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XMFSinchiruna (27.99)

Incredible Discussion of Silver and Gold Manipulation



March 25, 2009 – Comments (17)

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 ( 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 ( 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 Douglas

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.


For further reading:


17 Comments – Post Your Own

#1) On March 25, 2009 at 6:15 PM, binve (< 20) wrote:

Awesome Post. Turk and Rubino's Book (Dollar Collapse) also has a great account of gold manipulation. But I agree with you, I too am a big fan of Ted Butler's work.

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#2) On March 25, 2009 at 6:46 PM, StatsGeek (29.50) wrote:

Nice post.  Put this together with FB's post today and it gets even clearer that the FED and a few big banks are controlling most of the world's wealth.

The FED controls the world's most important currency and we have ZERO control over it.

Those of you who think this country's political system is a democracy or a republic are woefully mistaken.  It is a plutocracy and/or kleptocracy.

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#3) On March 25, 2009 at 7:56 PM, GeneralDemon (27.62) wrote:

This is not surprising to you is it? One of the stated missions of the Fed is to try to iron out swings in the perceived value of the dollar. Manipulating gold is tried and true - hasn't this been going on since 1932 (and before no doubt)? The Fed uses the member banks as proxies.

Of course, it doesn't lessen my positive view of gold as an insurance against the day the Fed's manipulations don't work. 

Keep up the good work.

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#4) On March 25, 2009 at 8:17 PM, whereaminow (46.24) wrote:

The idea that the government and its bankers would manipulate the market is entirely understandable. They're scumbags.

But the idea that Ted Butler would figure it out is beyond preposterous. The guy's an idiot.

David in Qatar


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#5) On March 25, 2009 at 11:40 PM, XMFSinchiruna (27.99) wrote:


Wow, David, you surprise me with that one. I really respect your views on so many issues and consider you one of the sharpest members of our community, so perhaps you'd like to rethink this one. 

As one who was here documenting both A.) the manipulation of silver prices, and B.) the shortage in physical silver even as the futures prices swooned, I can vehemently oppose the viewpoints presented in that article you linked.

I have no idea who this Gary North character is, but I can tell you he is sadly mistaken in his analysis. Silver, like gold remains within a normal correction of the multi-year bull market. 

Is that one article your sole reason for calling Butler an idiot? I think that's a little premature. Now, I'm not a regular reader of Butler's, so I can't even tell you whether I agree with all of his perspectives or not, but I've seen enough of his stuff over the years to at least confindently declare that he exhibits both intelligence and an understanding of the silver market. More importantly, the evidence speaks for itself, and Butler's evidence is independently verifiable in this case.

After a second look at your linked article, I find that the author is guilty of the same short-sightedness and "mission accomplished" syndrome from which the Schiff bashers suffer. While many, myself included, may have underestimated the ability of market menipulators to deepen and prolong this correction, there is not a shred of evidence to support his claim that this is anything more than a prolonged correction. In fact, history is against him, since multi-year commodity super-cycles in the past have commonly included 50% retracements... especially silver which experiences a slingshot effect in both directions relative to gold.

Silver will trade above $50 again, and head far higher still. My career has me analyzing the fundamentals of the silver market on a constant basis, and it is on the basis of countless thousands of hours of objective research that I stake my reputation on the continuing bull market. In precious metals, anything can happen in the short term... and yes... a year or more is considered short-term in a secular bull market driven by fundamentals of this magnitude. 

I don't endorse Butler, since as I said I don't read his stuff regularly, but I have checked out his evidence in this case and can verify that he is absolutely correct. I know enough about Butler to know that he possesses a solid grasp of the main drivers of the silver bull market, and so I conclude that he... as you recently said of me... gets it. :)

Fool on! 


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#6) On March 26, 2009 at 8:22 AM, XMFSinchiruna (27.99) wrote:

Gold set for 'decisive move'
March 26, 2009

Johannesburg - Gold is poised for a decisive move upwards, the SA Gold Coin Exchange (SAGCE) said in a statement on Thursday.

The SAGCE said the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund had identified a chart pattern showing that gold's short-term downtrend was about to clash with its intermediate-term uptrend.

