Ted Butler Article on Silver Manipulation

Btw Fatima, its fine if you wish to say its me. When I compare markets I compare any markets, since human nature and the way derivatives are created in my eyes are identical. I use commodities as examples since I feel it allows people to relate to them easier.

I simply do not see how the derivative, and its trade, is "different" for the PM market versus any other. If you wish to claim they are, then I believe that would require proof of such specialness.

 

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You may be correct, which is why I qualified what I wrote. It's just that the existence of a dominant entity in a small market like silver doesn't seem compatible with the price discovery purpose of the market.

 

I may not disagree, its just the nature of such enterprises that it always seems to shake out there is usually only room for one large firm in most markets to make profit from being a dominant player. Yes, markets like oil, currency, etc are way too large for only one firm. However, I believe if you look at most markets, (treat individual stocks and bonds as separate markets), and you will see this pattern over and over again.

I agree this structure is a risk, which is why I would say innately silver is more risky than gold just on a market basis, let alone looking at the standard deviations.

I never said I liked it in any way, just commenting on how I saw the market. Just because I don't personally like it doesn't mean I do not understand its a common occurence in thinner markets, and does not make it illegal in my eyes.

 

As they say the devil is in the details. You have to read the rule book for each to understand the differences and fortunes are made and lost on these details. However at a gross level, the Comex recognizes that unlike real commodities, the supply of acceptable monetary silver and especially gold changes very little. Industrial usage, collector coin purchases are irrelevant unless they change this supply. I will explain further.

While a gold or silver future looks like a corn future, that corn future ultimately represents a given quantity of physical corn that will become worthless after X amount of time has expired. It either rots or it's sold to consumers and consumed. it disappears. A gold or silver future however is a bet of the currency worth of the world's known amount of monetary silver. (serialized large bars) i.e. It looks like a commodity but it acts like a forex trade.

When you buy and sell a Comex gold or silver future, you are not betting on the industrial use of the metal, you are not betting on the collector demand of small coins. You are betting on how much people are willing to pay for serialized bars on deposit for gold and silver. This is completely different than betting on corn, weather, or anything else that affects future supply. It's very common for people, especially on Coin Talk to completely ignore this aspect of how silver and gold prices are set by these sorts of trades. It's why they don't believe that manipulation is possible.

In any case, because you are not betting on future physical supply, Comex rules for physical delivery are quite different than that for corn or aluminum or any other real commodity traded on the other boards. This is where the trouble arises. it's possible to create shorts where you don't actually own the metal since you don't have to worry about it rotting. It's against the rules but many people believe it happens. All kinds of mischief can happen without proper enforcement.

 

BUT, every single thing you say happens in Comex happens in every market. Every single thing you described happens in corn, cheese, cotton, etc. Almost no physical trading is done on commodity exchanges, they are a price finding and hedging mechanism. Yes, some physical trades are done, mainly to keep the market honest. However, not one word you stated about Comex would be untrue of any other market.

So, I guess I am still unconvinced that the markets are fundamentally different. Every market has its own quirks and rule, but I can go to London, Singapore, Tokyo, NY, or Chicago and still understand what is going on with any of them. Yes, if I were to get deep in any of them I would become an expert on the technicalities, but those technicalities aren't changing the fundamentals, just the details.

I really am not trying to be dense, and would love someone to teach me something I am missing.

 

If you believe this, then I believe you fundamentally don't understand how the commodity market works. Every future traded on the CME or Nymex is for a specific amount of the commodity from a particular supplier who must supply said commodity. This future can be traded many many times, but it still represents something real and something that will rot if not settled in X amount of time.

No matter, my recommendation is that you go read the rule books. I can't explain it further. As I said above, the physical delivery rules for the Comex are quite different than that for any other commodity.

 

I'm not an expert on futures trading and have no need to become one. But what I think you may be missing is that unlike the other markets you mention, gold and silver don't have large corporate producers and consumers hedging their positions to discover the price. Silver in particluar is a small market, and the thought that a mega-bank such as JPM "making a market" in a commodity for which they have no use in a market this small with only hedge funds and other financial traders on the oppostie side is suspicious. Now, it is very possible that JPM customers own silver to back the bank's short positions, but without transparency, one has to be very trusting to just accept this at face value.

 

Well ok then. I guess you just know better than I. I am just a CFO who particpates in the agricultural markets, and has tens of millions at risk in it, so I guess I just "don't understand how the commodity markets work". I guess I am the ONLY participant who does not physically take delivery of the product.

Seriously Fatima, if you REALLY believe every contract on a commodity exchange is physically moved, you sir are the one without a clue. I would say the number is more like 5%, depending on the market.

 

I will agree silver in particular is a weirder market, but I DO think there is hedging both buy and sell side in it. Why wouldn't producers and large user use it? Do you have any data showing that they don't?

