In his latest public article, Ted Butler finds once again proof of manipulation in COMEX silver. In the Commitments of Traders Report (COT) as of the close of business May 19, 2015. In just one reporting week, more managed money contracts were bought and more commercial contracts were sold in COMEX silver and gold futures than ever in the more than 30 year history of the COT report. Commercial traders sold nearly 24,400 contracts in that week, the equivalent of 122 million ounces, and managed money bought more than 28,200 contracts, the equivalent of 141 million ounces. The world produces 2.3 million ounces of silver each day through mining, which means that commercial traders sold 53 days and the managed money traders bought 61 days of world silver mine production in one trading week.
One way of demonstrating just how extreme the situation is in silver is through comparison with other commodities. For the same trading week, COMEX experienced 55,000 contracts being sold by commercial traders, the equivalent of 5.5 million ounces, that works out to 20 full days of world gold mine production. While the record weekly COMEX change in gold was at a truly phenomenal level, 20 days of gold mine production is much less than half of the 53 and 61 days production positioning seen in silver.
Ted Butler writes: “Gold’s numbers in day’s production are large enough to allege the COMEX paper market is manipulating the price of gold, but it is only when you compare silver (and gold) to other commodities that the full force of the influence of paper transactions on the COMEX hits you. Recently, I have highlighted COMEX copper and NYMEX crude oil futures trading as unduly influencing actual copper and crude oil prices. I still believe this to be the case, but even where those prices may be manipulated on the futures market, the manipulation in COMEX silver is a world apart in severity.”
Another comparison is with the copper market. If copper futures were bought or sold to the equivalent amount of 53 or 61 days of world production, as occurred last week in silver futures, that would mean between 210,000 to 240,000 COMEX copper contracts would be repositioned. That is simply impossible in a market with a total open interest of less than 180,000 contracts.
Similarly, in crude oil, the equivalent of 53 days of world oil production is 5 billion barrels of oil or 5 million NYMEX futures contracts. NYMEX crude oil is the largest oil futures contract in the world and has a current total open interest of around 1.6 million contracts and it would be impossible for any group of speculators to sell or buy 53 days of world production in a year or longer, no less in a week as just occurred in COMEX silver.
According to Ted Butler, it’s preposterous and absurd to pretend that what is going on in silver is somehow normal. This is particularly true for silver investors and mining companies and their shareholders which are being held hostage to the most defective price discovery process in history. “The defective price discovery process has little to do with the price change during the reporting week, which was largely unremarkable. Instead, it has everything to do with the massive quantities of equivalent metal changing hands by two different groups of speculators in an orgy of private bucket shop trading that is dictating silver prices to the rest of the world. Look, if these two groups of speculators, managed money traders on one side and speculators we call commercials on the other side wanted to wager massive bets and kept their betting to themselves, then no problem – they can have at it. But by dictating silver prices to everyone else in the world involved in silver investing or mining, their private betting becomes a very big problem.”
The Solution: Involving The Silver Mining Industry
There may be a simple solution to the problem in silver. The solution involves the right people inquiring about the distortions in speculative positioning as outlined above. Ted Butler has written on a very regular basis to the CFTC, mostly without getting even any response back. So it is the silver mining industry, with its shareholders, who should take action.
There has never been any public petition from a mining company that there might be something wrong with the price discovery process on the COMEX. Yes, there’s been some recent grumbling from a very few miners, but none have written to the primary regulator with their concerns. Last week’s COT report has provided a wonderful opportunity for such a petition.
If the producer of any item suspected some artificial interference with the pricing of its product, that producer would do everything in its power to rectify the pricing interference; whether it involved illegal dumping or any other trade infringement. It would not be an understatement to say that any producer which suspected artificial pricing influences would have a responsibility to take any reasonable corrective action possible.
“In this case, no one is asking any silver producer to allege wrongdoing in COMEX silver. But the situation with the latest COT report is so glaring that no allegation need be made; a simple request to explain how 53 and 61 days of equivalent world production changing hands in one week, the most ever, by two groups of speculators was in keeping with commodity and interstate commerce law. And why COMEX silver has the largest concentrated short position of all commodities, even though its price is down 70% from the peaks of four years ago. No silver producer needs to allege anything; instead they should merely ask for an explanation to questions they should already be asking themselves. No good answers will be forthcoming from the agency and that’s a big part of why the questions should be asked – because there are no legitimate good answers available. Besides, the reason behind silver producers asking is not what the CFTC would say, but how outside investors might react. This is the key.”
The whole idea here is to get investors to look at what’s going on in silver and the producers asking about how the price is set could do the trick.
*** This is a sample letter:
Dear Chairman Massad
The Commitments of Traders Report (COT) for May 19, 2015 indicates a record position change of more than 28,200 net contracts of COMEX silver futures being purchased by traders in the managed money category, the equivalent of 141 million ounces of silver and 61 days of world mine production. The COT report also indicates nearly 24,400 net contracts were sold by traders classified as commercials and the equivalent of 122 million ounces and 53 days of world mine production.
In addition, the report indicated that 8 traders in COMEX silver futures held a net short position of 376 million equivalent ounces of silver, by far the most of any commodity in terms of world production (163 days). With silver prices at current low levels, it is puzzling why the concentrated short position would be so large.
Since the Commission classifies traders in the managed money category as speculators (as opposed to hedgers) and because there is little evidence from public financial reports that silver producers are represented in the commercial category, it appears the big changes in positions on the COMEX are by speculators and commercials acting as speculators and not by those engaged in bona fide hedging.
It occurs to me that such massive speculation in COMEX silver futures may not be in keeping with the spirit and intent of commodity law and may suggest something is wrong with the price discovery process, since real producers and consumers of silver don’t appear to be represented.
Please address these issues in light of the current depressed price of silver.
A Silver Producer
In closing, Ted Butler admits that there is little, if any chance that the CFTC would ever respond to such a request, no matter how legitimate it is. The absolute key for any producer sending such a letter to the agency is to make the letter public, as that will be the only way for shareholders and outsiders to learn of it. It makes no sense to send such a letter and keep it private. Please feel free to send this article to any silver producer you may have an interest in and don’t limit it to primary silver producers. These issues apply to copper, gold and the PGMS, and anything that draws attention to the matter is unlikely to be counterproductive.
Any mining company executive who sends and makes public such a letter will gain great personal admiration from shareholders and potential shareholders. If ever there was a win-win situation presented to mining managers, this is surely such a circumstance.