The Cat’s out of the Bag

In the latest Commitment of Traders report (COT), the issue I have nearly beaten to death for decades – the concentrated short position in COMEX silver futures – took center stage to a degree that had me check and recheck the data. It seems the 4 largest shorts in COMEX silver doubled down and added more new shorts in the reporting week ended Tuesday than in any other week (save one) in the last few years. The four big silver shorts added an astounding 6,672 new shorts (33.4 million ounces). This is the largest concentrated short position by the 4 largest traders in 13 years where JPMorgan wasn’t one of the 4. If you are looking for a reason why silver was capped at $30 and declined in the face of visible physical shortages in the retail market and extreme tightness in the wholesale (1,000 oz bar) market, then look no more. The price capping was caused by concentrated short selling on the COMEX and highly illegitimate and easy to prove selling in the silver ETFs.

Let’s not beat around the bush, the silver price was rigged lower by the 4 big shorts. The evidence is clear. The COT report provides highly objective and mechanical analysis of the government’s own market data. What’s the motivation of the 4 big COMEX shorts? They are in a fight for their financial lives. They added with reckless abandon to their manipulative short positions this week in a desperate attempt to stem the tide of surging silver prices. They are much like an individual maxing out his credit cards in a desperate attempt to stay solvent. The big shorts deserve no sympathy because they have been engaged in illegal and manipulative practices for decades and they have hurt all too many unsuspecting investors. We had the highest trading volume in history, by far, on the COMEX and in SLV and the big shorts were so effective they both gained only a dollar.

Starting on Thursday, January 28 and ending on Monday, Feb 1, the total trading volume in shares of the big silver ETF, SLV, soared to the highest three-day level in history. More than 545 million shares were traded. Prices closed on Monday up $3 from Wednesday, Jan. 27. Subsequently, the share price of SLV fell back by $2 at the close on Tuesday, Feb. 2. For all the record trading volume, the price of SLV (and silver) only had a net gain of $1 to show after the dust settled. As a result of the record trading volume, some 110 million ounces of silver were added to the holdings of SLV, with a value of roughly $3 billion. The three-day deposit of physical silver was, by far, the most in history. The deposit equaled 5.5% of the 2 billion ounces of silver in 1,000-ounce-bar form in the world.

These facts are easy enough to verify. The subsequent withdrawal of 22 million ounces from the SLV over the past few days doesn’t change things. The most plausible explanation for the outflows were conversions of shares into metal by a large holder or holders to avoid SEC reporting requirements, which is legal. Let’s review the explanation for the incredibly subdued price reaction in silver in the face of what was the largest wholesale purchase in history. Never before had such a large amount of physical silver or any other commodity, for that matter, been bought in such a short period of time with such a small impact on price. The Hunt brother bought much less silver over a much longer period of time – years, not days – and drove prices higher by nearly 8-fold over the last year into 1980. Don’t forget, there is a lot less silver in the world today due to years of deficit consumption.

So how did so much silver get purchased in such a short period of time without exploding in price by $10 or $20? It had nothing to do with the buyers and everything to do with the sellers (probably the same big 4) who are short on the COMEX. It was the sellers that sold enough to prevent silver prices from soaring. Why would the sellers not hold back and get the highest price possible for what they were selling? A higher price would result in their financial ruin.  A higher price, say $40 or $50, would have set off more buying and higher prices, thus bringing complete ruin to the sellers who are short so much on the COMEX. Decades of price suppression and manipulation have brought us to the sad state where the sellers can’t allow higher prices because of the large size of their silver short positions. This is the only possible explanation for the absolutely bizarre circumstance of the most physical silver ever being bought in the shortest time without any significant impact on price. If anyone can offer another explanation for how so much silver could be bought with little if any price reaction, please fire away.

Remember, we’re talking about the basic law of supply and demand. When demand suddenly exceeds supply, prices must rise sharply. Period. Silver is a market where 2.5 million ounces are produced and consumed each day, 7 days a week, 365 days a year, year after year. For buyers to suddenly buy 110 million ounces in days and for there not to be a violent price surge is impossible. This is the ultimate proof that silver is manipulated in price.

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