Yes, the "extra" users of the market stress its normal price finding function, but does ANYONE have a better solution? Every single solution I have ever heard would be disasterous to liquidity, which to most markets is paramount.

 

There is a difference between a "contract" on the CME and a future's contract. It's the failure to understand this as to why you are confused. My recommendation is that you go read up on what is required for a future to be created on the CME and once it has been created, who actually "owns" it.

 

Maybe I am just dense. I sell a commodity today on the CME. I get the value of today's price. Before "delivery" I buy the commodity on the CME, thereby cancelling my sale. I do not EVER physically deliver the product. as a matter of fact, for the commodity I deal with, NO ONE EVER delivers the commodity. EVER. But, I am able to hedge my sales price with the market.

How am I any different than a silver producer using the silver market to hedge his sales price?

Btw, I have told the board my experience with these markets. What is yours Fatima? What makes you a self declared internet expert? Please explain to the good people here why YOU are the one to listen to, not anyone with REAL experience. I only have tens of millions of my company's profits at stake, I am sure Fatima has much larger at stakes in these market, right?

Btw, sorry, I guess talking about my own experience in these is a "personal anecdote", right? It shouldn't be allowed, in fact it should be mocked.

Edit: I apologize to the board, I will not post further here. The condecension in certain posts just gets under my nerves.

 

A lot of byproduct producers contract with outfits like SLW and RGLD which eliminates the need for hedging. The primary producers seldom hedge anymore. I don't recall ever reading about "large buyers of silver" but frequently read about large sellers, always financial institutions. So everyone is free to interpret it as they wish. The "better solution" seems to be contract limits for financial players. But the US seems to value liquidity over honesty in most economic situations today, so I don't expect any change. Few people actually believe in free markets free prices anymore and imagine that the only way to provide liquidity is through regulation or manipulation.

 

I don't disagree with anything you've said. The question that raises in my mind is - why is the silver market so small? It's the 2nd most useful industrial commodity in existence. Electronics are dependent upon it. It is superior in every way to all things for the purposes in which it is needed, cost effectiveness included. IMO it should be much larger, and does not warrant being able to accomodate the most concentrated position of all markets.

We can argue that it's a small market because of lack of supply, but could also argue that lack of supply is due to a low price. It's almost as if it's a self-reinforcing paradigm. The lower the price goes, the smaller the market gets by an order of magnitude as it causes both supply drain and less overall value of the remaining supply, and the easier it becomes to move it one way or the other. If it's desired to be moved lower, it just gets easier as you go - as long as there is no failure to deliver.

 

^Indeed. I will note that it has now been 1.5 years since the MF Global debacle. A situation where laws and rules were clearly broken and where people lost money because of it, but there have been no indictments, no criminal investigations by the justice department, nothing. The markets have become a sham and a travesty.

 

MF Global is more important than it would seem from the level of coverage in the news. If the situation stands as is, it will overturn the long-standing laws that put holders of segregated accounts before creditors in a bankruptcy proceeding. The regulators know where the customer money went in the final days, and so far no effort has been made to recover it.

When the next company experiences an "MF Global event," and the court follows this precident of paying creditors with funds in segregated accounts, it will almost force all shareholders to go back to taking possession of stock certificates. It will be a panic once theft becomes established law, and may even end individual participation in the market.

 

Do you mean, give up their e-zeros in a Fido account? Banish the thought! But Fido only has to settle - in what - next month's fiatsco value?
When the Bank Holiday arrives, those frozen e-zero accounts will be marked-to-market... and only THEN you will know what that "401k retirement account" is reeeeeeally worth, LOL

 

No. Do you really believe that if there is a bank holiday, a share certificate for Exxon-Mobil will be worth zero?

 

No. But it won't be YOURS. Fido only needs to 'settle' your account, NOT hand you that actual share.
You only imagine you "own" it. Read the fine print for your brokerage acct contract very very carefully, chief.

 

When it comes to the investment of my money, I pay little mind to the sell promotion that people give themselves. If I had listened to people who described themselves as one responsible for many great things, I'd have no money now. My statements and arguments here don't depend upon the fallacy of "trust me because I know better". They either stand on their own or they can be disproved without such needless japery.

I'm sorry you got mad and left. You asked the question and I attempted to answer it for you. No matter, maybe others will be enlightened by the fact the Comex is unique and has special rules for trading. IMO, people should try to find out as much as they can when buying an investment which is why I provided the information. Willingness to view outside one's vision of the universe is a hallmark of successful investors. In this specific case, anyone, including you, can simply go read the rule book as I suggested to determine this themselves.

 

A certificate can be issued by calling the company's transfer agent. You can bypass the broker if they don't cooperate.