The Silver Market Manipulation FAQs , courtesy of The Silver Circle
Showing posts with label market manipulation. Show all posts
Showing posts with label market manipulation. Show all posts
August 19, 2012
August 27, 2011
July 22, 2011
The Cartel Caught in the Act
The cartel sold 250,000,000 paper ounces of silver (1/4th of Global world silver production) in 1 minute to smack down silver, 5 times the volume of all silver mined in the US annually was sold in 1 minute to knock silver below $40!....
December 7, 2010
December 3, 2010
October 29, 2010
Silver manipulation lawsuit posted at GATA's Internet site
A copy of the silver market manipulation lawsuit filed yesterday in U.S. District Court for the Southern District of New York against J.P. Morgan Chase & Co. and HSBC Bank has been posted at GATA's Internet site here:
GATA board member Adrian Douglas, who helped publicize London silver trader Andrew Maguire's disregarded silver market manipulation complaint to the U.S. Commodity Futures Trading Commission, said of the lawsuit:
"The Gold Anti-Trust Action Committee has worked tirelessly for more than 10 years to expose the suppression of gold and silver prices. The filing of this lawsuit is a milestone in stopping the fraud that has been occurring in these markets and punishing the bullion banks responsible. The suppression of the monetary metals has facilitated an overvalued dollar and mispriced debt that in turn have caused the massive imbalances at the root of the worldwide financial crisis. This fraud has hurt everyone except those on the inside who have profited at the expense of the public. I applaud the integrity of Andrew Maguire, whose whistleblower testimony has made this lawsuit possible, and the dedication of CFTC Commissioner Bart Chilton, who has had the courage to fight systemic corruption."
SilverManipulationLawsuit-10-27-2010
May 15, 2010
Doubts about gold ETFs broadcast today on two major networks
Within a half hour of each other today the leading business television networks in North America reported doubts that gold exchange-traded funds either have the gold they claim to have or can get enough real gold to meet likely demand.
The first doubt was expressed on CNBC in the United States, where market analyst Rick Santelli comments at 5:30 into this segment:
The second doubt was expressed on BNN in Canada, where reporter Niall McGee commented at length:
There seems to be growing consensus in favor of what GATA long has been urging gold and silver investors to do: to take possession of their metal or make certain that any custodian has got it in allocated and audited form, especially since the custodians of the largest gold and silver ETFs are also the biggest gold and silver shorts, a grotesque and unacknowledged conflict of interest:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
April 11, 2010
New York Post: Trader blows whistle on gold, silver price manipulation
Trader Blows Whistle on Gold and Silver Price Manipulation
By Michael Gray
New York Post
Sunday, April 11, 2010
There is no silver lining to the activities of JPMorgan Chase and HSBC in the precious-metals market here and in London, says a 40-year veteran of the metal pits.
The banks, which do the Federal Reserve's bidding in the metals markets, have long been the government's lead actors in keeping down the prices of gold and silver, according to a former Goldman Sachs trader working at the London Bullion Market Association.
Maguire was scheduled to testify last week before the Commodities Futures Trade Commission, which is looking into the activities of large banks in the metals market, but was knocked off the list at the last moment. So he went public.
Maguire -- in an exclusive interview with the Post -- explained JPMorgan's role in the metals pits in both London and here, and how they can generate a profit either way the market moves.
"JPMorgan acts as an agent for the Federal Reserve; they act to halt the rise of gold and silver against the US dollar. JPMorgan is insulated from potential losses" on their short positions "by the Fed and/or the US taxpayer," Maguire said.
In the gold pits, Maguire sees HSBC betting against the precious metal's price without having any skin in the game in the form of a naked short.
"HSBC conducts an ongoing manipulative concentrated naked short position in gold. Silver is much easier to manipulate due to its much smaller [market] size," Maguire added.
"No one at JPMorgan is familiar with Andrew Maguire," said Brian Marchiony, a company spokesman. HSBC declined to comment.
Also during the CFTC hearing, Jeff Christian, founder of the commodities firm CPM Group, said that the LBMA, the physical delivery market for gold and silver in the UK, has been using leverage, which is another way to depress the price of gold and silver.
Christian said that the LBMA -- the same market Maguire trades in -- has leverage of about 100-1 on the gold bars settled on the exchange. In layman's terms, that means if 100 clients requested their bullion bars be delivered, the exchange could give only one client the precious metal.
The remaining requests would have to be settled for cash equivalent. "That is tantamount to a default on the trade," says Bill Murphy, chairman of the Gold Anti-Trust Action Committee.
Maguire goes further and calls it a fraud: "If you sell something you do not own, then that is fraud."
Back in 2007, Morgan Stanley agreed to settle a $4.4-million lawsuit brought by precious-metal clients, who alleged that Morgan offered to buy gold and silver and store it for the investors, but never purchased any metal and still charged them storage fees.
Morgan Stanley denied the charges at the time but "settled the case to avoid the cost and distractions of continued litigation," the firm said.
Despite gold's rise each of the last 10 years, Murphy believes the price of gold today would be closer to $2,300 an ounce if the price just moved with inflation.
Maguire believes the price should be even higher given the fear trade that would have sent prices spiking during the financial crisis in 2008-09.
Both precious metals have seen a recent spike since Maguire's e-mails became public. Gold has gained 6.5 percent to close at $1,161.55, while silver has spiked 10 percent to $18.38.
According to the e-mails Maguire sent to CFTC regulators, he was spot-on in his expectations of how the precious metals would trade on release of the January jobs report.
This message is to "confirm that the silver manipulation was a great success and played out exactly to plan as predicted yesterday. How would this be possible if the silver market was not in the full control of the parties we discussed in our phone interview?," Maguire wrote to a staff investigator after the trading day.
CFTC commissioner Bart Chilton said, "I'm appreciative of the information Mr. Maguire provided and I'm glad it was introduced into the investigation."
... High, low silver
The prices of gold and silver have been allegedly suppressed by JPMorgan Chase and HSBC, according to a London whistleblower.
Andrew Maguire, who laid out the banks' plan in e-mails to the CFTC prior to trading on the Comex on Feb. 5.
1.) From: Andrew Maguire
To: Ramirez, Eliud [CFTC]
Cc: BChilton [CFTC]
Sent: Wednesday, February 03, 2010 3:18 PM
Subject: Re: Silver today
Thought it may be helpful to your investigation if I gave you the heads up for a manipulative event signaled for Friday, 5th Feb. Scenario 1. The news is bad (employment is worse). This will have a bullish effect on gold and silver as the US dollar weakens and the precious metals draw bids, spiking them higher. This will be sold into within a very short time (1-5 mins) with thousands of new short contracts being added.
Scenario 2. The news is good (employment is better than expected). This will result in a massive short position being instigated almost immediately with no move up. This will not initially be liquidation of long positions but will result in stops being triggered, again targeting key support levels. Kind regards,
2.) From: Andrew Maguire
To: Ramirez, Eliud [CFTC]
Cc: BChilton [CFTC]; GGensler [CFTC]
Sent: Friday, February 05, 2010 3:37 PM
Subject: Fw: Silver today A final e-mail to confirm that the silver manipulation was a great success and played out EXACTLY to plan as predicted yesterday. How would this be possible if the silver market was not in the full control of the parties we discussed in our phone interview? Kind regards,
3.) Andrew T. Maguire
From: Ramirez, Eliud
To: Andrew Maguire
Sent: Tuesday, February 09, 2010 1:29 PM
Subject: RE: Silver today Good afternoon, Mr. Maguire, I have received and reviewed your email communications. Thank you so very much for your observations.
