New Chinese Silver Exchange

I found this news article interesting and possibly exciting about the start-up of the new Chinese Silver Exchange.
I say it may be beneficial to curb the paper manipulations currently happening with the Comex and such.
Time will tell. I wonder and hope that this will help correct the true values for Silver.
What's your perception and thoughts on this new Exchange?

http://www.silverbearcafe.com/private/07.11/hongkong.html

 

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In theory, this should be good for the silver price. Competition plus the end of naked shorting is a good thing. But because it is sponsored by China, I don't think the economic warfare aspect should be dismissed. It seems doubtful that the government of China will be able to resist manipulating prices for their own reasons. I consider the plusses and minuses a wash.

 

I will say this again, the CME is not the only silver market in the world. Do silver price manipulation believers saying the same people who manipulate the CME are manipulating the London market, or Tokyo? Or are all of these people just in cahoots? Yes, I can see how a lot of it looks like manipulation, and there could be some, but if the CME was being twisted by whomever, and it wasn't indicative of world demand, wouldn't the other markets have higher prices? Wouldn't the silver sellers only sell to London if the spot price there was $5 higher?

There already is competition, so I don't see how another market is going to change the price. London used to be by far the largest silver market in the world. US markets just came to dominate since we were producing so much of the stuff.

 

Yes. This is why China, a large silver owner, opened their own exchange. This is why so many nations that own gold have removed it from London. When action is taken to change margin requirements and other rules ONLY in the direction of supressing silver price increases and NEVER in the direction of reversing price decreases, it is naive to dismiss the possibility.

 

I never understood why it's (claims of manipulation) all about Comex and not the other world exchanges.

 

Is it always? I have not studied the history of the margin requirements at the CME and the timing versus market activity. Has margin easing never been done? Have you studied these particulars Cloud? If so I would love to here about when and how much they ease margin requirements and what those affects were on pricing.

Margins are usually tightened in periods of high volatility to prevent instability in the market. I see nothing wrong with what was done. If the CME would put in daily up limits but not down limits or the like I would agree with your comment. Always remember margin by itself is market manipulation, you are able to buy or sell MUCH more PM than you physically have cash for. Buyers using margin are manipulating the market just as much as short sellers.

Naivete cuts both ways, and I see a lot of it with people always trying to blame a boogeyman when what they believe a market should do doesn't appear.

Chris

 

The CME is admittedly working with paper silver that doesn't exist in the physical world though. I would agree with you if they were moving actual volume, but since they aren't it's not really affecting supply. Until physical silver is in a shortage and trumps the paper game I don't see why they can't continue to influence world markets to a large degree.

I do think that the new Chinese exchange will level the playing field a bit. Supposedly they will be implementing position limits which, if it is a legitimate exchange (and that's a leap of faith) could swipe a lot of volume from the CME and as Cloud mentioned, end the concentrated short positions we see today.

I also think it is in China's best interest to keep PM prices down, because otherwise it makes for a weaker dollar and cheaper debt being repaid to them, assuming they get paid.

 

a helpful to the gold market.

 

Study it for yourself. I know of cases where the rules were changed because of high volitility in the up direction in order to bring silver prices back down. I don't know of any case where the regulators said they were lowering margin requirements because prices were falling too fast. There may be such cases, but I am not aware of even one. Margin is usually raised when prices are rising rapidly, and lowered in cases where silver prices are relatively calm. If you can produce a single statement by the CME stating they are taking action to reduce downside volitility, it would be a significant contribution to the forum. I can't.

 

I am not sure about the discussion of margins when talking about an commodity exchange that is delivering physical baskets of gold or silver whether it is the CME or the MKME. Margins apply to the future contracts which are not deliverable. You can't carry a deliverable contract on margin. With the CME or the HKME, it appears that full value contracts for physical are similar. It is only for the paper ( margined nondelivery accounts) that one might see margins raised or lowered to level the bets. At least from I get reading the articles about the China exchanges. I could well be wrong.IMO.

Jim

 

The most interesting item I read about the HKME is that naked shorting is prohibited. It seems they want it to be a purely physical exchange, but we'll have to wait and see.

 

now this is good news if it will really be a purely physical exchange.

 

One was the Hunt brothers in 1980. Say what you will about them, but they were sandbagged by the COMEX in that way. Turns out that quite a few firms on the governing board were heavily short as the price shot up...

 

Now, that's how competition works. The exchange governors must think there's enough believers in the silver-manipulation thesis to make "No Naked Shorting" a competitive advantage. They've shut the door to a certain kind of trader, so they must believe there's enough disgruntled traders out there who'd switch because of that ban.

 

Didn't the Dodd-Frank Act kill paper trading on COMEX? My understanding is that physical delivery is required within something like 30 days at the close of the contract. Is this true or am I misinformed?

 

I doubt that the government of China cares about traders. They probably care because they are large owners of silver and are tired of the games played to keep down the value of their asset.

 

I never heard that. Can you post a link?

 

I read the act required registration of the contract if physical delivery was not going to be within 30 days. It was originally written for any future date, but they changed it for coin dealers who might deliver goods to buyers a few days later not having to register their contracts. There was a lot of concern about this before July 1st.

 

I don't doubt it. Entrepreneurship is practically a religion there.

As for they being large owners of silver, how would setting up their own exchange change the world price? The other exchanges are still around, and are still doing the same kind of business.

 

They are saying if silver manufacturers pull their inventory from other exchanges and sell in China that maybe the CHina market being higher would either pull other markets up or there would be higher prices in China than other world markets, and over time the Chinese price would become the true "market" price, either forcing other markets in line with new higher prices or simply closing down the other markets.

I am not so sure that if people get what they want they will like it much. Lets say China's market becomes the market setter and its cash trades only. Who will be there to set the market and not allow huge fluctuations? They go down as well as up. Will there be big enough traders to soak up an additional 100 million ounce shipment the market is not expecting, or will the price simply drop $8 an ounce that day? Physical trading has a whole series of problems with it on its own, problems people ignore when they are advocating for it.

Chris