The connection between the manipulation of LIBOR and the manipulation of Gold/Silver raised on CNBC

Yesterday we introduced you to the LIBOR scandal.

What was exposed is the fact that the benchmark interest rate, which is set in London by a small group of relatively unknown individuals... which affects wealth as a benchmark of value around the world... a benchmark tracked by the US Federal Reserve and the financial system, has been exposed to have been subject to manipulation by some of the big Banks, with the silent acquiescence of the government and their central banks.

This, as faithful readers know, is exactly what is alleged to be occurring in the Gold and Silver markets.

And with the revelations by Barclay's of their involvement in LIBOR (a market estimated to be as large as $800 Trillion dollars), how long before it is revealed that the EXACT same manipulation is going on in the Gold and Silver markets?

Today that very topic was raised on CNBC.

Gold and Silver manipulation is no longer the preserve of the tin foil hat brigade.

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Mon Post #3: Yeehaw

Overnight trading in Silver last night saw a massive, determined night bombing raid that took the metal down in the least liquid period of the 24 hour trading day. 

The attach dropped the spot price to $26.15 with the low being reached around 2:00 am EDT (11:00 pm last night on the west coast).

Silver rebounded today to $30.78 in New York trading, which was virtually unchanged from their open at $30.85, or up an astounding $4.50 from the low.

In early overnight trading tonight, Silver is up over $31.00.

But tomorrow is option expiration on the COMEX, so look for more short selling tonight. 

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Desperate times, desperate measures

The idea that the Federal Reserve might need to 'engineer' a stock market crash has been brought up numerous times over the past two years in the blogosphere by other commentators.

Articles like "Will the Fed Engineer a Stock Market Crash to Flood the Bond Market With Much Needed Demand?" have surfaced on many occasions.

As the current year has moved along, it has become abundantly clear that the Federal Reserve must initiate another round of Quantitative Easing.

The problem is that, rather than helping the economy, the last round of Quantitative Easing just pushed commodity prices through the roof. Especially the price of Gold, Silver and Copper. 

So the pressure on the Fed not to ease has become immense.

It has lead many to wonder if the Fed might allow the stock market to tank in order to facilitate demand for QE3.

In the midst of this debate, as commodity prices have gone through the roof, the topic of derivatives has added an interesting angle.

The latest quarterly report from the Office Of the Currency Comptroller was just released and it presents in a crisp, clear and very much glaring format the fact that the top 5 banks in the US now account for a massively disproportionate amount of the derivative risk in the financial system.

Specifically, of the $250 trillion in gross notional amount of derivative contracts outstanding (consisting of Interest Rate, FX, Equity Contracts, Commodity and CDS) among the Top 25 commercial banks, a mere 5 banks account for 95.9% of all derivative exposure.

Earlier today Zero Hedge pondered if Morgan Stanley is sitting on an FX derivative time bomb.

And just last Saturday this blog wondered about the almost $80 trillion dollar derivative monster that JP Morgan was sitting on.

JP Morgan's massive short position in Silver is tied to a substantial number of derivatives which are triggered if the price of Silver remains above $36 per ounce for more than 60 consecutive trading days.

Is it a coincidence that the last time this deadline loomed (in early May, 2011) we saw a giant Silver smackdown?

Back then five margin hikes on traders in 8 days forced massive liquidation by investors trading on credit.

It triggered a sell-off that cascaded the paper price of Silver down to the mid $32.00 level, thus defusing the looming derivative time bomb.

Fast forward to September 2011.

After the May smackdown, Silver rebounded into the low $40 range despite massive shorting by JP Morgan.  On September 14th we outlined for you how the September CFTC Bank Participation report indicated that the four large US banks (primarily JP Morgan) had increased their silver shorts by 809 contracts in August from 23,775 to 24,584.

This was an increase of 4.05 Million ounces to the manipulative short position in silver in a single month. More importantly the total naked short position is up to 24,584 contracts.

It meant that JP Morgan has rebuilt their massive silver short position almost entirely back to the 25,412 contract position held prior to the giant short squeeze of August 2010.

This was all done in a frantic effort to beat Silver down below $36. But despite this massive manipulative downward pressure on the spot paper price of Silver, JP Morgan was facing another showdown with the Silver derivative time bomb.

Worldwide demand for Silver and Gold during this latest phase of the Sovereign debt crisis failed to dampen demand. Rather than drive drive investors away from the metal after the May smackdown because it is too volatile, buyers continued to accumulate Silver and the spot price was nearing another 60 consecutive trading days above the crucial $36 mark.

Derivative contracts on Gold were also nearing their tipping point.

When the Federal Reserve held their rare 2 day FOMC meeting last week, expectations were rampant that QE 3 would be announced in addition to measures like 'Operation Twist'.

When the Fed failed to impliment QE 3, the market tanked.

Was it a deliberate move?

Is a temporary minor market collapse a much lesser evil than allowing the top bank on the derivative list (JP Morgan) to implode from derivative exposure?

Not announcing QE 3 triggered a collapse in stock prices which had been pricing in the QE 3 announcement.  This forced liquidation.

And when we say 'liquidation', we mean wide-spread liquidation. Massive liquidation across asset classes such as currencies, bonds, commodities and stocks. All moved swiftly and sharply in a direction that screamed - Seek safety! Raise cash! Get liquid.

It's hard to imagine the Fed was ignorant of the impact not moving forward with QE3 would have.

Then, on Friday while stocks and the dollar all paused from the frantic selling, Gold and Silver were hammered. And the selling looked to be more calculated than incidental as it has been throughout the week.