March 30, 2010
CFTC whistleblower Maguire, GATA's Douglas interviewed by King World News
London metals trader and CFTC whistleblower Andrew Maguire was interviewed with GATA board member Adrian Douglas for 40 minutes Tuesday by Eric King of King World News.
Maguire explained how he came to complain to the CFTC about silver market manipulation by JPMorgan Chase traders in London and then to Douglas when the CFTC failed to call him to testify at its hearing last week on futures trading in the metals market.
You can listen to the interview at the King World News Internet site here:
July 8, 2009
This May Be The Last Time
This May Be The Last Time
By Theodore Butler
When I decided on the title of this article, I had the old Rolling Stones tune in mind. But in checking the lyrics on the Internet, I came across this version by the Staple Singers some years earlier, from which the Stones song was derived. I have to say the gospel version was more in line with what I am trying to convey. Click Here
What is this “last time” I refer to? I think we are approaching the final stages of the great silver manipulation. While I can’t give you a date, I’d like to review the reasons why I think that‘s the case. If I’m correct, it means that the days of depressed silver prices will soon be over. It means the price will, at a minimum, reach the true free market price, which is much higher.
It appears that we’re well into the liquidation cycle on the COMEX. The falling price of silver and gold futures has been engineered by the big commercial shorts who use selling by long holders to buy back their short contracts. This is both the rhythm of the market and the manipulation. It’s the premise behind the COT (Commitment of Traders). I started writing about this latest liquidation towards the end of May.
The current liquidation cycle that we appear to be in, is only the latest in a long string of short selling on rising prices and liquidating on declining prices that has been played out on the COMEX, quite literally, for decades. Due to the repetition of this tech fund/dealer tango, and the total market control the big shorts seem to exert, at least in the short term, it is widely assumed this dance will go on forever. So why am I referencing gospel songs depicting that this may be the last time?
History has shown that whenever previous liquidation cycles have exhausted themselves, low-risk entry points have been presented. These sell offs caused the low risk buy points. The coming end to this current liquidation should prove no different. But what will determine whether it is the last one is the behavior of the big shorts on the eventual rally that follows.
The evidence of a silver manipulation grows stronger by the day. Awareness of the silver (and gold) manipulation has never been more widespread. This is unprecedented. We have never had a situation where hundreds of citizens have petitioned the regulators to end a manipulation. If allegations of a silver manipulation are on the mark, as I believe, surely such public petitioning will hasten its end.
When manipulations end, there is a sudden and violent price movement in the opposite direction from which prices were manipulated. Almost all previous manipulations have been to the long side, where prices were artificially elevated. When those manipulations were terminated, prices then collapsed. The silver manipulation is to the downside, and when it is terminated, the price will soar. If the silver manipulators are as smart and powerful as I have suggested, after they buy back as many short contracts as possible on a sell-off, they will likely step aside from selling new contracts short. If anyone can see the silver manipulation, it is the perpetrators. At some point, they will look to protect themselves when they see no hope in continuing. That will mean no new shorting.
Certainly, the data flow from the CFTC is showing an alarming trend towards super-concentration on the short side in silver (and gold). It’s really getting obvious. For almost a year, the four big commercial shorts have held more than 100% of all commercial net short positions. Recently, the 4 big shorts have held 70% and more of all the true net positions of all traders, commercial, non-commercial and non-reporting combined (when all spreads are removed). Such extremes can not continue, and they certainly can’t intensify. This suggests we have hit the limit in concentration levels.
We also have some interesting dynamics evolving at the CFTC, the chief regulator of silver and gold futures trading. In a few months, we will hit the one-year mark in their current silver investigation. This is the third silver investigation since 2004. Never has the CFTC investigated a commodity so frequently. Never has it investigated any commodity for allegations of manipulation based upon public petitions. The CFTC has often been accused of being an industry lap dog, more interested in cozy industry relations (and post-regulatory employment opportunities), than the public welfare and rule of law. There may be signs of change.
The new chairman of the CFTC, Gary Gensler, has more practical market experience than any previous chairman or commissioner. In every speech or in his congressional testimony he has spoken against fraud, abuse and manipulation. He has endorsed the need for legitimate speculative position limits. These are the specific issues in silver. He has yet to publicly acknowledge that banks speculate when they pretend to be hedging and that they need to be limited, both on the long and short side. Certainly he must have made that acknowledgement privately.
In addition, the new general counsel of the CFTC was a principal architect of the recently released Senate report on excessive manipulation in wheat. He surely sees the connection to silver and has discussed this with the chairman. Both of them know they have a limited time to act on the silver manipulation in order to not be blamed for it. Otherwise, they will inherit the responsibility for it. If the CFTC does decide to enforce existing law and move to end the illegal control by the big shorts, COT analysis becomes moot. You want to hold as much silver as possible before that happens.
As this article was about to be published, a new statement was issued by Chairman Gensler concerning new CFTC initiatives on speculative position limits and changes in the COT reporting. These are issues that go to the heart of the silver manipulation. My sense is that this statement is very important and will directly impact silver. I will be writing about this in the near future. Click Here
At this point, I don’t know how deep the silver and gold sell-offs might be. I will look for signs that suggest it may be over. It could be over quickly, there’s no real way to determine that in advance. In the meantime, the price drop has already removed much risk from the market. We are back to prices that are close to the real cost of production for the primary silver miners. Thousands of contracts have already been liquidated. We are now at prices much more attractive for buying than anytime in the past few months. Besides, you want to play it like it could be last one because if it is, there will be no second chance.
If this plays out as usual, the final sell off engineered by the short sellers will take place amidst a price bottom and doubts about silver’s long-term prospects. I can tell you that all such previous capitulation points proved to be remarkable good buy points. This one will as well. In addition, it may be the last one. If I am right, this could very well be your last great opportunity to buy silver at under $20.
(Editors note: When silver was at $4.10 an ounce, Ted Butler called it one of the great buying opportunities of a lifetime. Our customers have made hundreds of millions following his advice. If he is right this time, as he has to often been, this will be the final great buying opportunity.)
Here is a link to a new interview I did with Eric King of King World News on July 2 Click Here
A WORD FROM IZZY
By Israel Friedman
(Israel Friedman is a friend and mentor to Theodore Butler. He has followed silver for many decades.)
It's time that banks close their trading desks which are only a casino and concentrate on real banking. If the traders and their bank officers don't understand the risk they are taking, it's time they should study the articles written by Mr. Butler. After studying the rarity of silver in the world they will stop holding the price of silver down, and they will look to cover their position of 250 million ounces of silver.
It is only a question of time when the shortage of silver will come. The USA and other world countries donate gold to the IMF but not silver. Why? They don't have silver. The USA has enough gold for 1,000 years of future defense needs, and not one day’s worth of silver. There is no extra silver left in the world.
Don't forget for one moment that silver is a very important strategic metal for the defense industry, and in a case of a shortage, and no silver available, the big short sellers will have jeopardized the national security of the USA. We need today for defense more silver that we can mine in the USA. We are going to depend in the future on imports of silver from unreliable sources. Today’s naked short sellers will be facing the courts and will be charged not only with capping the price for years and producing the world shortage, but also for endangering the national security of the USA.
With all the contraction of world economies, silver is still in a deficit when investment demand is counted. How the naked shorts will cover their obligations at the same time the users and the investors want more silver I don’t know. It will not happen with low prices.
