Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
AI Stock Buying Levels, Ratings, Valuations and Trend Analysis into Market Correction - 17th Jun 21
Stocks, Gold, Silver Markets Inflation Tipping Point - 17th Jun 21
Letting Yourself Relax with Activities That You Might Not Have Considered - 17th Jun 21
RAMPANT MONEY PRINTING INFLATION BIG PICTURE! - 16th Jun 21
The Federal Reserve and Inflation - 16th Jun 21
Inflation Soars 5%! Will Gold Skyrocket? - 16th Jun 21
Stock Market Sentiment Speaks: Inflation Is For Fools - 16th Jun 21
Four News Events That Could Drive Gold Bullion Demand - 16th Jun 21
5 ways that crypto is changing the face of online casinos - 16th Jun 21
Transitory Inflation Debate - 15th Jun 21
USDX: The Cleanest Shirt Among the Dirty Laundry - 15th Jun 21
Inflation and Stock Market SPX Record Highs. PPI, FOMC Meeting in Focus - 15th Jun 21
Stock Market SPX 4310 Right Around the Corner! - 15th Jun 21
AI Stocks Strength vs Weakness - Why Selling Google or Facebook is a Big Mistake! - 14th Jun 21
The Bitcoin Crime Wave Hits - 14th Jun 21
Gold Time for Consolidation and Lower Volatility - 14th Jun 21
More Banks & Investors Are NOT Believing Fed Propaganda - 14th Jun 21
Market Inflation Bets – Squaring or Not - 14th Jun 21
Is Gold Really an Inflation Hedge? - 14th Jun 21
The FED Holds the Market. How Long Will It Last? - 14th Jun 21
Coinbase vs Binance for Bitcoin, Ethereum Crypto Trading & Investing During Bear Market 2021 - 11th Jun 21
Gold Price $4000 – Insurance, A Hedge, An Investment - 11th Jun 21
What Drives Gold Prices? (Don't Say "the Fed!") - 11th Jun 21
Why You Need to Buy and Hold Gold Now - 11th Jun 21
Big Pharma Is Back! Biotech Skyrockets On Biogen’s New Alzheimer Drug Approval - 11th Jun 21
Top 5 AI Tech Stocks Trend Analysis, Buying Levels, Ratings and Valuations - 10th Jun 21
Gold’s Inflation Utility - 10th Jun 21
The Fuel Of The Future That’s 9 Times More Efficient Than Lithium - 10th Jun 21
Challenges facing the law industry in 2021 - 10th Jun 21
SELL USDT Tether Before Ponzi Scheme Implodes Triggering 90% Bitcoin CRASH in Cryptos Lehman Bros - 9th Jun 21
Stock Market Sentiment Speaks: Prepare For Volatility - 9th Jun 21
Gold Mining Stocks: Which Door Will Investors Choose? - 9th Jun 21
Fed ‘Taper’ Talk Is Back: Will a Tantrum Follow? - 9th Jun 21
Scientists Discover New Renewable Fuel 3 Times More Powerful Than Gasoline - 9th Jun 21
How do I Choose an Online Trading Broker? - 9th Jun 21
Fed’s Tools are Broken - 8th Jun 21
Stock Market Approaching an Intermediate peak! - 8th Jun 21
Could This Household Chemical Become The Superfuel Of The Future? - 8th Jun 21
The Return of Inflation. Can Gold Withstand the Dark Side? - 7th Jun 21
Why "Trouble is Brewing" for the U.S. Housing Market - 7th Jun 21
Stock Market Volatility Crash Course (VIX vs VVIX) – Learn How to Profit From Volatility - 7th Jun 21
Computer Vision Is Like Investing in the Internet in the ‘90s - 7th Jun 21
MAPLINS - Sheffield Down Memory Lane, Before the Shop Closed its Doors for the Last Time - 7th Jun 21
Wire Brush vs Block Paving Driveway Weeds - How Much Work, Nest Way to Kill Weeds? - 7th Jun 21
When Markets Get Scared and Reverse - 7th Jun 21
Is A New Superfuel About To Take Over Energy Markets? - 7th Jun 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Silver Price Manipulation- Paper Silver Versus Real Silver

Commodities / Gold & Silver May 21, 2008 - 09:04 PM GMT

By: David_Morgan

Commodities

Best Financial Markets Analysis ArticleThis week I must address the latest Commodity and Futures Trading Commission (CTFC) findings that, "The U.S. commodities regulatory body found no evidence that silver prices had been manipulated downward by short sellers after re-examining long-term and recent allegations of misconduct."

I was asked by Dow Jones to comment on the CFTC findings. The first point I stated was, "It is not possible to manipulate the trend in a market, but it is possible to "manage" the price within silver's uptrend." I went on to state that the price of silver can be managed, within certain boundaries, through short selling. I believe silver would be far higher if not for selling of "vast amounts" of silver that doesn't exist, or "naked shorts."


Now some I know well in the industry build a case that all or almost all of the silver sold short on the exchange is not sold naked but indeed is true hedging, primarily by base metals mining companies.

This at the surface level may appear to be correct, until it is realized that almost all of the real physical silver that is delivered to end users (primarily to industrial consumers) is accomplished by means of over-the-counter contracts known as "forwards." This is not accomplished in the futures market!

My point is simple: If the true sale of physical silver is done in an unregulated market based upon private contracts, then what is the purpose of the futures market?

