Political Metals

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In 2011, silver averaged a loss of 6.8% against 75 selected fiat currencies, while gold charted a corresponding gain of 14.3%. That occurred in a year when gold itself saw a plunge of 20% in USD terms from its high of $1920.

Was there any fundamental change in the silver market that could account for such a drastic plunge in silver prices? I know of none, and industry watchers concur.

Not once, but twice in 2011 did the silver market plunge by 35% in a matter of days on deliberate price moves lower. It is impossible for a world commodity to suddenly plunge 35% in days without some radical change in real supply and demand in a free market. Aside from proving that the silver market is still manipulated, these price plunges would not have occurred had the Commission acted expeditiously in concluding its current silver investigation - Ted Butler.

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Market manipulation. Price suppression. That’s why silver’s prices in all currencies did what they did in 2011. Ted Butler, in his most recent article “Enough is Enough” recounts the history of CFTC’s investigations into complaints of price suppression in the silver market.

The journey to justice and truth is often long and arduous, but must never be abandoned. The alternative is to live a life lacking substance. But neither should the journey be unnecessarily prolonged. These things tend to creep up on you day by day, but we have passed the point of the CFTC taking too long for deciding if the silver market has been manipulated in price. Enough time has passed.

Having started in August 2008, we are now at the 3.5 year mark in the current investigation into silver by the Enforcement Division of the Commodity Futures Trading Commission (CFTC). Never has a similar investigation taken this long. Considering that the current silver investigation is the third such inquiry by the Commission into alleged downside price manipulation by large commercial participants on the COMEX, the agency has spent most of the past decade investigating silver. As recently as this past November, the Commission reaffirmed that the silver investigation is ongoing. Still, the issue is unresolved.

The current silver investigation began due to revelations I discovered and wrote about in the CFTC’s Bank Participation Report of August 2008. This report indicated one or two US commercial banks held a concentrated short position which was unprecedented and uneconomic in terms of real world supply and demand. I asked the question – how can one or two US banks holding a short position equal to 25% of annual world production not be manipulative? That question has not been answered by the Commission to this day. Later, I discovered that it was basically only one US bank, JPMorgan, which was the big COMEX silver short.

Not for a moment do I believe that the CFTC initiated the current silver investigation (or the previous two) just because I wrote a few articles. The key was that so many readers took it upon themselves to write to the Commission and their elected officials about the issues of concentration and manipulation in the silver market. Simply put, there would have been no silver investigations had not great numbers of you petitioned the regulators. Please think about that for a moment. It is beyond extraordinary that the agency has investigated and continues to investigate such a small market like silver. That can only be because of public pressure and that the evidence was compelling. Most remarkable of all is that the core allegation in all three silver investigations has remained the same – manipulative short selling by large commercial interests on the COMEX.

In the two prior investigations of May of 2004 and 2008, the Commission’s Division of Market Oversight (DMO) concluded that the silver market was not manipulated.

Particularly puzzling in the 2008 report was the contention by the DMO that the concentration on the short side in COMEX silver wasn’t unusually large and that the biggest short sellers regularly changed places, so that there wasn’t one big permanent short. The report was issued on May 13, 2008 or two months after JPMorgan acquired Bear Stearns and its concentrated short position in COMEX silver. How the DMO could overlook the transfer of the most concentrated short position in the history of the commodity markets is beyond comprehension. Subsequently, I have come to believe that Bear Stearns’ forced acquisition was caused by the giant silver short position going against it (silver was at a 27-year price high at the time of the takeover) and not mortgage-related difficulties. In this article, I accused the DMO of lying.

Unlike the current silver investigation, the previous investigations were concluded by the Commission in months, not years. Timing aside, all three silver investigations share a commonality apart from stemming from the same basic core allegation of manipulative short selling. That commonality is the Commission’s refusal to conduct a fair and balanced investigation. I confess to being the instigator behind all three silver investigations (with you being the enabler). Not once, in any of these investigations has the agency ever contacted me or anyone I know who is familiar with the allegations. I even complained to the CFTC’s Inspector General about the one-sidedness of the process. How can you conduct a balanced investigation on manipulative short selling when you only question one side, the shorts?

The real problem with the findings of the CFTC of no manipulation in their previous investigations is two-fold. First, it provides a shield and comfort to the perpetrators of the manipulation in that they can continue to hide behind the agency’s findings in the furtherance of an active crime in progress. The longer the CFTC takes to act or report on its current investigation the comfort to the manipulators is maintained, at a cost to nearly everyone else. Second, the prior findings put the agency in a tricky spot. Because the Commission had previously found nothing amiss in the silver market on two separate occasions, if the agency uncovers any wrongdoing in silver in the current investigation it will, effectively, contradict its former findings. Obviously, it will be loath to do so.