If you think like me that silver is in short supply and sooner or later a shortage will come, you should get your silver before it goes up. All these things these big shorts have been doing to keep the price low makes the coming price rise more certain. When it comes, it will go so high the whole world will ask how this could happen.
March 31, 2009
Ted Butler: The Sting
The Sting
Stunning new evidence of manipulation in silver and gold has just been published by the Office of the Comptroller of the Currency (OCC), a bureau of the U.S. Treasury Department. The OCC, first established in 1863, charters, regulates and supervises all national banks. Their new data proves the manipulation in unambiguous terms. The report also confirms how the U.S. Government, in partnership with JPMorgan Chase, intentionally cheated silver investors worldwide of many billions of dollars during the fourth quarter of 2008, and longer. This was all outside the futures market I normally write about. It was a scam of historic proportions.
According to the OCC’s latest data release, U.S. banks, led by JPMorgan Chase, caused to be liquidated, under intentional duress, more than $20 billion of gold and as much as $9.5 billion of silver in Over The Counter (OTC) derivatives transactions during the fourth quarter of 2008. These derivatives are highly leveraged transactions mostly held by hedge funds and other large investors on the long side and big banks on the short side. While the OCC declares it is responsible for regulating U.S. banks, there is no regulation of these OTC derivatives by anyone. All the OCC does is compile the statistics. This was the largest amount of gold and silver derivatives ever liquidated in a single quarter in history. In the case of silver, more than 50% of all the OTC silver derivatives held by U.S. banks were liquidated in the fourth quarter. I doubt we will see such a large liquidation ever again.
In terms of ounces, this forced liquidation was the equivalent of 25 million ounces of gold and as much as 960 million ounces of silver, at the prices that prevailed during the quarter. These amounts are equal to 250,000 COMEX gold contracts and 192,000 COMEX silver contracts. Remarkably, in the case of silver, this is double the entire current total current open interest in COMEX silver futures, the largest listed and regulated silver market in the world. It is also much larger than annual mine production, total production (including recycling) and total consumption. As I hope you will see, it is not possible for such amounts to be accidentally liquidated within a three-month period. This was a very intentional liquidation.
You can view the data yourself. Here is the OCC’s Quarterly Report on Bank Derivatives Activities - http://www.occ.gov/deriv/deriv.htm The pertinent gold and silver data can be found in each quarterly report in table 9, on page 30. It will be necessary to compare different quarterly reports to measure changes in holdings. Look at totals for all maturities. Gold is broken out separately, silver is in the precious metals category. (Those that analyze this report consider silver to represent 80% to 100% of the precious metals category).
The OCC reports clearly confirm that total gold derivatives (all maturities) declined from $127.2 billion from September 30, 2008 to $106.9 billion on December 31, a reduction of $20.3 billion. Since the price of gold was slightly higher on December 31st than it was on September 30th, the reduction is marginally understated. Since the average price of gold during the fourth quarter was around $800, the $20.3 billion reduction in derivatives amounted to 25.38 million ounces ($20.3 billion divided by $800). JPMorgan accounted for more than 85% of the reduction in gold derivatives during the fourth quarter.
In silver, there was a decline in total precious metals derivatives from $18.7 billion on September 30th to $9.1 billion on December 31st, a reduction of $9.6 billion. Since the price of silver was 5.5% lower on December 31st than it was on September 30th, the reduction may be somewhat overstated. Since the price of silver averaged around $10 per ounce during the fourth quarter, as many as 960 million ounces of equivalent silver were liquidated. JPMorgan and HSBC accounted for 76% of the total amount liquidated.
During the fourth quarter of 2008, I was repeatedly struck by the viciousness of the sell-off in silver, as we twice plunged below $9 an ounce, down almost 60% from the highs of a year ago. I was puzzled why the manipulators had continued to force the price so low, considering that the bulk of the COMEX liquidation was over by September and October. After all, there was no evidence of physical selling of silver, as all categories and measurements of investor demand for physical silver grew during the quarter. This OCC report explains the exaggerated price sell-off completely, despite strong investor demand for silver.
Quite simply, the amount of paper silver (and gold) transacted in the OTC market dwarfed what took place in the real physical market. Further, since the OTC is so opaque, the transparent paper COMEX market was used to set the price for, and cause, the massive liquidation in the larger OTC market. The price that is disseminated from the COMEX is the price that the world goes by and prices all silver (and gold) transactions. Miners, refiners, industrial consumers, investors and paper hedge fund speculators all price off the COMEX. Control the COMEX price and you control the world of silver (and gold). Hedge funds and other large leveraged speculators holding long positions were faced with increasing margin calls as COMEX silver prices were manipulated lower and they sold to the big banks who were short and bought back their shorts. That’s why the concentrated short position is so illegal and manipulative. In fact, this same concentration exists, in spades, in the OTC market as well. Just read the OCC reports.
Further, the OCC reports prove that JPMorgan not only inherited from Bear Stearns the massive COMEX silver short position in March of 2008 (as well as a COMEX gold short position), it also inherited from Bear Stearns a much larger OTC silver and gold short position. From December 31, 2007 to March 30, 2008, JPMorgan’s OTC silver short position grew from $4.9 billion to $12.5 billion. Adjusting for the 16% price increase in silver between those dates, JPMorgan’s silver short position grew by more than 400 million ounces to as much as 735 million ounces, from 335 million ounces. This is separate and distinct from and in addition to their COMEX silver short position.
I know these numbers are shocking. That’s why you must take some time to study the data for yourself. Even if silver is not 100% of the precious metals category, any reasonable percentage will still result in shocking numbers. More than that, such a large and concentrated short position, on both the COMEX and in the OTC market should explain the motive and stakes involved in the great silver flush out of 2008. This silver short position needed to be reduced by any means necessary, due to the unthinkable exposure that would exist if it were not closed out. But so large was this short exposure that while JPM did succeed in reducing its short silver exposure from the highest level in its history when it took over Bear Stearns, to the lowest level in three years, there still exists a silver short exposure of hundreds of millions of ounces.
That the U.S. Government has aided and abetted JPMorgan in this illegal endeavor you should find as repugnant as I do. U.S. Government agencies, like the Treasury Department and the CFTC are the ones publishing these data. The Treasury Department and the Federal Reserve arranged the JPMorgan/Bear Stearns takeover. How could they not be aware of and have sanctioned this historic silver liquidation? It is sickening. Officials should and must go to jail over this.
All this should reinforce the message to buy real silver. That such blatant and illegal efforts are being made to force investors to sell paper silver, should convince you all the more to buy and hold real silver while you can. That they have forced this much silver liquidation should give you a sense of just how valuable silver is, and to what price levels they expect it to climb to. Don’t listen to me, look at what they have done.
There is too much to write about this week to fit into one article. Therefore, I’m going to do something different. I plan to publish new articles on different (but related) topics tomorrow and the day after. Please check back for those articles.
In closing, I’d like to leave you with a You-Tube video that an inventive reader from Australia, John Christian, created, using Izzy’s last article. I think you’ll enjoy "The Silver War Cry"
According to the OCC’s latest data release, U.S. banks, led by JPMorgan Chase, caused to be liquidated, under intentional duress, more than $20 billion of gold and as much as $9.5 billion of silver in Over The Counter (OTC) derivatives transactions during the fourth quarter of 2008. These derivatives are highly leveraged transactions mostly held by hedge funds and other large investors on the long side and big banks on the short side. While the OCC declares it is responsible for regulating U.S. banks, there is no regulation of these OTC derivatives by anyone. All the OCC does is compile the statistics. This was the largest amount of gold and silver derivatives ever liquidated in a single quarter in history. In the case of silver, more than 50% of all the OTC silver derivatives held by U.S. banks were liquidated in the fourth quarter. I doubt we will see such a large liquidation ever again.
