Today In Silver

The explanation makes a lot of sense, further it explains Trichet’s comments and the fact the gold, silver and ags fell all at the same time. I think the silver attack after hours was also done for the same reason then, no one around to stop them.

If you think about it, they don’t even need to try and get the information required. Undoubtedly, GS has regular reports that would spell out all stop orders, leveraged accounts etc. As a poll represents the major populace, so to would info from a few major institutions. All they would have to do is formulate a plan and then enact it. Also, they could easily enlist the banks on their side ie. JP Morgan obviously, some hedge funds that work regularly with GS, some foreign CB’s. If it wasn’t working at certain times, pour on the gas, blast through resistance, sit back and watch everyone run for the exits.

This is how manipulation can work with using very little money relative to the potential effects.

Finally, it must have been a big inside joke on how they let slip to the media that they were going to intervene but never had to. Just one more red herring.

oops, one more conspiracy idea.

What if the feds enlisted the banks to do this, they go to bat, by shorting the markets, then just as everyone is thinking the commodities boom is over, the banks go long.

wouldn’t that go a long way to recapitalizing them?

Tom, I must say I am slack jawed as I read your post, but I commend you for finding a graceful, and I must say, appropriate rationale for disassociating yourself from so many of your prior positions.

Who knows, someday you may even come to believe that even absent government support the shorting of 1/3 (that would be one third) of global silver production might have a teenie weenie bit of downwards influence on price. If you believe the current sell off in PM was a coordinated effort with the Treasury Department, then I hope you will consider that it did not involve shorting 165,000,000 ounces of silver, but 165,000,000 ounces of pretend silver.

A possible low risk mechanism (especially when done with CFTC support) by which this attack on gold, which perforce must include an attack on silver is described here…

http://seekingalpha.com/article/94020-jon-nadler-proves-precious-metals-manipulation

Mr. Coxe’s commentary is a must listen for anyone wishing to understand the present situation. Thank you for bringing it to everyone’s attention.

Silverax What are your thoughts on the article in Limpet Mines post? Perhaps the banks could have used some variation of this formula if not the very one used in the Seekingalpha article.

The danger with intervention is that it migh beget more interventation. I can understand that the central banks may want to hammer gold and support the dollar, but at what cost does that come?
As a result, the pound is crashing and the euro dropping fast. Momentum traders are piling in and pound-bear hedgefunds are rejoicing. Is that what the BOE and ECB want? Or do we now need another interventation to keep the pound and euro from collapsing?
And what if selling becomes so huge that stocks, commodities and foreign currencies all crash? You think that makes for a happy election?

Jim Sinclair has covered the US dollar intervention quite well. A couple of weeks back he noted that the first intervention is always the most successful. The operation commenced as the US dollar threatened to break above 1.60 v Euro. The momentum traders and leveraged players that need to unwind do the rest. Like a drug addict, every subsequent intervention has less and less effect until the market calls the bluff. All intervention can do is to delay the consequences and make the final outcome worse.

Foreign central banks have now stepped up to the plate of competitive currency devaluations. During this transition gold and silver have laid low, that is held up reasonably well in non US dollar currencies. Once the new paradigm is firmly in place the monetary metals may rise in all currencies, not just the US dollar. It must be noted that the bull market in the monetary metals as priced in Australian dollars did not even start until late 2005. Marc Faber recently said that the global bear market in stocks, depending on the country, started between 2000 and 2007. That is the US topped in 2000, while Asia appears to have topped in 2007.

?In times of universal deceit, telling the truth is a revolutionary act? ? George Orwell.

i have a large investment in silver and i am down approx 25%.i believe we are witnessing bad news fatigue whreas the markets have almost become imune to bad news and silver and gold wont react until all hope is beat out of the markets.when hope is gone silver and gold will rise.we are witnessing wealth destruction on a grand scale.
the fact there is no physical available is because retail suppliers are holding onto it to to see what happens to the price.to see if it stabilises.the key time will be after the inauguration of the new us president .in the new year.when the house of cards will fall.we are entering interesting times politically and economically the us weakness will be challenged soon by china ,russia iran etc.enjoy the eye of the hurricane while it lasts.load the vaults then fasten seatbelts for the clean air turbulence.

what is the role of bullion banks vis-a-vis the manipulation of the 2-3 banks in Comex? Are bullion banks “managing the demand” in the cash market while their brethren plunder & loot in the futures market? Foxes & vultures eh?

Don Coxe Conference Call for 2008-09-05 “And Hank And Ben Looked At Their Handiwork And They Were Glad”

BMO Capital Markets Client Conference Call for September 5, 2008
Don Coxe
Chicago

?And Hank And Ben Looked At Their Handiwork And They Were Glad?

