CFTC investigating Silver manipulation!
I will bet you that the "investigators" will come back with no wrong doing.. this is the fox watching the hen house. they will not go after the big bank(s) who drove the orice of paper silver down since last July.. just like the big bank bailouts unconstitutionally going on right now....
The Masters Of Destruction
By: Ted Butler
-- Posted 13 October, 2008 | Digg This Article | Discuss This Article - Comments: 3
On Friday, October 10, the price of silver crashed, falling almost 25% from its price level 24 hours earlier. It is down roughly 50% from where it traded a few months ago. While a broad array of markets fell sharply in price that day and over the past few months, from oil to gold to grain to just about every commodity, none fell as sharply as silver. As regular market observers know, this is usually the case. I intend to explore why this is usually the case and what I think readers should do about it.
Does the sharp price decline mean that conditions have changed and that silver is no longer a great investment? I know it is human nature to assume that when the price of a commodity drops sharply in price, that there must be more of that commodity coming to market, or less demand. This is what we have all learned. But the facts in silver suggest something else entirely.
In my opinion, if conditions have changed, they have become more compelling and silver is an even better investment as a result of the price markdown. There is no great current or prospective increase in the supply of real metal coming to market. And if industrial demand does fall in the future due to deteriorating world economic conditions, it will be accompanied with falling production at current prices. Certainly, there is no evidence of anything but phenomenal investment demand.
Premiums on virtually every form of real silver have been sky-rocketing recently, especially on Friday’s price collapse. These premiums are the highest they have been in history, reaching 60% for certain items, like Silver Eagles. This is the clearest proof there is no developing glut of silver, as the price declines on the COMEX might otherwise suggest to some. At a minimum, the premiums dictate that none of this silver will be melted into bullion.
The purpose of this article is not primarily intended to encourage you to buy real silver, as it seems obvious to me that you understand that already. I’d rather explain the price decline, and what you can do about it (aside from continuing to buy silver).
The recent price decline was all about forcibly liquidating as many leveraged silver holders as possible, so the big shorts could buy back their short contracts. That is always the cause for major price declines. It has become almost impossible to force those who hold silver on a non-margined basis to sell on these price declines. Instead, investors buy real silver on the declines. The growing premiums prove that. All that’s left for the big shorts is to force those holding silver on margin to sell. That is done by rigging sharp price drops unexpectedly. This is the heart of the manipulation.
Never has there been as wide a disconnect between the price of a commodity traded on a licensed exchange and the products of that commodity in the real world. This raises the issue that no true price discovery is occurring, and that paper trading is setting prices. This violates basic commodity law. All that remains is a contract delivery default and/or disorderly pricing to the upside.
It is one thing to claim manipulation, and quite another to prove it. But the proof in this case lies in common sense and in the government’s own public data. The simplest proof of manipulation is in asking the question, what would the price have been absent the manipulators’ actions? What would the price of silver have been if one or two U.S. banks hadn’t sold a massive amount short in July? The only answer is that the price would be much higher absent that concentrated selling.
Coincident with Friday’s big price smash was the release of the October Bank Participation Report from the CFTC http://www.cftc.gov/marketreports/bankparticipation/index.htm
This is the report I wrote about in "The Smoking Gun" back on August 22, which documented that one or two U.S. banks sold short the equivalent of 20% of the world annual production of silver (and 10% of world gold production) during July, followed by a severe price decline.
The new data indicates that the big US bank(s), over the past two months, bought back 10,500 contracts of the 27,600 sold in July. Since the report was as of Oct 7, more contracts were most likely bought back on Friday. Calculating that the big bank(s) made a $6 oz profit per contract on the closeouts, indicates it realized more than a $315 million profit on the closed sales. In addition, at Friday’s closing price, further realized and unrealized profits on the remaining silver short position, amount to another $600 million for the big bank(s). To those who claim that they see no motive in why someone would manipulate the price of silver lower, here are 900 million reasons. Similar numbers apply to gold.
Since futures trading is a zero-sum equation, this means that the $900+ million made by the big US bank(s) has come from long futures traders’ pockets, dollar for dollar. Whatever some futures traders make, other futures traders must lose. No exceptions. Of course, just because someone makes what someone else loses does not necessarily constitute manipulation, no matter how large the amounts involved. What constitutes manipulation is concentration, intent and control.
That the big U.S. bank(s) had, and has, a concentrated silver short position is beyond question. In fact, the silver short position has been the largest concentrated position in history, by every reasonable measure. The data proves this. It is this concentration and control that is solely responsible for the severe price decline in silver. It is absurd to assume there was no intent to manipulate, not with a billion dollars’ worth of motivation.
