I wrote an article titled “Kill Switch” a couple of weeks back where I hypothesized the Chinese are the ones behind the very high (and very curious) open interest in COMEX silver, I want to revisit this. I want to revisit this because of the action this past week and this past Thursday in particular.
Silver dropped almost 50 cents on Thursday and broke through the $19 level to the downside. Please remember that silver has a global “all in cost” of production somewhere near $25 per ounce so these prices will only augur for much less supply. “Supply” in this case is REAL supply of raw silver to be used for electronics, solar panels, jewelry, investment etc. Common sense tells you if you must sell your product for a loss you will either sell less of it, not sell any of it, or sell all that you can for cash flow and go bankrupt …supply will dry up.
I mention “supply” in the above paragraph to give you some perspective of what was wrong with the action in silver on Thursday. As a reminder, the open interest in gold and silver could not be more opposite. Gold has very low open interest while silver now has virtually record open interest and at levels last seen 3 years ago while it was trading at nearly $50. Silver has now dropped in price by more than 60% yet the amount of contracts outstanding is as high or higher. As a refresher of the laws of supply and demand, price should rise when there is either more demand or less supply, price should drop whenever there is less demand or more supply. This is simple right? The answer is “yes, simple” but let me explain what has been and is happening.
The total open interest in silver ROSE on Thursday a whopping 6,268 contracts. This represents more than 31 million ounces of silver in one day! Does this “silver” even exist? I am going to say “no way, not even a chance,” let me explain why in a minute. The total inventory of silver registered and available to deliver is roughly 60 million ounces. Do you see the problem here? The price of silver dropped over 2.5% because there were “more sellers than buyers” …but, the sellers were selling paper “contracts” not real, touchable and usable silver. Explaining a little further, if there was a panic to sell real silver the “longs” would sell to “close” their position and open interest would decline. This clearly did not happen as the open interest rose, the sellers “sold” to OPEN positions…31 million ounces worth of positions!
For a little more perspective, the total open interest in silver is now over 172,000 contracts, this represents over 860 million ounces. The December contract alone is nearly 140,000 contracts or 700,000,000 ounces… and remember, there are only 60 million ounces currently registered and available for delivery. First notice day is now only 75 days away and there are more than 10 paper ounces “sold” for every 1 real ounce supposedly available to deliver? “What if” these contract owners actually do ask for delivery?
One more point on this from a different angle, in the past whenever there was a major price decline …physical silver became very hard to find. And especially at the so called “market price” as any and all silver changed hands at a premium above the so called market price. This is proof that the declines were caused by paper derivative contracts rather than real selling of metal. Were it real silver that was being sold, it would have been plentiful. Silver became scarce on every single “dump” in price because the lower price brought out new physical demand which was not offset by any supply other than that of naked contracts. This is easy to understand, take a desirable food like beef for example. Let’s say that “XYZ” broker (or central bank) decided they wanted the price of beef to drop and then sold cattle futures to suppress the price. They sold so many cattle futures that the price dropped so low it was the cheapest of all meats, cheaper than poultry, pork and fish. What would you expect to happen? You could probably expect not to find ANY beef as it would be scooped up and hoarded with each new shipment. This is supply and demand where the “price” acts as the deciding factor …the price went too low and consumers increased their demand without any increase (and probably a decrease by ranchers withholding supply while waiting for higher prices) in supply. …Thus a shortage.
Harvey Organ and I have a hypothesis that China through proxies are the owners of a large part of these silver contracts. This makes sense because the open interest has risen for close to a year now, who else would (could) “hang on” and lose billions of dollars on this trade? Who would (could) have the intestinal fortitude to lose this kind of money? Who has deep enough pockets to absorb the type of losses that have been incurred? There is only one answer, China. First, China is a “silver nation” and have been for over 2,000 years. We know the U.S. ran out of official silver over 10 years ago …which is about the same time China became a “most favored trade nation.” Is this a coincidence? … Or a quid pro quo? Did China lease their silver hoard to the U.S. just after the turn of the century? We believe they did, we also believe this “lease” has run out after 10 years but China did not receive their silver back. This is not provable one way or the other until there is a force majeure or some sort of default. This does however “connect” as to why China has been such a voracious buyer of gold over the last 5 years, gold has been held “officially” by Western central banks and thus available to be delivered (pilfered) whereas no large and deliverable silver hoards exist. The dollar amounts of gold that China has imported over this time completely dwarfs any and all silver hoards and production combined. Access to cheap gold is the reason we believe China has so far not “rocked the silver boat” as this would have (and will) blow up the gold side of the equation.
