The Day The Silver Suppression Stopped – Tuesday November 9, 2010

Nov 11, 2010 8:18 PM by Harold Goodman

Tuesday was a landmark day in Silver Metal Trading in the United States. Trading action this day clearly indicates to those attuned to the Silver Market that the long term price manipulators have finally lost control over the price of Silver Futures Contracts on the COMEX, and thus over Physical Silver Metal as well. Who are these manipulators? The largest are undoubtedly JP Morgan Chase and HSBC who have recently been indicted in an alleged conspiracy to manipulate silver futures and options on the COMEX. Unfortunately, this will probably only result in a slap on the wrist for these powerful banks, if that.


Fed Rescues Bear Stearns From Chapter 11 to Obscure Its Huge Silver Short Position From The Public Eye

It is common knowledge by those more well informed on the recent history of Silver Trading on the COMEX that JP Morgan has been sitting on a Huge Short Position In Silver for years, about equal to a full years’ production from US mining, part of which was inherited from the “takeover” of Bear Stearns for mere pennies on the dollar in 2008. The more well informed of us recognize that the Last Minute Deal To Save Bear Stearns when no legitimate buyers could be found was more of a White Elephant, Gifted From The Treasury and Fed to JP Morgan rather than an actual corporate acquisition (Bear Stearns had a negative fair market value because of the reckless, losing silver short position, but was allowed to go under because they were threatening to start covering it), with the unstated obligation implicit that JP Morgan would safeguard and perpetuate the huge Bear Stearns Silver Short Position. This is certainly the reason why Bear Stearns was not allowed to fail and go through Chapter 11 bankruptcy, in which case their short position would have been made public and forcibly unwound by the courts causing silver to explode upward in price, thereby exposing the worthlessness of federal reserve notes.

Since JP Morgan is also the custodian for SLV, the largest of the Silver Bullion ETF’s, any sane person would view this as an obvious conflict of interest. Shorting a vital commodity such as Silver should by all rights be limited to those with a valid need to hedge production, and a short this size is obviously being held by JP Morgan’s Own Proprietary Trading Desk, since the mathematical odds of them having enough legitimate hedging clients to justify a position of this magnitude would be astronomical. NAKED SHORTING SHOULD BE ILLEGAL by every player and market maker in Every Commodity and Every Security in Every Market as it amounts to NOTHING MORE THAN COUNTERFEITING.

For those of you interested in why such a large position as this is prima facie evidence of manipulation of the silver market, I refer you to a recent article by Ted Butler , THE most respected authority in the field. He suggests that you file a complaint with the CFTC, and has a sample letter you might want to use or customize.

So let’s have a look at the wild fluctuations in Silver Futures Prices on Tuesday at the COMEX. The short term contract for December delivery closed Monday, November 8th at $27.76, a thirty year record high. On Tuesday Nov 9th, it opened at $28.00, and powered steadily higher throughout the day until it reached a new 30 yr intraday record high of $29.45 shortly after 1pm eastern time. And then a curious thing happened: After climbing 6% intraday to a new 30 year intraday record high, and completing a 65% runup since the close on August 23, just 2 ½ months earlier, it plummeted 10% from its peak, recovering slightly to close at $26.95, down 2.9% on the day. A ten percent swing in one day is unheard of in any precious metals market. Something was clearly up. So what happened shortly after 1:00 o’clock on Tuesday to cause Massive Panic Dumping Of Silver Futures Contracts on the COMEX?

Coin dealers and other Sellers of Actual Physical Silver Metal all closed up shop for the day at that point and refused to part with any of the physical metal at any price, until they could learn what had happened to justify this wild gyration in the futures price. A few large wholesale distributors started charging oppressively large premiums over spot instead, to discourage any physical buying from taking place. There was a great disturbance in the force. These reactions were perfectly understandable, since no dealer wanted to part with such a scarce resource that had been on such a steep, continuous, upward price trajectory for several months without having a clue how much it would cost them to replace their inventory over the next few days. So instead, they just closed up shop for the day, and sat on their assets while trying to figure out the market direction and the cause of the instability.

Then the news that Margin Requirements Had Been Increased on the COMEX filtered slowly down to the interested silver traders and suppliers from the Commodities Exchange Members. No public announcement had been made, but CME group, owner of the COMEX commodities exchange had sent a memo to its members, suddenly Raising The Margin Requirements By 30% For Silver Metal Alone, and for no other commodity, IN MID TRADING DAY. Not only was this unprecedented, but was a Major Milestone In The Silver Market, and its significance should not be underestimated. Gold margin requirements were left unchanged, but the Spillover Effect From The Stunning Silver Margin Requirement Increase also Caused Gold To Reverse Course From All Time Record High Levels of $1,425.50 at 1 pm that day to close at just $1400.60.