In terms of ounces, this forced liquidation was the equivalent of 25 million ounces of gold and as much as 960 million ounces of silver, at the prices that prevailed during the quarter. These amounts are equal to 250,000 COMEX gold contracts and 192,000 COMEX silver contracts. Remarkably, in the case of silver, this is double the entire current total current open interest in COMEX silver futures, the largest listed and regulated silver market in the world. It is also much larger than annual mine production, total production (including recycling) and total consumption. As I hope you will see, it is not possible for such amounts to be accidentally liquidated within a three-month period. This was a very intentional liquidation.
You can view the data yourself. Here is the OCC’s Quarterly Report on Bank Derivatives Activities - http://www.occ.gov/deriv/deriv.htm The pertinent gold and silver data can be found in each quarterly report in table 9, on page 30. It will be necessary to compare different quarterly reports to measure changes in holdings. Look at totals for all maturities. Gold is broken out separately, silver is in the precious metals category. (Those that analyze this report consider silver to represent 80% to 100% of the precious metals category).
The OCC reports clearly confirm that total gold derivatives (all maturities) declined from $127.2 billion from September 30, 2008 to $106.9 billion on December 31, a reduction of $20.3 billion. Since the price of gold was slightly higher on December 31st than it was on September 30th, the reduction is marginally understated. Since the average price of gold during the fourth quarter was around $800, the $20.3 billion reduction in derivatives amounted to 25.38 million ounces ($20.3 billion divided by $800). JPMorgan accounted for more than 85% of the reduction in gold derivatives during the fourth quarter.
In silver, there was a decline in total precious metals derivatives from $18.7 billion on September 30th to $9.1 billion on December 31st, a reduction of $9.6 billion. Since the price of silver was 5.5% lower on December 31st than it was on September 30th, the reduction may be somewhat overstated. Since the price of silver averaged around $10 per ounce during the fourth quarter, as many as 960 million ounces of equivalent silver were liquidated. JPMorgan and HSBC accounted for 76% of the total amount liquidated.
During the fourth quarter of 2008, I was repeatedly struck by the viciousness of the sell-off in silver, as we twice plunged below $9 an ounce, down almost 60% from the highs of a year ago. I was puzzled why the manipulators had continued to force the price so low, considering that the bulk of the COMEX liquidation was over by September and October. After all, there was no evidence of physical selling of silver, as all categories and measurements of investor demand for physical silver grew during the quarter. This OCC report explains the exaggerated price sell-off completely, despite strong investor demand for silver.
Quite simply, the amount of paper silver (and gold) transacted in the OTC market dwarfed what took place in the real physical market. Further, since the OTC is so opaque, the transparent paper COMEX market was used to set the price for, and cause, the massive liquidation in the larger OTC market. The price that is disseminated from the COMEX is the price that the world goes by and prices all silver (and gold) transactions. Miners, refiners, industrial consumers, investors and paper hedge fund speculators all price off the COMEX. Control the COMEX price and you control the world of silver (and gold). Hedge funds and other large leveraged speculators holding long positions were faced with increasing margin calls as COMEX silver prices were manipulated lower and they sold to the big banks who were short and bought back their shorts. That’s why the concentrated short position is so illegal and manipulative. In fact, this same concentration exists, in spades, in the OTC market as well. Just read the OCC reports.
Further, the OCC reports prove that JPMorgan not only inherited from Bear Stearns the massive COMEX silver short position in March of 2008 (as well as a COMEX gold short position), it also inherited from Bear Stearns a much larger OTC silver and gold short position. From December 31, 2007 to March 30, 2008, JPMorgan’s OTC silver short position grew from $4.9 billion to $12.5 billion. Adjusting for the 16% price increase in silver between those dates, JPMorgan’s silver short position grew by more than 400 million ounces to as much as 735 million ounces, from 335 million ounces. This is separate and distinct from and in addition to their COMEX silver short position.
I know these numbers are shocking. That’s why you must take some time to study the data for yourself. Even if silver is not 100% of the precious metals category, any reasonable percentage will still result in shocking numbers. More than that, such a large and concentrated short position, on both the COMEX and in the OTC market should explain the motive and stakes involved in the great silver flush out of 2008. This silver short position needed to be reduced by any means necessary, due to the unthinkable exposure that would exist if it were not closed out. But so large was this short exposure that while JPM did succeed in reducing its short silver exposure from the highest level in its history when it took over Bear Stearns, to the lowest level in three years, there still exists a silver short exposure of hundreds of millions of ounces.
That the U.S. Government has aided and abetted JPMorgan in this illegal endeavor you should find as repugnant as I do. U.S. Government agencies, like the Treasury Department and the CFTC are the ones publishing these data. The Treasury Department and the Federal Reserve arranged the JPMorgan/Bear Stearns takeover. How could they not be aware of and have sanctioned this historic silver liquidation? It is sickening. Officials should and must go to jail over this.
All this should reinforce the message to buy real silver. That such blatant and illegal efforts are being made to force investors to sell paper silver, should convince you all the more to buy and hold real silver while you can. That they have forced this much silver liquidation should give you a sense of just how valuable silver is, and to what price levels they expect it to climb to. Don’t listen to me, look at what they have done.
There is too much to write about this week to fit into one article. Therefore, I’m going to do something different. I plan to publish new articles on different (but related) topics tomorrow and the day after. Please check back for those articles.
In closing, I’d like to leave you with a You-Tube video that an inventive reader from Australia, John Christian, created, using Izzy’s last article. I think you’ll enjoy "The Silver War Cry"
October 13, 2008
Ted Butler: The Masters of Destruction
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.
Wlukken@cftc.gov
Mdunn@cftc.goc
Bchilton@cftc.gov
Jsommers@cftc.gov
Alavik@cftc.gov
Sobie@cftc.gov
Dean.payton@cmegroup.com
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.
Wlukken@cftc.gov
Mdunn@cftc.goc
Bchilton@cftc.gov
Jsommers@cftc.gov
Alavik@cftc.gov
Sobie@cftc.gov
Dean.payton@cmegroup.com
September 26, 2008
CFTC relents and probes silver market
Persistent Complaints of Foul Play Draw the Still-Skeptical Agency to Investigate
By Carolyn Cui
The Wall Street Journal
Thursday, September 25, 2008
With silver prices falling this past summer, silver bugs worldwide set out to prove that their metal was in short supply and market manipulation was at work. They bombarded federal regulators with hundreds of emails crying foul play and demanded answers.
Though such pleas proved futile in the past, this time the rousing chorus grabbed regulators' attention. On Wednesday the Commodity Futures Trading Commission confirmed that there's an investigation into the silver market.
The CFTC isn't yet convinced there's systemic wrongdoing and in May published a report saying as much. But the agency decided to take a fresh look, in part to show critics that it checks out complaints, and also to make sure there isn't something new to uncover.
"We take the threat of manipulation in the futures and options markets very seriously and employ a number of measures to prevent, identify and prosecute it," said Stephen Obie, acting director of the agency's division of enforcement.
