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As a ten-year veteran of the “Cartel Wars,” I am aware of ANY and ALL factors affecting PM prices, real and imagined.  The key to understanding this RANT is the latter, i.e. much of what the Washington/Wall Street/MSM “axis of evil” spews is PROPAGANDA at best, and in many cases pure LIES.

My job – and life’s mission – is to uncover such mistruths, arming you with FACTS that empower you to PROTECT YOURSELF from the evil that seeks to impoverish you.  Fortunately, as a CFA with nearly two decades of financial analyst experience – when markets were free, and such skills relevant – I back my statements with PROOF, unlike the majority of today’s lazy commentators that rely on “gut feeling” and – in many cases – biases that prevent them from being 100% truthful.

One of the oldest Cartel schemes – still employed to the best of its ability – is naked shorting PAPER gold and silver when they rise, in order to cap such movements and drain speculative buying power.  Remember, JP Morgan is the government, and as we’ve learned by the lack of response after a three-plus year CFTC investigation into COMEX silver manipulation, the CFTC is part of the scheme as well.  Position limits will NEVER be imposed, and even if they officially were, JP Morgan would continue illegally shorting PAPER silver with no regulation whatsoever.

Following such capping schemes, PAPER buying interest would inevitably wane – limited by the size of COMEX trading liquidity – making the longs easy pickings for subsequent Cartel raids, particularly those initiated by surprise CME margin increases (CME is also part of the scheme) or at odd hours, such as the illiquid Sunday night trading hours on May 1st, 2011 – with China closed for a holiday – when the Cartel attacked silver for $6.00/oz in roughly ten minutes, yielding maniacal New York margin-call selling when the COMEX opened ten hours later.

Conversely, Cartel buyers (JP Morgan et al) buy on the way down to book (illegal) trading gains, which unlike their massive long-term losses – from holding enormous short positions in a major bull market – are reported as profits.  Even JP Morgan knows it cannot keep precious metals down permanently, which is why they cover on the dips.  Their overarching goal (or should I say the government’s goal) is simply preventing PMs from rising sharply enough to incite the inevitable panic into PHYSICAL gold and silver that will end their reign of terror, and by that definition (aided by government support, of course), they have thus far been successful.

Such activity has been ongoing for as long as I have been watching, and as a result, “goldbugs” the world round tend to be terrified by rising “Commercial” short positions.  Again, I put the word “Commercials” in quotes because these entities are not “commercial” at all, but “bullion banks” sanctioned by the government to naked short PAPER gold and silver ad infinitum with unlimited PRINTED MONEY, zero regulation, and fraudulent accounting, both at the corporate and COMEX level.  Fortunately, the Cartel cannot manufacture PHYSICAL gold and silver, which is why all the naked shorting on Earth cannot prevent prices from continuing to rise.

Due to the ongoing Cartel attacks – and aforementioned PROPAGANDA – old myths die hard among PM investors.  Despite the fact PM prices have shown dramatically less sensitivity during COMEX options expirations over the past year, for example, investors still believe – by and large – that price declines are guaranteed in the weeks leading up to such “COMEX OPEX days.”  Additionally, most PM investors believe rising “Commercial” short positions guarantee subsequent Cartel attacks, when in fact no evidence supports such conclusions, particularly in the gold market.

Although I diligently archive each week’s “COT” data – published each Friday at 3:30 PM at commitmentoftraders.com – I no longer fear such data as it long ago lost its predictive value.   As I have been writing for the past 18 months, the Cartel has experienced diminishing returns in ALL aspects of its operations, expending dramatically more time and PRINTED money trying to drive down PM prices and achieving dramatically weaker results.  No place is this more evident than in the COMEX PAPER gold market, where not only have correlations between the “Commercial” short position and underlying prices declined, but disappeared for all intents and purposes (as noted in yesterday’s RANT, “INTENTIONAL ANNIHILATION”).

Before analyzing the empirical data, I assumed the result would be a declining correlation, but the actual conclusion was even more shocking.  As you can see below, between 2002 and 2007, an increasing “commercial” short position in the COMEX PAPER gold market yielded a 65% correlation with a subsequent gold price decline – in other words, a near guarantee the Cartel would get its way.  However, the correlation dropped to 33% in 2008-2012, and if you go back to the beginning of 2011 – shortly after the Cartel’s “D-DAY” – the correlation not only disappeared, but was slightly POSITIVE!  Finally, out of curiosity I examined the period starting last summer – when gold truly took on a life of its own – and as you can see, there was no correlation at all.

Correlation

2002-2007

2008-2012

2011-2012

June 2011 – 2012

Gold/COT short

-0.65

-0.33

0.21

-0.02

Numerous reasons account for this divergence, but principally two, in my view.