Not only was such a move by the COMEX historically significant, but the exact timing of the announcement was highly noteworthy. Contracts for December Silver Delivery were trading at $29.45 at 1:05 PM when the announcement came down, and seemed likely they were on their way to breaking $30 by end of trading that day, a highly significant psychological level. Silver with a 3 handle would have been an entirely new psychological level of support, and would be instantly embedded in the minds of the dollar investing public, ESPECIALLY since the price had just broken $20 two months earlier on September 7th for the first time this year. Even the clueless talking heads on TV would have been forced to acknowledge it publicly. It is truly amazing how mainstream financial broadcasters have somehow managed to Ignore Silver’s Precipitous Climb of late, despite the fact that it’s clearly been the Best Performing Asset class for some time.
This news was obviously the cause of the Precipitous Price Plunge, which obviously had been caused by speculators and investors dumping Silver Futures Contracts. The initial dumping was probably done by Frontrunning Speculators who quickly realized that Overextended Weak Hands would be shaken out by margin calls over the next day or two, followed by more dumping by the Actual Weak Hands who were either scared out of the market by this paradigm shift in policy, or didn’t have the cash to pony up to maintain their positions.

So what caused this highly unusual move by the owners of the commodity exchange? And why couldn’t they at least have waited until the end of the trading day? My take is that the Big Bullion Banks, HSBC and JP Morgan, went whining to the fed to support their Huge, Losing Short Positions In Silver, and the fed twisted the arms of their good buddies who owned the commodities exchange to do their bidding. All these banksters CLAIM to want free markets, but certainly not when their own year end bonuses are at stake. The Few Surviving Big Banks KNOW that they are insolvent and their days are numbered. Of course it is also in the fed’s own interest to camouflage the runaway commodity price inflation their Out Of Control Money Printing is already causing, and to hide the ever more rapid deterioration of the federal reserve note’s purchasing power from the public.
What no one has mentioned is that suppressing the silver price over the long term takes a supply of physical metal to sell into the market. This recent price explosion tells me that the Secret Stockpiles of Silver that the manipulators have been using to Suppress the Silver Price over the years have now been exhausted, overwhelmed by Worldwide Investor Demand and a multitude of new industrial uses. Years of price suppression has caused many mines to become uneconomic to the point that most of the world’s silver production is now the by product of base metal mining.
The Crybaby Bullion Banks are Such Sore Losers, they whined until they got the commodities exchange to change the rules for them, not just in mid game, but in mid trading day. This was obviously devised to cause panic selling. How effective will this move be? Who will benefit? Who will lose?
Well, Maxed Out, Overextended Speculators on Margin forced to liquidate during Silver’s Spectacular Climb will certainly be penalized. And the Big Silver Shorts, Naked Silver Shorts, All Silver Shorts will certainly benefit – at least temporarily. Those shorts who managed to cover during the brief period of speculative and margin call dumping will get a short term windfall. But then what? I’m expecting Silver To Resume Its Climb. Nothing has changed fundamentally. The can has been kicked a little further down the road, that’s all.

Demand for Silver Metal is now global and India and China are the largest consumers. India’s consumption is up 500% this year, and China’s is up 400%. The Chinese government legalized the private ownership of gold and silver bullion two years ago, and ever since have been running aggressive television advertising, urging their citizens to get their savings into bullion investment coins and bars. This is an easy sell in China, where the cultural affinity for precious metals is already strong, and the pent up demand after years of private ownership being illegal is considerable. Bullion investment coins as small as three grams are available at every post office in China. And if/when the Chinese government/central bank finally decides to establish a bullion backed currency, it will give them a built in domestic supply to confiscate and add to the government coffers.
The uses of metallic silver are expanding every year. It’s in everything around you, computers, cell phones, flat panel TV’s, switches, Prius batteries, polyester cloth and most of it can never be recovered as scrap.

