A very interesting article about possible recent Silver Manipulation

I thought I would share this article about recent possible Silver manipulation
since bullion stacking is something close to us all.

http://news.silverseek.com/SilverSeek/1299509764.php

 

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The strange thing about the article is that shorting is considered a manipulation. A market requires a buyer and a seller. When contracts are being considered it is different than retail-retail. If you have an ounce of silver ( long) and you take $38 for it, the person who buys it is now long that ounce , but you are not short as you received compensation. Future contracts are leveraged, so that only a portion is put up as collateral. If you buy a contract from someone who is selling, the contract promises to deliver the goods or cash equivalent to the goods on the expiration date. If you want, you can sell that contract for cash gains or maybe to prevent further loss.

The other side. If you think silver is going down, you can borrow silver from a broker or middleman and sell it as a future contract , expecting to be able to replace it at a later date and a cheaper price before the contract expires. If you can, you make the difference. However,f silver goes up, and you let it ride, it may cost much more to replace the contract. A "short squeeze".

What is manipulation and also illegal is to sell short with out the backing goods or instruments ( like other long contracts. But this article didn't seem to differentiate between selling a regular short ( betting the market goes down), and a manipulation of selling short with out the goods.

Yes any short selling will make the market for that ( such as silver, gold, GE, AAPL, etc) seem to be tending downward, but there are huge risks involved, but it is legal, and in a stalled market can be profitable. But it is fair game. Selling short something you don't have drives the market down and the seller is at little risk. JPM as the marketmaker of course has the ability ( if they wanted) to manipulate the silver market illegally, but if proven would cost them tremendously in reputation and legal damage.

Sorry for the long explanation, but many ( maybe not yourself) think any short position is manipulation. Look at the "BUY, BUY"comments on many boards, that short players think is manipulation also

Jim

 

I've read a lot of Ted Butler's articles, and I'd like to help clarify some of his thinking...

Butler's research and the data regularly put out by the exchange indicates that while the long positions are spread among a large number of investors, on the short side it is very concentrated with the majority of short positions held by the 4 largest shorts. Also, in the past the exchange has indicated that by definition, concentration = manipulation. It's what got the Hunt's in trouble on the long side. There are also rules limiting the size of naked short positions [to limit the chance of having a delivery default to industrial users], but I don't know what the current limit is. So large, concentrated, naked short postions are by definition manipulation under the exchange's own rules, but they seem to turn a blind eye when it is JPM, HSBC, Scotiabank and a few others.

That is the core of Butler's claim. I'm inclined to agree except that JPM might not be a naked short since one of their large clients is China. Time will tell who is correct if there is a short squeeze and delivery default.

 

DesertGem
Great response, I understand what your saying about some
that think that all shorting is manipulation. I am not of that thinking.
In March of last year JPM was caught red handed manipulating the silver market.
http://www.zerohedge.com/article/whistleblower-exposes-jp-morgans-silver-manipulation-scheme

I learned about it a couple of days after it happened. and with the thinking that once the general public learned of the manipulation going on that they would understand that silver was being artificially held down which it has been for years. That JPM and HSBC
would no longer be able to hold it back putting them in a terrible financial position.
Considering that at a meeting of the CFTC a banker admitted in public
that it is normal business procedure to have 1 ounce of physical metal for every
100 ounces of paper sold on the market. forcing them to go to the market to satisfy
those contracts or pay them off along with a premium for taking U.S. Dollars
instead of physical metal to the contract holders
It was shortly after that that the metals market caught fire and has not stopped
yet.

 

I was of the understanding that COMEX required full up front payment of futures to be delivered, whereas contracts to be settled in cash were marginable, I believe at 20%. Most likely if the market makers were pulling a fast one, it was with the "cash settlement" gambling game, and not the "for delivery" exchange. I think only jewelers, industrial, minters, etc use the delivery contracts as they require so much initially, and if your contract goes down, you are stuck. Things could have changed of course. I don't play futures directly. Not as much transparency.

Jim

 

One thing I have wondered is since silver is somewhat of an industrial commodity would say $100 silver really be a problem? I know silver is used alot in electronics but would the increase in price of silver really raise the cost? Unless that is an issue I don't see much interest in worrying about manipulation if it so exists.

 

I don't think a high price for silver is a problem since it is normally a small component of the things it is used in. The problem is that if JPM or others manipulate the price lower it could cause mining companies to hold back on exploration and production, leading to a physical shortage because the price signals are incorrect. The other problem is that if the shorts get overrun by a short squeeze, the silver market could experience a major delivery default that could disrupt the production of items that use silver. Then there is the small detail that price manipulation as evidenced by an outsized concentrated position is ILLEGAL.