2012 Silver Crash?

How much does JPMorgan /Chase manipulate price?

I read many sources that claim silver prices are manipulated, and are kept purposefully low to fulfill physical contracts. Is this true? With silver options being multiples in paper of actual silver inventory, this seems a safe way for paper purchasers to regain some actual silver inventory. Would this be right? Also...why isn't this stuff illegal, and why doesn't somebody be held accountable for this obvious fraud? If they can steer the price of silver any way they want to, how do we know the "real" price of silver?

 

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It is illegal but the Obama administration has obviously instructed their enforcement dog, Eric Holder, to not do any investigations of any banksters.

 

I have to agree luke2012. I don't claim to know much about the metals market but I try to read everything (positive & negative) about the metal market as a commodity. One thing that seems to be consistent is the 14 to one ratio in physical silver to gold. Silver is used as a industrial metal far more than gold and therefore needed in society by a larger margin than gold. With technology silver use will be needed as it is the best conductor of electricity bar none. Does anyone have a take on the "leasing" of silver? I am not sure it is reality or not but both the central banks and the bullion banks have it on the books as actually existing, which it does not because the central banks are taking it as gospel that the physical silver will returned at a premium. I'm new to this game. Any advice, thoughts, insight?

 

The silver i get always comes from the earth.
Metal detecting is the way to go.
You might say i always get it at a low low price
How low will it go depends on how deep i have to dig to get it.

 

I think the gold:silver is interesting, but it seems rational to me that 16:1 is no longer meaningful, when looking at the last 30 years. More like 40:1.

 

Its a long time claim, but this claim breaks down when examined. Most of the people who make this claim state "facts" like they know what they mean. Most of these "facts" are normal actions for a market maker. I have never read one good piece of work laying out a case of illegality in the silver market by someone who actually knows what they are talking about.

If someone who really knew how a market was made in a commodity wrote such a piece I would love to read it. Personally, I don't view it as illegal on its face. Aggressive maybe, but from the "facts" quoted by the PM crowd, on their face, they are not necessarily illegal. A market maker needs to short sell, sometimes massively, the product they are making the market for. The only way there are items to trade is if someone CREATES the derivative, and that action, (short selling), is what all the PM pundits say proves illegality. Well if short selling is illegal, every single market for a commodity is "illegal".

Again, there may be illegality, but I simply have not seen a rational paper putting it together by someone who knows financial markets and can resist throwing out sensationalistic misleading statistics.

 

The problem is that many think that going short is totally separate from an offsetting going long, which is only when one is selling naked ( no commodity or stock to actually put at risk). That is illegal in the US since 2008 and major trading countries since (Germany in 2010 and France, Italy , Belgium, and South Korea in 2011 for Financial stocks), but in the worldwide market and instantaneous transactions is extremely difficult to prove with documentation. The period of time allowed to produce the "short risk" is based on old paper delivery of materials such as shares, and even a legal 7 days of naked shorting can be covered and no legal ramifications.

In normal shorting, the entity is selling their own shares,commodity, whatever to drive the price down ( supply > demand), having made arrangement with partners to begin to buy up when the price has reached a selected low point and profit is the difference. This "dumping" tends to produce fear as well as breaking through "stop loss points for many investors, causing them to unwittingly help the "shorting scheme".

Longs could do the same on the upside, but that would take infusions of cash, and usually trys to work on Hyping the cause such as bullion, so the buyers are greater in number. Both types of actions "shorting" or "Going Long" can backfire and lose money. There is also cases of "Naked Longs" where an underwriter for a company or the company itself issues stock that has not been authorized by SEC regulations, also very hard to catch.

Options, margined Future contracts ( either side), derivatives, etc. do not involve the actual material or stock. So SLV has 10X more short options than actual ounces of Silver, they also have 10X more long options than ounces of Silver, but neither side can cash it in for the silver so it is a neutral game, a betting game, casino. But Bullion bulls love to say that it is the reason to hold physical ( and luckily they also make selling it their business).

One can explain this many times, but the conspiracy proponents love it.

By the way, the most "naked shorted" entities and companies were/are Financial institutions.
IMO.
Jim

 

Any time somebody gets investigated for breaking the law in this regard they either lobby to change the law or else get a fine that is nowhere near the amount of money that was confiscated as a slap on the wrist with no real prosecution. Since the law is both fluid and murky it is possible to bend it to your will if you have the proper sphere of influence.