The fact that the Commission will contradict its former findings should it now find something wrong in silver may explain the unprecedented delay on the part of the Enforcement Division to act. But the reluctance to reverse the former findings is a weak excuse for the Commission to fail in its most basic mission, namely, preventing fraud, abuse and manipulation. Most importantly, the silver manipulation is a crime in progress and the Commission’s delay in terminating it has allowed for untold continuing damage to thousands of market participants at the hands of the manipulators.

Full article at SilverSeek.com

Related articles:The latest on Silver Market Manipulation

• Silver manipulation
• The latest on Silver Market Manipulation

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More than 3 years into an investigation over alleged manipulation in the silver market, the CFTC released the following statement yesterday.

CFTC Statement Regarding Enforcement Investigation of the Silver Markets

Washington, DC – The Commodity Futures Trading Commission today issued the following statement:

“In September of 2008, the Commission announced the existence of an enforcement investigation into the possibility of unlawful acts in silver markets. Since that time, the staff has analyzed over 100,000 documents and interviewed dozens of witnesses and obtained expert advice. It has been a long, detailed, and thorough investigation, and it continues in an appropriate and considered manner.”

Bart Chilton, one of the commissioners of CFTC was interviewed, I believe for the first time by Eric King of KWN yesterday:

I can tell you based on what I have been told by members of the public and reviewed in publicly available documents, I believe that there’s been violations of the law, The Commodity Exchange Act.

What was he told by members of the public that convinced him to believe that the silver market has been illegally manipulated? Probably referring to whistle blower Andrew Maguire’s emails to CFTC in February 2010, Chilton had this to say:

But when people email me and say, ‘You watch the market (silver) between 9:15 and 9:45 tomorrow and it’s going to tank or it’s going to do this or it’s going to do that.’  I hold on to it and I watch the market and what they say happens, and I’m not saying this always happens, but it happens even 50% of the time, 60% of the time, there’s no way that doesn’t raise my antenna, like major, electric antenna goes up.

With the derivatives market on the verge of implosion in the wake of the Eurozone crisis, any further announcement implying JP Morgan et al may well be what’s required to nudge us over the tipping point. The next few weeks/months could turn out to be very interesting times. However, updates will be few and far in between while I’m taking a break in the Andeas until Feb 2011.

Stay prepared.

Update: 

ZeroHedge just reported a very significant event that may affect global markets next week:

… the CME just made the maintenance margin, traditionally about 26% lower than the initial margin for specs, equal. For everything. Which means that by close of business Monday, millions of options and futures holders will be forced to deposit billions in additional capital to the CME just so they are not found to be margin deficient, and thus receive a margin call. Naturally, since it is very unlikely that this incremental amount of liquidity can be easily procured in one business day, we anticipate the issuance of hundreds of thousands of margin calls Monday, followed by forced liquidations of margin accounts across America… and the world. Just like when Lehman blew up, it took 5 days for Money Markets to break. Is this unprecedented elimination in the distinction between initial and maintenance margin the post-MF equivalent of the first domino to fall this time around?

Update:

There’s another update from ZeroHedge based on a clarification from CME following yesterday’s release.

Yesterday, in what is the worst-phrased and most misleading press release to ever come out of the CME, the exchange issued a notice that going forward all Initial margin would be equal to Maintenance margin. Our gut interpretation was that “Unless we are completely reading it incorrectly, it is nothing short of a margin call for tens if not hundreds of billions worth of product.” Judging by the broad response, our initial reaction is what a prudent, logical human being would assume: after all, it is precisely the undercollateralization of customer accounts, and general underfunding at MF Global that is what brought that particular company down. Well, we wrong wrong. The CME, it appears has taken a page right out of the European playbook, and less than a week after an exchange-cum-Primary Dealer collapsed due to excessive risk taking, the CME has followed up its vague press release from yesterday by inviting even more risk in lowering the initial margin. Why is this a cause for even greater concern? As the CME itself says, “Initial margins are set to provide an additional buffer against future losses in the account” - so going forward that buffer has been reduced by about 30%. But what is the reasoning provided by CME: “The intent and effect of these changes is to decrease the size of any margin calls resulting from the bulk transfer of MF Global customers to new clearing members, not to increase them.” So basically the CME is implicitly putting all of its existing and current clients and customers at further risk by onboarding the accounts of those clients who, like lemmings, held on to their MF Global accounts until after it was too late. Because while the lower Initial margin may apply to MF accounts, it will also apply to any Tom, Dick and Harry beginning Monday, who will suddenly see a 30% reduced gating threshold to put on a position. Any position, no matter how risky. Read full report here.