The clash pointed to a decisive near-term price move - either up or down.

"We’ve noticed a similar picture on our charts," said Alan Demby, executive chairman of the SAGCE.

He added that it was his prediction that the gold price would move up.

Several factors, he said, prompted such a decision.

This included the fact that the intermediate-term uptrend has been tested on two occasions - in November last year and mid-January this year - with the likely result that it would hold again on this occasion.

Demby said there had been an unprecedented surge in demand for gold coins, which had resulted in the US Mint having had to stop producing its 2009 American Gold Eagle coin for collectors, reflecting determined global buying.

Demby said that as a proven inflation hedge, gold was starting to offer itself as a safe haven from the trillions of fiat dollars that had been created by the world's leading central banks. - Sapa

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#7) On March 26, 2009 at 8:28 AM, abitare (49.90) wrote:

Bill Murphy (GATA) Says Central Banks Are Manipulating Gold Price 3/25/2009


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#8) On March 26, 2009 at 10:12 AM, falang1 (96.65) wrote:

There is some nice data/charts that show similar proof here

I always like this guy's data even if it is on a gold site which would seem to lean one way obviously.





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#9) On March 26, 2009 at 10:24 AM, whereaminow (46.24) wrote:


Slap on the hand accepted, happily. I'll take a closer look. Since I have heavy gold and silver positions, it would probably be wise.

David in Qatar

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#10) On March 26, 2009 at 12:34 PM, maxhoffa (< 20) wrote:

textbook manipulation.  as well as textbook fed response.  butler does know silver, and in particular this issue.

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#11) On March 26, 2009 at 12:53 PM, GNUBEE (26.93) wrote:


Another great nugget, thanks! So what signs should we look for that would indicate the rope is unraveling? What events would dictate the game is up? Or do you think it will happen in one cataclysmic explosion, and prices shoot to the moon?

So far we have "a growing disconnect between paper prices and physical prices, and the next time that gap widens again" Any other indicators?


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#12) On March 26, 2009 at 4:16 PM, XMFSinchiruna (27.99) wrote:


When people start dumpting the ETFs for physical, or you read here on this blog about COMEX investors taking physical delivery of significant quantities... then you'll know the time it near.

The upward correction would be impressive, but perhaps not too enormous all at once. Perhaps a quick trip to $1,200 before re-testing $1,000... but hard to say without knowing when this might all unravel.

Another factor is the collective intelligence of investors. If investors were to wise up and stop treating exposure to derivatives-based ultra-long ETN vehicles as being akin to gold exposure, then the house of card would lose a major foudnational support.

Ditto the GLD and IAU... which are becoming so enormous as to call into question the veracity of their claims to store unencumbered bullion. Many smart folks at GATA have questioned whether it's even possible for GLD, for example, to have acquired the sum of gold they claim to have done. One meticulous researcher recently analyzed the full list of bullion bar serial numbers from the GLD website and found score and scores of repeated numbers... hmmm.

Food for thought...

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#13) On March 26, 2009 at 11:18 PM, MasterMind1234 (30.03) wrote:

Well ya know what they say... If you can't beat em join em! If they are going to manipulate the system and standards, then hell might as well see if I can cash in on it too.  Yeah I did invest in silver  myself, but seeing comparisons of spot price do to inflation (and maybe hype) WHY NOT? Of course gold and silver will be trading at a higher price in the near future... We are running out! You know what happened to Ceasar's Roman Empire when they didn't use gold and silver? Well... Anyway if you look at historical charts of prices of silver and gold you will like what your seeing... Not only to I look for ETFs but I also got a little bullion :)  Isn't it good to think diverse?  A little off subject I like buying GUNS too.. They ALWAYS increase in value over time my friends.. research gun value... Look into that it's a lot more funnn



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#14) On March 27, 2009 at 7:17 AM, XMFSinchiruna (27.99) wrote:

Consider these very rational words from one of my favorite CEOs, Nucor's Dan DiMicco. Has aversion to steel futures markets should lay plain the pitfalls of gold and silver futures markets. Gold and silver futures markets only serve to benefit traders, not the producers of the PMs nor the buyers of PMs. Since most of us are either buying physical metal or equities, in both cases we're in the camp that does NOT benefit from the existence of these markets. 