There is little doubt that some of this is the association with usual gaming of the COMEX option expiration next week, and the potential delivery situation on that exchange with their unusually thin supplies and concentrated short positions held by a few of the banks.

But the trading volume in Gold on Friday was monstrous...in the neighbourhood of 340,000 contracts net.

In Silver net volume was an out-of-this world 114,000 contracts. This volume represented more than 100% of silver's total open interest. Just think about that for a second.

Then came the CME announcing a margin increase of 21% for Gold and 16% for Silver.

Warren Buffet famously called derivatives "financial weapons of mass destruction."

We were reaching a point where those derivaties could have wiped out JP Morgan and the other big four banks.

Desperate times called for desperate measures.  And it was desperate measures that were enacted this week to bring commodities down.

I would suggest to you that the stock market collapse this past week was but collateral damage in a far more significant battle.

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Silver's September Hard Fall (UPDATED)

On a day when the stock market has (momentarily) stopped hemorrhaging, the spot paper price of Silver and Gold continue to plunge.

As of 12:30pm PDT Silver is down another $5.26 per ounce for the day and is down about $10.00 per ounce this week.

We will have more on this in the days ahead (particularly as the Commitment of Trader's Report comes out reporting this weeks commercial shorts). Obviously there has been no change in fundamentals, so there's more to this than immediately meets the eye.

There are also a lot of traders who are forced to sell Gold/Silver to meet margin calls in order to cover other losses.  This will play a substantial role in the nosedives today as  a big sell-off in stocks is historically followed by a sell-off in Gold/Silver the next day.

For now let's focus on the sale of PHYSICAL Silver.

Last week if you wanted to buy a one-ounce Silver Maple Leaf from Scotiabank you would pay about a $3.80 premium over the spot price.

Today, as Silver sits at a spot price of $30.58, the premium has skyrocketed to about $5.50 over spot.(click on images to enlarge).

It's reminiscent of 2008 when the spot price dropped to $9 per ounce and you couldn't buy a Maple Leaf for under $15.

The manipulated paper price has dropped, but those who own physical Silver simply aren't willing to part with their Silver at anything close to that spot price. 

UPDATE

Ahhh... you just knew something was behind the illogical massive sell off today. Just as was done at the end of April, the CME used the market collapse (which when everyone is selling, clearly there is irrational speculation going not - NOT!!!) to smack down the metals.

The CME just announced they are hiking Gold margins by 21% and Silver margins by 16%, thus prompting another emergency sell off by those trading on borrowed money. News of this always leaks early in the morning and those leveraged traders would have had to liquidate immediately.

Like last time, look for Silver and Gold to quickly rebound next week.

Gold Margin Hike 9.23

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Smack Down

Older readers will recall that Paul Volcker was the Chairman of the US Federal Reserve from August 1979 to August 1987.

He is widely credited with ending the high levels of inflation seen in North America in the 1970s and early 1980s.

Most recently he was Chairman of the Presiden Barack Obama's Economic Advisory Board from February 2009 until January 2011.

In 2004 he did an interview with the 'Nikkei Weekly' newspaper.  They were talking about when the US dollar was devalued against the yen in January of 1973.

What stands out in the interview was a comment Volcker made about central bank intervention to control the price of Gold:

• "That day the U.S. announced that the dollar would be devalued by 10%. By switching the yen to a floating exchange rate, the Japanese currency appreciated, and a sufficient realignment in exchange rates was realized. Joint intervention in gold sales to prevent a steep rise in the price of gold, however, was not undertaken. That was a mistake."

We bring this up because tomorrow in the start of the extra-ordinary 2 day US Federal Reserve Federal Open Market Committee Meeting (FOMC).

The meeting is extra-ordinary because it is rare that the Committee Meeting is ever longer than a day.  But last month current Fed Chairman Bernanke announced that it would be expanded to two days and it is widely expected that the Committee will use this meeting to facilitate in depth discussions of non-traditional Fed market activities.

In other words, Quantitative Easing 3.

The banking cabel loves to smack down gold and silver prior to a market operation. That way, if the metals rally, they have less opportunity to break out and run even higher.

Former Fed Chairman Alan Greenspan made a famous comment in 1998 which reinforced this practice.  He said,

• "Central banks stand ready to lease gold in increasing quantities should the price rise."

Today we saw a massive raid on both Gold and Silver in keeping with this philosophy as Gold dropped by $35.70 to $1776.40  and Silver fell by $1.67 to $39.11.

 

But while the manipulated 'spot price' of Gold/Silver fell today, we were presented with further evidence that things in Europe are getting worse.

 

In a shocking move demonstrating just how bad things are in Europe, the Financial Times is reporting the major European industrial company Siemens has pulled €500 million form a large French bank and deposited the money straight to the Eurpean Central Bank.

 

The implications of this are stunning.

 

It means that even European companies now refuse to work directly with their own banks, and somehow the ECB has become a direct lender/cash holder of only resort to private non-financial institutions.

The Financial Times quoted a person with direct knowledge of the matter as saying that the group had withdrawn the money partly because of concerns about the future financial health of the bank and partly to benefit from the higher interest rates paid by the ECB.

Consider the dynamics going on right now with Gold and Silver.

You just had the European Central Bank, the Swiss National Bank, the Bank of England and the US Federal Reserve act in concert to try and suppress the price of Gold/Silver while the SNB devalued the Swiss franc.

Then the group of central banks collectively put together a bailout liquidity facility in place to keep the Europen Union banking system from collapsing and also moved to try and supress Silver and Gold.

