Incredible Discussion of Silver and Gold Manipulation
The following comes from the very capable gold experts at LeMetropole Cafe. I am sharing the following discussion of developments in the lackluster investigation by the CFTC into market manipulation in gold and silver through highly concentrated positions by a select few banks. Please read on and draw your own conclusions, but having followed this fascinating story from the beginning, I can tell you that the facts as they are reported by Ted Butler, Adrian Douglas, and Bill Murphy are indeed bona fide facts, and the responses from CFTC speak for themselves in terms of their obvious attempts to skirt the issue and deflect responsibility for the blatant manipulation underway.
For the record, these allegations of malfeasance are real and well-documented, and the response from the responsible oversight agency are simply more evidence of the complicity toward rigged markets that pervades the entire financial paradigm. It just so happens that in the case of gold and silver, these markets are small enough and scrutinized sufficiently as to yield the evidence now being ammassed.
This comprises one huge item among a long list of reasons why I maintain that the "value" of gold and silver in USD as currently presented on the futures exchanges represents nothing more than the prices participants are willing to pay within a rigged game brutalized by unfettered and unbacked naked short positions and concentrated movemjents by market-making players between net long and net short positions in such a way as to completely control the short-term swings and prevent a major breakout in the exchange prices to levels that would encourage deliveries of physical bullion to render their paper game powerless. A few months ago we discussed a growing disconnect between paper prices and physical prices, and the next time that gap widens again you can expect real pressure to be exerted upon those illegal short positions to force a major leg upward with a squeeze.
These manipulations, ultimately, will fail because they are a paper charade like everything else in this unraveling ponzi scheme of an economy. As Sinclair has stated, all it would take would be a dozen millionnaires taking physical delivery from the futures exchange and the paper price would correct up and break free from the control of these banks armed with limitless free capital from the Fed.
I was astonished by the reply of Bart Chilton posted in the Midas of March 23, 2009.
This investigation of the gold and silver markets has been going on by the "Enforcement Division" for 6 MONTHS. We are told they are making progress! What is so difficult? We are talking about 2 or less banks and the CFTC has the power to go and ask all the questions they need to of these banks?
The main issue that the CFTC has to look at is how can 2 or less banks sell the equivalent in short contracts of 25% of annual global silver production and 10% of annual gold production in July 2008 without this being manipulation? Why does it take 6 months to find that out?
Why is it that Chilton comments on Ted Butler’s calculations on silver market concentration? Let’s just look at the CFTC numbers and we don’t need to argue about Ted Butler’s methodology.
From the CFTC Silver COT report of March 17 (http://www.cftc.gov/dea/futures/deacmxlf.htm) the Commercial LONG is 29,155 the Commercial SHORT is 64,915 so the total Commercial NET SHORT position is 35,760 contracts. From the Bank Participation report
of March 3, 2009 (http://www.cftc.gov/dea/bank/deamar09f.htm) the position of TWO US Banks or less is ZERO LONG positions and 30,838 SHORT giving a NET SHORT position of 30,838 contracts. This means that TWO or less US Banks have 86.2% of the Commercial Net short position. Mr. Chilton this is from your own reports this is not "spin", it is not subject to argument over methodology; it is just dividing one number by another! I would guess that after 6 months your staff have found time to divide these two numbers also. Is your position that two banks or less controlling 86.2% of the commercial short position is not manipulative?
Chilton tries to put up a smoke screen that obliquely suggests that the outrageously large concentration may be legitimate because it hedges positions else where:-
These positions that the CFTC includes in our Commitment of Traders report (COT) do not take into consideration all the positions held by the shorts that maybe used to hedge positions that they have with their customers—e.g. swaps, physical forward positions, lease positions, option contracts, etc. Thus, it is not as if the short futures position represents the single position of a large trader, but rather represents a position taken as a result of looking at an aggregation of many trades—on and off-exchange.
Well, Mr. Chilton considering you brought up the issue let me bring to your attention the Derivatives report from the Office of the Comptroller of the Currency for Q3 2008.