There is nothing wrong with an entity making a huge profit, as long as that entity has done it fair and square. But the $900 million profit by the big U.S. bank(s) was not earned fairly or legally. It was theft through market control and dominance. If this wasn’t so obvious and proven by their own data, the CFTC would not be actively investigating a manipulation in silver. But a deliberate and thorough investigation is not enough with a crime in progress.
I have never publicly advocated that anyone buy silver on margin, futures or otherwise, although I do understand the attraction and it is my background. I have been clear that real silver should be bought on a cash basis. If you buy silver (or anything) on margin, you must be prepared for unexpected trouble in the form of sharp sell-offs requiring additional funds. Still, it is not right that margined silver holders should be cheated, by a crooked U.S. bank or anyone else, out of $900 million or any amount. Unfortunately, the problem goes much deeper than futures traders being cheated.
As large as the $900 million that the U.S. bank extracted from COMEX long silver futures holders may be, it is small compared to the total damage inflicted, as a result of this manipulation. After all, it wasn’t just long silver futures holders who were damaged. Far from it. When the total damage is tallied, it should become clear why I would refer to the big U.S. bank(s) that shorted COMEX silver in July, as the Masters of Destruction.
Since there are one billion ounces of silver bullion equivalent in existence, the value of that bullion was approximately $19 billion in July, when the big U.S bank shorted COMEX silver in massive quantities. As a result of that shorting and all the bullying and corrupt market dirty tricks since then, the value of total silver bullion was $10 billion on Friday, down $9 billion in little more than two months. That’s ten times the amount that the Masters of Destruction stole from long futures traders. Talk about collateral damage.
Yes, it’s true that the manipulation has created an incredible further buying opportunity in silver. And it’s also true that those holding silver on a fully paid for basis, still hold their silver and will profit from the certain price gains in the future. But that does not excuse the manipulation, nor minimize the loss of value. Who the heck does this big U.S. bank think it is, that it can inflict that kind of damage on innocent investors in silver?
The collateral damage is not limited to silver bullion investors. Shareholders in silver mining equities have suffered, at least, an additional $10 billion in losses over the past couple of months, as a direct result of the manipulated 50% decline in silver prices by one or two U.S. banks. We’re now up to 20 times the $900 million gained by the futures manipulators so far. Bear with me, as I’m just getting warmed up.
(I’m confining my remarks to silver here, but let me assure you that the equivalent total damage in gold is much greater. Quite literally, where the losses to silver bullion and mining stock investors run to tens of billions of dollars, the losses to gold bullion investors and mining shareholders runs into the many hundreds of billions of dollars. All courtesy of the Masters of Destruction.)
Aside from the damage to shareholders in silver mining stocks, the companies themselves, as ongoing concerns, have been severely damaged. The manipulation has driven the price well below the cost of production for just about all the primary silver producers. Just look at their stock prices. In addition, low base metal prices has meant that the current price of silver is now below the cost of production on a by-product basis as well. This guarantees that if silver prices don’t rise dramatically and soon, significant silver production will be eliminated. I don’t understand how mine management can sit by and tolerate this without fighting back.
Further, the collateral damage being inflicted on silver mining and exploration companies will curtail not only current production. Given the long lead times required to bring a silver mining prospect to production, the artificial low prices are causing unknown delay to future production. Thus, the manipulation promises long-term damage to the production of a vital industrial resource. It may be bullish for prices long term, but it is wrong.
While the industrial silver consumers may be reaping some small advantage in buying silver cheaper today than they would if silver prices weren’t artificially depressed, they stand to lose even more than the miners in the long run. Artificially depressed prices in anything must cause a shortage at some point. That’s supply/demand 101. This can be seen on the retail side of silver presently. When this shortage becomes obvious on the wholesale side, it will be the industrial silver consumers who will feel pain beyond what the producers currently are experiencing. It will be the user panic to buy inventory and keep production lines running that will cause prices to soar beyond reason.
Perhaps the worst collateral damage of the manipulation by the big U.S. bank(s) is not to futures traders, innocent bullion or mining share investors, the miners themselves, or the industrial users. The worst damage inflicted by the Masters of Destruction is to our important institutions, like our licensed exchanges and regulatory institutions, and to our confidence in our markets. Trust is hard to earn and easy to lose.