[THIS TRANSCRIPT HAS BEING REDACTED BY SILVERAX TO HEAD OFF BMO'S WRATH]

…So I don?t have to tell anybody on this call that what?s happened in the last nearly two months has been pretty devastating…

…this is the most massive intervention of government into the capital markets or the financial system since Roosevelt closed the banks back in 1933…

…with a 2% Fed funds rate, this was putting enormous pressure on Ben Bernanke. He?d already had one or two dissenters on his board. And so he was faced with the fact that he might be under pressure to actually raise the rate…

…The Dollar looked like it was going to break down anew, it was down at 70 on the DX and despite spreading recessions across the Eurozone, the Euro was threatening to burst upwards through a buck sixty…

…But Bernanke had another problem, which was that the Fed?s balance sheet was being degraded by the day with this extraordinary policy of swapping Treasuries for CDOs according to the bank?s models for the prices of these ones that they couldn?t sell. And this was a huge change in Fed policy from what securities were required up until then, you?d have to use Treasuries for the purpose…

…Now, the most immediate problem of course was that Fannie and Freddie were on the edge of collapse. And that meant that hundreds of billions worth of their paper held by government funds abroad, including a hundred billion by Russia, was at risk…

…So what they did ? and this is why you want in a crisis like this, you want a Goldman Sachs ex-CEO at work. People sometimes sneer about the fact that Goldman seems to just get all these big appointments. But what it means is you?ve not only got somebody that really knows the markets, but somebody who?s access to information is terrific and who really understands how you can intervene in the markets successfully. Because if you?re going to do a strategy like this, it?s got to work…

…So what they did was basically said ?All right, we?ve got to bail out these over-levered banks, we?ve got to do something to get the bank index rising so that we can create equity in the banking system that they can do re-financing. So we?ll go from taking all the pressure on leverage off the banks to putting it on the commodities…

…And leverage was being unwound dramatically. And of course by doing it Sunday night, that was brilliant because the hedge funds who were short the financials and long the commodities were in the position that the commodities were already going down because they trade around the world…

…Nothing like this had been done before and they got help from the SEC. In other words, they got all their troops in line. Chris Cox ? no relation to me ? came up with an unprecedented rule against short-selling of Fannie, Freddie and of selected bank stocks…

…That was, therefore, what you had a situation where all the regulatory authorities in effect moved in at the same time. And it was enough to blow the system apart and to change the game…

…So, the unwinding was massive, ruthless, across the system. And of course the commodity stocks had nothing going for them then. They were stocks at a time stock markets had problems. And in addition, they were tied to commodities that were going down…

…?Well, is the commodity bull market over?? And our view has been that there was inevitably going to be a largo movement in the commodity bull market which was going to be in a minor key. It would be rather shorter than the first and third movements. The bull market, the allegro movement had been?had lasted for six years. So we were entitled to have nine months to twelve months of a slowing or a sell off…

…This adjustment process ? and I don?t see it as anything more than that, you may say ?Come on, with something this drastic you can?t just call it an adjustment? but if we look to where these prices are on the commodities and the commodity stocks, we?ve basically given up something like nine months to a year or less, depending on which stock group you?re talking about. And so, we are still in a situation where on any kind of long term basis, they?re in major bull moves. But, that doesn?t mean that we can?t have them cheaper. Because we still have a situation where it was a minority of investors who were overweight the commodities…

…We saw the sell off that had taken oil all the way down to fifty bucks. And although I don?t see anything like that on the horizon, what it did mean was that the sentiment that said oil prices have nowhere to go but up changed dramatically. And it didn?t help that we had the number of people out there forecasting $200 oil, which would have meant that oil prices would have quadrupled in less than two years…

…And, of course, overlying all of this was all the discussions about what was going to happen to China after the Olympics. And the viewpoint was that China was going to slow down. So you take out the big marginal buyer for energy and metals. And we won?t know, of course, how much of a recovery after the Olympics China is going to have…

…Meanwhile, what we?ve done is driven interest rates even lower in open market instruments. You?ve got the US ten-year now at 3.58. And at a time you?ve got CPI well above 5%. So this reinforces this global phenomenon of negative real yields on bonds. And that is a warning of two things. First of all, it?s an inflation warning. If we learned anything from the ?70s, it is that the only way you stop inflation from going up without a very deep recession is by having high real interest rates…

…Now the fact that the Dollar was rallying like this against gold and against other currencies would say well the market is predicting that inflation is about to collapse. That it was just an inflation bubble. Hard argument to make. Because again, citing the ?70s, one thing that did not happen was that recessions collapsed inflation. Yes we know it?s different this time because we don?t have powerful unions that get big wage increases even during recessions. And so therefore we?re not getting the cost pass throughs…

…So the Republicans were facing an electoral disaster. The Congress was going to go hugely Democrat and there could have been a landslide at the White House level because you had this extraordinarily attractive Barack Obama at the top of the ticket and of a united party and it was time to punish the Republicans for Bush…

…Now how could all that change in a hurry? Well, what we saw of course was that the choice of Governor Palin turned out to be an inspired choice in that it changed the pieces on the chessboard. It’s united the Republican party…

…Oil is quite likely going to break $100 and that’s going to be a big psychological effect on commodities generally, but if you accept that we’re not going into a deep global recession and you accept the fact that most commodity companies have very powerful finances and are making lots of money and haven’t done dumb things and if you accept the fact that everything that’s occurred geopolitically in the world suggests that unhedged resources in the ground in politically secure areas of the world are actually growing in value as we speak…

Actually, I was the one who just posted the transcription from Don Coxe. Thot my computer had my user name in it.

