Silver's Smoking Gun?

By: Theodore Butler
Friday, August 22, 2008

For years, the data contained in the weekly Commitment of Traders Report (COT), issued by the CFTC, have indicated that several large COMEX traders have manipulated the price of silver and gold. For an equal number of years, the CFTC has reluctantly responded to public pressure over this issue with blanket denials of any wrongdoing. Many analysts have agreed with the CFTC’s position, conjuring up various ways to explain why a massive short position held by a handful of traders is not manipulative.

The recent widespread shortage of silver for retail purchase coupled with a price collapse appears to have shaken these analysts’ confidence that the COMEX silver market is operating ‘fair and square.’ Well it should, since there is no rational explanation for a significant price decline going hand in hand with product shortages other than collusive manipulation.

For any remaining doubters that COMEX silver and gold pricing is manipulated, the following CFTC data should be considered. This data is taken from a monthly report issued by the CFTC, called the Bank Participation Report.

Here is the link for the report:
http://www.cftc.gov/marketreports/bankparticipation/index.htm

The relevant data is found in the July and August futures sections. I will condense it.

Here are the facts.

As of July 1, 2008, two U.S. banks were short 6,199 contracts of COMEX silver (30,995,000 ounces). As of August 5, 2008, two U.S. banks were short 33,805 contracts of COMEX silver (169,025,000 ounces), an increase of more than five-fold. This is the largest such position by U.S. banks I can find in the data, ever. Between July 14 and August 15th, the price of COMEX silver declined from a peak high of $19.55 (basis September) to a low of $12.22 for a decline of 38%.

For gold, 3 U.S. banks held a short position of 7,787 contracts (778,700 ounces) in July, and 3 U.S. banks held a short position of 86,398 contracts (8,639,800 ounces) in August, an eleven-fold increase and coinciding with a gold price decline of more than $150 per ounce. As was the case with silver, this is the largest short position ever by US banks in the data listed on the CFTC’s site. This was put on as one massive position just before the market collapsed in price.

This data suggests other questions should be answered by banking regulators, the CFTC, or by those analysts who still doubt this market is rigged. Is there a connection between 2 U.S. banks selling an additional 27,606 silver futures contracts (138 million ounces) in a month, followed shortly thereafter by a severe decline in the price of silver? That’s equal to 20% of annual world mine production or the entire COMEX warehouse stockpile, the second largest inventory in the world. How could the concentrated sale of such quantities in such a short time not influence the price?

Is there a connection between 3 U.S. banks selling an additional 78,611 gold futures contracts (7,861,100 ounces) in a month, followed shortly by a severe price decline in gold? That’s equal to 10% of annual world production and amounts to more than $7 billion worth of gold futures being sold by 3 U.S. banks in a month. How can this extraordinary concentrated trading size not be manipulative?

Because prices fell so sharply after the short sales were taken (with the appropriate dirty tricks as I have previously explained) holders of known physical silver in the world suffered a decline in value of more than $2.5 billion and long COMEX silver futures holders suffered a similar $2.5 billion decline in the value of their contracts. In gold, because the dollar value held is much greater than silver, investor losses were much greater, on the order of hundreds of billions of dollars on their physical holdings. Declines in the value of mining shares adds many billions more. Was this loss of value caused by the concentrated short selling of 2 or 3 U.S. banks?

What real legitimate business do 2 or 3 U.S. banks suddenly have for selling short such quantities of speculative instruments over a brief time period? Do we want banks to be engaging in this type of activity? If the manipulation was not successful, would U.S. taxpayers be called on to bail out yet another bank speculation gone bad?

Do the traders who lost money in the recent price collapse of silver have a reason to believe that their money is now in the pockets of these two or three U.S. banks? If so, do they have recourse?

The data in the Bank Participation report is clear and compelling. that it is hard to conclude anything but manipulation. It is beyond credulity to conclude other than two or three banks caused one of the most severe price collapses in precious metals history. The CFTC has a lot to answer for as the regulatory agency responsible for preventing this type of blatant manipulation.



Footnotes:
By Benjamin Train

There is a common theme to all of this.

Some think that somehow fundamentals and the market go hand in hand.
And, they do not. When everyone is saying a certain thing, the market is peaking either way.
That is the way the market works.

Remember, fundamentals only matter for profits, they don't matter nearly as much for stock-market trading. Sure it's great when fundamentals and charts look great, but when they don't match up, and you trade only on fundamentals, you're looking for trouble.

"The man who reads nothing is more educated than the man who reads nothing but newspapers."
- Thomas Jefferson


You can't control how fast the markets move. You just have to move with them.

I've never seen a supply disruption of silver reach this magnitude before. I think this is meaningful, yet the average investor is still clueless about this supply issue.

There is a huge demand for both gold and silver right now in India and North America. North American shops are completely bare of silver. Indian shops are empty of both silver and gold. Even the Indian banks don't have any gold or silver. The big western bullion banks, based in New York and London, control both the gold and silver trade.

Reports from India are that they are refusing to extend Indian bank lines of credit, forcing the small banks to deliver to clients, collect money, and pay down lines of credit, before being
allowed to take delivery of another gold or silver shipment. This is very abnormal. Normally, if a banker's bank knows that its customer-bank has firm orders, it would extend the smaller bank a bigger line of credit.

Not now.

By refusing to extend lines of credit, the big bullion banks are essentially rationing a very thin supply.

Most physical silver, for example, is being reserved for industrial and fabrication use, and
investors are simply not able to get any, without waiting for months. Investor oriented shops are bare, and the U.S. Mint has suspended coin production.

All available supply seems to be reserved for industrial users. You cannot substitute paper claims for real silver, in industrial use, because paper doesn't have the physical properties of silver.

So, it seems that all available supply is being diverted to industrial users, and, to a lesser extent, aside from the squeeze on lines of credit, also to jewelry fabricators. But, investors are left out in the cold and silver mine operators are beginning to fail, and close their mines as the price of silver reaches a six year low.

According to Steve Saville "Panicked liquidation of speculative positions is occurring in the gold market. When a market reaches such an emotional extreme we can be confident that a reversal is near in terms of time because such extremes cannot be sustained beyond the very short-term. However, in such circumstances there's no telling what the price will do prior to the inevitable reversal." http://www.speculative-investor.com/new/freesamples.html

The most interesting mistake that the manipulators have made is in not supplying the U.S. Mint, which has run out of silver, proving that there is a severe shortage.

You can't fool all the people all of the time. Is there a smoking gun? I think so.

Be 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 any.

www.find-your-local-coin-shop.com
www.silverstockreport.com
www.miningpedia.com

"Today, Ted Butler released an article, title, "The Smoking Gun", where he revealed that two banks sold 27,000 paper contracts for about 139 million ounces of silver, from July 1 to August 5th, which depressed the paper price at the COMEX. Many are saying this is Ted's greatest article, as it is better proof of market manipulation than any other evidence we've ever seen."

http://news.silverseek.com/TedButler/1219417468.php