-- Posted 28 August, 2007 | | Discuss This Article - Comments:
The most recent Commitment of Traders Report (COT) confirmed the epic clean out of speculators in silver and gold, and a host of other commodities in the dramatic sell-off centered on Thursday, August 16. The COT, for positions held as of August 21, indicated dramatic speculative selling and commercial buying in gold and silver, resulting in unusually bullish set-ups in each.
In fact, even though I was not expecting it at this time, the clean out suggests something to me that long-time readers will remember I had written about. So severe was this recent sell-off in silver, and so dramatic was the improvement in the COT market structure, that I believe that this was the mother of all sell-offs.
What Iím referring to is my long-held theory that just prior to the big move up in silver, we would likely suffer an unusually severe sell-off. This final sell-off would clear the decks and enable the dealers to buy as many silver contracts as possible. Then, if the dealers refrained from selling into the next rally, prices would truly explode.
While it remains to be seen what the dealers will do on the next rally, there should be little question in anyoneís mind as to just what occurred on the sell-off. Quite simply, the dealers forcibly liquidated every leveraged long speculator they could possibly liquidate. I mean this quite literally, as their brokers with little notice, or chance to post additional margin sold out many long holders. This was not an accident.
Please understand where I am coming from. I have never publicly encouraged buying silver on margin. I have always written to buy real silver for cash on the barrel. No one following my advice could have lost his or her position in the sell-off of August 16 or any other sell-off. Now, more than ever, that unwavering advice holds true. By borrowing money to margin or leverage silver, you automatically turn what is a great long-term investment into a speculation.
But, given my background and the realities of the world, I can easily understand why someone would attempt to buy silver on margin. The addition of leverage to what I believe is the worlds best investment creates a powerful speculation. The problem is that silver is the most manipulated market of all, and the treachery and control of the dealers is too often under appreciated by silver speculators. Dealer-engineered sell-offs are always more severe in silver than any other market, as the dealers intentionally force long speculators out of the market. This is what happened on August 16, as indicated by the most recent COT.
Some may question my take on this, because on the days of the big sell-offs, the dealers are all buying while the speculators are selling. So how could the buyers be causing prices to decline? As I have previously written, the answer is simple Ė the dealers are colluding. Either overtly or covertly, the dealers pre-arrange to withhold their bids to buy at critical times, like on August 16.
The proof of this statement lies in observation and common sense. Hundreds of silver speculators involuntarily sold on August 16, while a dozen or so dealers, T. rexís and raptors alike, voluntarily bought. The speculators didnít wake up that day with the intent or thought of selling. The dealers did wake up with the thought of creating and buying distressed sales. In fact, I am sure that the very dealers that were doing the forcing bought some of the contracts of the speculators that were forcibly sold. Talk about a rigged game.
While the speculative selling of COMEX silver (and gold) contracts was wide and broad, the buying was concentrated by the Big 4 shorts and the raptors. The T. rexís and the raptors colluded in the hunting and killing of the specs, each roughly accounting for half of the 11,000 net contracts bought in the commercial category. It was near a record one-week buying spree (actually one day) for each dealer group. The Big 4 bought back and covered 5500 net futures contracts, reducing their short position by the most in more than a year. The raptors increased their net long position to more than 22,000 contracts, a record since I started following them.
In the case of the Big 4, I canít help but think there may be a connection with my recent efforts with ScotiaMocatta. Time will tell. If I am correct in my thinking, there is an additionally troubling aspect to their possible short covering under the circumstances of August 16. If ScotiaMocatta has been a big short and participated in the engineering of sharply lower silver prices of that day to buy back short positions, it would seem doubly manipulative to me.
In the case of the raptors, they confirmed their behavior of not liquidating to the downside in spades. The obvious message in this strong and concerted buying by the dealers to the silver investor should be crystal clear Ė if the dealers are so intent on buying as much silver as they can, even to the extent of rigging the market down, so should you be buying.