For more perspective, the 60 million ounce registered inventory has a dollar value of just over $1 billion. There are over 1,200 individuals in the world who are worth $1 billion or more. Think about what $1 billion is today and how often you now hear the term $10 billion, $100 billion or even more …my point is this, $1 billion ain’t what it used to be!
Clearly this past Thursday showed us how blatant the manipulation really is. Over 30 million “extra” ounces of silver were “created” in just one day… and I would say “magically.” This is an amount equal to what every silver producer on the planet combined mines in 15 days. Who could have “produced” 31 million ounces of silver? For your information, there are only 4 companies in the entire world who produce 30 million silver ounces or more per YEAR! I capitalized “YEAR” because it takes an entire year for these companies to produce this much silver, NOT one trading day. The apologists will say, “Oh, this was just some company hedging their production.” Really? Would any company (there are only 4) be as foolish as to hedge their entire year’s production in one day and smash the price they will receive for their product by another 2.5%? It’s OK, even if you are a paid troll you do know the answer to this one.
My point is this, there are no possible sources anywhere on the planet to have sold an “extra” 31 million ounces of silver on Thursday, and they just simply do not exist. What also does not exist are “the” 31 million ounces that were purportedly sold. They were paper, pure, simple, logically and not even much common sense needed to understand and grasp this. But, it is what it is right? Your “real silver” which you hold for savings and insurance is “worth” less today than it was, right? Is it really? “They” say it is, just look at the “price.” Do you understand my exercise in writing this piece? I am showing “how” the price is “made.” With enough (unlimited) cash and no rule of law or regulators doing their job, the “price” can and is being “made.” Simple! But why?
I will leave the answer to “but why” for tomorrow’s writing, “why” is just as simple and just as obvious as “how.” Let me just say I cannot believe there is any sane or logical person on the planet who could look at Thursday’s action and not conclude the trading is outright bogus not to mention illegal.
Bill, the fraud is beyond is beyond “twilight” zone at this point. My question is will the Chinese deliver the financial blow before the USA takes the war mongering to the next level (nuclear option)? Do you think this move could derail any plans of a false flag event? Or be a motive for one? Scary times indeed for humanity on all levels. Sadly I feel a false flag is inevitable at this point, I just hope the American people will be able to see through the lies.
yes it is, hard to say as false flag could be cause or effect.
This massive naked short sale was meant to break a trend line just like they did in April 2013.
I agree, meant to break sentiment.
Great summary of the latest smash. I know you know Dan Norcini. From time to time I venture to his blog to see what his opinion is, which is always devoid of any kind of admission on manipulation. How can someone with his intelligence and understanding of the markets not agree with what you just described so eloquently? He really has been on a tirade against “Gold and Silver” bugs lately. I always thought he was somewhat objective but he really seems to have changed his tune….
Thanks Al, I don’t know what to say other than I know Dan personally and is a very nice guy…but also very wrong if he does not see manipulation as blatant and in your face as it is now.
Bill what is your opinion of how much available silver is out there? Let’s say the COMEX defaults and bad things happen to the point of spooking the 70 trillion of paper USD net wealth (guess?) in this country that will suddenly be seeking chairs when the music stops so to speak. Assuming this is numerator, what is the denominator to get an $/oz estimate when the lid blows? (I know you feel we will hit a point when that calculation is useless because it still involves dollars but just wondering).
Also per silver manipulation there is an interesting verse in Proverbs 20:23 “The LORD detests differing weights, and dishonest scales do not please him.” That is essentially what naked shorting involves, dishonest measurement of real silver. And back then (Solomon who wrote proverbs made silver so plentify it was as stones in Jerusalem) that verse was directly implied and meant measurement of silver and gold as context.
when “the day” comes, there will be NONE offered. I agree with the second part.