The CME Group, owners of the Chicago Board of Trade, the Chicago Mercantile Exchange, and now the NYMEX/COMEX, is the largest and most important futures exchange in the world. They stand to lose the most of all in the silver manipulation. If there is any silver delivery default or disorderly pricing event, they would appear to be responsible. Especially since they have been repeatedly warned. They have their reputation and potential massive litigation costs at risk. They are the frontline regulator, as dictated by law. Yet they refuse to respond to public allegations of manipulation in the COMEX silver market, in spite of hundreds of us contacting them. That is deplorable.
The CFTC has bowed to public pressure and has initiated an investigation by their Enforcement Division. Obviously, the Commission sees sufficient evidence to investigate, otherwise they would not waste taxpayer money on a useless investigation. Yet the evidence is their own data, which they and the CME Group refuse to explain. That the alleged manipulation is very much a crime in progress inflicting great collateral damage and neither regulator acts against it results in a loss of confidence in our regulators and markets. It diminishes us all.
That a crooked U.S. bank, in the quest to illegally generate a profit, would poison the water for so many unrelated and innocent parties is unconscionable. We have enough financial problems in the world presently with declining asset values. There is no room for the intentional destruction of values and markets. This blatant silver manipulation must not be allowed to stand.
The great financial crisis that currently impacts us all is the direct result of a regulatory failure to restrain a few wheeler dealers on Wall Street, who went hog wild in concocting crazy derivatives for personal profit. Now, we are left to clean up their mess, at great collective cost, both monetarily and to our faith in our institutions. Admittedly, silver is a much smaller market than the mortgage and credit markets, but the same principle applies, namely, many being damaged by a few. Plus, the damage has already been done in mortgages, while silver is ongoing.
In the great financial credit crisis in which we are presently engulfed, there are no simple solutions. In silver, there is a simple and effective solution. We must pressure the regulators to enforce the law and eliminate what remains of the concentrated short position in silver, never to return. Then we must insist that the short manipulator(s) be punished for the full extent of the damage it has inflicted on everyone.
When the CFTC finally admits what is already common knowledge to most observers, that is, that there has been an ongoing manipulation in silver, it will not be sufficient to base any resultant fines on just the damage in the futures market. All collateral damage must be considered. Don’t fine the big U.S. bank $1 billion for their ill-gotten futures market gains, fine them $20 billion or more for all the collateral damage they caused. And the CFTC shouldn’t remit any fines collected to the Treasury. A special fund should be established to compensate actual victims.
The only reason the CFTC is investigating silver, at all, is because you took the time to write to them. You must write to them again. And keep on writing. I assure you it does have an impact. In addition to the usual addresses of the Commissioners, the Inspector General, and the Chief Regulatory official of the CME Group, I am adding the address of the Acting Director of the Enforcement Division, Mr. Stephen J. Obie. It’s important that you let them know how you feel.
Alavik@cftc,gov
-- Posted 13 October, 2008 | Digg This Article | Discuss This Article - Comments: 3
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Mike Shedlock vs. Ted Butler
Here are a few excerpts from Ted Butler's Lessons of a Lifetime.
The drastic sell-off in silver (and gold) is further proof of an ongoing manipulation to the downside.
My comment: That is a rather interesting statement. Gold and silver did not act as expected so somehow that constitutes proof in and of itself of an ongoing manipulation. However, Butler offers more proof as follows.
The proof that this sell-off was criminal lies in public data provided in the Commitment of Traders Report (COT) and a basic understanding of how the futures market works. This has been the most extreme sell-off in the recent history of silver and gold. We are farther below the moving averages than at any point since I have been writing about silver. Price movements this severe are likely to be intentional and not accidental.
My Comment: Many stocks are far from moving averages. Nearly the entire financial sector is far from moving averages for example. Furthermore gold and silver have often been far above their moving averages, and not that long ago either. Is it only manipulation when gold and silver are below and not above their moving averages?
Every criminal act must have a motive and an opportunity to commit the crime. By the simple process of elimination, those responsible for this crime are the concentrated commercial shorts on the COMEX. No one else fits the profile. They had the means (through their dominant and monopolistic position), the profit motive and the skill to cause the sell-off.
How is it possible that the commercials could buy back short positions on thousands of contracts at times of steep sell-offs, without triggering a rise in price? There is only one possible and plausible explanation - through discipline and collusion.
My Comment: With futures, for every long there is a short. When a long sells his position, a short automatically covers. This does not take collusion. But to be fair it does not disprove collusion either. This is simply how the futures market works.
If longs are desperate to get out, shorts will automatically cover at increasingly lower prices. Butler asks how it it possible for commercials to close positions during sell-offs without triggering a rise. The answer is that it is impossible for it to be any other way!
All that matters is how desperate longs are to get out. By the way, the exact same things happens on the way up too, except in opposite fashion. Butler somehow sees a rising market as normal action.