Silver investors have argued that a handful of U.S. banks have been controlling a large portion of silver's short positions -- or bets that prices will decline -- on Comex division of the New York Mercantile Exchange. Official data from the CFTC showed that two U.S. banks had increased short positions in the silver futures market between July and August by 450% and controlled 25% of the total open interest.
"The proof that this selloff was criminal lies in public data," wrote Theodore Butler of Cape Elizabeth, Maine, in August in a silver newsletter. "The concentrated sale of such quantities in such a short time" caused silver's fall, wrote Mr. Butler, who for many years has been vocal about purported silver-market manipulation. In September he reiterated to readers that they should email the CFTC.
The CFTC had argued in May that the large banks that people assailed for manipulating the market were instead acting appropriately as market makers, who take on futures positions to offset their exposure in over-the-counter markets. Therefore, these traders aren't "naked shorts" and won't benefit from long-term depressed silver prices. Many analysts agree with the agency's conclusion.
Silver stalwarts weren't persuaded. Jason Hommel, a newsletter writer based in Penn Valley, Calif., directed readers to visit their local coin shops at 2 p.m. on Sept. 2 to size up for themselves whether there was a silver shortage. From Michigan to North Carolina and beyond, he says, investors trekked to coin shops. Many reported no silver for sale.
Bart Chilton, one of the CFTC commissioners, said he has received about 700 emails from silver investors since August, far more than the estimated 100 he received from May to July. Mr. Chilton, a Democrat who has criticized the CFTC as doing a poor job communicating with consumers, says he has spent nights and weekends personally answering emails.
Historically, silver has been a volatile market. This year it saw a near-50% drop and remains down 9.5% on the year. Gold is up 6.5%. The agency has long heard from frustrated silver investors. In 2004, it published an open letter by Michael Gorham, then the agency's director of market oversight, after receiving more than 500 letters and emails from silver investors.
That the enforcement rather than oversight division is taking on the issue marks a difference from the CFTC's previous efforts regarding the silver market. The oversight division performs overall market surveillance. The enforcement division looks at activities in a specific time period.
* * *
By Carolyn Cui
The Wall Street Journal
Thursday, September 25, 2008
With silver prices falling this past summer, silver bugs worldwide set out to prove that their metal was in short supply and market manipulation was at work. They bombarded federal regulators with hundreds of emails crying foul play and demanded answers.
Though such pleas proved futile in the past, this time the rousing chorus grabbed regulators' attention. On Wednesday the Commodity Futures Trading Commission confirmed that there's an investigation into the silver market.
The CFTC isn't yet convinced there's systemic wrongdoing and in May published a report saying as much. But the agency decided to take a fresh look, in part to show critics that it checks out complaints, and also to make sure there isn't something new to uncover.
"We take the threat of manipulation in the futures and options markets very seriously and employ a number of measures to prevent, identify and prosecute it," said Stephen Obie, acting director of the agency's division of enforcement.
Silver investors have argued that a handful of U.S. banks have been controlling a large portion of silver's short positions -- or bets that prices will decline -- on Comex division of the New York Mercantile Exchange. Official data from the CFTC showed that two U.S. banks had increased short positions in the silver futures market between July and August by 450% and controlled 25% of the total open interest.
"The proof that this selloff was criminal lies in public data," wrote Theodore Butler of Cape Elizabeth, Maine, in August in a silver newsletter. "The concentrated sale of such quantities in such a short time" caused silver's fall, wrote Mr. Butler, who for many years has been vocal about purported silver-market manipulation. In September he reiterated to readers that they should email the CFTC.
The CFTC had argued in May that the large banks that people assailed for manipulating the market were instead acting appropriately as market makers, who take on futures positions to offset their exposure in over-the-counter markets. Therefore, these traders aren't "naked shorts" and won't benefit from long-term depressed silver prices. Many analysts agree with the agency's conclusion.
Silver stalwarts weren't persuaded. Jason Hommel, a newsletter writer based in Penn Valley, Calif., directed readers to visit their local coin shops at 2 p.m. on Sept. 2 to size up for themselves whether there was a silver shortage. From Michigan to North Carolina and beyond, he says, investors trekked to coin shops. Many reported no silver for sale.
Bart Chilton, one of the CFTC commissioners, said he has received about 700 emails from silver investors since August, far more than the estimated 100 he received from May to July. Mr. Chilton, a Democrat who has criticized the CFTC as doing a poor job communicating with consumers, says he has spent nights and weekends personally answering emails.
Historically, silver has been a volatile market. This year it saw a near-50% drop and remains down 9.5% on the year. Gold is up 6.5%. The agency has long heard from frustrated silver investors. In 2004, it published an open letter by Michael Gorham, then the agency's director of market oversight, after receiving more than 500 letters and emails from silver investors.
That the enforcement rather than oversight division is taking on the issue marks a difference from the CFTC's previous efforts regarding the silver market. The oversight division performs overall market surveillance. The enforcement division looks at activities in a specific time period.
* * *
September 8, 2008
Jason Hommel: The World Needs a Free Market in Silver
The World Needs a Free Market in Silver
(Functioning Markets Solve the Problem and Free Markets Work Best)
Silver Stock Report by Jason Hommel, September 7th, 2008
This may be the most important article that I will ever write in my lifetime, and it may be the most important you will ever read. I don't know if things will ever be as crucial on the world stage as they are today. The world has a choice to head towards increased freedom and prosperity, or towards shortages and misery.
Typically, stories of inflation and hyperinflation are accompanied by stories of food shortages, misery and pain. During some hyperinflations, people are reported to be so desperate to save their currency that they will buy bed pans or piles of horse manure to preserve the value of their wealth. Thank God we can still buy silver, instead!
The price of Rat Meat in Cambodia has increased 400% as investors flee from inflation!
http://news.yahoo.com/s/nm/20080827/od_uk_nm/oukoe_uk_cambodia_rats
Today, there is a world emergency, a world crisis that is being ignored, because silver is a neglected and forgotten metal and industry, and more eyes are on the banking crisis and on the election than on silver.
The silver markets are failing and breaking down. The COMEX fraud of allowing the sale of excessive and unbacked paper futures contracts is destroying the silver market. Too many silver dealers, refiners, and coin shops have relied on the COMEX price to set their own prices, although nothing was for sale and no silver came to market when those prices were set, and so they mostly all ran out of inventory.
If we do not solve the problem of the broken COMEX market, the world will continue to be plagued with shortages that will extend much further than the silver market, and into all other markets. We could end up with desperate food shortages, as investors who cannot find silver may end up purchasing food to protect their money, instead of silver, and if that happens, starvation on a world-wide scale could result. In fact, it has already begun with rising food prices worldwide as investors pour into grains as a result of inflation driving speculators into all commodities.
Price increases push US soy beyond reach of poor:
http://money.aol.com/news/articles/_a/bbdp/price-increases-push-us-soy-beyond-reach/163191
That is the danger of allowing COMEX fraud to continue unopposed. The best way to oppose COMEX fraud and end it, is not through letter writing campaigns to the CFTC, and not through police crackdowns from the SEC, nor from new regulation by Congress.
We don't need to use force to stop evil. We can overcome evil with good. Where the spirit of the Lord is, there is Liberty! We just need to understand, embrace, and create freedom.
And so, rather, the best way to oppose COMEX fraud and end it is to create an alternative free marketplace or free markets where silver can always be more and more freely bought and sold.
