By Patrick A. Heller – Liberty Coin Service
Commentary on Precious Metals Prepared for CoinWeek.com
One tactic used by the US government, its trading partners, and allies in its effort to hold down the price of gold is to also manipulate the price of silver. Most of the time, gold and silver prices move in the same direction. Therefore, it the price of silver can be suppressed, that will influence investors and traders into expecting lower gold prices.
On January 17, the spot price of silver closed on the COMEX at $30.11. Yesterday, it closed at $33.70, an increase of 11.9%! Most people would take that as a sign of a strong silver market. However, the silver market is really much stronger than that relative price change.
In the COMEX weekly Commitment of Traders Report as of January 17 (which was reported on January 20), Commercial traders had a net short position on the COMEX of 20,382 contracts. At 5,000 ounces per contract, that means that Commercial traders, which are primarily the bullion banks who are trading partners of the US government, had a short position of 101,910,000 ounces on January 17.
In the Commitment of Traders Report as of February 7, which was released on February 10, the Commercial traders net short position had increased by 14,268 contracts from January 17. As of February 7, the Commercial traders were net short 34,650 contracts, or 173,250,000 ounces!
In other words, the Commercial traders shorted the market by 71,340,000 ounces of silver on the COMEX from January 17 to February 7, increasing their net short position by 70%! The 71 million ounce increase in the short silver position is equal to about 10% of annual worldwide new silver mining supplies!
Normally, the selling of 71 million ounces of silver in a period of three weeks would cause the price of silver to plummet! How much higher would the price of silver have jumped January 17 if this increase of “paper silver” supply had never occurred?
But this short selling wasn’t the only recent blatant tactic to suppress silver prices. At the beginning of February, 1- and 2-month silver lease rates turned negative. Over this past weekend, 3-month silver lease rates turned negative. So, not only do borrowers of silver not have to pay any interest to do so, they will actually be paid a fee by the lender. Obviously, lenders are not making a profit when lease rates are negative. Negative lease rates send a signal to the market that there is so much of the physical commodity available that it should be worth less than its current price level. Therefore, the price of silver should have been declining in the past two weeks rather than treading water.
Last Friday, the COMEX dropped margin requirements on all the commodities it trades. The margin requirements for gold and silver futures contracts were decreased by 11% to 13%. Usually, when it is easier for investors to borrow money to purchase an investment, that tends to lead to greater demand followed by higher prices. Several people have contacted me to ask about the implications of lower margin requirements for leveraged gold and silver COMEX trading.
I have three thoughts about the decrease in the COMEX gold and silver margin requirements. First, the decrease affected all commodities traded on the COMEX. In the circumstances, it would have looked strange for all margin requirements to be decreased except for gold and silver. It could have resulted in more investors realizing that gold and silver prices were being suppressed.
Second, even though gold and silver margin requirements were reduced last week, they are still far higher than they were a year ago. In effect, the COMEX should have reduced gold and silver margin requirements before last week, and reduced them by an even a greater percentage than happened.
Third, one way that market manipulators can make a profit is by temporarily suppressing prices even though the long-term trend is for higher prices. The Commercial traders can sell a lot of paper contracts to drive down the price, shaking out weak hands investors, then cover those new short positions after prices have fallen. A decline in margin requirements could entice some weak hands investors to enter the gold and silver market just before a major price drop, thereby increasing profits earned by the Commercial traders.
Even though the price of silver has increased from four weeks ago, it is entirely possible that there will be one significant price drop before silver soars. The COMEX March 2012 silver options will expire February 23. The First Day of Notice for Delivery of March 2012 Futures contracts is February 29. Therefore, the US government has a huge incentive for silver prices to drop from current levels before those two days.
Once we get past February 29, I expect to see some real fireworks as the price of silver shoots up. Look for it to break free of the effects of increased short selling by Commercial traders and negative lease rates that have slowed down the rise in silver prices over the past four weeks.
Patrick A. Heller owns Liberty Coin Service and Premier Coins & Collectibles in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Numismaster (http://www.numismaster.com under “News & Articles). His award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com.
Will you admit you were wrong when you don’t see “one significant price drop before silver soars” before the end of the month, or “real fireworks as the price of silver shoots up” after Feb 29?
Just because the market doesn’t react the way you believe it should does that mean some sinister person(s) is manipulating the world to your personal detriment.
I guess the all-powerful manipulators aren’t so powerful afterall, huh? There was no drop in the price before Feb 23 from the writing of this article.
The COMEX and the CFTC are a farce. Idiots caught in the web of deceit deserve to be penniless. The giant U.S. dollar ponzi scheme is predicated on the suppression of gold and silver. While it is easier to manipulate the price of gold, as it is so abundant and readily available for lease from central banks, silver is more difficult as central banks do not have silver and the physical supply is so small that it has been argued that the entire world supply is insufficient to meet the demand from investors alone, see Eric Sprott, not to mention industrial demand. J.P. Morgan is at the heart of lawsuits and accusations around silver manipulation. They inherited the silver short business from Bear Sterns, it has been proposed that Bear Sterns failed as a direct of the rise of silver prices, beyond their ability to cover their short positions. Interesting how the price of silver tanked to $8 after J.P. Morgan’s acquisition of Bear Sterns, down from over $30, this too has been a contrived manipulation of the market, as proposed by the group GATA. Let’s hope J.P. follows the elephant walk into the grave yard as its predecessors in the silver price manipulation game, Bear Sterns and Drexel. Unfortunately, for every American, the behemoth that will follow them into the grave yard is the U.S. dollar, as it is inconceivable that this degree of manipulation has not been supported and encouraged by the U.S. government. All doubts should be laid to rest when you look at the COMEX silver take down of May 2011, and at the impotence of the CFTC to enforce existing regulations. Still not convinced, look at the Hunt Brother witch trial, where the COMEX had to save the skin of the silver shorts, many on its own board. An action that needed to be further supported by FED intervention through higher interest rates, as it would provide a crippling. Low to margin rquirements. Let us not play at their game, the paper silver game is for fools and pawns. Buy the physical gold and silver, despite all their slight of hand and smoke and mirrors, they are not alchemists. The physical price of silver will win out. So the COMEX has lowered margin requirements, apparently the cat is bored and has brought the cheese out for its prey. Only the cheese is plastic and it is nailed to the floor. BUY THE PHYSICAL, they cannot control that.