We do not know the real price of silver because there is at least 50 times more paper/electronic contracts than physical silver yet this massive discrepancy is the primary driver of price action. I am of the opinion that since mining supply has not met total demand over the last century that the price is undervalued otherwise there would not be this shortfall requiring existing scrap to meet the demand.

If you don't hold it, you don't own it.

 

It is worth noting that JP Morgan's recent $2 billion (or is it $8b, or is it $20b?) loss was due to hedging. Yet it is literally impossible to lose money on a hedge because by its very nature a hedge is for counterbalancing an actual position. Had they had an actual position the hedge could not have caused monetary loss because the original position would have cancelled it out. Therefore it was pure speculation, naked betting, and yet they still continue to operate with business as usual without legal consequences.

 

Since neither of us knows the details other than from the "experts at CNBC", their explanation is that the original hedge, basically ( as I understand it) supporting European bailout scheme as a gainful side, started to be the wrong direction, so they hedged the hedge ( not illegal ) in the other direction to offset the loss. Even the SEC hasn't released any info nor determined any regulatory action.

But how does this involve Silver or Precious metals? These seem to be derivatives involving financial entities or currency?

You have the reverse. Options, future values are not based on how many of them are being transacted, as one has to be sold for every one bought, and the transaction is in cash and value determined by a formula based on many factors, but it applies to the short side as well as the long side. The quote you make is probably based on SLV or GLD options as those are the common illustrations by bullionists, and as I mentioned above, they have no correlation to the amount of silver held. The actual exchange of shares rather than options do have an association to the underlying amount of silver, but one can not collect on that unless they are a partner, so they just get cash. the price of silver is what you get when you sell it for melt. No matter how you cut it or explain it, that is the actual and true price of silver. If you like the level, buy it, if not, try explaining that it is not the true cost and see where that gets you.
IMO.

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I was just pointing out how they are obviously doing naked shorting and that the law is not (yet) being enforced. This particular event does not necessarily have anything to do with metals, but I would point out that JPM is the steward of the silver in the SLV, which is a derivative. In its own prospectus it says the value is based on the amount of silver in the vaults, not the price of silver. Yet people buy and sell it as though it were silver, detracting from the actual market which is not a true reflection of supply and demand when its volume is being redirected. So it does hit close to home, even if there is no direct correlation. I was not intending to make that case however.

Regarding options and futures, can they not sell short a bunch of silver for delivery on a future date? This has an immediate 'sell' effect in the market, yet there need not be any buyer until the future date reaches fruition. They can perpetually push them out to a future date without ever having a buyer. I believe this will come to an end in 2013 when position limits are enforced for all months. Currently the CFTC is in the process of enforcing them for the "spot" month which is only the current month. I would add this is almost solely due to over 30 years of tireless efforts by Ted Butler.

 

The answer is "Yes", but with effects. Once they short sell the actual commodity, the value of the short ( minus margins, charges, etc.) is into their account and the exchange now has control of the commodity. If the commodity goes up in price, most likely someone will buy the contract and go long, or the original owner will have to buy it back at the new price ( plus margin, charges, etc). They can't just say oops ~do over, and get their commodity back. They have to pay in each direction. Up until the last month, the owner of a future can be on margin, but if they want delivery, they have to then pony up the actual full price or they finish the transaction on a cash basis. Few, except for industrial or jewelry companies go for delivery. 95% or so start as a margined cash account and are finished that way so no silver metal changes hands. The exchange is a public company and has to make the best profit it can on these interactions. They are like a large Vegas Sports Betting entity, and can't afford a big loss due to imbalances. That is why when Silver makes a big dash up or DOWN, the margins change to protect the exchange's vigor.

With all options and futures, the contracts can be rolled over to following month or periods, but it isn't free. If you buy a silver contract and silver goes down, you lose "money". When you roll it over before the end of that contract period, you have to sell the old one and buy the new one ( ROLL OVER), so the old one is worth less and the new one costs more, so if you keep doing it without a reversal , you will lose money hand over fist.

If your contract makes money, you are in the green, but you must choose to take it and wait, or think it will keep going and roll it over. It will still cost money as the new contract extends further out.

Most commodity players lose, the exchange wins ( since they can change the margin) and little silver is delivered compared to the number of contracts..
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Good writeups Jim. In the end, those who believe JPM is shorting should call their bluff and pay upfront and ask for physical delivery. Either that or simply buy silver when they like the price regardless of the market. I don't see many buyers wishing to pay $40 an ounce when the CME says $30, why not? If buyers truly believe the CME is bogus, why do you use it?

