Simple explanation for the recent PM fall

This article explains it better than any other I've read:

http://news.coinupdate.com/by-using...ake-bad-decisions-about-gold-and-silver-0814/

Plain and simple...higher powers decided where the prices went.

 

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The main thing I would say in defense of the change to margin requirements is that in extremely volatile markets its not unusual for brokerages to up their requirements since that high volatility increases their risk dramatically.

I always smile at the tone of these articles. Apparently anyone using highly leveraged positions to try to squeeze a market is just normal purchasing, but any action that leads to lower prices is "market manipulation". Soros was not "manipulating" the market recently? if you really wanted an honest market, eliminate all leverage and make all participants to pay fully for every ounce they control. I don't think the silver bulls on this board would like those results much.

Edit: If anyone dislikes me posting the "other side of the story" on articles like this, please feel free to ignore me. I just try to even out the view for others reading. TYVM GaSilverFan for posting it, it was interesting reading. To me, there are always two sides of a story, and neither of them are the truth.

 

When margins were raised, the price dropped. To me that suggests that the speculators were on the long side and it was a bubble. Or I guess you could argue that the shorts were just better financed. Either way, the guys who need physical delivery will come up with the margin and the pure speculators will think twice about entering a position.

 

I would just suggest that leverage is not a sign or or a cause of manipulation. Concentration is. In the silver futures market, there are no players with concentrated long positions large enough to rise to the level of "manipulation." However, there are a handful of enormously large short postions, and the regulators don't want those firms financially damaged. People can legitimately speculate that if there is any manipulation going on, it is to keep the silver price lower than it would otherwise be. I don't think the elimination of leverage would help the markets, but if everyone had to put up 100% cash for long positions and sellers had to put up 100% physical silver to cover short positions, the silver price would be higher than it is now because it is a tiny market by world standards and there isn't really enough physical silver, which is why cash settlement is permitted.

 

What I meant about eliminating leverage was that the price finding mechanism of this market would be significantly hindered, and news like new production, lagging production, etc etc could not quickly be filtered into the market pricing due to this constraint. It would be a slow, information inefficient marketplace with little value. Due to this, even more manipulation would be possible since it would still be a market price base, just simply much more maniputalivable. I have lots of experienced in ineffective, easily manipulated markets on the ag side of things.

Also, I still think leverage is a big issue since people are saying the "big boys" are playing silver. I do not fault brokerages raising margins requirements on a commodity with such intense volatility lately. Brokerages need to protect themselves, and in the past markets like this have moved too quickly for thin margins to fully cover brokerages on borrowed money. You want a brokerage disaster? Keep the same thin margin requirements in place and see a one day $20 drop, that move would bankrupt many brokerages. If silver SLOWLY moved up to $50 and then they increased margin requirements, then I would listen to the conspiracy theory.

Chris

 

Excellent article. Very well thought and clearly laid out. As the article says, 5 margin hikes in a week spells desperation. $35 silver will keep me stacking, no question.

Whether or not there is manipulation going on, the point is that the fiat Comex is insolvent just like most banks. Margin hikes help to ensure there isn't a run on physical, but they can't do that forever. Supply shortages aren't bad, but they are popping up. Get physical while you can.

 

My point is that the large concentrated positions are largely on the short side. so the "big boys" you refer to just don't have the impact that the concentrated shorts do. It's just the way it is.

http://www.cftc.gov/dea/futures/other_lf.htm [scroll down to silver section to view positions held by 4 and 8 largest traders]

 

Great post, thank you. So, gold and platinum is even more lopsided to shorts versus longs. Why all of the conspiracy theory about silver and no one talks about those two metals? How much of these shorts are simply market makers creating the paper for the market to be liquid? Just questions. I here over and over how silver is so manipulated, and from your link, (thanks again btw), blindly looking at these markets I would state that gold and platinum looks the most likely subject to manipulation on the short side, if any are.

If I am missing something, please let me know.

 

If certain large players are "simply market makers creating the paper for the market to be liquid" but don't actually have silver to deliver, isn't that the very definition of manipulation? I'm not sure why that shouldn't be prohibited by law. I'm not an expert in commodity rules, but I believe silver is one of the only commodities where this is permitted to an apparently unlimited degree. In most other markets, a short seller has to demonstrate that they have the physical commodity beyond a certain number of contracts that are permitted to be naked.