And now you have the big smack down in advance of the FOMC meeting.

At some point Silver and Gold are going to have a "snap-back" reaction in its price that could be quite breathtaking.

 

The massive emergency funding programs being put in place will eventually have to be monetized by central banking printing presses and transferring liabilities from the banks to the Taxpayers - just like in 2008.

 

It's going to get really interesting over the next 3 months.

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Friday Post #2: The case against JP Morgan for Silver Manipulation

Faithful readers know this blog is extremely bullish on Silver and agrees with those who call Silver the 'Opportunity of the Decade'.

Those same readers also know this blog writes extensively on the manipulation of the Silver price on the COMEX.

With that in mind we bring you the latest lawsuit filed in US Courts alleging Silver manipulation by JP Morgan.

This lawsuit, filed on September 12th, is not the first one we have seen filed against JP Morgan for Silver price manipulation, but it is the first that provides details on JPM's specific manipulation techniques.

If the topic of Silver interests you, this is a must read.

11-09-12 FINAL Consolidated Class Action Complaint

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Wednesday Post #2: Options Expiry Calendar (updated)

It's been a while since we've discussed the manipulations that go on with Silver (and Gold) on the COMEX and newer readers may not be fully aware of some of the times you can expect heavy shorting of the metals.

One of those times is the week before options expiry.

Above is the options calandar for 2011 (click on image to enlarge).  Options for Gold/Silver for September expire on August 25 (tomorrow) which is why the metals have been heavily shorted in the days leading up to expiry.

The next options expiry is on September 27th, which is a Tuesday.  Therefore heavy shorting of Silver/Gold can be expected as early as Thursday of the week before.

Other occasions we see predictable, heavy shorting of the metals is just prior to release of the nonfarm payroll employment numbers.

Nonfarm payroll employment numbers are released monthly by the US Department of Labor as part of a comprehensive report on the state of the US labour market. The US Bureau of Labor Statistics releases preliminary data on the third Friday after the conclusion of the reference week, i.e., the week which includes the 12th of the month, at 8:30 a.m. eastern time; typically this date occurs on the first Friday of the month.

Nonfarm payroll is included in the monthly Employment Situation or informally the jobs report and affects the US dollar, the Foreign exchange market, the bond market, and the stock market.

The shorting of Silver/Gold is done to support the US dollar when these non-farm payroll numbers are released.

Finally... anytime the US Federal Reserve Chairman speaks after a meeting of the FMOC, the metals are usually shorted leading up to his speech.

Two bloggers worth checking out who regularly follow the manipulations of the Gold/Silver markets and provide updates are Ed Steer and Harvey Organ.

From Harvey this evening:

• The bankers again decided in their great wisdom that a raid was necessary to quell the demand for gold and silver. The world awaits Ben Bernanke's speech from Jackson Hole Wy. The market strongly believes that he will initiate QEIII. If he does not, then markets will tank. The fact that a monster raid on the precious metals with regulatory cover was orchestrated seems to indicate that that is where he is heading. I will deliver to you both sides of the story.
  
  The price of gold fell by an unbelievable $104.20 to $1751.10 at comex closing time. The silver price was also whacked to the tune of $1.12 to $39.16. Dennis Gartman liquidated another 1/3 of his positions early today along with yesterday's 1/3. I emailed the CFTC that maybe they should arrest Gartman for inside trading as he obviously knew that another raid was forthcoming today. I will remind everyone that you should not play at the comex. If you want gold or silver line up at the bank and get it. Do not play with paper gold or silver as these crooked bankers will fleece you time and time again. Please try not to use leverage as this is a big sin and again the bankers exploit your weaknesses.
  
  The comex has now decided to raise margin requirements on gold again tonight. It is amazing how this news was leaked. Gold will now become a physical market like silver.

I hope you find the information from these sources helpful. Remember, the funadmental reasons for the influx of money into Gold/Silver are still strong and while the spot price of these metals will fluctuate wildly, their upward price movements will continue significantly. Invest accordingly.

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The attack on Gold mimics May's attack on Silver

As events play out in Gold and Silver, the predictablity of what is occuring is almost comical.

With options expiring this week and Ben Bernanke giving the Federal Reserve's highly anticipated FOMC statements Friday from Jackson Hole, EVERYONE was expecting classic cartel action on both Silver and Gold in the days leading up to Thursday/Friday... and we were not disappointed.

Those who follow the metals have been wondering how long before the same sort of attacks on margins in Gold that Silver saw in May (when margins were hiked 5 times in 8 days to force a selloff).  Even on CNBC last week, Jim Cramer was touting the prospect of margin hikes.

Two weeks ago the CME hiked gold margins by 22%.

Two days ago the Shanghai Gold Exchange jacked their margins by 26%.

This morning Gold plunged by $100/oz, the most since December 2008. Some rationalized that the market was about 24 hours late in processing the news from the Shanghai Gold Exchange hiked gold margins, but in reality the selloff was insiders getting a jump on the next attack.

And that attack is now public after having been widely leaked this morning: the CME has boosted margins in Gold by an additional 27%.

Look for margins to ultimately be raised to 100% cash before things are done. This fast, deep correction is one of the signposts on the way to much, much higher prices for both Gold and Silver.

More importantly look for the blatant and heavy handed bear raids in the metals, although very much anticipated and a source of some profits, to continue.

Remember... nothing has changed in the fundamentals driving both Gold and Silver.