If Mining companies are still producing silver at $25 cost and its only $19 value it just goes to show how stupid your average mining company manager must be.
As for theories re manipulation I suggest people read all the articles and watch all the videos at Monetary Metals.
A lot of silver extraction is incidental with base metal mining so it’s hard to quantify its production costs. I’m not sure how much of the produced silver comes from this channel but I think it’s significant.
it is very significant and quantifiable.
While I totally agree with you, can I say the situation in the much smaller market of platinum is even worse. There has been a physical shortage for the last ten years, there is almost NO physical metal in either the LPPM or Nymex and the ratio of futures shorts to physical is astronomical.
I have been trying to educate the South African media and mining companies and unions, but they either cannot understand the situtation or are too afraid to say anything. Here is an example of my shortest blog / letter:
Although South Africa is the (near) monopoly supplier of platinum, it’s industry will never be allowed to make money so long as the price is set (and controlled) in the futures markets of London and New York.- because the price they set will always be at (or below) South Africa’s cost of production. In this way, they transfer the economic wealth of South Africa to London and New York. It is economic warfare, pure and simple.
For example, during the last strike Nymex “created out of thin air” an additional 1.5 million ounces of “paper platinum” which they sold into the market to satisfy demand. After the strike, they have driven the price down further to buy back those shorts at a profit.
Given that South Africa will not take any measures to end the scam and take back control of the pricing mechanism, I do not see the point of mining platinum at all. Because rather than losing money by mining it, it would be better left in the ground, in South Africa as a store of wealth for future generations. Let the futures markets create and sell all the “platinum” the market needs.
I agree Fraser. I also believe the Chinese will blow the top off of the entire lie.
Question is Bill, will the Chinese end the racket or will they just slowly drain the West, just as the West previously drained the East and Third World?
Give me an email address and I will send my (ameteur) research paper on the original purpose of futures markets – which is to transfer goods and wealth from poor producing nations to the rich consuming nations (at the price, in the currency and on the terms of the consuming nation).
I believe they will end the racket and they have already drained quite a bit of what’s available.
We reach the same result, but for different reasons.
(1) If China stands for delivery, COMEX will default and settle China out in cash.
(2) But if China continues to drain metal, the West will lose all its reserves.
(3) So (I think) COMEX wants to default, but on its terms.
(4) I expect COMEX to hammer the “price” down to say $1,150 (gold) and $15 (silver), then declare “force majeure” and settle China in cash (at a massive loss).
(5) COMEX will then turn around and attack the SGE when it opens in late September. The SGE will then close and there will be “no price” (in other words, infinite).
sounds good but not correct in my opinion. COMEX doesn’t “want” to default rather they know it is inevitable. Any losses China takes will be dwarfed by what they make on physical gold and how do you “attack” a physical metals market with paper?
Bill, let’s assume I own a few billion dollars. lol. And I also really like the nature of gold/silver. Based on that assumption, why couldn’t/wouldn’t I just demand delivery, thus ending the game? I’m not educated enough to use correct terminology. But, why would a regular wealthy individual not draw down the inventories? Or are regular wealthy individuals maybe just dumb people that play the fiat game, therefore by defintion “scrwd”?
ask Nelson and Bunker Hunt.
Lets say you have 3 billion dollars and you want to sell all of them to get gold. It is priced at $1250/ounce.
That will get you 2,400,000 oz’s or about 75000 kgs 750 tonnes.
There is no way you could source that amount at $1250 especially if you wanted it on the quiet. I would think that it would cost $25000 an oz and of course you would only get about 37.5 tonnes for your 3 billion.
Thats what I would do if I had that sort of legal tender.
same exact logic can be applied to silver.
Bill I agree with you reasoning on China holding the longs for a huge loss on Comex only to demand physical settlement and crash the Comex. You mention Harvey Organ and you agree on the long being China. I recently heard him interviewded on American Watchdog and he was focusing on the draw down in silver on the Shanghai silver exchange, stating it fell from 33 million oz to just under 3 million ounces with less than 2 months left for withdrawl. I believe he said at that point the only large available silver inventory left is Comex. How do you see the Shanghai exchange play in with the large Comex longs held by China?
COMEX only has 60 million oz’s registered for delivery. Not a huge hoard at just over $1 billion.