Déjà vu – Commodities Exchange Tighten Silver Margin Requirements, Sinking the Hunt Brothers
When the forerunners of the COMEX raised the margin requirements for silver futures on January 7th, 1980, it was the beginning of the end for the Hunt Brothers’ fortune. It was said that the Hunt Brothers, in cooperation with the Saudis, had already managed to corner about 35% of the above ground silver market, causing the futures price to peak at $48.70 an ounce, the All Time Record High Closing Price. After the sudden, unexpected change in margin requirements, the price dropped in half in only four trading days. The Hunt brothers were already over leveraged, and when the Saudis pulled out of the deal, they were ruined. This was following a period of excessive over printing of the US dollar in the 70’s, quite similar to the one we are experiencing today, and I suspect the fed and treasury were culpable in the sudden change in margin requirements that ruined the Hunts. Gold and silver going parabolic made the monetary policies of the fed at that time look bad. The Recently Fiat Federal Reserve Notes were being exposed to the light of day for what they really were – Unbacked Pieces of Paper that had Completely Failed as a Store of Value – arguably the most important function of a currency. Without this capability, federal reserve notes would only be useful as a Medium of Exchange Substantially Superior to Barter, but had been Exposed as Useless for Long Term Savings, or as a Conduit for Long Term Contracts, crucial to any economy. Legal Tender Laws prevented anything else from being used, and it was illegal to demand payment of any contract in bullion.

Navigating Today’s Silver Market in the Aftermath of Margin Requirement Changes
Today, the Overextended Long Speculators in Silver hold smaller positions than the Hunts. They will be forced by the exchange to liquidate positions to meet the new margin requirements, and in a few days normal trading patterns will resume. Silver Will Resume Its March, upward and onward, unobstructed by the manipulators who are now out of ammo, and trampling on the Bullion Bank Short Conspiracy along the way. Tuesday, November 9, 2010 was The Day They Fired Their Last Silver Bullet.

The Biggest Silver Consumers in the world, China and India, will be largely unaffected, and will see this as a buying opportunity, as will Smart Investors Worldwide. Long Term Silver Investors can smell blood in the water, and they want to eat the Big Bullion Banks for lunch. They will be holding and adding to positions for the most part. Most industrial demand for silver is highly inelastic as well, so the steady rise in price will have little effect on industrial consumption. As the silver price continues to rise, silver jewelry will become trendy, and will no longer be looked down on as junk jewelry. The Coming Price Increase of Silver Will Cause an Increase In Demand For Silver Jewelry. This may be counterintuitive, but I believe it will come to pass.

So have we truly seen an end to Thirty Years of Silver Price Suppression? If the Suppressors of Silver are really out of Silver Bullets, are there any more hidden bombshells left in their arsenal? Well, margin requirements could still be raised on the COMEX, again and again until they reach 100%. Then they would be completely out of those howitzer shells, but I believe future raises in Silver Margin Requirements will be less and less effective as Silver Speculators are now expecting them, and thus will be less vulnerable and overextended. It would be a slap in the face to the Whiny Silver Suppressors if they managed to finagle another increase in margin requirements, and it resulted in little or no panic selling.

What about more Naked Shorting? Well, this would be a Desperate Last Ditch Measure By the Bullion Banks, with the risk of getting caught with unlimited losses on an increased short position as Silver Prices Continue Steadily Upward, paralleling the increases in the money supply as more and more unbacked dollars are continually printed. But the bullion banksters don’t really care because they know that their Uncle Sammy and Daddy Bernanke will keep funneling them more worthless paper federal reserve notes to cover these positions in a pinch. After all, it costs them nothing to print, and these spoiled stepchildren of the fed are officially too big to fail now that the global economy is in such a precarious position, right? So, the next time that the manipulators do a planned take down the equities markets as they did in 2008, you can expect to see a bunch more Naked Shorting By the Bullion Banks in tandem with it, just like in 2008. So just be careful not to get caught out on margin, or you could be shaken out of your speculative long position for a loss, instead of being able to hold on for a year or so until Silver Continues Its Inexorable Climb To The Stars. Holding Physical Silver and Gold is the way to protect your hard earned savings from the Vicious, Unprincipled Manipulators of Markets and Dastardly Dilutors of Currency, and Silver Is Far More Undervalued Than Gold at this point in time.


 Link to CME Group Memo Announcing New Silver Margin Requirements

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Disclosure: No positions
Stocks: SLV, SIVR, CEF


Golden Economizer has been brokering residential mortgage loans and real estate in Los Gatos, California since 1993.  He has a B.A. in Economics from the University of Virginia.  He is an advocate of free markets, sustainable lifestyle, limited federal government and an asset backed currency.  He believes that the fractional reserve banking system, government intervention in markets, and unrestrained deficit spending are some of the greatest dangers to both the US and the global economy.  He supports strict enforcement of the US constitution as written.