There has never been a time in history when debt problems globally have been this monstrous.  Harry Schultz, the retired but highly respected investor, summed up the calamity we face in his last market newsletter at the start of the year.  He said,  “Roughly speaking, the mess we are in is the worst since 17th century financial collapse. Comparisons with the 1930’s are ludicrous. We’ve gone far beyond that. And, alas, the courage & political will to recognize the mess & act wisely to reverse gears, is absent in U.S. leadership, where the problems were hatched & where the rot is by far the deepest.”

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An example of how Silver is manipulated on the COMEX (amended)

Faithful readers who have followed this blog know we have covered Silver and Gold manipulation on the COMEX.

JP Morgan's shorting of the Silver market has lead to the largest short position on a commodity in the HISTORY of commodities trading and has set up a situation where the paper price of Silver has been artificially suppressed in huge distortion to the massive worldwide demand for the metal.

On Saturday, the Commitment of Traders report showed a huge increase in commercial shorts in both Silver and Gold.  Gold was hitting a new record over $1,600 per ounce and Silver had climbed back over $40 per ounce... all of which forced the banking cartel to raid both metals on Monday and that raid was intense.

Above is an examination of just how immense and blatant that Silver raid was.

At exactly 14:03 (2:03pm) on Monday, in what is known as the access (after-hours) market, someone dumped over 50,000 Silver contracts onto the Silver market in one minute!

The video clip shows you (in a very visual graphic) just how 'out of whack' the dumping of this much Silver on the market at one time was.  There was no event that justified this kind of selling, no wave of panic that would lead to a sudden liquidation of this magnitude.

There was just ONE massive dump in an attempt to trigger a collapse in the price of Silver.

As you watch the video, consider just how much Silver 50,000 contracts represents.

In the span of one minute someone attempted to dump 250 million ounces (50,000 contracts x 5,000 ounces per contract) on the market.  That's over $10 Billion of Silver being sold into the the market in one minute.

Think about that for a moment.  Someone tried to sell over $10 Billion worth of Silver in one minute.

250 million ounces is roughly one-third of all the Silver mined in the world for an entire year.  The United States only extracts about 50 million ounces in one year.

As the clip explains, this is an extraordinary amount of Silver and couldn't possibly be a mining company hedging production or the act of a single investor liquidating assets.

Someone, in the midst of a world wide buying frenzy of precious metals over sovereign debt, tried to dump five times the amount of Silver mined in the United States in one year onto the market all at once.

It has to be someone with an access to an unlimited supply of paper Silver contracts - no one else has that kind of access to that much Silver.

But the attempt to flood the market failed.

So voracious is the current demand for Silver that this massive dump was not only absorbed - but Silver surged back up over $40 an ounce today.

The battle to keep a lid on Silver and Gold is intensifying. And the desperation of those shorting the market is palatable.

And why is the demand so strong? 

Congressman Ron Paul explains it best in the video clip below. If you can understand what Congressman Paul is saying you will understand why Gold will hit $5,000 an ounce and Silver will surge over $250 an ounce...

Jim Sinclair also summarized the situation on his blog today and expanded on Congressman Paul's points by explaining why the debt issue will only intensify even after the Congress lifts the debt ceiling.

• The idea that an increase in the debt ceiling is a solution to anything is nonsense. The event would be simply a can kick forward for a very short period of time. Increasing debt is not a solution to a debt problem. It actually makes the problem worse.

• It is an act of extending your Federal credit card borrowing line so you can use it to pay your mortgage.

• [To call the act of ] increasing the debt ceiling a solution to a debt problem is too stupid to be stupid. The unwind is deeply entrenched since the failure of Over the Counter (OTC) derivatives in 2008. There has been no meaningful intervention in this economic downward spiral at the level of the cause. The downward spiral therefore continues unabated.

• OTC derivatives are what turned a four year correction into the greatest economic accident in human history. OTC derivatives only go one way in size and that is up.

• Changing the way nominal value is determined does not solve the problem. All that does is add camouflage to the problem. It does not solve it.

• The damage is done. The debt of the entire Western world is beyond out of hand. The so called solution, just like raising the debt ceiling, will be acts of kicking the can down the road.

• We have come to the end of the road. The result of no financial discipline anywhere in the Western world is unfolding.

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UK government committee launches investigation into monopolistic trading practices by JP Morgan on London Bullion Exchange

Interesting item has come across Reuters earlier today. 

As many of the manipulative silver practices utilized by JP Morgan have been shifted away from the CFTC's reach at the COMEX and onto the London Bullion Exchange, news comes out that a UK government committee asking the UK Office of Fair Trading to launch an investigation into the activities of large dealers on the London Metal Exchange.

The allegations are that the four large companies that own LME registered warehouses are engaging in 'restrictive' business practices.  JP Morgan, as owner of warehouser Henry Bath, is specifically named in the allegations.

The UK Committee's allegations can be found here. From the link:

• MARKET DOMINANCE
• 79. We heard that there were large companies dealing metals within the UK and an allegation was made by the MMTA that a company through a subsidiary may be behaving in an anti-competitive manner: on the London Metal Exchange there are four very large companies that own the very warehouses that people deliver metal into, J.P. Morgan is one of them.
• They own a company called Henry Bath. They are, therefore, a ring-dealing member of the exchange and they also own the warehouse. That is restrictive. They were also reported, at one point, to have had 50% of the stock of the metal on the London Metal Exchange.[113]
• 80. We would be concerned if the ownership of metals storage warehouses by a dominant dealer on the London Metals Exchange were to be anti-competitive. We would also be concerned if a dealer who had the resources to own over 50% of stock on the London Metals Exchange impeded the correct functioning of the market.
• 81. We use this report to bring the alleged activities of large dealers on the London Metals Exchange to the attention of the Office of Fair Trading. We would be concerned if a dealer were undermining the effective functioning of the market and we look for assurance that the market is functioning satisfactorily.