Somebody else did the transcription–does that mean I don’t win the subscription? Pretty please? The person who transcribes this every week isn’t a trader, btw, more a buy and hold mining stock type person.

Tom,

You’re too smart to be fooled forever, even if you didn’t want to believe it was possible. I commend you for being willing to change your mind. Now give the bastards who just ripped us off, hell!!!

yes, tom, it does–how do i remove it?

Tom, you said “I still don?t believe the positions themselves necessarily caused the decline”, which you feel speaks for itself. It certainly does. You don’t think that the sale of 138,000,000 ounces of silver into a market with a TOTAL open interest net of spreads of 422,000,000 would cause the price to go down. Your position is quite clear, and quite silly.

As you point out, OI did not rise, even with 2 banks adding 27,000 contracts. There would only appear to be 3 explanations, each of which “netted or neutered” OI gain. First, your initial theory that the banks were doing bookkeeping exercises to strengthen reserves, which even you have backed away from for obvious reasons of conflict with published data and common sense.

Second, the banks stepped into positions held by others with Treasury/Fed/CFTC support and protection. Butler wonders whether this could have been to take over a trader at risk of default. Coxe suggests this was part of a coordinated attack on gold and silver to support the dollar without increasing interest rates. If Butler is correct, then the market was not allowed to work, which would have involved the covering by this failing entity through buying, or by defaulting, either of which events would have put the price to $30+, not down $6. If this was part of a government attack and not a bailout, you still have to consider what the price of silver would be if the exiting short position was covered through purchases or default.

The third explanation is that the position was put on by 1 or 2 banks for fun and profit while other commercials were responding to declining supplies by exiting the market. The no to low risk trade, given the size of the position, is described in the article you refer to. A massively short visible leg sinking the price hedged with a massively invisible leg on the OTC market that becomes profitable after some portion of the short leg is covered on the COMEX - a process we are two weeks into. Whichever the above rational possibilities happened, no increase in OI would necessarily have occurred, but a crime most certainly would have.

Finally, you have said before that the fact that Commercials are buying and not selling when the price falls is evidence of no manipulative intent. This has always mystified me, since the only way manipulative shorts ring the cash register is by buying as the price falls. This is done by a commercial either by increasing the gross long position in one account and/or reducing the short position in other accounts, which is precisely what we have observed. As a result, short positions NEVER increase during price collapses, so I am unclear why you expect them to now.

I am sure we all await your analysis of the Nadler article with an expectation of your usual standards of accuracy, brevity, and clarity. At least I know I do.

By the way, nice call on the open. Hope it holds - we could all use the break.

damn… we hit a new low today what’s up with the password for the newest blog post? How do I get in?

Tom, I agree that the bookkeeping exercise theory remains a possibility, although IMHO makes little sense. The upcoming FCM report will shed some additional light.

The significant difference between the Fed stepping in and taking over Fannie Mae/Freddie Mac is that the shareholders/bondholders took a known risk when they took their positions. Stocks go up, stocks go down. For the U.S. government to sanction the robbery of wealth from individuals, pension funds, etc. for the benefit of strengthening the balance sheets of banks is outrageous and a crime, and not an assumed risk. One simply doesn’t expect to be robbed by the government (except in the normal way of taxation). You are comparing apples to oranges and no reasonable person should make excuses for such theft, which is what it is.

The question of whether the banks stepped in to save a faltering commercial is hard to prove, but what we know from the COTs is that either the new short position was a bookkeeping exercise as you speculated (still very unlikely), or represents the taking over of an existing position for whatever reason. If the latter, no decline in price would have occurred without the new position since all liquidation would already have happened.

Regarding covering, the basis of the short position in silver was around $17.65 in silver and $925 in gold. The covering in gold has yielded around $550,000,000 in realized profits and only a few million in silver. If that isn’t ringing the cash register, I don’t know what is. The lack of covering in silver means either that the remaining longs aren’t selling and won’t, or the shorts aren’t offering to buy which means more bad news is coming. Given the size of the position, I doubt the latter. To cover that size position requires buying on the way down, otherwise the attempt to cover at the bottom backfires. So, I think there hasn’t been liquidation because there won’t be. Butler is probably right that in this sense they are ‘trapped.’

On the fact that there is a short on the OTC for the long that may hedge the COMEX short is, of course, true. Which is why when you get done figuring out which walnut shell the pea is under, you will find that the position is naked short, also one of Butler’s core contentions, and one I agree with.