Let's continue with more articles on alleged manipulation.
The Smoking Gun
At least 20 people sent me The Smoking Gun by Ted Butler. Let's take a look.
For years, the data contained in the weekly Commitment of Traders Report (COT), issued by the CFTC, have indicated that several large COMEX traders have manipulated the price of silver and gold.
My Comment: To be more precise, for years Butler has insisted that the COT reports indication manipulation in gold and silver. Allegations are one thing, proof is another.
The recent widespread shortage of silver for retail purchase coupled with a price collapse appears to have shaken these analysts’ confidence that the COMEX silver market is operating ‘fair and square.’ Well it should, since there is no rational explanation for a significant price decline going hand in hand with product shortages other than collusive manipulation.
My Comment: There is indeed a rational explanation for a decline in the price of gold and silver. The dollar has staged one huge rally, and fundamentals suggested the dollar should rally. This is not hindsight, this was called in advance. I talked about the US dollar many times recently. Here is a list.
August 08 Trichet Puts Spotlight on the Euro, Dollar
August 09 U.S. Dollar Rally Continues
August 11 Currency Intervention And Other Conspiracies
The last one on the above list caused a bit of a controversy . Some irrationally stated that a tiny (relative to the forex markets) intervention sparked a week long dollar rally. Steve Saville voiced an opinion on the dollar rally as noted in Steve Saville On The US Dollar And Gold.
In summary, there is no need to concoct manipulation theories in order to explain the dollar's rebound. A more plausible explanation for the currency market turnaround is that the recent intermediate-term trend reversals in the commodity markets removed the pressure that had previously been preventing the US dollar from moving back towards fair valuation.
We think the dollar's move back towards fair valuation is still in its infancy, but the market looks over-extended in the very short-term so some consolidation is likely over the coming 1-3 weeks.
Shortage Of Silver Eagles
Now let's address the shortage of silver eagles and other retail forms of silver and gold. For that I will refer to a conversation I had with Dave Meger, head metals trader at Alaron. Dave plays the seasonal tendencies in gold and silver as good as anyone I know. Here is a snip from Dave's Meger's gold forecast from August 20.
Gold and silver have seen a small bounce off the extreme oversold condition. Remember I stated several times in my last few reports that I did not believe a bottom in the metals would be made until a capitulation move lower was seen.
I have been stating that Gold and Silver will still be strong in the month of September and into year end - the only question has been "Where will the bottom be made?" The sharp correction was a typical long liquidation break that seems to always go much deeper than most expect as longs are squeezed out of the market.
I called Dave to ask about the shortage of silver. I was halted mid-sentence. "Careful" Dave said. "There is not a shortage of gold or silver, there is only a shortage of certain retail forms of gold and silver. Producers have no real incentive to make some of these forms. If someone wants gold or silver they can always buy a future and take delivery."
Retail Demand A Contrary Indicator?
What follows now is my opinion. Retail investor demand for gold and silver may very well be a contrary indicator. Retail investors ignored gold at 250, 350, 450 all the way up to $1000. Now they are finally interested in buying this dip. Is this a good sign or a bad sign?
Continuing with Butler's "Smoking Gun"
Facts speak for themselves. Here are the facts. As of July 1, 2008, two U.S. banks were short 6,199 contracts of COMEX silver (30,995,000 ounces). As of August 5, 2008, two U.S. banks were short 33,805 contracts of COMEX silver (169,025,000 ounces), an increase of more than five-fold. This is the largest such position by U.S. banks I can find in the data, ever. Between July 14 and August 15th, the price of COMEX silver declined from a peak high of $19.55 (basis September) to a low of $12.22 for a decline of 38%.
For gold, 3 U.S. banks held a short position of 7,787 contracts (778,700 ounces) in July, and 3 U.S. banks held a short position of 86,398 contracts (8,639,800 ounces) in August, an eleven-fold increase and coinciding with a gold price decline of more than $150 per ounce. As was the case with silver, this is the largest short position ever by US banks in the data listed on the CFTC’s site. This was put on as one massive position just before the market collapsed in price.
This data suggests other questions should be answered by banking regulators, the CFTC, or by those analysts who still doubt this market is rigged. Is there a connection between 2 U.S. banks selling an additional 27,606 silver futures contracts (138 million ounces) in a month, followed shortly thereafter by a severe decline in the price of silver? That’s equal to 20% of annual world mine production or the entire COMEX warehouse stockpile, the second largest inventory in the world. How could the concentrated sale of such quantities in such a short time not influence the price?