The LME's initial response is that the assertion is "unjustified and completely out of context".

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It's there for all to see...

The eagerly awaited Commitment of Traders (COT) Report came out on Friday.  When the data is combined with the May Bank Participation Report (BPR), the stunning story of what happened in Silver this past week is all there for everyone to see.

Starting on April 29th, a co-ordinated attack was launched against Silver to drive the price down and allow the banking cabal to cover some of their massive short position.

And the depth and breadth of what has occurred is stunning.

As you know by now, it has been a tumultuous week.

When Silver was originally touching $50, a host of stories started popping up in the media warning the Silver was due for a crash. 'A bubble ready to burst' the headlines screamed.

By dumping unprecedented volume in paper contracts on the market, a 'double top' had been painted on Silver charts, an unmistakable sign of an impending collapse to 'chartists'.

But it wasn't a bubble that was bursting, it was a carefully scripted attack on the metal. 

And that attack began in earnest with two hikes to trading margins in the last week of April.  As Silver went into the weekend, investors trading on margin were squeezed. With some markets closed on Monday, positions that had to be liqudated were done so in a market that was trading on thin volume at the opening of trading on the Globex.

The result? Silver dropped by $6.10 in four minutes.

And the attack continued.

By the close of business tomorrow Silver will have been sacked with 5 seperate margin hikes in 9 days. Never before has this been done. In addition to these hikes, significant margin hikes were also raised at brokerage firms for silver traders. Margins at brokerage firms were doubled from what margins were at the CME.  What this ultimately meant for traders is that you had to have five times as much money as last week in order to carry Silver contracts.

This intensive attack on those trading silver on margin was devestating. It wiped out all the small investors trading in Silver and many of the mid-sized ones. As those margin accounts were desperately liquidated, the price of Silver was hammered down from it's high of $49.75 to it's low two days ago of $33.10... an almost 35% cascading waterfall of a drop.

On Monday and Tuesday alone, Silver dropped an astonishing $7.10.

Looking at the COT report you can see that, in the Non-Commercial category - where the technical funds trade - the large traders net long position is now down to a tiny 23,354 contracts. This is the lowest number in that category in a long, long time.

They are the ones who got hit bad; well and truly squeezed until there is very little blood left in this stone.

Meanwhile the data extracted from the May Bank Participation report, which was also issued Friday, and from the COT report for positions held of as this past Tuesday show that 4 U.S. Banks (probably only 2 that matter: JPMorgan and HSBC) decreased their net short position by a whopping 5,757 Comex futures contracts.

They are now down to 18,830 contracts held short (and remember... each contract represents 5,000 ounces).

This is the lowest Comex futures short position that JPMorgan has had in silver since they took over Bear Stearns' short position back in 2008.

The 12 non-U.S. banks reduced their net short position in silver by 1,157 Comex contracts and are now down 3,608 contracts held short. The speculation here is that the bulk of these short contracts are held by just one foreign bank... our own Bank of Nova Scotia (ScotiaBank).

[And just to emphasize the concentration,  note that JPMorgan's short position (18,830 contracts) is almost five times the size of the entire short position of the 12 non-U.S. banks combined (which is 3,608 contracts).  That is astonishing.]

In a nutshell, the BPR shows that the world's bullion banks decreased their Comex short positions in silver by almost 7,000 contracts up until the close of trading on Tuesday.

7,000 contracts representing 35 million ounces in 1 week!!!!

And it goes without saying that if you could factor in the last three days of this past week (Wednesday, Thursday and Friday), the final totals would be massively higher than 7,000.

This has been a down-side clean-out of biblical proportions in Silver.

This tells you everything you need to know about where the Silver market is going.  If Silver were in a bubble, if Silver was on it's way to crashing to $22 and below, would the Banking Cabal cover off so much at between $33 - $40?

This was nothing more than an act of desperation. The bankers are in dire straights and desperate times demand desperate measures.

And that's what this past week was... an act of desperation.

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1, 2, 3, 4... I declare a paper war (Updated 2)

For almost two weeks now, I have have told you to expect a great deal of volatility in Silver and that we would be in for a wild roller coaster ride.

Closer to home I have cautioned many colleagues that I expected a huge beat-down of Silver at some point which could see the price brought down as much as $15 - $30 per ounce. Is this that beat-down?

I was convinced that event wouldn't come until the broader investment community started to move significantly into Silver. 

That hasn't happened yet.

Has it come early because the short squeeze on the COMEX is even greater than we think?

Or is this, as the naysayers are trumpeting, simply a bursting of bubble conditions in the precious metals?

The fact of the matter is that Silver is down dramatically this week.  From almost $49.80, the shiny metal is now hovering around $39.35 after dropping to almost $39.

So is the bubble bursting? Or is there another, definitive reason that Silver has dropped so dramatically in price?

If you have any doubts about what's going on, ask yourself two key questions:

1. Why did you originally believe Silver was going to rise exponentially in value?
2. Have those reasons changed?

Let's look at them.

Silver was going to rise exponentially in value because of increased demand as a result of Sovereign Debt. Have the answers to any of these issues changed?