Its not perfect, but its the price finding mechanism in effect. Its a private company, they set their own rules, and if they truly were underpricing silver WTF would major producers sell to them? I have asked this before, but do we all think major silver producers are just stupid?

 

This is an often ignored item in these discussions yet it's the biggest predictor of when these "raids" by naked shorting will take place. I've brought it up before.

The central banks will lease out monetary assets such as gold and silver not to make a profit but rather to influence whatever market they are focused on. In the case of gold and silver, the leases are often handled with negative interest rates, as they were late last year and earlier this year, which means the central bank is paying the party for the lease, not making a profit. So the question is why would they lease X amount of gold & silver and the terms of the lease is that the one borrowing, gets to keep a percentage of it?

Well first remember the central bank conducts monetary operations to intervene in normal market behavior. It has no interest in making a "profit" at anything. What does profit mean to an organization which can create money out of thin air? So with this in mind, there must be another reason for the leases. The most logical conclusion is these leases are really used to back naked shorting activity with the intent to drive down the prices of silver and gold. The Fed doesn't want people buying gold because it's proof that people are losing confidence in the USD. This is the reason for it.

Now in regards to CME raids, all one has to do is to watch the lease rates. When they turn sharply negative, then you can expect a raid. I recommend that you do a search on my topics. I successfully called one earlier in the year which took the steam out silver (where it has remained) which brought up an interesting discussion with those who don't believe this happens yet the proof is right there to be seen. (Or I have a very good crystal ball).

One other piece of advice. There is no such thing as a gold & silver ratio as a predictor of price.

 

100% agree.

Regarding your "crystal ball", why does it have to be a "raid" or "government intervention" that leads to negative rates? Why can it not be market price expectations and the market expecting prices to fall by say $50, so they are willing to lease it to you for $20 and have you take the market risk?

What proof do you have that government leasing is involved in any price movements?

I am simply saying you are connecting dots of items that could EASILY have a very much less nefarious explanation. You predicted a "raid", well I would say the MARKET predicted a correction correctly. Both are possibilities, which one does everyone think more likely and not involve illegal scheming of a lot of people, relying on all of them to keep their mouths shut?

 

Answer this question. Why do central banks even "lease" gold & silver and only to their primary dealer banks? Furthermore, these leases are not for $ amounts. They are for physical ounces of the PM.

Certainly you have thought this through.

 

Another outlook a little different direction from the bullion blogs..
http://www.financialsense.com/contr...ve-lease-rates-and-the-ticking-gold-time-bomb

 

(duplicate, plz delete)

 

They were absolutely wrong about this:

"The gold forward rate has increased during both the late September and current sell-offs in gold, which probably means that gold is being leased by central banks in order to provide liquidity for the banking system. Importantly, central bank gold is probably not being sold outright despite rumors to the contrary." ​

Gold was knocked down from $1744 to $1531, more than $200 from 12/05/11 to 12/29/11. It was the biggest monthly drop in all of 2011. During this month, the gold lease rates plunged to negative 0.6 which was a historic low by far. But the authors of this piece which focused on the Sept to December time frame also missed a pluge in September to negative 0.5 which was a record until it was broken in December. That plunge took down gold from its yearly highs above $1800. Furthermore, the average rate during that quarter was lower than it had ever been in a quarter. Maybe they assume that nobody will go look it up for themselves.

The banks don't get off scott free when this happens. It is an opportunity for big gold buyers, to snatch up metal if they stand for delivery on their contracts. This is important to buyers looking to acquire the metal who would not be concered about future price denominated in USD. It's a description that would apply to powerful emerging economies which have plenty of excess USD but littile physical gold. So when the banksters perform these raids it comes at the risk of shifts of gold & silver from the West to the East.

(this is one of the reasons that I don't post blog links as any kind of proof)

 

First, I would like to see proof of it. Second, its an asset just sitting there doing nothing. If I was holding an asset generating me no returns, I would be open to leasing it out to others IF I could ensure I got it back. Maybe that is why they only lease to close customers, ones they have enough leverage to be SURE they get it back.

As for payment, they are custodians of PM, why not get paid in PM and keep it easy accounting? I don't see why that is so important. This is a way their stockpile can physically grow, not a bad thing.

Again just responding to your assertions, of which I have not seen proof.