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Related Articles:

• Providing Oversight With One Eye Closed
• Silver Manipulation

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Here are two great interviews discussing the reasons & implications of the recent price action of gold & silver.
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Sean (SGT Report) discusses the recent silver price take-down with David Schectman.

• Place of technical analysis in a manipulated market
• Silver is so oversold “It’s a License to Steal”
• Difference between physical silver and paper silver prices
• Why hedge funds sold their winning positions in gold & silver
• While hedge funds, Soros & Paulson sold paper silver in the Comex, the Indians, Russians, Chinese, Arabs and retail buyers bought up all the physical silver they could get their hands on. (Make sure you watch part 2)

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Al Korelin (Korelin Economics Report) discusses the recent silver price take-down with David Morgan. Some key points:

• Have the fundamentals for silver changed?
• CME margin hikes favour the shorts
• Political events and how they affect the price of silver
• If you don’t want to lose any money, stay out of the futures market. They are for professionals
• Stay out of this sector if you don’t have a high degree of accumen in the industry or can’t take wild swings

By Patrick A. Heller | Numismaster

On the basis of the hard information available early this week, it is highly likely that gold and silver prices were pushed down rather than fell as a result of free market trading.

First, it is entirely possible that European central banks of nations in the eurozone could be liquidating some of their gold reserves as a desperate move to beef up their fiat currency reserves to stave off default on their debts. If this is happening to any degree, that could help explain the why short-term gold and silver lease rates have recently turned negative.

Second, it is possible that the U.S. government may have informed the Chinese government in advance that is was preparing a major intervention to suppress gold and silver prices and asked the Chinese to refrain from jumping in to purchase physical metals until the market had been pushed near the bottom.

Last week a longtime reliable source told me that there were massive quantities of Asian buy orders placed in the London market to execute if spot prices dropped to $1,760 all the way down to $1,715. I have every reason to believe that at least a sizable percentage of these buy orders may be have placed by the Chinese government as this would be consistent with their trading activity since 2003. If the Chinese were alerted that they could have the opportunity to purchase gold even cheaper than their standing buy orders, it would be reasonable for them to cooperate by putting their buy orders prices in the $1,700s.

Third, it is possible that the U.S. government may have directly intervened in suppressing prices, through one or more agencies that are not drawing close scrutiny from Congress or the public. The prime suspect would be the Exchange Stabilization Fund, which was established in 1934. The ESF is an emergency reserve, not subject to congressional oversight, normally used to intervene (manipulate) in foreign exchange markets. In 1970, its mandate was changed by Congress to allow the Secretary of the Treasury, with the approval of the President, to use funds in the ESF to “deal in gold, foreign exchange and other instruments of credit and securities.” Thus, it would be possible and legal for the U.S. government to surreptitiously manipulate the gold market. The reason I consider this to be a plausible reason that gold and silver prices were suppressed is that the major beneficiaries of lower prices would be the U.S. government, its trading partners and allies.

On the basis of the hard information available early this week, it is highly likely that gold and silver prices were pushed down rather than fell as a result of free market trading. As I prepare this Tuesday morning, the price of gold is already up more than 7 percent from the bottom it touched in Asian markets early Monday, and silver is up more than 25 percent. Investor sentiment is not that volatile. You just don’t have gold and silver plummet then quickly rebound by such large amounts. However, manipulated markets can be that volatile.

> Read full article at source.

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“When you own gold you’re fighting every central bank in the world”. Jim Rickards

To a great extend, that holds true for silver as well. This week, holders of Political Metals lost a battle, but certainly not the war. Measured against the USD, gold and silver are worth less compared to a week ago by 9.6% and 26.3% respectively.

It all started with Ben Bernanke’s statement, following the 2-day FOMC meeting, stating the obvious - that “there are significant downside risks to the economic outlook, including strains in global financial markets”. His antidote was a plan to purchase $400 billion of long-term Treasury bonds and to sell an equivalent amount of short-term debt. More commonly referred to as “Operation Twist 2″, this plan seeks to further reduce long term interest rates, after having pledged to hold short term rates practically at zero until 2013.