In this report we find that the total OTC derivatives in gold of a maturity of less than 1 year have a notional value of 94.589B$. Of this total JPMorganchase and HSBC hold 94.014B$ which equates to 99.392% of all gold derivatives held by US commercial banks and Trust Companies for maturity of less than 1 year. I haven’t done any arithmetic that the CFTC might argue with; this is straight from the report. I would think that controlling 99.392% of any market could only be considered manipulative and it didn’t take me 6 months to work that out! In the "precious metals" category which is not defined but is probably mainly silver the same two banks control 88% of the less than 1 year maturity derivatives. The notional value of gold derivatives that these two banks control represents 150% of annual global gold production. Now if you control 99.4% of a derivatives market that is 150% of the ENTIRE underlying physical market what do you think will happen next? When we look at the COMEX we find out; according to CFTC latest reports 3 banks or less control 62% of the commercial net short position (without subtracting spreads). What a surprise! I would be willing to bet that it is actually less than three banks, I would also be willing to bet that it is two banks, I would also be willing to bet that the names of the two banks are drum roll please…JPMorganChase and HSBC.
If I am correct that the "precious metals" category is predominantly silver then the position of JPM and HSBC represents 176% of total annual global production of silver. On COMEX we find that two banks or less control 86.2% of the commercial silver net short position. I would also be willing to bet that the names of the two banks are also JPMorganChase and HSBC.
I don’t know if Mr. Chilton has noted that silver has been in mild backwardation for 43 days. This is unprecedented in history and suggests a coming physical shortage in the wholesale market that has already been present in the retail market for over 12 months, yet the price of silver can not seem to rise above its cost of production (no mining company is making any profit worth talking about). I would suggest that with massive positions being held by two entities on the COMEX and the OTC derivatives market there is a very good reason for that. Price discovery of silver is controlled by the massive over-supply of paper substitutes for silver and NOT by the supply and demand of physical silver. This can continue only as long as there is no shortage in the physical market that exposes the obvious fraud. The backwardation is indicating that the day of reckoning is coming where Samsung will have to find a way to make cell phone batteries out of Paper-Mache! Time is running out for the CFTC to solve this crime before it becomes obvious to everyone.
Adrian sent this to Bart Chilton who responded very cordially, inviting future dialogue.
Dave from Denver then weighed in with
A Modest Proposal
(which was sent to Bart Chilton)
CFTC official Bart Chilton openly responded to the complaints of Ted Butler and GATA of silver manipulation on the Comex by explaining that Mr. Butler fabricated and exaggerated his data to fit his argument.
Before I lay out a modest proposal to Mr. Chilton, I would like to say that based on Mr. Butler's 20-plus years of devoting his entire career to studying every aspect of the silver markets, I will assert that Mr. Butler's data and conclusions are far more worthy of respect and believability than are the empty accusations of a Government regulator who hides behind secretive data and untruthful assertions. In fact, I will go as far to say that Mr. Butler knows more about the silver market than any market professional knows about any market that I have ever studied, including my professors at the University of Chicago. Now, Mr. Chilton has openly asserted that there is conclusively no evidence of price manipulation in the silver market going on at the Comex. Let's look at the facts, and purely facts, as determined by price, supply and demand in the market.
We know that there is a shortage of physiclal silver preventing U.S. Mint from producing enough silver eagles products to supply the demand of the market (the same set of facts apply to gold). How do we know this? You can go to the U.S. Mint's website where they explain that they had to suspend production of all gold and silver eagle minted products except 1 oz. coins due to a shortage of gold and silver bars.
We also know that for over a year now, that there have been substantial premiums observed in the transactional market globally for gold and silver fabricated products (bars, coins, etc), well in excess of the transactional prices taking place on the Comex. This is evidence of extreme backwardation in the marketplace, which means that there is a severe supply shortage and the futures prices are way too low. Premiums of this magnitude point a massive demand well in excess of supply.
Now, by decree of the simple LAWS of supply and demand economics, the shortage of supply and the price premiums for the supply that does exist, the market price for silver is too low. How do we know this? Because when there is a shortage, buyers bid up the price to a level that induces more supply and reduces demand until the price reaches a point at which supply and demand are balanced. Price is the ultimate allocator in any economic model. It is an undisputed LAW of economics.
If the price of silver were allowed to rise to it's natural economic level in which supply and demand are balanced, the U.S. Mint would not have to suspend production, premiums on coins and bars would disappear, and the market would achieve a high degree of price/supply/demand balance.
Absent the existence of this natural economic balance, we can ONLY conclude that the price is too low, and that the mountains of evidence produced by Mr. Butler and GATA can only point to the existence of extreme price manipulation on the Comex. There is no other explanation. Rather than throw out patently false accusations unsupported with proof, I openly challenge Mr. Chilton to dispute the evidence and proof of the TRANSACTIONAL MARKETPLACE with all the data he can openly produce under the Freedom of Information Act.
His failure to do so would only add to the proof as outlined above.
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