For one, surging PHYSICAL demand – principally from Asia – is overwhelming Cartel suppression of the PAPER market, and equally important, more and more traders are leaving the “CRIMEX” due to years of losses via fraudulent Cartel trading programs, suspicious CME margin increases (seemingly instituted solely to attack long traders), and of course – care of the MF Global scandal – fear of having one’s account stolen.

Open interest in COMEX gold and silver has been declining for years, with gold open interest 24% below its high from two years ago, and silver open interest 42% below its high from four years ago.  Even more telling are the ratios of gold open interest : gold price and silver open interest : silver price, which have plummeted to ALL-TIME LOWS this year due to the aforementioned exodus of COMEX trading activity despite surging gold and silver prices.

Interestingly, the COMEX silver data tells a somewhat different story than the gold data, although such differences may be a bit misleading.

Essentially, in both the 2002-07 and 2008-2012 periods, the correlation between the COMEX “Commercial” short position and the silver price was non-existent, demonstrating how the Cartel has been simply “piggy-backing” its gold raids for the past decade, relying on silver’s strong correlation to gold – and relative illiquidity – to generate significant silver declines, rather than utilizing intense open interest build-ups as with gold.

Correlation

2002-2007

2008-2012

2011-2012

June 2011 – 2012

Silver/COT short

-0.02

0.12

-0.43

-0.93

Even more intriguing is that a decade’s worth of zero correlation suddenly exploded to a near 100% correlation in the past 14 months, coincidentally right after “D-DAY” on November 9, 2010.  This key date, just a week after Eric Sprott’s PSLV fund priced its $575 million IPO, was when silver first approached the KEY ROUND NUMBER of $30.00/ounce, prompting a draconian Cartel response that has reverberated throughout PM markets ever since.

With silver about to breach $30 for the first time since 1980, we saw the first-ever intraday margin increase, pushing silver down $3.00/oz in a matter of hours.  Moreover, immediately thereafter the GOVERNMENT COMPUTERS commenced a relentless naked shorting campaign on the HUI mining stocks that has not abated since.

We have also seen some of the most vicious PAPER attacks of the entire 12-year bull market since that time, including the “SUNDAY NIGHT PAPER SILVER MASSACRE” in May 2011, “OPERATION PM ANNIHILATION I” in September 2011, and “OPERATION PM ANNIHILATION II” in December 2011, as well as the accelerating decline in the HUI:Gold ratio shown below. In spite of these attacks, GOLD AND SILVER PRICES HAVE SINCE RISEN BY 25% and 30%, RESPECTIVELY!

The only viable explanation for the surge in correlation between silver prices and the COMEX “Commercial” silver short position in the last eight months – aside from the small sample size, rendering the data borderline insignificant – is that silver is so tight, the Cartel must work significantly harder to beat it down.  More likely, the intensity of the “OPERATION PM ANNIHILATION I” and “II” attacks were so great, it skewed the overall correlation higher.  Irrespective, the silver price is just 5% lower than mid-2011, a tribute to the strength of PHYSICAL demand in light of the obviously heightened PAPER silver assaults.

With silver open interest declining so sharply, the Cartel can short less contracts to cap the PAPER price than in recent years.  However, the impact of such machinations has become extremely temporary in nature, as PHYSICAL demand is starting to dominate the pricing mechanism.  Moreover, the same  – essentially 100% – correlation between gold and silver that helped the Cartel drive silver down during its 2002-2007 gold raids is working against them today, with any “benefit” achieved from increased silver short positions being offset by silver’s knee-jerk positive correlation with gold, which as shown above has essentially become immune to Cartel COMEX shorting.  In other words, they are deathly afraid of silver’s potential to single-handedly blow up their global fiat scheme, but powerless to accomplish anything more than simply capping it over any significant trading period.

I believe the evidence presented in this RANT refutes essentially all illusions that JP Morgan and the other “Commercials” can materially alter gold and silver prices, no matter how much PAPER they short.  They will continue to fight to the death, and continue to focus on KEY ATTACK TIMES such as 3:00 AM EST, 8:20 AM EST, 10:00 AM EST, 12:00 PM EST, and perhaps its apparently NEW KEY ATTACK TIME of 2:30 PM EST, but will continue to generate diminishing return on all such attacks.

Clearly, PHYSICAL demand is starting to win the war against PAPER, and it’s only a matter of time before the Cartel is overwhelmed completely, ushering in the long-awaited mania stage signaling the final stages of the global fiat currency system.

PROTECT YOURSELF, and do it NOW!