• Has the US suddenly resolved their deficit woes? 
• Has the US federal government found a way to avoid raising the debt ceiling of $14.3 Trillion?
• Has the U.S. government discovered spending restraint and move toward a balanced budget?
• Have the individual US States resolved their massive debt funding issues? Are California, Illinois, New York, Michigan and about 30 other states suddenly solvent and prosperous?
•  Has the US found a way to fund the outstanding liabilities of Social Security, medicare, etc which bring the actual debt totals to over $70 Trillion?
• Has the massive derivative problem been solved?
•  Did the too big to fail banks suddenly become solvent, their CDOs and loan portfolios truly valued at par?
• Has Europe become solvent or have Portugal, Iceland, Ireland, Greece and Spain suddenly resolved their severe debt problems?
• Is China suddenly buying US Treasuries again?
• Are the world's Central Banks buying up more US dollars or are they still dumping US dollars to buy Gold?
• Has the COMEX suddenly sourced 1 billion ounces of physical silver, tested and ready for immediate delivery (because they sold that many paper contracts on Monday)?

NOTHING has changed.  None of these conditions have been altered.

If fact, conditions are quite the opposite.  Reuters is reporting that the US Treasury wants a $2 trillion debt cap raise just to keep government operations going until the end of 2012. Meanwhile the budget deficit hasn't been resolved, so government revenue can't operate on the cash that is coming in... therefore that debt can only be added to after 2012.

Unemployment remains stubbornly high. Various budget constraints have limited the scope for easy solutions, even if these were desirable. The debt and deficit dynamics are bad and deteriorating at both state and federal levels. A major rating agency, Standard & Poor's, has already taken the previously unthinkable step of placing the US's AAA credit rating on negative outlook.

There there is this Bloomberg report that came out today reporting that Mexico, Russia and Thailand added gold now valued at about $6 billion to their reserves in February and March as the dollar weakened and Treasuries lost investors money.

Which brings us to the main contradiction... if the bubble is bursting in Gold and Silver, why isn't the US dollar rising?

The fact of the matter is that Silver isn't dropping in price because the underlying support for it's dramatic rise has collapsed.

Silver is dropping in price because an all out paper war has been launched against it in a desperate attempt to suppress it's value and support the US dollar.

We have already talked about how, in the last week of April, the COMEX attempted to engineer a liquidation of silver holdings by those who trade with highly leveraged positions.

And you need to understand that this represents a significant amount of trading.

During that week the COMEX raised margins on Silver traders twice... first by 9%, then by another 10%... in just one week!!

Unable to meet margin requirements when trading opened on Sunday night, delinquent accounts were liquidated. It just so happened that trading in London was closed for a local May 2nd holiday... which meant trading volume was very low. In about four minutes, Silver plummeted $6.10.

This was followed on Monday by MF Global raising their silver trading margin to 175% of the COMEX margin.  More liquidation's were triggered.

On Tuesday the paper war intensified as Interactive Brokers warned traders of a yet unknown (but certainly scary) looming margin increase:

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To NYMEX,NYSELIFFE traders:

Wed May 4 10:50:37 2011 EST

Margin Increase: Silver Derivatives

In light of the recent unprecedented volatility in silver markets, the exchanges that offer trading in silver derivative contracts are increasing the margin requirements on these products. In an effort to adequately address the inherent risk resulting from this volatility, we are increasing margin requirements on silver derivative contracts to a level exceeding that which the exchanges are implementing.

You will be notified as more information becomes available.

Please monitor and manage your risk accordingly.

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What the margin hike's have done is it has forced all the newcomers to the game to have to liquidate their positions or ante up the new margin. Given that most trade futures on margin, liquidation is the only option. For long time Gold/Silver investors, these tactics are reminiscent of the actions taken to suppress Gold/Silver in the late 1970s.

You have to keep this in perspective. No asset has risen so sharply so quickly without meaningful and necessary pauses in price to establish a new base. Even gold, during its run paused now and then to allow for normal ebbs and flows to take place, new bases to form and new launching pads to be built.

Silver didn’t do that. It shot straight up like a rocket. That rocket, thanks in large part to the CME margin hikes has now run out of fuel for a spell.  Will Silver crumble? No way. The fundamentals as to why it ran haven’t changed. The reality is that it just ran too fast with everyone scrambling to try to buy physical or find a vehicle to play the game with.

This is another reason why junior mining stocks have not taken flight like the price of Silver. Rather than being a bad thing, the juniors have been a shield from the recent volatility and risk of the futures market.

In truth, these margin actions are ultimately beneficial to the ability of Silver to push higher and higher.

In the meantime you are being presented with an outstanding buying opportunity.

Remember... the key question to ask yourself is: what has changed?

It isn't the Sovereign Debt issue, that's for sure. Which means this take down can only reverse sharply when it's done.  And that is going to present us with a gift-wrapped buying opportunity.

UPDATE

The paper war continues.  The CME has just announced that margins have been raised for the 4th time in 8 days.  This latest hike is 17%!!!

UPDATE 2

Not only has the CME hiked margins for the 4th time in 8 days, but closer inspection of their announcement (see above) reveals that there are actually TWO rate hikes in the announcement.  Rate hike #4 is effective May 5th and rate hike #5 is effective May 9th.

Two concurrent margin hikes are a move never implimented before.

The paper war continues.

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The Panic is palpable... but not from physical Silver owners

As trading in Asia opened on the Globex on Sunday night, Silver was hammered.

In about four minutes, Silver plummeted $6.10.

On Friday we talked about how the COMEX has raised margins twice on Silver trading last week. First it was for 9%, the second for 10%... in just one week!!