 

Encouraging close today - maybe the sheep won't stampede.

 

And with the USD @ 75+ . yeah I know we aren't that much better, just that others , esp. Eurounion , are much worse.

 

I absolutely like the fact you've posted the "other side of the story".

You make some excellent points. A similar phenomenon occurs in the oil market. In 2008, when the recession started, the price of oil/gasoline went down as a result of reduced global demand. No one complained.

Fast forward to the present. Now that gasoline is over $4.00/gallon, suddenly you hear complaints about the oil companies and speculators manipulating the price of oil. Then politicians looking for votes chime in and the next thing you see is some CEO of an oil company being grilled by congress. Then, the President will make a speech about how America needs an energy policy.

In the past 35 years, I've seen this cycle repeated many times. In that time, little real progress has been made towards a meaningful reliance on oil, foreign or otherwise.

Why? The main reason is the general public. They say they want change, but they generally don't want to change.

How does that relate to this thread? A leveraged investor using margin won't complain if his position is doing well. Once a market enters a free fall, then the words conspiracy and manipulation are used as reasons why the market fell. Blame anyone and anything except yourself...

 

Jimmy Carter pushed through a meaningful energy policy back in the late '70s, even going so far as to install solar panels at the White House, and allowing people to generate their own electricity and sell their excess to the power grid. But that was scuttled by Ronald Reagan almost as soon as he got into office. It should also be noted that Reagan's Vice President had close ties to the oil industry, and he was either vice president or president for 12 years. And his president-son, and his son's vice president, both had close ties to the oil industry as well. So in the past 35 years, we've had 20 years where either the president, the vice-president, or both, have had close ties to the oil industry.

 

Investing is when you are making money on events.

Speculation/manipulation is when you are losing money on events.

 

I'm not savvy enough to know if this is the way history actually occurred.

But if you ascend to a place of power and oil was your ticket, you'll probably help your friends.

However, voters were complicit in giving these politicians authority. They were voted in. Because most of us want cheap energy, it's not surprising that politicians complied and did exactly what we wanted.

Carl Jung, the Swiss psychiatrist made the observation (paraphrasing) "the quality of the country's leadership is a reflection of the aggregate wisdom of the electorate."

 

The voters have to choose a package deal, and they basically only get two choices. Also, voters don't vote directly for President-- their respective states send delegates called electors to cast the final vote for President. That is one reason why the man who got fewer popular votes than his opponent ended up in the White House in 1876, 1888, and 2000.

Also, I learned how to drive in the middle of the first Energy Crisis in 1973, and I was paying close attention to energy issues in the 1970s. I was impressed with Carter's energy package. But Carter was defeated in the next election, not because of his energy package, but mainly because of Iran and inflation.

 

The sheeple always stampede.

Up, Up, down, down, left, right, left, right, B, A....

I am becoming a believer in TA more and more each day.

 

I don't want to turn this political, but Carter's energy policy was basically to get everyone to use less energy with enormous taxes on energy use, and denounce big oil companies. More importantly, people either don't realize or don't recall that people had a different attitude back then toward a huge national energy policy. It was considered un-American and more in line with Soviet thinking that traditional American values. Candidates back then could lose an election merely by being accused of supporting a national economic policy of any sort. Now, we are all socialists to varying degrees and EXPECT to have a national policy on just about every economic and social issue.

 

So, to get this back on topic, there is a relationship between the price of oil and PM's. Last thursday, big drop in oil, big drop
in PM's. Friday, incremental gains in both oil and PM's.

 

Retail buyers/sellers don't have much to do with the moves. My suspicion is that commodity traders ( big boys were very concerned that margins/limits might be enacted on other than silver, and they wanted out at least temporarily, until they could see if it was a continuing action,or if silver would recover even with the margin difference. I think it is still a pivot area on both, and if I had to bet on one or the other, I would pick $120 oil before $50 silver, even though there is more surplus of oil than silver at this point. Although the $billion dollars of outflow in SLV last week has a lot of silver released from hands. IMO.

Jim