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-- Posted 14 March, 2003 | | Source: SilverSeek.com
Perhaps the main hallmark to the decades-long price manipulation of silver has been the lack of competition between the big commercial dealers on the COMEX. For 20 years, these commercial dealers have acted as one in their dealings in COMEX silver. It's always the dealers, in unison, versus the technical funds. If the technical funds buy, the dealers sell. And vice-versa. Not for an instant am I trying to exonerate the role of the technical funds in this ongoing manipulation, but it should be obvious what motivates the funds, namely, a slavish (and moronic) addiction to mechanical price signals. And, as consistent losers to the dealers in virtually all their trades on the COMEX (including gold and copper), no one could ever accuse the funds as being the masterminds of the silver manipulation, since they are the suckers. At least we know why the funds behave the way they do. The same can hardly be said about the dealers. Why have the dealers always acted in unison? Certainly it can't be because of some official market-making role, since our commodity futures markets are structured, by law, as an open outcry auction system. It doesn’t grant the dealers any specialist function (as does the New York Stock Exchange).
That the CFTC and COMEX management has turned a blind eye towards the dealers acting in unison is shameful. Even when presented with evidence of super-concentrated net short silver positions on the COMEX, far beyond what could be considered reasonable, the authorities have permitted the manipulation to continue. This is, obviously, something that the market will have to work out, with no assistance from the regulators. Recent evidence, however, suggests the market may be about to remedy the silver manipulation, and long overdue competition between the dealers may be developing.
In the latest Commitments of Traders Report (COT), for positions held as of 3/4/03, there were some very unusual developments. There was a weekly decline in the total net short commercial position of roughly 4000 contracts, to about 39,500 contracts. This means the total net short position has declined by 35,000 contracts (175 million ounces) from a recent peak of roughly 75,000 contracts. Thus, once again, the dealers were able to cover a big chunk of their net short position, at the expense of the technical funds. But what was unusual, was that even though the total net short position of the commercials declined by 4000 contracts this past weekly reporting period, the 4 or less largest traders increased their net short position by 2500 contracts. Remarkably, the 8 or less traders' category (which obviously includes the 4 or less largest traders) showed a decline of 400 contracts. This means, mathematically, that some smaller traders in the 8 or less category bought back almost 3000 contracts. What this means to me, is that some commercials are abandoning the short side of silver, forcing and isolating the very largest traders to carry on the short manipulation by themselves. While I can't prove it (I could if there were more transparency), I think we're down to 1 or 2 very large commercial shorts who are maintaining the manipulation single-handedly. That is outrageous and something that the CFTC and the COMEX must be fully aware of, given that they compile these statistics. Shame on them.
I know this is somewhat complicated, so let me restate what I'm saying. The COMEX, alone among all futures exchanges, has allowed the very largest traders to dominate price action, by virtue of a pattern of consistent concentration of positions not present on other exchanges. Some would argue that is the very definition of manipulation, with which I would agree. Now we are seeing evidence of a further concentration of an already super-concentrated short position in silver. How much more concentrated can you get? If my guess is correct, we're down to 1 or 2 big shorts rigging the silver market.
That means the last remaining controlling short (or shorts) in COMEX silver is in a desperate situation. He is like a cornered rat. He is in a very dangerous position because his position is so vulnerable. That also makes him a danger to the market. His only hope is to engineer a sell-off, in which the technical funds will go short ten or twenty thousand contracts, and enable the cornered short to cover more of his short position. He may, or may not succeed, depending on the behavior of the other dealers, who were formerly in cahoots with the cornered king short. If they continue to desert the sinking short ship, and step ahead of the remaining short by continuing to buy, the king rat short will go down with the ship. If the tech funds can be tricked into going short, we go down in price temporarily, then roar back. It's black or white, but I'm not sure how it plays out short term. Long term is a no-brainer.
What's so amazing is that we are talking about a still huge and concentrated short position in silver at stupid cheap prices. We see clear evidence that the big mining shorts (Barrick) don't want to be short here anymore. We have never seen any evidence of real silver backing the concentrated short position. If the CFTC ever awakens from their stupor, and asks the simple question, "who in their right mind would be short silver big, at these prices and conditions?", the jig would be up in a flash.
-- Posted 14 March, 2003 | |
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Last Three Articles by Theodore Butler
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