An alternative free market will end the fraud faster than you can imagine, much faster than any CFTC investigation, through the profit incentive to buy from one market to sell into another.
Have no fear. The profit incentive, and the ease of the use of the internet, will create the incentives to create that alternative market where our silver will be fairly valued, and freely traded.
Traders rightfully point out that if the COMEX price is fraudulently too low, then people would buy bars at COMEX, and sell into the free market, and make a killing.
After all, you can make much, much more on a 20% mark-up by quickly flipping silver and selling to investors than you can with a 100% mark up selling jewelry, because the jewelry market has slower turnover of product.
Example: If you can make 20% per transaction, and make 12 such transactions per year, only once a month, you can make 792% in a year!
See
http://www.smartmoney.com/compoundcalc/
for the math.
I might not be willing to risk my money to stand for delivery of a COMEX contract, but others will, if there is another market for them to easily sell into.
You could make even more money, 1200% per year, making a 5% profit spread if you bought in one liquid market and sold into another liquid high volume market once a week. Liquidity is key. Liquidity is crucial to the speed of trading, which aids turnover. Silver, by its nature, should always be extremely liquid.
At COMEX, liquidity in silver is thwarted by having a "delivery month" of an unreliable time frame, and not every month is a major delivery month. The Post Office, as dreaded as it is, is far more reliable than COMEX. COMEX also does not ship out silver, but makes you go there to get it.
Given that silver coins are selling at a $3-4 per ounce premium over the spot price, which is about a 30% premium or profit, then makers of silver coins and bars should be able to make huge profits, if they can find silver bars at COMEX prices to turn into coins!
This is how we know 1000 oz. silver bars are in short supply! Perhaps the recent shortage is at least partly a result of this month, September, being a delivery month.
But there's a bigger problem. A free market in silver with high volumes and low spreads does not exist. So, you can't go and buy silver from COMEX, to sell into a non-existent market.
Today, maybe neither market exists!
There are alternatives to COMEX, but none of them has the capacity to pick up the slack and carry the huge volumes of trade, and allow a trusted and reliable form of price discovery to take place.
For example, Fresnillo, the silver refinery in Mexico that refines about 90% of the silver in Mexico, which produces about 80 million ounces of silver per year, ships out 600,000 ounces of silver at a time, in 1000 oz. bars, 30,000 oz. per pallet at a time.
The world needs a market that can handle and service the needs of refiners such as Fresnillo, so they will ship to the free market or at free market prices; instead of to COMEX or to other places at COMEX prices.
Yes, there are the coin shops and online bullion dealers. But investors typically do not want 1000 oz. bars because they are ugly, not standard size, and too heavy at around 70 pounds. APMEX recently had more than 20 for sale for a few days, and they sold out, but that's not a very large volume, and they didn't sell at a much of a premium, only about 35 cents over spot.
Ebay is good because they only allow people to sell what they have, and there is a rating system in place to allow feedback on sellers reputations, and ebay allows competitive bidding to allow an odd form of price discovery to take place.
But ebay is not useful because we often do not see the final auction price at the last minute. And ebay is bad because fees are excessive with fees ranging from 10-15%! That's not a "free market", it's a rather costly market! Also, it is difficult to buy in volume, because there is limited product available. And fraud levels are still too high, and there are additional penalties on sellers. Another drawback to ebay is that there is no aggregation ability to place large orders over multiple auctions of standardized fungible products that are similar enough to be interchangeable. Nor can you use ebay to sell into anyone's standing bid for a standardized form of product. So ebay is mostly a one way market, not a two way market, like an exchange should be.
There is bulliondirect.com. But it, too, suffers from low volume, lack of product availability, product delivery delays, and difficulty of use.
There is craigslist.com. The advantage is that you can connect with people in your local area anonymously for cash to silver transactions, but there is no volume at all.
Goldmoney.com is another site where you can trade. But there is a restrictive trading limit of 1500 ounces of silver per day.
http://support.goldmoney.com/article.php?id=098
And there are other futures markets and exchanges in Tocom, Dubai, Shanghi, and elsewhere, but their volumes are much lower than at the COMEX, and like the COMEX, futures contracts can be created and sold to excess.
In any reasonable money exchange marketplace, gold should also be able to be traded for silver, and silver for gold, without having to move into fiat currencies. So, although my personal focus is on silver, I'm really talking about a new kind of silver and gold market exchange.
The world desperately needs a better silver market, in multiple locations around the world that cannot be shut down by desperate and dying governments that rely on paper money fraud, if the world is to survive the implosion and end of fraudulent futures contract trading.
I strongly believe that the most important features of a free market are to end fraudulent transactions of promises to deliver silver in the future that may not exist.
The fraud must end. That is the most important.
But also, perhaps next most important is to encourage high volumes by providing the best market structure at the lowest possible cost?
Readers, the world needs your help!
There are people who know how to make things happen, who can design specs, set up markets, hire programmers, set up verification systems, set up storage locations, and handle the logistics much better than I can. I'm merely a thinker, a theorist, and a writer. And I have a family, and I'm located in a small town, far away. I'm a horrible manager, and I don't like working with people as I have little patience for those who cannot understand right away, even though it sometimes takes me years to "get it". Anyone who has ever emailed me probably knows I'm "short tempered" that way.
Please give me feedback and share your thoughts, and I'll collect your emails and share your suggestions to inspire those people who are more people oriented and action oriented who can make this happen. What other features are important in the design of the most optimal and most free, free market for silver?
Topics for thought:
Ease of use? - OR - Verification of users?
Elimination of fraud? - OR - A Reliable and successful transaction history?
Standardization of bars? - OR - Verification of bars?
Bid/Ask trading at all hours? - OR - Once per day auction price setting?
Reduced speculation & Reduced leverage? - OR - Fully paid for trading?
Ability to handle small transaction sizes - OR - ability to handle large volumes through high minimum transaction sizes?
There is also the issue of cross border shipping logistics.
I'm doing my best to end world poverty by educating investors.
There may be limited silver, but there is unlimited wealth in silver. It just needs to be unlocked by a higher price that can be discovered by a functioning and honest free market in silver.
Sincerely,
August 28, 2008
Two competing silver prices in Never-Never Land
Once-upon-a-time, in ‘never-never’ land,
There were two competing silver prices
There were two competing silver prices
Peter Degraaf
These two silver prices were at loggerheads with each other. Every time the ‘real’ silver price began to rise, a ‘paper’ silver price would show up in large quantities and scare some of the holders of real silver to dump and run.
Silver miners and coin dealers with ‘real silver’ in inventory, instead of being organized, and using supply and demand to determine the price of silver, would look at a computer screen, check to see what ‘paper silver’ was doing and meekly accept that as the price at which to sell silver.
The Silver Users of America (SUA), is the only ‘user cartel’ in existence. (Cartels are usually comprised of suppliers – OPEC comes to mind). For years the SUA and their willing accomplices have been able to spook the people who deal in ‘real silver’ into coughing up silver at low prices, simply by dumping ‘paper silver’ onto the markets. While there are no manuals available detailing how they do this, we will have to make some assumptions based on observations regarding market action.
Here is my assumption: Assume that I am a member of the SUA, and it is in my interest to keep the price of silver as low as possible. Along with my fellow SUA members, I go about engaging half a dozen large bullion banks that are active in the futures markets. I mention to them that my fellow SUA members and I would like to cap a rally that has just driven silver to a new high. Would it be possible, I ask them, as soon as we see that buying is drying up because of resistance at this new price, for you and your fellow bankers to start selling a large number of futures contracts and options using ‘paper silver’?
