Silver Manipulation

Again, I think Butler has done a great job of reporting on the silver price manipulation. Following is my attempt to distill how this manipulation has been working, but this explanation is based mainly on Butler’s articles and if you want to dig deeper that is where you should go.

There are 2 groups of traders that do a large portion of the silver trading- the Commercial traders (large banks) and the Managed Money Traders (MMT) (consisting largely of Technical Traders). The Commercials for years have had a large silver futures short position. Typically, the top 4 and top 8 short positions are Commercial traders. The Technical traders buy and sell based on price signals. They are heavily influenced by the 50 and 200 day moving averages (MA). They buy when the price moves above the MAs and they sell when the price moves below the MAs. The Commercials are able to manipulate the price by using High Frequency Trading, spoofing and other tricks, so they can move the MMTs in and out of trades to the advantage of the Commercials. Butler states that the Commercials have never taken a loss on these trades in the last many years until lately. This would defy logic in an un-manipulated market.

I see much commentary out there where people are arguing about exactly who controls this manipulation or why it is happening. The same can be said about Butler’s claim that JPM acquired 1000 Moz. (a billion) of silver over the last 9 years. I think it would be nice to know exactly who is doing what and why, but I don’t think we are going to get that certainty at this point. The main focus needs to be ending the manipulation and then what follows from that will tell us much as to the “who & why”.

Butler’s contention has been that JPM has manipulated the silver market to make a profit. Another “reason” thrown out by some is that JPM has tried to manipulate PM prices to keep the USD strong. I think the profit motive is the stronger case, but the USD motive might be the reason the USG doesn’t try to stop this manipulation.

To me the CFTC’s* COT* report shows the silver manipulation. Butler and others report on the COT each week and it seems that there are more and more commentators talking about the precious metals market and silver in particular. I find it interesting how often I see articles raving about the upside potential of gold and then in their final paragraph they will say “and silver should do even better”.

Remember that both the Commercials and Managed Money Traders (MMTs) are speculators- very little if any legitimate hedging involved. Compared to the annual production of silver the top 8 silver shorts are currently (2/22/21) short about 4.8 months of world silver production. Even more egregious, they are over 18 months short compared to Available Silver Production for Investment (I’m calling this ASPI- see ASPI). This is no more than a high stakes gambling game and the commercials have always fleeced the MMTs up until about a year ago. For the last year the big 8 short traders seem to be “stuck” in their short position and haven’t been able or willing to buy their way out.

The main arguments that I hear by silver manipulation deniers are:

Supply and demand sets the price of silver, not the futures market. The futures market is just used for hedging of commodities to layoff risks.
- That might be true in some commodity markets, but definitely not in silver.
- In silver (and gold) the market has been manipulated down by a concentrated group of commercial investors with an out sized short position, which in silver at least is probably a “naked short” meaning they don’t have the metal that they have already sold.
- The miners aren’t using futures for hedging as they would have to report that and they aren’t. They are about the only ones that could (legitimately) sell silver short to lock in a price as a hedge.
In future contracts for every buyer there is a seller.
- This is true. But, in silver the majority of the contracts are bought and sold by entities that are pure speculators, not hedgers. It is a big rigged gambling game. This is all laid out and explained weekly by Butler, Steer and others. The weekly CFTC COT reports show that the traders classified as commercials basically lead the traders classified as managed money around by their collective nose. How? The managed money traders are dominated by technical funds. These technical funds trade on price signals and moving averages. The problem is they trade as a herd, buying and selling at certain price signals. The commercials use trading tricks (HFT, spoofing, etc.) to move the technical funds in and out of trades to the advantage of the commercials. Butler claims per his observations that at least JPM (and the commercials in general) have never had an overall loss as they buy when the managed money is selling and selling when they are buying. This kind of track record is not possible in a non-manipulated market.
The CFTC has investigated these manipulation allegations at least twice and has not found any problems.
- This is true, but it doesn’t mean that the silver price is not manipulated. It MAY mean that the trading tactics of the manipulators are not illegal. If that is the case then the laws/regulations need to be changed because silver is being manipulated and the CFTC’s own data proves that. The price of silver in effect is determined by COMEX future contract trading. As I have said, most of the trading is done by speculators who are manipulating the silver price.
- What the lack of CFTC findings and actions says to me is that the CFTC is incompetent, corrupt and/or not strong enough to battle JPM and the other large commercials. I would guess that the CFTC is underfunded to actually carry out their mandate. Politically it might not be feasible to rein the large commercials in as they are large political donors.