The COMEX, dear Fools, is NOT your friend.

Dan DiMicco, chief executive of Nucor Inc (NUE.N) said at an AISI conference late last year: "We do not see steel futures as a good thing. We're not big fans of an idea that puts anybody between ourselves and our customers and tries to make money off both of us, and does it in a way that isn't necessarily sound and ethical all the time."

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#15) On March 30, 2009 at 7:41 PM, XMFSinchiruna (27.99) wrote:

By Adrian Douglas

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#16) On March 31, 2009 at 5:26 PM, XMFSinchiruna (27.99) wrote:

This is an amazing video!! Those last statements are key.

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#17) On April 01, 2009 at 11:07 AM, XMFSinchiruna (27.99) wrote:

In the first Great Depression, the government tried, for several years, between 1929 and 1933, to maintain a fiction that the U.S. dollar was still convertible and as “good as gold”, in spite of having irresponsibly printed more dollars than they had gold to back them. Back in the 1920s, just like during the last 22 years, the Federal Reserve had run its printing press overtime, and, as a result, it couldn’t deliver. The U.S. Treasury eventually ran out of the gold, in the face of overwhelming public demand, resulting in the infamous gold confiscation order, by President Franklin Roosevelt, in 1933. History may be repeating itself, except that the government no longer makes any pretension to maintaining a gold standard, or any standards at all. Instead, nowadays, the futures exchanges offer to trade gold for a floating number of dollars, and, it appears, they have printed more paper contracts than they can redeem, at least when it comes to 1 kilogram bars.

The NYSE-Liffe futures exchange has, it seems, run out of 1 kg bars of gold. Futures markets, like NYSE-Liffe and COMEX, try hard to maintain the fiction that they will deliver physical gold, in completion of executed contracts. Indeed, to prevent fraud, U.S. law requires clearing members to keep a stockpile, of one kind or another, consisting of a minimum of 90% of metal. Up until October, 2008, it didn’t matter. Only about 1% of long buyers of paper gold futures contracts typically took delivery. Now, the situation is very different. Demand has surged and, it appears, one major futures exchange, NYSE-Liffe, and by extension, the COMEX gold warehouses it shares with its larger cousin, are unable to meet the requirements of their contracts, vis-a-vis, delivery of 1 kg. bars.

As of December 31, 2008, the NYSE-Liffe mini-gold (YG) contract specifications were changed to read, in pertinent part, as follows:

33.2 fine troy ounces (+10%), no Less than 995 fineness. Seller’s discretion delivery of one vault receipt representing one bar or one Warehouse Depository Receipt (WDR) representing either 1/3 interest in one full size gold NYSE Liffe vault receipt or full interest in a NYSE Liffe Mini Gold vault receipt. Delivered to exchange approved vaults by exchange approved carriers.

But, before that, on August 26, 2008, it read as follows:

33.2 troy ounces (±5%) of refined gold, assaying not less than .995 fineness, contained in no more than one bar.

In summary, there is now so much demand for delivery of the mini-contracts that the exchange can no longer deliver 1 kg bars. When the wording was changed, a flurry of complaints resulted. Technically, in my opinion, if you bought a mini futures contract from an NYSE-Liffe clearing member, prior to December 31st, you could bind them to their legal contract with you, and force them to either deliver the 1 kg bar, or pay for you to obtain it on the open spot market. Based upon the original wording, NYSE-Liffe and its clearing members are legally obligated to deliver that 1 kg bar per contract, whether they want to or not, and regardless of the internal rules of the exchange. Whether anyone will force compliance, however, is an open question.

Absent legal action, clearing members are now being allowed to hand out little slips of paper, called “warehouse depository receipts” (WDR). These are being substituted for “vault receipts” (VR). The WDRs, in contrast to the VRs, merely promise the customer that he owns a 1/3 interest in a 100 ounce bar. The customer is not allowed to take delivery, unless he can accumulate 3 WDRs, which equals 1 VR. NYSE-Liffe shares its warehouses with COMEX. The warehouse is predominantly stocked with 100 ounce bars. The COMEX ETF also stores 100 ounce bars, and clearing members can withdraw baskets of them in order to meet delivery demands. But, the COMEX ETF doesn’t store any 1 kg. bars.