Oh PUHLEASE, Mike.
“it is inconceivable that this degree of manipulation has not been supported and encouraged by the U.S. government
1) I’m not responsible for what you can and cannot conceive of.
2) Def. of “manipulation” – any move in market prices contrary to what I believe.
3) Who EXACTLY in the U.S. government? What office? What building? Do you have a phone number or email address?
4) What constitutes “support” and/or “encouragement”? EXACTLY what?
silv is right on it! The hysterical “manipulation” and “suppression” rants of Heller, “Mike”, and their ilk, is really getting stupid. These guys keep getting proven wrong over and over, and still people like CoinWeek give them a forum. Sheesh!
Mr. Bellman:
CoinWeek provides a “forum” for over 26 content providers and guest writers; that is the whole purpose of the site. Agree or disagree as you like, but don’t you think it might be more instructional if you provided specific examples on how “these guys keep getting proven wrong over and over”.
Happy to, CoinWeek. Just look at the archive of just about EVERYTHING Heller has written since about April of last year. Do you think he’s on CoinWeek because his previous location thought he was doing a great job? Come on. Yes, Heller is the ultimate “true believer”. He absolutely always thinks metals are headed up and the dollar down because of his world view, which is right out of the John Birch Society / Ron Paul political thought family. That’s fine. It’s one school of thought. But it is NOT mainstream economic thought. It’s hanging way out there on the fringe where typically people with a neo-religious fetish for shiny objects hang out. I’m as into coins as the next guy, but not because of what they’re made of, but rather what they’ve been made INTO.
Have you noticed that to Heller there are always shadowy figures in government manipulating things? I’ve worked in and around politics and/or government for almost 30 years, and trust me, it’s amazing that people in “the government” can even find their cars in the parking lots. They typically can’t “manipulate” their car keys or “supress” their urge to belch out loud, much less affect commodities markets.
Thought I’d chime in with one of those examples you requested. It’s on your own site:
https://coinweek.com/bullion-report/higher-inflation-coming-within-one-month/
The Sayer of the Sooth said inflation was right around the corner on this past October 18. I’m waiting. Not seeing it. I see some prices up and some down. Depends on what you buy, I guess. It MIGHT BE that the stuff paunchy middle aged guys buy, the numismatic ground zero, (too much food, too much fuel, too much medical care) do indeed happen to be what goes up more then other stuff. I have a 93-year-old uncle that has been telling me that what he has to buy keeps going up way faster than the CPI for twenty years, and he’s right. He virtually NEVER buys the stuff that gets cheaper. It’s s lifestyle thing, I guess. He thinks Audis are junk, too.
Point is, CoinWeek, that the money supply is NOT exploding. It is slowly climbing like it always has. QE1 and QE2 were big nothings. M2 money supply increased FASTER AFTER QE2 was all done and finished. The St. Louis Federal Reserve’s website has all the numbers. I charted them in PowerPoint, so can anyone else. The internet is chock full of neo-ultra-conservative ideological crap (among many other flavors of extremism of all stripes) masquerading as serious economic analysis. Heller is merely one example.
One additional point. Heller CONVENIENTLY ignores the single largest source of commercial (as opposed to speculator) short contracts – silver miners and recyclers. They sell a short future position so they have a fixed price to deal with as they decide which mines to work how hard. It is the original reason why these markets were formed.
Now, if miners and recyclers (people who do stuff like recover silver from photo effluents and/or old radiographic films) are INCREASING their short positions, WHICH THEY APPARENTLY ARE, then they must believe there is a huge supply overhang and they are locking in a price now to avoid having to sell later into a down market.
The fact is that even in the early 2012 rally, virtually ALL of the demand driving it is speculators and NOT commercial. That makes for a very bearish intermediate term outlook. The people mining it an drecovering it are selling short. They know what supply looks like vis-a-vis demand.
The folks commenting on this site don’t seem to understand how governments work. Governments are monopolistic crime syndicates. Once you understand this, you won’t be surprised that they would manipulate gold and silver.
So if you just try to look at this issue with a criminal mind, you will realize that the only way to keep a fiat money scam going is by strong arming the competition i.e. gold and silver.
If gold or silver ever took off, what would stop it in an non-manipulated market? Nothing. Gold and silver would become the de facto currency.
fast forward to 2022 where time is now…. The facts are the MMT Managed Markets are bigger and better
and fast forward undertaings now. We are on the threshold of a deep recession or worse, inflation in the managed CPI numbers, (which excludes two of the most needed items for consumers, food and energy, a manipulation in itself) show 9.2% which in 1981 terms is like 20%. History has a way of telling the true story.