I want to thank all those who took the time to write to the CFTC, COMEX, and Scotiabank. I am going to reprint an especially well-written letter that a reader sent to me. Since I am aware of no official response to date, I urge those who havenít written yet, to do so. I am also going to suggest some additional follow up questions for those who already wrote in.
I have a sense that the regulators may try to trot out and recycle the nine-page response from the CFTC back in 2004 to answer the current questions on concentration. This would, obviously, be non-responsive since the 2004 letter didnít address the issue of concentration. Iíd like to prevent such a subterfuge by the regulators.
Since I believe the key to getting this manipulation issue resolved is to ask questions that are as specific as possible, here is the additional question I would direct to Mr. Richard Waugh, the CEO of Scotiabank firstname.lastname@example.org,
Did ScotiaMocatta buy back short positions for itself or customers on August 16?
Additional questions for the CFTC and the COMEX would be;
What is the purpose behind the compiling and publishing of concentration data in every market?
When does concentration rise to the level of manipulation?
These questions should be directed to the Hon. Walter Lukken, Acting Chairman, CFTC email@example.com and
Mr. James Newsome, CEO NYMEX/COMEX firstname.lastname@example.org
Here is that well-written letter sent to me by a reader from Oklahoma to the CFTC and COMEX that is slightly edited and minus his last name;
I am quite concerned with a situation that has been going on for rather a long time on the COMEX. The situation is an extreme concentration of silver futures contracts (net short) being held by four or fewer traders. My concern comes from weekly examination of the COT report put out by the CFTC.
I am not attempting to in any way interpret any COT report. I am merely stating what the report itself says.
As an example, the 31 July 2007 COT for silver states that 4 or less traders are net short 265,552,000 troy ounces of silver.
This an enormous amount of silver and dwarfs the amount of concentration found in a COT report for any other commodity. This huge amount is equivalent to over 150 days of silver production for the entire planet. Whether one, two, three or four entities are short over 50,000 silver contracts, what possible commercial purpose could such a position have except to attempt to manipulate the price level of silver far below the price it would have in the absence of such a concentrated short position. This amount almost equals the entire silver inventories of the COMEX and silver ETF combined. I know of no other market where the net concentrated short position, held by four or less traders is greater than 150 days of global production of a commodity.
I'm sure if four or less traders attempted to accumulate over 50,000 contracts net long that the CFTC would have put a stop to it long ago as an obvious attempt to manipulate the price level of silver far above the price it would have in the absence of such a concentrated long position. If the Hunt brothers had tried their shenanigans on the short side rather than on the long side, would regulators have looked the other way? I don't think so. Perhaps it is who the holders are rather than what they are holding or why. That would indicate that regulatory officials regard certain entities as above the law. I sincerely hope that is not the case. That is the sort of thinking that led to President Nixon having to resign in disgrace.
As a citizen, taxpayer and voter, I am asking for a reply from you specifically addressing the following questions:
1. Do you think it is proper that the identity or identities of the four or less traders should be withheld from public scrutiny when a prima facie case of market manipulation could be made based on the COT reports issued by the CFTC?
2. If you think that the net short position of over 50,000 contracts, equivalent to over 150 days of silver production for the entire planet, by four or less traders is not evidence of manipulation, how large a position would it take to indicate manipulation?
3. Are you aware of any markets where the net concentrated short position, held by four or less traders, is greater than 150 days of global production?
4. What possible commercial purpose could such an extremely concentrated short position have except to attempt to manipulate the price level of silver far below the price it would have in the absence of such a concentrated short position?
5. What do you, in your official position, having been made aware of this extreme concentration of silver futures contracts (net short) being held by four or fewer traders, based on official CFTC reports, going to do about it?
6. If you, in your official position, having been made aware of this extraordinary situation, feel it is unnecessary to take any sort of corrective action, are you willing to accept the publicity and consequences that may result if, in the future, a case for attempted manipulation is proven in a court of law?
I await you reply and thank you for your time and consideration.
-- Posted 28 August, 2007 | | Discuss This Article - Comments: