Tag Archives: Commitment of Traders

Silver And Mining Stocks Continue Up The “Wall Of Worry”

Currently skepticism toward the ongoing rally in the precious metals sector is rampant.  A lot of it based on shamelessly presented analysis of the COT data.   But the COT data analysts have been wrong since March on their doom and gloom outlook based on the attributes of the long/short data in the weekly COT report.

Let me preface this with the proviso that the veracity of the COT data is predicated on the reliability of reports generated by the likes of JP Morgan, HSBC and Scotia.  If these banks are providing bona fide, non-fraudulent Comex data reports, it would be the only area of their entire business for which they are not publishing corrupted financial information.

The narrative promoted by the various false prophets of the precious metals market will have you believe that the net short position of the Comex bullion banks and the net long position of the hedge funds is at a record high and thus we can expect a massive price decline because of this.  But the presentation format is highly misleading.

My fund partner compiles the weekly COT data back to April 2005.  Too be sure, the open interest in silver futures is at an all-time high right now.  But the “net” short / “net” long is quite different than might be construed from the piggishly superficial drivel that has been published.

Currently, the bullion bank short interest as a percentage of total open interest in silver is 71%.   But the highest this ratio has been going to April 2005 is 82%.  The average short interest as percentage of total o/i over the time period is 63%.   Now here’s the shocker: the highest the short interest as percentage of o/i has been is 82% .   In fact, from the week ending December 9, 2005 to the week ending January 27, 2006, the short interest as a percentage of total o/i ranged between 78% and 82%.

For the week ending December 9, 2005 thru the week ending January 27, 2006, the priceUntitled silver traded higher (click on graph to enlarge).  In other words, during a period of time when the relative short position of the bullion banks in relation to the total open interest was at its all time high, the price of silver moved up 37 cents, or 6%.  And there was a violent price take-down in silver (and gold) but that did not occur until mid-May 2006.

Quite frankly I am as guilty as anyone out there in the obdurance of my view that a price correction bullion bank price take-down is imminent.

Too be sure, at some point there will be a hefty pullback in the precious metals market – nothing goes straight up. But anyone who asserts that the market is not manipulated by the bullion banks and the western Central Banks is either disingenuously persuaded by ulterior motives or is a complete idiot.

Make no mistake, in the context of the massive price manipulation of gold and silver that has occurred over the past 5 years, it’s become infinitely more difficult – as if it isn’t hard enough as it is – to use historical measurement devices in order to make educated guesses on the next directional move in any of the financial markets.

Silver Manipulation May Be The Most Extreme In History

Much has been made in this commentary of the soaring silver open interest, which ought to be unprecedented in commodity market history.  – Bill “Midas” Murphy, co-founder and Chairman of GATA

The open interest in Comex silver hit another new all-time high yesterday.  As of Wednesday’s final open interest report, the open interest in silver was 189.7k contracts. This is the highest the open interest has been based on data I have going back to April 2005.

189.7k contracts translates into 948.5 million ounces of silver.  According to the Silver Institute, the total global silver mine output for 2014 was 877 million ozs.  The amount of paper silver open interest on the Comex is thus greater than the amount of silver mined in a year globally.

The ratio of silver futures open interest to the amount of silver warehoused on the Comex is even more absurdly disproportionate.   As of Wednesday, June 10 the Comex vault operators (JP Morgan, Scotia, HSBC, Delaware Depository, CNT and Brink’s) were reporting a total of 179.7 million ozs of silver in Comex vaults.  Of that, 57.8 ozs were classified as “registered,” or available for delivery (the rest was being “safekept” at the Comex by investors or commercial users of silver).

Based on these numbers, the silver open interest is now 5.3x higher than the total amount of silver on the Comex and 16.4x the amount of silver that has been made available for delivery.

GoldSilverManipulationNever in the history of the commodities markets has the amount of futures outstanding for any commodity been this extraordinarily disconnected from the amount of the physical supply produced and available for delivery.