My Comment: The facts speak for themselves. The rooster crows every morning at dawn. The sun comes up without fail. In other words, correlation is not causation. Two US banks sold 27,606 futures. Ho hum. Investors bought 27,606 futures. Ho hum. Remember that for every long there is a short. Who was left to buy, and at what price?
The fact of the matter is silver rose from $5 to over $20. Commercials were short the entire way. If the commercials were not hedged, they would have been blown out of the water somewhere along the line.
What real legitimate business do 2 or 3 U.S. banks suddenly have for selling short such quantities of speculative instruments over a brief time period? Do we want banks to be engaging in this type of activity? If the manipulation was not successful, would U.S. taxpayers be called on to bail out yet another bank speculation gone bad?
My Comment: The answer is obvious. For every long there is a short. The market makers must take the other side of the bet. I keep pointing this out and it keeps falling on deaf ears. If longs want to prove a shortage of gold or silver all they have to do is take delivery and keep taking delivery. Instead we see herding behavior by longs accompanied by huge price runups. Buying interest then dries up and prices fall. It does not take collusion for this to happen.
The data in the Bank Participation report is so clear and compelling that it is hard to conclude anything but manipulation. It is beyond credulity to conclude other than two or three banks caused one of the most severe price collapses in precious metals history. The CFTC has a lot to answer for as the regulatory agency responsible for preventing this type of blatant manipulation.
My Comment: Closer examination reveals that there is nothing but allegations from the manipulation crowd. So let's continue with still more articles.
Wake-Up Call
Rob Kirby repeated many of the same arguments as butler in Wake-Up Call. He also offered this chart.
As I stated before, there were no compelling fundamentals. In fact there were compelling fundamentals brewing for a US dollar rally. What happened was entirely predictable. I talked about it in Gold, Silver and the Great Unwind.
Notice that"concentrated, manipulated, short selling arrow". Once again I point out that for every short there is a long. In essence, dollar bears were recklessly plowing into short-dollar long-gold plays just as Trichet was about to drop a bombshell on the currency markets.
The market was expecting Trichet to tighten and the dollar to sink. Instead Trichet reversed course. There was a mad scramble to exit the short-dollar long-gold trade. Gold got hammered in the process. This is Manipulation?
Disconnect Between Supply And Demand
Let's now turn our attention to the last article in the series. James Conrad presents some new arguments to consider in The Disconnect Between Supply and Demand in Gold & Silver Markets.
There is a huge demand for both gold and silver right now in India and North America. North American shops are completely bare of silver. Indian shops are empty of both silver and gold. Even the Indian banks don't have any gold or silver. The big western bullion banks, based in New York and London, control both the gold and silver trade. Reports from India are that they are refusing to extend Indian bank lines of credit, forcing the small banks to deliver to clients, collect money, and pay down lines of credit, before being allowed to take delivery of another gold or silver shipment. This is very abnormal. Normally, if a banker’s bank knows that its customer-bank has firm orders, it would extend the smaller bank a bigger line of credit. Not now.
By refusing to extend lines of credit, the big bullion banks are essentially rationing a very thin supply.
My Comment: It's no big secret that liquidity is drying up. The simple fact of the matter is banks halted loans for houses, commercial real estate, credit cards, home equity lines, etc. Exactly why should banks be extending lines of credit for silver when they are not doing so for anything else? Seeking to halt speculation makes perfect sense. There has been rampant speculation in everything and quite simply market forces are putting an end to it.
Lease Rates
Conrad does present one new argument for which I have no answer. It pertains to lease rates.
As of a week ago, if you are a dealer, and you lease gold or silver, from the bullion banks, incredibly enough, THEY WILL PAY YOU! At the end of this article, I have attached a chart, showing the current negative lease rates for the various metals.
click on chart for sharper image
It does not make sense to me for lease rates to be negative, assuming they are indeed negative, as stated. However, just because something does not seemingly make any sense, is not proof of manipulation in and of itself.
More importantly, the alleged "disconnect" between supply and demand is completely imaginary.
Price Action vs. Physical Accumulation
I have heard one more argument recently regarding the alleged manipulation. Here it is: "The ETFs have shown no dishoarding for the huge falls in the metals which stands out like a sore thumb."
The argument is totally flawed. It presumes that repricing up or down must be accompanied by accumulation or dishoarding. For starters, the price of gold and silver ETFs must follow the futures market or there will be an arb play. For example, if the futures market rises or falls and the ETF does not, then there would be an instant profit available by exploiting the difference.