Following up on this, MF Global (run by former Goldman CEO Jon Corzine) join the fray and has hiked its silver trading margin to $25,397. That's a hefty margin increase. The CME margin is $14,513, or about 6% of the contract value of $241,750 if you assume a silver price of $48.35. That means MF Global's margin is 175% of the CME!

These two events had the desired effect.

Unable to meet margin requirements when trading opened on Sunday night... delinquent accounts were liquidated at a time when volume was very low.

Supply and demand.  Lots of product, few buyers, price plummets.

This came after the manipulation last week beat down a price surge that almost hit $50 not once... but twice.

For chartist (investors who follow charts like a religion) this action had painted a 'double top'.  In the chartist world, 'double-tops' are indicative of an imminent price plunge. 

Last week, when Silver was originally touching $50, a host of stories started popping up in the media warning the Silver was due for a crash.  Then the 'double top' was painted on the charts.  Finally liquidation of delinquent margin accounts at market opening Sunday night would complete the scenario.

Silver plunged over $6.00 per ounce in about four minutes. 

Que the panic selling..............

One small problem.  Where was the fear? Where was the panic? Much to the horror of the Cabal, buyers surged into the overnight market and Silver climbed back above $47.00! 

And with what is a clear sign of how palpable the panic is becoming, the COMEX took further action today and raised margins for the third time in past 7 days; this time adding an additional 12% the to maintenance and initial margins.

You can see the result above, it has temporarily pushed Silver down again.  Will we see panic or will it be treated as a fire sale yet again? Either way, it is clear what is being attempted here.

If Silver surges over $50, the broader investment market will start pouring into it... which is why we are seeing such desperate attempts to prevent the price of Silver moving up any more.  Think about what we have seen the past two weeks.  Unprecedented paper contracts being dumped on the market, repeated margin hikes, a coordinated media campaign calling this the 'top' in Gold/Silver and the painting of a double chart top.

I promised you the short term Silver ride would be a roller coaster and it is not disappointing us. Can you smell the desperation? The fear?

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COT report on Silver (Updated)

Some interesting developments in this week's Commitment of Traders (COT) report for Silver.

For those who aren't aware, the COT report is issued by the COMEX and provides information about whether speculators are long or short on paper silver contracts.

At the close of business each Tuesday (although the report itself is released on Friday), the COT report records the long and short positions of three categories of market-user: commercials, non-commercials and non-reportables.

When you look at these reports you will see that 8 or less large traders hold a net short position equal to 227.9 million troy ounces of silver.  The report also breaks down the totals for 4 or less large traders and the '4 or less' traders is now 212.7 million ounces.

As we have detailed before, the '4 or less' category is completely dominated by JP Morgan.

The big news is this weeks report is that when you compare this report to last weeks report, the '4-or-less' category is down 50.8 million ounces.

Yes... you read that correctly. The Commercial net short position in this report shrank by a whopping 10,158 contracts which represents 50.8 million ounces. This is possibly the biggest one-week decline in open interest in silver, ever !!

This is huge news.

If you extrapolate the 10,000 or so contract decline in silver's open interest that's been reported in the daily reports for Wednesday and Thursday (after the period covered by this latest report)... it's obvious that JPMorgan et al are running for the hills with their short position on Silver.

And when you consider that the price of Silver is almost at it's highest levels in history, this will be costing JP Morgan a fortune.

Which raises an interesting question which you may wish to ponder if you are having doubts about where the price of Silver is going.

If Silver has 'topped' and can only fall in value from this point, why would JP Morgan scramble madly to cover a record breaking number of shorts when Silver is near it's highest price in almost 5,000 years?

(The same thing occurred in Gold this week)

If you are JP Morgan and you know the price of Silver and Gold is going to be going down, why cover record numbers of contracts at these high prices?

It doesn't take a Ph.D to analyse this. It only make sense to cover massive amounts of short contracts (... and let's emphasize that we just had the biggest one week decline in open interest EVER!) if you are worried the price of Silver and Gold is about to shoot much, much higher.

May is going to be an interesting month.

Update

If you haven't noticed, Silver (and Gold) have opened on the GLOBEX with dramatic drops.

Have the fundamentals changed?  Has Soverign Debt been resolved?  Or are desperate bankers taking desperate measures to crush the paper price of Silver? 

Let's see if Silver is on sale in North America by morning.



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The battle intensifies...

Quick post for you as it is a busy couple of days for me.

Another interesting day for silver.

On a day when Gold surged $30 per ounce, Silver goes into the weekend down $0.54?

Even more contrary is the fact that in the after market hours Silver was pounded down $0.60 in less than 3 minutes and is down a total of $0.80 in the GLOBEX.

It is clear that the Cartel spent the day doing everything they could to keep Silver restrained.  For many analyst's it is all about surviving the May settlement in Silver.

How else to explain that, for the second time in less than 48 hours, the CME has raised margins on Silver trading. First it was for 9%, the second for 10%... in just one week!!

Following up on this, MF Global (run by former Goldman CEO Jon Corzine) has joined the fray and has hiked its silver margin to $25,397.

That's a hefty margin.  The CME margin is $14,513, or about 6% of the contract value of $241,750 if you assume a silver price of $48.35. That means MF Global's margin is 175% of the CME!

Meanwhile the media over the last two days is filled with a plethora of articles trying to tell you that silver has topped.  At the same time sell side analysts continue to raise or even maintain year end price estimates. This is important because year end estimates are critical to the calculation of miner share price forecasts.

What we are witnessing is truly an epic battle over Silver.