Why did the London Bullion Management Association trade nearly 30 billion ounces of silver last year?

Why did the futures and options exchanges trade almost 60 billion ounces of silver last year?

Let's get a bit real here. If the total silver supply is roughly one billion ounces and we can measure NINETY times that amount being "traded" on the reporting exchanges, does it not beg the question why?

Further remember, there is a whole vast amount of silver "trading" going on in the OTC market that does not report at all. It could easily be as large as the reporting exchanges. Let's be conservative here and state only 10 billion ounces of silver is dealt in the OTC market.

So when I state naked sales and can prove perhaps ONE HUNDRED TIMES the amount of silver exists on paper than exists in the physical world, you must question the logic of "hedging." The derivatives markets are alive and well in both silver and gold, and there is roughly one hundred ounces "claimed" on paper for every physical ounce of silver.

So, ask a very basic question: How is the price of silver set? As if there is less than half a billion ounces of physical silver? Or is the price acting as if there is a hundred times as much silver? For those who don't know, this is a rhetorical question! Think fractional reserve banking system, which keeps about one percent of the total (reserve), because what depositor is going to cash in on their demand deposits? One percent is what the bank needs to keep the present day scheme going. In the case of banking, more "money" can be created by a computer keystroke. But real silver, well . . . that will pose a problem.

Another question that has always bothered me is, Why does the CFTC set a limit of 7.5 million ounces of silver as the most that can be taken off the exchange in a given delivery month? If you look back and see the Comex inventory level change when Warren Buffett made his purchase, you will notice a huge off take of physical silver from the Comex. This cannot happen again; the rules state there is a limit on the amount of physical silver that can be taken off the exchange. So, for the umpteenth time, I will answer the following question.

"Why doesn't some big investor come along and just buy up the remaining silver?"

Answer: It cannot be done. There are delivery limits now! Let me repeat!! It cannot be done, there are delivery limits NOW!! Oh, you might ask, "Is there any limit to the amount of silver that can be sold on paper?" Well, the main purpose of this missive is to prove that there is no limit to the amount of paper silver that can be created!

I could go on, but I think I'll cool off and continue this discussion next week. In summary this week, I will share a letter I received very early on when addressing this same issue. This came from a Comex floor trader. Notice the price level in the letter -- the price action can be "managed," but the trend, as I said then and am stating again, is higher. Much higher. As Abraham Lincoln said, "You can fool some of the people all of the time, and all of the people some of the time, but you cannot fool all of the people all of the time."

Mr. Morgan:

I enjoyed your newsletter excerpt of Feb 12, which I found on the Kitco website. You stated perfectly some key reasons for silver's problems in getting out of its own way, and your call for further weakness was prescient.

I guess I'm part of the problem. I've traded COMEX futures actively from the pit for over 15 years. Over the years, the amount of futures contracts that we've traded has surely dwarfed the actual physical market, making it difficult for silver to manifest its true fundamentals.

As you alluded, it's "Groundhog Day" again on the floor. Over the past month I watched one fund accumulate an eye-popping long position, and I followed its progress as best I could through the open interest and commitment figures. When prices started slipping away from last week's test of the $4.85-$4.90 level, I could hardly believe my eyes when I saw early evidence that this fund was starting to sell. I went across the pit to a trader who I knew was trying to stick with his longs and I said, "I've got bad news for you -- that selling you see over there may take three weeks."

The fund sold heavily all last week. The usual bank traders were sopping it up, secretly relieved, I think, that prices had failed to break into ground they could not control. Younger traders ask me how these funds can keep getting chopped up like this. They don't realize that a 30-cent chop in silver is a minor inconvenience compared to the strong positions most of these guys have in gold and crude.

As you know, the banks will continue to play puppet master as long as the silver game remains "closed." The banks know the upper parameters of the funds' buying power; the banks know when the funds have reversed themselves into an untenable short position. It will take new "players" to get the "Bill Murray" silver market out of this loop. Certainly investment demand is the wild card that banks and recurrent short sellers cannot control.

Silver will be called lower on Tuesday a.m. and, although I'm a bull, I'll be getting short on the bell. There is no short-term success in getting in the funds' way.

A Comex Floor Trader

So in closing, I want you to think about paper silver versus real silver. Think about how much paper is flying around compared to the amount of physical silver that exists. Think about the derivatives problem we are witnessing in the mortgage markets, and ask, "Can the precious metals derivatives be far behind?"

By David Morgan,
Silver-Investor.com

Mr. Morgan has been published in The Herald Tribune , Futures magazine, The Gold Newsletter , Resource Consultants , Resource World , Investment Rarities , The Idaho Observer , Barron's , and The Wall Street Journal . Mr. Morgan does weekly Money, Metals and Mining Review for Kitco. He is hosted monthly on Financial Sense with Jim Puplava. Mr. Morgan was published in the Global Investor regarding Ten Rules of Silver Investing , which you can receive for free. His book Get the Skinny on Silver Investing is available on Amazon or the link provided. His private Internet-only newsletter, The Morgan Report , is $129.99 annually.

Contact information: silverguru22@hotmail.com , http://silver-investor.com

Disclaimer: The opinions expressed above are not intended to be taken as investment advice. It is to be taken as opinion only and I encourage you to complete your own due diligence when making an investment decision.

David Morgan Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in