Let’s pick a time when there are not too many people active in the marketplace, and volume has slowed right down.
My fellow SUA members and I will do the same, and as soon as we create some momentum, the hedge funds will dump their ‘long’ contracts and join us, since they like to chase a trend. Then, the small and large investors who have bought silver on margin will have to sell, and they will also become our helpmates.
By any chance, do any of you bankers have an inside track to any of the central banks? It would be very helpful if one or more central banker could raise the value of the US dollar at the same time as we start our selling campaign.
It would also be very helpful if you people used your influence with the governing body at the various futures exchanges to tell them that what we are doing is simply ‘normal market behavior.’
If we all work together, then you and your fellow bankers will be able to buy back the contracts you sold high, at a lower price, and my fellow SUA members and I will be able to buy ‘real silver’ cheaply from the mining industry, since these people still have not figured out our game and have not yet banded together to form a suppliers cartel.
A funny thing happened last week. The SUA and its fellow travelers may have pushed ‘paper silver’ too low. Shortages in ‘real silver’ began to appear, and more and more people now are beginning to understand what is happening. My advice to those among you who think you are buying ‘real silver’ when you are trading ‘paper silver’ is this: Make sure you buy ‘real silver’ with the profits you make in ‘paper silver’, just in case it turns out there is a shortage of ‘real silver’ to back the ‘paper silver.’
Featured is the daily silver chart. The blue arrows point to times when the silver price fell below the 200DMA (red line on the chart). Two years ago, at the seasonal low in September, price fell to 2% below the 200D. A year ago during the August seasonal low, price fell to 3.5% below the 200DMA. Last week during the presumed 2008 seasonal lows the price was pushed 37% below the 200D!! Think of this as the sellers of ‘paper silver’ having pushed a beach ball well below the surface of the water in a pool. Think of how rapidly the beach ball can rise when it is released, then go buy some ‘real silver’, just as I have been doing.
Notice the RSI at the top of the chart is already turning positive, and the MACD at the bottom of the chart is also ready to turn up again.
The positive aspect that is impressive about the rise in today’s silver price (Tuesday 08/26)), is the fact that the US dollar is also rising. In 2005, silver, gold and the US dollar all rose in tandem.
Therefore, a decoupling (separating the metals from the movements in the US dollar), would not be unique. The main driver for silver and gold is the fact that ‘real interest rates’ (T-bills less CPI) are currently negative. Whenever rates are negative, silver and gold usually rise, as money in bank accounts is punished.
This is ‘real silver’. It does not fold, crumple or burn, you cannot create it on a computer.
DISCLAIMER:
Please do your own due diligence. I am NOT responsible for your trading decisions.
Peter Degraaf is an online stock trader with over 50 years of investing experience. He issues a weekly alert to his many subscribers. For a free 60 day trial, just send him an E-mail at itiswell@cogeco.net, or visit his website www.pdegraaf.com
August 25, 2008
Gene Arensberg: Silver sucker-punched by two U.S. banks
Resource Investor today posted a special "Got Gold Report" by Gene Arensberg in which he credits silver market analyst Ted Butler for exposing the recent vast downward manipulation of the silver market by two unidentified U.S. banks. Arensberg expects the Commodity Futures Trading Commission to take action against these banks. He writes:
"It will not be surprising at all if we learn that these two U.S. banks are taken to task by regulators for their actions. It will be even less surprising to learn that they have become the target of multi-billion-dollar class-action lawsuits by hungry lawyers representing silver investors everywhere."
Maybe U.S. financial market regulators will do their job right for once, but we'd find it easier to believe in the tooth fairy.
You can find Arensberg's commentary, headlined "Silver Investors Sucker-Punched by Two U.S. Banks" complete with some nice charts, at Resource Investor HERE
"It will not be surprising at all if we learn that these two U.S. banks are taken to task by regulators for their actions. It will be even less surprising to learn that they have become the target of multi-billion-dollar class-action lawsuits by hungry lawyers representing silver investors everywhere."
Maybe U.S. financial market regulators will do their job right for once, but we'd find it easier to believe in the tooth fairy.
You can find Arensberg's commentary, headlined "Silver Investors Sucker-Punched by Two U.S. Banks" complete with some nice charts, at Resource Investor HERE
August 21, 2008
Jason Hommel: Silver has Run Out, Now!
Silver has Run Out, Now!
(Just try to find some!)
Silver Stock Report
by Jason Hommel, August 20th, 2008
For a long time, people have been asking me, "When will silver run out?". They know that the world uses up more silver each year (about 850 million ounces) than the world mines (about 600 million ounces), and that existing demand can only be met by selling existing inventory (such as recycling 200 million ounces, or goverments selling 50 million ounces), so it's a natural question to ask. The question is not implying that mankind will be unable to mine any more. Rumor is that there remains at least about 14-16 years of silver in the ground at "current" prices; while at much higher prices, silver mining becomes more economic, and more deposits can be added to that "in ground" reserve number.
So, the question is really just asking, "When will we run out of "excess" above ground silver that can meet the supply/demand gap, so that the price will begin to really take off upwards?" Clearly, the world has silver in supplies above ground, and such silver supplies are dwindling in order to meet the supply/demand gap. About two years ago, the world started adding to above ground silver supplies as silver investors started buying, (and the silver surveys label investor buying as a "surplus". However, silver recycling was still greater than new stockpiling, which continued to deplete overall silver supplies.
Such a question as "When will silver run out?" cannot really be answered in advance, since nobody really knows how much silver there is, and who owns it, and at what price they are willing to sell it. Again, that brings us back to the nature of silver; it's inherantly private wealth, held anonymously. Estimates on "above ground" silver, in refined, deliverable form have ranged from 300 million ounces to 1 billion ounces, to about a high of 4 billion ounces if you include jewelry and flatware, up to 20 billion ounces if you include all forms of silver that have not ended up in landfills, out of the total of 43 billion ounces of silver estimated to have been mined in all of human history. Furthermore, nobody is arguing that the last bit of silver that exists needs to be consumed before the price rises substantially. The question is really about when will all the unwanted silver, in so-called "weak" hands of holders who don't really want it, be sold, to allow the price to rise to meet the majority of the expectations of the remaining wise investors who have planned in advance to actually store up some of the rare stuff.
But finally, I think the answer has arrived. The answer is "NOW!" Silver has run out, now! Or, in other words, most of the cheap silver has run out.
There are two excellent articles on the shortage of Silver that I'd like to bring to your attention if you have not already seen them:
This one is by "seekingalpha", and is very excellent, and very comprehensive.
The Disconnect Between Supply and Demand in Gold & Silver Markets
(August 18th)
http://seekingalpha.com/article/91357-the-disconnect-between-supply-and-demand-in-gold-silver-markets
The article goes over how the silver shortage is also affecting India.
He also covers the paper silver fraud that is commonplace and "standard business practice" in Wall Street brokerage houses.
This next article is short and powerful, and written by a coin dealer:
The Disconnect Between The Physical Gold and 'Paper Contract' Markets
(August 19th)
http://www.numismaster.com/ta/numis/Article.jsp?ad=article&ArticleId=5093
What's amazing is that last year, net physical silver investment demand was estimated to be about 30-60 million ounces, or about $1 billion worth.