Repricings of all sorts in all markets can happen, even on zero sales. Consider the housing market. A builder finishes a subdivision. 50 people paid $400,000. The builder has 3 homes left and offers them for $350,000. Before any sale is made, the every house in the neighborhood would instantaneously be repriced lower by $50,000.
Clearly that housing example involved news. (By the way it does not have to. Sentiment can change overnight without news). At any rate, inquiring minds might be looking for news and/or sentiment changes that would have affected gold in the alleged manipulation timeframe.
Inquiring minds would not have to look too far. Trichet's reversal on interest rates was grounds for an immediate repricing of both the dollar and gold, and that holds true even if demand for the physical picked up at lower prices.
Report on Large Short Trader Activity in the Silver Futures Market
On May 13, 2008 the Commodity Futures Trading Commission addressed every issue, point by point raised above in exquisite detail. The only exception is lease rates. Note: This is a lengthy excerpt.
Inquiring minds very much need to consider the other side of the story as presented in Report on Large Short Trader Activity in the Silver Futures Market.
During the past 20 to 25 years, the Commodity Futures Trading Commission (CFTC or Commission) has received numerous letters, e-mails and phone calls from silver investors alleging that the price of silver futures on NYMEX has been manipulated downward.
In 2004, Dr. Michael Gorham, Director of the Division of Market Oversight (Division) addressed silver investors’ concerns in an open letter (2004 Silver Letter) that considered the plausibility of a long-term short-side manipulation of the silver futures market and provided an analysis of activity in the silver futures market. That letter concluded that the existence of a long-term manipulation was not plausible and that an analysis of activity in the silver futures market did not support the conclusion that the market was being manipulated.
Recently, silver commentators and a group of investors that rely upon them have reasserted their allegations that the silver futures market is being manipulated downward by a small group of traders on the short side of the market. As a result, DMO staff decided to revisit this issue by taking a fresh look at activity in the silver futures market.
The analysis draws the following conclusions:
There is no evidence of manipulation in the silver futures market.
• Silver cash and futures prices have risen dramatically between 2005 and 2007, with silver outperforming the gold, platinum and palladium markets, suggesting that silver futures prices are not depressed relative to other metals prices.
• NYMEX silver futures prices tend to track closely the price of physical silver.
• Concentration levels for the top four short futures traders in the silver futures market are comparable to those observed in the gold and copper futures markets, and generally are lower than the levels seen in the platinum and palladium futures markets.
The composition of the traders comprising the top four short futures traders, in terms of net positions, changes over time. These traders represent a diverse group, and their futures positions are driven by an even more diverse group of customers.
• There is no observable relationship between short-futures-trader concentration levels and silver prices.
• There is a slightly positive relationship between the total net position of the large short futures traders and silver prices; this suggests that larger short futures positions are associated with higher, not lower prices.
Advocates of the short-side manipulation argument contend that silver futures prices have been manipulated downward for close to 25 years. What these advocates fail to indicate, however, is where prices should be, except to argue that prices should be higher than they have been currently or in the recent past.
With respect to the claims of silver commentators that prices are being suppressed, it should be noted that these commentators have never articulated a credible explanation as to why, for more than 25 years, buyers have not entered the market to purchase silver (at the supposedly depressed prices), thereby driving up prices to a level that these commentators believe is reasonable. In this regard, no barrier to entry has been identified that would prevent individuals or firms from buying cash silver or entering into long silver futures positions.
Given the similarities between price movements in these four metals, it appears that general market forces that have contributed to an increase in gold, platinum and palladium prices have also supported an increase in the price of silver. Moreover, the fact that the price of silver outperformed the prices of the other metals during the period, while not definitively answering the question of whether silver prices have been manipulated, calls into question the contention that silver futures prices have been manipulated downward. In short, there is nothing obvious in the silver price series between 2005 and 2007, when compared to other metals’ prices, to suggest that silver prices have been manipulated downward.
click on chart for sharper image
Trader Concentration
An area that has drawn significant attention from silver commentators is the level of concentration among short traders in the silver futures market, as reported in the CFTC’s weekly Commitments of Traders (COT) reports.
Silver commentators have argued that the four-trader net short position reported in the COT reports is unusually high and imply that it is indicative of an effort by a specific group of four or fewer traders to maintain low prices indefinitely. The commentators also imply that the futures positions held by these traders are “naked” in that they are not legitimate hedge positions or otherwise entered into to offset positions in the physical silver market. To evaluate this claim, staff examined the specific traders comprising the top four shorts and their overall futures positions, their motives for holding these positions, how the levels of concentration in the silver futures market compare to those in similar futures markets (i.e., gold, platinum, palladium, and copper), and the relationship between open interest concentration and the level of open interest held by these futures traders to changes in silver futures prices.