As analyst Turd Ferguson notes, "this 'topcalling nonsense' is just that. Since when has any market topped while everyone was telling you to sell. I'll tell you when...NEVER! Markets 'top' when the last buyer has bought... when there is no fear and no perception of risk. Is that today's silver market? Hardly! The fact that so many douchebags are trying to convince you to sell your silver is simply a sign that silver will trade even higher. 'Climbing the wall of worry', as they say."

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COMEX loses 20% of it's Silver

A stunning story is developing wherein it appears the COMEX has 'lost' 20% of it's Silver, a story which has played a large part in Silver's price gaining over $3 yesterday.

First of all a refresher on what the COMEX is.

There used to be two exchanges in New York. The New York Mercantile Exchange and the Commodity Exchange, Inc (COMEX). In 2006 these two exchanged merged and became one. It is now the New York Mercantile Exchange (NYMEX) but is divided into two parts, the NYMEX Division upon which is traded such commodities as oil, gas, palladium and platinum and so forth, and the COMEX Division on which gold, silver copper and aluminum is traded. On this exchange are traded 'Future Contracts' of gold and silver.

For a detailed explanation of the COMEX, please read this post from February 21st.

The evolving big news started when our own Scotia Bank, Canada's largest bullion depository (and one of five total), reclassified a whopping 5.2 million ounces of silver from Registered to Eligible status.

Scotia Bank precious metals division (Scotia Mocatta) transfered 25% of the silver it possessed from the "registered" category (or deliverable physical) to the "eligible" category (or "undefined").

What is the distinction between the two categories?

Some like to say that basically "registered" is real silver and "eligible" is somewhat questionable silver.

The registered category of COMEX warehouse bullion stocks generally refers to gold and silver bars against which COMEX warehouse receipts are outstanding. The registered stocks are held for investment and not for commercial purposes. The registered category is the total pool of gold and silver available at any time to meet delivery requirements under expiring futures contracts or to establish initial futures contract positions through a transaction called exchange-for-physicals.

In comparison, the eligible category of COMEX warehouse bullion stocks generally refers to bullion held in the warehouses that meets the specifications of an acceptable COMEX bar (proper weight, size, purity and refiner) but does not have a COMEX warehouse receipt issued against it. For example, an investor might purchase several 1,000 oz. bars of silver from a dealer and then deliver the bars for allocated storage at a COMEX warehouse. This is a private arrangement and has nothing to do with the COMEX. Unless these bars are officially registered (the easiest way to do this is through the aforementioned exchange-for-physicals), they will remain in the eligible category until withdrawn from the warehouse by the investor.

Thus, the appropriate way to treat eligible COMEX warehouse bullion stocks is that they represent metal that could potentially be registered at some point in the future but cannot presently be used to make delivery under a short futures contract.

So when Scotia Bank moved 25% of it's silver from 'registered' to 'eligible', it took that silver out of the COMEX pool that was available to be delivered.  And the 5.2 million ounces that ScotiaMocatta moved represents 5% of the previous COMEX supply of 44 million ounces.

The reason given last week was that: "due to a reporting reclassification, 5,287,142 t oz was moved from Registered to Eligible." It was explained that this does happen from time to time and was not unusual.

But the story does not end there.

In the past week two other depositories have done the same thing.  HSBC and the Delaware Depository have 'reclassified' silver reserves which means that the total "physical" silver across the entire Comex universe has now plunged by almost 20%, or from 41 million ounces to 33 million ounces.

In the span of one week the COMEX has lost 20% of it's deliverable physical silver!

This is big news.

The COMEX explains the adjustments here and advises that:

• the change has been made to reflect a change in the reporting of metal from the Registered category to the Eligible category. This change reflects paper warrants that have yet to be converted to electronic form. The metal represented by these paper warrants, which will now be reported in the Eligible category, will continue to remain eligible for delivery against COMEX futures contracts provided holders of the paper warrants convert them to electronic form.

It's possible that it is nothing more than an odd, last minute paper to electronic contract conversion.  And it is possible that it just so happened to mysteriously result in a 20% drop in the physical silver across the entire Comex universe.  And it's also possible that it's a coincidence that this all comes at a time when silver is within cents of breaking the all time nominal high.

But you have to wonder... how many more such "warrants" exist in the system?  There wouldn't happen to be enough that the COMEX would have to reclassify another 33,322,807 million ounces of registered silver, would it?

Could this be the real reason the COMEX struggled so much during the last delivery month to make good on silver contract deliveries of 4 million ounces when they supposedly had 41 million ounces in the system? Could it be that all of those 41 million ounces are nothing more than paper warrents?

The website FMXConnects has an interesting take on the whole situation.

FMX notes that Silver is the perfect product to buy if you genuinely think it is undervalued, want to de-dollarize your reserves, or just want to screw with the Banks who have become complacent over the years doing metals “carry trades” wherein they lease Silver, short it and take the proceeds to invest in something with a higher yield, betting they can get producers to sell to them when needing to cover.

If you have the money to do it, silver is the perfect product because:

1. One can control the Silver market with much less capital than gold.
2. Silver does not have currency status, gut Gold does. Every Central bank has gold in its reserves. None appears to have any have Silver, and 
3. Silver is consumed while gold is essentially not. It's hard to create a squeeze in something that every ounce that has ever been mined still is in existence.

FMX wonders if the reclassifications are just the beginning's of the the big banks starting to get out of the way because someone bigger that the usual investor community with deep pockets and a will deeper than all the Bullion Banks combined has decided to de-dollarize their FX reserves.

Someone like say... China?

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