Today, with 90% of the people in the U.S. being concerned about inflation, and a growing awareness of the danger of banks going bankrupt, there ought to be about 90% of the $14,000 billion of money in the banks that should be seeking to buy either some silver, or gold.
So, where do you think silver prices are headed? How can most of $14,000 billion enter a market of $1 billion that is already suffering a shortage, and prices not go up, a lot?
And oh yes, what about that current low price?
There's a short story that goes something like this. A lady wants to buy sausage. There are two butcher shops next to each other, one advertises $1.99/lb., the other advertises $2.99/lb. She goes to the $1.99/lb. shop first. But there's no sausage, they are out. So, she goes across the street, and sees sausage for $2.99/lb., and promptely complains about the price. "Why don't you sell it for $1.99/lb like the other guy?" Butcher answers, "Lady, when I'm out, mine is $1.99/lb, too!"
Price means nothing if you can't get the product. Many people are still sending money to dealers who will take your money, but have no silver, and no idea when they can get it.
Be very, very careful about ordering silver right now. Demand to know exactly when they can deliver. If they can't guarantee delivery within a week or your full money back, then consider that they probably don't have it!
Here's what I suggest. FIND YOUR LOCAL COIN SHOP and go there, in person. Or visit the dealers who are recommended at:
www.find-your-local-coin-shop.com
In fact, now might be a good time to meet up other Silver Stock Report readers.
I suggest that everyone visit their favorite local coin shop on September 1, at 1PM. That's a Monday.
Sincerely,
Jason Hommel
August 19, 2008
David Bond: Let's be Hunts
By: David Bond, Editor The Silver Valley Mining Journal
-- Posted 17 August, 2008
The Wallace Street Journal
Wallace, Idaho – Forgive two rants so close apart, but no sooner had our tirade on the scarcity of retail silver appeared on Goldseek and LeMetropole Cafe – it would have appeared on our own Silverminers.com except we're still rebuilding the site from whoever hacked the hell out of it last month – than the U.S. Mint halted sales of its fabulously popular 1-ounce Gold Eagle coins to the American public.
That was last Thursday night, after we went to bed. Much has happened between Thursday night and this Sunday night. There's no retail 1-ounce silver left on the market; deliveries of 100-ounce Comex-grade bars won't happen until October 15th. The Gold Eagles are gone. GONE!!!!!!!
One would think, as we postulated last Thursday, that the reason the prices for gold and silver were so low was that nobody wanted them. That would be the classic Keynsian explanation. But instead we were told that the reason the prices were so low is that EVERYONE wanted silver and gold 1-ounce coins.
When the market starts talking such gibberish, it's time to start thinking about a Hunt. As in, Nelson Bunker and William Herbert Hunt. We remain amazed, 28 years later, that supposedly sophisticated investors regard the events of 1979 and 1980 as “that time when the Hunts tried to corner the silver market.”
This is one of those monster myths that is so incredible and so false it must be believed by the unwashed masses. Regrettably, detritus of these masses grow up to be Presidents of the United Snakes, or of some branch of the Federal Reserve Bank. Makes them no less idiots, their Ivy League pedigrees notwithstanding.
In 1977, Bunky Hunt surveyed a battlefield much as the one that confronts us: there was paper silver a-plenty for sale, but not a physical ounce in sight. Hunt and his brother, reared in the resource-rich ethic of mid-Texas and Oklahoma, saw a gaping hole in the illusion that is American wealth: a bunch of paper selling a commodity that could not be bought. These things occur from time to time in corn, soybean, and oil commodities, but only temporarily until the market quickly achieves contango – its balance. The only time a gaping imbalance between the paper and the physical market is allowed to persist, the only time the paper price is allowed to be lower, and lower for a long period of time, than the physical price of the commodity, is in the trading of silver and gold.
It is useful for a government like the one that has commandeered the United Snakes, such government and its banks, to permit such an imbalance to exist. If the paper price of silver and gold are severely lower than their actual value, the paper money that the United Snakes and its banks issue is theoretically more valuable – relative to silver and gold – than it really is. Push down the metals, up goes the U$ Dollar. This is our current situation.
And it is profitable for the United Snakes government until some kill-joy comes along and wants delivery. The Brothers Hunt saw that the absurdly-priced silver contract of $3.50 an ounce was a bargain, that $3.50 silver existed nowhere in the real world except in the paper futures pits, but there it was, for sale, on the Comex.
My late friend, Paul Sarnoff, watched the thing unfold from his front-row seat at Paine Weber. The Hunts were a client, as was a Catholic archdiocese and several Arabs, who were getting worried about the quality of the paper they were being paid for their oil. Put yourself back in those times: gas prices were going through the roof; home mortgages, if you could get one and had perfect credit, were going for 18 percent APR; we had a weak President facing unpopular situations in Iran (where there were hostages) and Afghanistan (where the Russians were being adventurous). There was a run on the U.S. dollar in Europe.
And there was no silver. Not since the United Snakes had kicked silver out of the U.S. monetary system had silver been more scarce. Yet there it was, for sale on the Comex, for sale by the likes of the big central banks and bullion banks of the world. But such was no big deal. Between 97 and 99 percent of those 5,000-ounce silver contracts were settled in paper.
But the Hunts and their friends – this was in 1977 – began buying this paper over a period of years. By October 1979, the Hunts and their pals had bought up the bullion dealers' paper positions to the tune of 192 million ounces. Nelson Bunker Hunt owned 79 million ounces of silver – on paper; William Herbert Hunt, another 48 million ounces; their pals, including the Arabs, another 65 million ounces.
Is it too much to ask, if you buy a car from a guy, and you pay him the cash and he signs over the title, that you might get the car? This, ladies and gentlemen, is all the Hunts ever asked. They did not ever “corner” the silver market. All they asked was for the bullion dealers to keep their promises, and deliver.
Chaos ensued. There was then – as there is now – no silver to be had. Not in London or New York warehouses nor in the ground. Not anywhere. And for the simple reason that the Hunts and their pals asked for the delivery of silver they were promised by contract, they were vilified. Driven to ruin. And they provoked their own ruin: Bunky said he'd issue silver certificates in lieu of paper dollars, if people wanted to play. When I was a child, silver certificates were the money of the land.
This writer carries no cross for the Hunts. They were forced to sell the brokerage, Bache, that had carried their contracts but bet against them. But they still have their race-horses in Paris, and I am sure they have not missed a meal.
But there is a monster short position in silver again. It probably exists to prop up the Bush puppetry until the November election. Presidential election years are always hard on metals and easy on mortgage rates, except this year, the mortgage market is done, so new paradigms are in the making. Metals may come back far sooner than is ordered by the Fed and the FDIC. And remember, here is no Jimmy Carter to sell a billion ounces of silver into the market to quiet the Dollar worries. Carter's still around, but those 1 billion ounces are long gone.
The Hunts shook the lying bankers to their boots – to the point where intervention by the Fed, Treasury, and the Defense Department were warranted – merely by asking for delivery of the 192 million ounces of silver they'd been promised. This was not a “cornering” of a market; it was the attempt to enforce a contract, same as you've got with your landlord or bank.
So let's all of us be Hunts. Ask delivery of $12.80 silver and $790 gold, today. There are 300 million of us. A single ounce of physical silver for every man, woman and child in the United Snakes would squeeze these rat-bastards harder than the Hunts could ever do. There were two Hunt brothers in 1979. There are 300 million of us in 2008. Even in this country, there aren't enough jail cells to hold us all. And we could take their pants off, once and for all.
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