Anyone who asserts that gold and silver are not manipulated using paper derivatives just based on the market action alone is either completely corrupted – with a motivated financial interest in denying the obvious – or is a total idiot.  But upon examining the Comex data for silver – and accepting it prima facie, which I do not (I believe the real numbers are even more extreme) – anyone who denies that silver is manipulated in extremis has likely received a full frontal lobotomy.

The blatant takedown in gold and silver signals to me that something is coming. I enjoyed Keith Neumeyer’s letter to the CFTC. When a major producer like First Majestic raises the issue I think the CFTC will have a more difficult time blowing it off than another diatribe from Ted Butler.  – John Embry

Briefly, the price of gold/silver is manipulated in two ways.  The first method involves “bombing” the Comex (either the trading floor or the electronic Globex trading system) will massive futures sell orders, typically during periods of low liquidity or when economic reports are released.   This causes the sharp sell-offs.   The second method involves price capping, which is achieved by meeting periods increased demand from buyers with added supply of futures.

If the allowable amount of gold/silver futures open interest was pegged to the amount of physical gold/silver available for delivery, it would be impossible for the banks to print an infinite supply of paper contracts to meet demand from buyers.  This is how every other commodities product operates.   In fact, isn’t this how every other commercial product market typically operates?

The motivation by the Fed/Government to keep a lid on the price of precious metals is certainly understandable.  If gold and silver were allowed to operate in a market of bona fide price discovery, they would almost instantaneously re-price at significantly higher levels.  This event would completely undermine the legitimacy of the dollar.  It would disrupt entire the massive wealth transfer mechanism being operated by America’s corporate, banking and political elite.   We’re talking about blood money.

There’s no telling how much longer this extreme manipulation can continue.  History has shown that market interventions eventually fail – often with serious consequences.  As I have suggested in recent commentary, I believe that the credit market is sending signals which indicate that western Central Banks and Governments are beginning to lose their ability to control the markets.

This whole thing is totally nuts. I still think silver will go bonkers within the next few months. Maybe that is a hope trade of mine, but I smell it as much as I smelled my biggest winner, the copper move of 1987.  – Bill Murphy

The CFTC Commitment Of Trader Data Is Rigged After All

Myself and a few others – primarily GATA – have been suggesting for quite some time that contract open interest data the CME reports for the Comex is rigged.  While certain newsletter peddlers adamantly maintain the reports are accurate and honest in order to preserve their franchise, there’s nothing like a the CFTC imposing a fine on JP Morgan for fraudulently reporting “large trader” data:   CFTC Charges JP Morgan With Reporting Fraud.

JP Morgan has finally been caught and sanctioned for playing games with its position reporting in gold and silver in order to hide the true magnitude of its unhedged short positions on the Comex.    That JP Morgan does this is obvious to anyone who has spent several years studying and trading the Comex.

After all, how are the CFTC’s COT reports compiled?  They come from big banks who are the primary Comex market-makers, of course.  There’s no independent audit of the numbers.  The reports  are sourced from the banks then submitted to the CME and the CFTC.   It’s a “trust us” job – wink wink.

IF JP Morgan et al were to be honestly and accurately reporting the data published by the CME and CFTC, it would be the ONLY area of their financial reporting that is not completely engulfed with fraud.

Anyone who chooses to believe otherwise either has ulterior motives – like making a lot of money selling newsletters – or still believes in Santa Claus.

In fact, while the COT report still holds some small degree of validity in terms of showing us what was happening a week ago on the Comex, I believe that the COT is now largely useless for the purposes of making money on the information.

First and foremost, the numbers are to some degree fraudulent.   The second reason is that the  informational content for trading purposes has lost value.

Ten years only a few crazy gold and silver bugs looked at the COT reports and used them to trade.  Back then the informational content had market value as a source of informational “inefficiency” derived from the fact that so few “brains” and so little money on a relative basis was using the information to trade.

Now, everyone under the sun who follows the precious metals market looks at the COT reports and incorporates the information conveyed into their trading strategies and investment outlook.   Because so many “eyeballs” and a lot more money is involved, it can be said that the market has become more “efficient” with respect to this information – any informational “edge” that used to be offered from analyzing the COT is no longer available.