The analysis of open interest, collected daily from June 6, 2005 through January 16, 2008—a total of 659 days in the sample—indicates that the composition of market participants among the top four net traders is not static, though certain traders do appear in the top four significantly more often than others. For the period as a whole, there were a total of 10 different traders who at some point were counted among the top four in terms of their net short futures position. Of those 10, three were present in the top four more than 50 percent of the time. The trader most often in the top four was usually ranked number two in terms of net position size among traders, when present. The trader present second most often was typically ranked fourth among the top four traders, and was never ranked first. Finally, the trader showing up third most often was usually the number one ranked trader, holding that position on 356 days of the 475 days in which they were present in the top four. Thus, the Commission’s large trader data shows that, as opposed to the allegation that four traders dominate the market by consistently holding a large concentrated short position, the top four traders at any point in time may involve any of 10 different market participants.
Notably, these large traders are not always net short; of these 10 traders, four at times were among the top four net long silver futures traders. These data show that any scheme to manipulate the silver futures market would require involvement of up to 10 traders as opposed to the four that silver commentators suggest. This renders the allegation more implausible, as such a large diverse group would increase the difficulty and complexity of effecting concerted actions while ensuring discipline within the group.
In addition, the top 10 traders are not monolithic and represent a wide diversity of business interests with diverse customer bases. In this regard, staff interviewed five of the largest traders that are included among the group of 10. Based on these interviews and from the Commission’s records, the staff has determined that the entities in this group are involved in the silver markets as dealer/merchants, index traders, swaps/derivatives dealers, money managers, banks and silver depositories. Two of the five traders interviewed indicated the futures positions they entered into were to offset activity that they engaged in with customers situated in the physical silver markets. This activity included buying silver from producers and selling silver to consumers in various manufacturing industries. Few of the futures positions of these two traders represented proprietary trading of the firms. The remaining three traders were less active in the physical markets, but, nonetheless, they primarily established futures positions to offset other obligations, such as over-the-counter swap trades and other financially settled contracts, that they had entered into with their customers. For each firm interviewed, their futures trading activities are driven primarily by the desires and needs of the firms’ customers to either buy or sell silver or to assume or hedge financial exposure to silver prices.
The understanding that the largest net short silver futures traders have an overall neutral position in the silver market is confirmed by information collected by NYMEX relating to several of these large traders. In August 2007, NYMEX contacted several of the largest short silver futures traders requesting specific information regarding their activity in the silver cash and OTC markets. The exchange found that these firms generally held significant forward purchase and sales agreements that, overall, left the firms with a net long silver exposure.
The short futures positions on NYMEX were approximately offset by their long cash exposure. This means that, contrary to the silver commentators’ allegations, the largest net short traders in the NYMEX silver futures markets are not “naked” shorts, as the firms’ overall exposure in the silver markets (considering their futures, cash and OTC positions) is approximately neutral.
Trotsky Weighs In
I asked my friend "Trotsky" if he had any additional comments to add on the subject of manipulation. Here goes:
You could add that it not unusual for a commodity market to experience a 23% correction in a short time. It happens all the time! In fact, during the 1970's bull market in the metals it happened several times as well. Were today's 'manipulators' at it back then too?
The 'physical silver and gold shortage' as you've correctly explained is an illusion. Only certain forms of retail product were in a shortage, and it is NOT bullish when the retail public clamors to buy the dip.
Also, I would emphasize the CFTC's explanation - one that has been confirmed by the former CEO of PAAS, who took on Butler's claims as well - that the large commercial shorts do in fact have offsetting positions in both physical and OTC derivatives markets, where they act as middlemen for a much larger group of customers.
Therefore, the apparent 'concentration' comes from the fact that these traders (the 10 biggest) tend to aggregate offsetting customer positions and hedge them in the silver futures market.
The fact remains, Butler and others have ZERO proof because if they had proof, they would present it. Furthermore, one would expect by now a whistleblower would talk, or some documents, or something to emerge. Instead the manipulation crowd continually infers things from watching the COT report, and their conclusions are simply wrong.
As the CFTC correctly states, to successfully co-ordinate an ongoing manipulation between 10 large traders over so many years (Butler has been writing about this for 20 years already) seems nigh impossible.
Their interests would diverge too often for one thing, and cartels have proved to be ineffective in both practice and well-established economic theory (see OPEC, which can not determine the price of oil in spite of controlling 40% of output).
