely no chance for physical delivery. That is what is suppressing the price.
Things are starting to change becuse supply has become squeezed and there is high demand. Normally contracts are paid out in fiat currency but more people are starting to demand physical delivery and if they are unable to source cheap physical to meet these contracts then they will have to pay much higher prices to get their grubby hands on the physical product. The difference between contract price and price of silver could be highly significant resulting in huge losses for the manipulators. Hence their frantic efforts to control the market. The best way to combat these criminals is to reduce supply by getting your hands on physical and taking it out of circulation. I think that by the time Basel III is implemented in July we should see a dramatic change towards true price discovery.