That announcement, made in the backdrop of the Eurozone debt crisis and news of slower growth in China, sent global stocks and commodity markets into a waterfall decline. This set up was ideal for the bullion banks who have massive gold and silver short positions. All they needed to do was to pull the trigger, and that’s exactly what they did on Thursday. Silver was pushed down sharply through its key 50 and 200 day moving averages, triggering an avalanche of tech funds selling the following day.

Going for the final kill of the week, news of yet another margin hike by CME (gold by 21%, silver by 16%) leaked into the market towards the end of Friday’s trading day. That further fuelled the selling, pushing silver briefly below $30 before closing at $31.08 - down 26.3% for the week.

In other markets this week, the Dow suffered its biggest loss since 2008. In four days U.S. stocks lost $1.1 trillion in value.  The MSCI all-country world share index (tracking thousands of stocks from developed and emerging countries) recorded its second worst quarter in 23 years and the 30-year bond rates dropped 55bps - the biggest move since the 1987 Black Monday.

So there you have it, Dr. Ben Bernanke, bullion banks & CME working together in perfect harmony. I don’t believe for a moment that the resulting market turmoil was any surprise to Bernanke. Despite saying that gold is not money, he’s smarter than most people made him out to be. After all, he achieved an SAT score of 1590 out of 1600, graduated from Harvard and has a PhD in economics from MIT. Contrary to its statutory mandate of foster maximum employment and price stability, this market turmoil I believe is a piece of precision engineering to achieve some larger agenda. This round is yours, congratulations Ben!

This engineered global markets take down could be part of the deflationary phase that Mike Maloney talked about, which is a prelude to the hyper-inflation phase. They have to assist the bullion banks cover their shorts and bring the Political Metals price down to a lower base before starting the next round of QE or equivalent. Marc Faber told ThomsonReuters that “if the S&P drops to around 900-950, we’ll get QE3 for sure”.

Four ways to view the developments over the past week

If you’re reading this blog, you’re not a professional or a day trader, possibly someone already invested in gold or silver, someone holding some Political Metals (I distinguish between investing & holding here) or someone in the process of researching the matter. As non professional traders, we have to look through and not at the turmoil unfolding before us. All of the bloody carnage above are on “paper” or bits on silicon - illusionary financial derivatives of something tangible (like gold and silver) or derivatives of something totally virtual and non-physical (like interest rates, bonds, debts, CDS, etc). Real or imaginary, they are all derivatives backed by nothing more than a promise or lies of a third party.

Unfortunately, in so far as gold & silver is concerned, the outcome of the imaginary paper price wars above gets applied to the physical world. Price discovery currently comes from the paper derivatives market. Banks and multi billion dollar hedge funds throwing thousands of futures contracts or bets at each other (most of which are done through computerised High Frequency Trading algorithms) determine the price of the coin or bar you pick up at your local bullion dealers. Until such time when this absurd situation of the tail wagging the dog changes, I suggest 4 possible ways for you to view the developments over the past week, using silver as an example.

There’s a big difference between Investing(1) & Holding(2). If you adopt approach (1), and are smart enough to handle scenario (3), congratulations! Trading this dip or swapping silver for gold just before the GSR shot over 56 would have reaped a handsome return. After years of following newsletter writers, both paid and free, I came to the conclusion that attempting to achieve (3) is at best illusionary, and at worst risky. This is particularly true in a manipulated market. Take a look at some of the forecasts by well respected industry players here. Either they missed this week’s price action or are not telling us something. Richard Russell puts it this way:

I look at gold and silver, not as a play for profits, but as an accumulation of hard assets, in a world that it drowning in fiat money, and a world that will probably print trillions more of irredeemable paper.

Finally, if you’ve been waiting patiently (4) or have spare dry powder, congratulations! While the paper price of gold & silver gets whacked, physical demand is very strong. KWN reported that Sprott Money temporarily runs out of physical silver. So, get ready to pick up your discount. Not necessarily immediately, but then again, picking the absolute bottom can also be illusionary. Best industry advise is cost averaging.

Updated:

• 28 Sep “On the basis of the hard information available early this week, it is highly likely that gold and silver prices were pushed down rather than fell as a result of free market trading.” Read Patrick A. Heller’s take on how the recent gold & silver market manipulation was orchestrated.
• 30 Sep “Engineered fall in gold and silver; Trying to scare people out of precious metals“ Gerald Celente

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