So far NO-ONE has reported that they have suffered large losses from silver's 400% rally. That in and of itself is indirect confirmation that the commercial shorts have offsetting positions. And lastly, the mere fact that silver has rallied by 400% at all shows that there is no outside force controlling this market in a downward direction with the slightest success.
Butler and others act as if their issues have not been addressed. Clearly they have been addressed, on multiple occasions in great detail, by many people in addition to the CFTC.
Close scrutiny shows that the preponderance of evidence is solidly in supportive of the fact that there is no conspiracy or collusion between large COMEX traders.
Butler's gun keeps firing, but there is no smoke. It's a blank every time. The Great Gold And Silver Conspiracy Is Easily Explained. There simply is no conspiracy.
Mike "Mish" Shedlock
http://globaleconomicanal...
I've read a few articles by
I've read a few articles by Ted Butler over the last year. I think he's been talking about manipulation in the silver markets for a long time, and he seems to have a lot of info to support that conclusion. I just did a quick google search for Ted Butler, and found an archive of some of his articles since 2000: http://www.investmentrarities.com/tb-archives.html
Anyone been to a coin shop lately?
Interesting thing happening. With the economic worries and the price of silver and gold pretty high historyically I notice two things happening.
#1. Well off people are buying and holding coins. Very hard to find coins without big markups over the spot prices.
#2. For the first time I can remember everytime I go to a shop there are people that appear to be less well off selling precious metals. I've never seen anything like. Every time I'm there someone is selling their jewlery.
The point? Silver and Gold supplies are growing because people are selling it like crazy. But try to find coins and they aren't around.
you can find all his
you can find all his articles at www.butlerresearch.com
these go back to 2000. lots of reading! read up you could be seeing the most explosive opportunity of our lives!
"When governments fear the people there is liberty. When the people fear the government there is tyranny."
-Thomas Jefferson
I am more concerned about the return of my money than the return on my money. --Mark Twain
“A prudent man foreseeth the evil, and hideth himself: but the simple pass on, and are punished.” (Prov. 22:3; 27:12 KJV)
Hey McCain-----┌П┐(◣_◢)┌П┐
. "When governments fear the
.
"When governments fear the people there is liberty. When the people fear the government there is tyranny."
-Thomas Jefferson
I am more concerned about the return of my money than the return on my money. --Mark Twain
“A prudent man foreseeth the evil, and hideth himself: but the simple pass on, and are punished.” (Prov. 22:3; 27:12 KJV)
Hey McCain-----┌П┐(◣_◢)┌П┐
BLAH BLAH BLAH
BLAH BLAH BLAH BLAH BLAH BLAH BLAH BLAH BLAH BLAH BLAH BLAH BLAH BLAH BLAH BLAH BLAH BLAH BLAH BLAH BLAH BLAH BLAH BLAH BLAH BLAH BLAH BLAH BLAH BLAH BLAH BLAH BLAH
I bet all your books are
I bet all your books are picture books are they not?
"When governments fear the people there is liberty. When the people fear the government there is tyranny."
-Thomas Jefferson
I am more concerned about the return of my money than the return on my money. --Mark Twain
“A prudent man foreseeth the evil, and hideth himself: but the simple pass on, and are punished.” (Prov. 22:3; 27:12 KJV)
Hey McCain-----┌П┐(◣_◢)┌П┐
silver down
http://www.kitco.com/charts/livesilver.html
you can't be this stupid are
you can't be this stupid are you jeff.. aka jzneffs dad? Butler told you there was manipulation.. you with your circular logic said no.. if so then why is the CFTC investigating? lmao! BLAH BLAH BLAH...
"When governments fear the people there is liberty. When the people fear the government there is tyranny."
-Thomas Jefferson
I am more concerned about the return of my money than the return on my money. --Mark Twain
“A prudent man foreseeth the evil, and hideth himself: but the simple pass on, and are punished.” (Prov. 22:3; 27:12 KJV)
Hey McCain-----┌П┐(◣_◢)┌П┐
Look at the spreads SIERRAHPBT
SIERRAHPBT use a little dynamic thinking you claim you have and explain
why the spread between the physical markets bids and asks keep widening instead of tightening? In ANY market, the shorter the supply, the closer the bid and ask. The spread continues to widen between the bid and ask of physical silver.
If there were a real storage in silver, why wouldn't the dealers bid up the metal to provide a supply to customers that can not find what they want?
The bid ask spread widens only when dealers do not want the underlying
metal, sock, option, futures contract ect.
As far as an investigation goes, if any customer complains enough, the regulators are obligated to investigate. How many times has Butler done this in the last ten years with the same result.... NOTHING.