Silver Manipulation Arguments

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 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.

Silver Manipulation

Again, I think Butler has done a great job of reporting on the silver price manipulation. Following is my attempt to distilled 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 trading- the Commercial traders (large banks) and the Managed Money (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 tricks.

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 has acquired 700 million ounces of silver over the last 7 years. I think it would be nice to know exactly who is doing what, 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”. Following is an article that Butler made public and then comments about that article:
http://silverseek.com/commentary/jpmorgan%E2%80%99s-motivation-17141

The comments to Butler’s article were fairly civil and thoughtful, but do show different mindsets as to who is controlling the manipulation and why. Most of the commenters seem to agree that there is a silver manipulation, but disagree with the who & why. Butler’s contention has been that JPM has manipulated the silver market to make a profit. The same for the assumed 700 Mozs. that JPM has amassed. I think that JPM has illegally manipulated silver even if they don’t actually have this 700M ozs., but if they have acquired this stockpile and they have been the prime instigator to keep the silver price lower than it would be without their huge silver futures short position, then that should definitely be illegal.

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.  Following is a table that demonstrates the moves between the commercials (Comm.)  and the money market traders (MMT).

Date Spot Comm. Net Comm. ∆ Comm. Mozs. Trade JPM JPM ∆ JPM Mozs. Trade MMT Net MMT ∆ MMT Mozs. Trade
7/18/17 $   16.26 -21900 -10500 26000
9/12/17 $   17.74 -87400 -65500 -327.5 -38000 -27500 -137.5 76044 50044 250.2
12/19/17 $   16.12 -18600 68800 344.0 -24000 14000 70.0 -14308 -90352 -451.8
1/16/18 $   17.18 -50100 -31500 -157.5 -32500 -8500 -42.5 33434 47742 238.7
4/3/18 $   16.39 -2600 47500 237.5 -19000 13500 67.5 -40344 -73778 -368.9

The dates correspond to the end of a COT reporting week which is on Tuesday.   So, in the first period from 7/18/17 – 9/12/17 the commercials sold (net) 65500 contracts (327.5 Mozs.) and the money market traders (MMT) bought 50044 contracts (250 Mozs.).   Remember that both of these groups are speculators- no legitimate hedging involved.  Compared to the annual production of silver the commercials sold over 4 months worth of silver supply in less than 2 months on the Comex.  And the MMTs bought almost as much.  This is the pattern the money market traders buy and sell on moving average (MA) price signals.  The commercials take the opposite position.  This is no more than a high stakes gambling game and the commercials are fleecing the MMTs.  Notice that currently the MMTs are at their lowest net position in the last several “trades”.  I think it is the most short they have ever been, but my records (with this detail) don’t go back further.  See my Go Long! article for more info on the current (as of 4/3/18) setup.