After a customer complaint, I contacted the head of regulatory compliance at NYSE-Liffe, and had a serious chat with him. He seemed like a nice enough fellow, but he wouldn’t admit that NYSE-Liffe had run out of 1 kilo bars. He said that the warehouse registrar has complete “discretion” to hand out paper WDRs, representing a 1/3rd interest in a 100 ounce bar, if the “circumstances warrant”. But, if the exchange has “complete discretion” to alter contracts as they see fit, what is the purpose of the advertised contract specifications? NYSE-Liffe claims that its clearing members can rely on Exchange Rule 1408. This obscure rule, however, was never communicated to customers. Nevertheless, it is now being relied upon by the exchange, in an attempt to “default” on the contracts without legal consequences. The rule says that clearing members can substitute delivery of a WDR, giving the customer a 1/3rd interest in a 100 ounce bar, instead of a physical 1 kg bar of gold. There is only one problem. In their eagerness to sell contracts, the exchange failed to communicate that to customers and failed to make it a part of the contract specifications. As a result, clearing members may be saved from claims by one against the other, but they are NOT immune to the just claims of aggrieved customers. The exchange clearly misled the public, intentionally or unintentionally, and allowed clearing members to sell huge numbers of 1 kg contracts, even though they did not have enough 1 kg. bars to fulfill the contracts.

There has been a lot of talk, over the past year, by bearish gold commentators, claiming that the shortage of gold and silver is merely a fluke of the retail market. However, 1 kg. bars of gold are NOT a retail denomination. They are the primary unit used in most commodity futures markets. Unlike the American exchanges, the 1 kg. bar dominates deliverable contracts, for example, on the Tokyo Commodities Exchange, as well as many other commodities exchanges around the world. They were also the primary unit of the mini-gold contracts (YG), offered by NYSE-Liffe, prior to the technical default. In other words, the retail gold shortage has spread into the wholesale market. What’s next? Will there be a shortage of 100 ounce bars? No exchange rule can be used to hide from a technical default on delivery of 100 ounce bars. But, vast numbers of 100 ounce bars are stored at the iShares COMEX gold trust (IAU). So, a default in delivery of 100 ounce bars will take a while.

All that said, however, given that the Fed printing press is running overtime, things are going to get tighter. It will take only a few months of delivery percentages similar to those seen in December, 2008, before all the 100 ounce gold bars are gone. What will the futures exchanges do? Hand out little slips of paper entitling contract holders to a ¼ interests in 400 ounce banker’s bars? There is no rule that allows that. What happens when people start taking mass delivery of the 400 ounce bars? Will they hand out fractional shares in gold mines, along with picks and shovels?

The only way that remaining supplies can be rationed is by a rise in price sufficient to deter some of the buying. For some reason, the supply and demand for gold on the futures market is significantly out of synchronization. This implies that those who claim that the price of gold is manipulated are probably correct, because the situation could not happen in a completely free market. But, even if the gold market is manipulated, the manipulators cannot stop this from happening if the demand for delivery continues. In a more practical sense, coupled with the nearly complete removal of all small retail denominations of gold from store shelves around the world, demand is clearly outstripping supply by a considerable measure.

With the U.S. and the U.K. now engaged in quantitative easing (printing new dollars and pounds), and other central banks ready to join, we can reasonably assume that the desire to exchange paper money for gold will get stronger. If the price does not rise significantly, and quickly, it is only a matter of time before these shortages reach the 100 ounce bars, and, then, on to the 400 ounce banker’s bars. That is what happened, back in the 1930s, and it is happening again. The main difference is that, in the 1930s, the price was fixed by the government, so the conversion of dollars to gold could not be controlled by a rise in price. Now, however, the price of gold can go up until, potentially, it is high enough to discourage more buying by the public. It is impossible to say whether or not this means a rise to $2,000 or $2,500 per ounce by the end of 2009, as some have predicted. But, it does mean that the price will surely rise, that the rise is going to be huge, and, probably, that it will be fast and furious, at some point in the near future.


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