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Wednesday, December 29, 2010

Is silver a play or WHAT!?

1. The London Bullion Market Association (LBMA) has virtually no silver available to fulfill contract obligations. At the March 25, 2010, Commodity Futures Trading Commission (CFTC) hearings, both Jeffrey Christian and Adrian Douglas testified that gold and silver markets in London, which are theoretically 100 percent backed by metal, only had enough gold and silver in the vaults to cover 1-3 percent of the contracts.

2. The London gold and silver markets are both in backwardation. In normal commodity markets, futures prices are higher than the current month, or “spot,” price. The higher future prices normally reflect the prevailing interest rate less a small amount for storage costs. This normal condition is called contango. When a market is in backwardation, this is an indication of a severe supply squeeze. In other words, that means that there is insufficient physical commodity to fulfill maturing contracts (let alone future contracts).

For more than a year, the London gold market one and three months contracts have been in backwardation - meaning that the spot month price was higher than the prices of these future contracts. Since Nov. 5, the six-month contract has also been in backwardation, which has never occurred in the London market during the available database that goes back to 1989. In silver, the supply shortage is more extreme, where the six-month contract has been in backwardation for much of the past year, and continuously since June 2.

The only way to cure a market in backwardation is for prices to rise high enough to reduce demand and to encourage greater supply.

3. Testimony at the CFTC hearing in March pointed a direct finger at JPMorgan Chase’s London office for suppressing prices in the silver market. The whistleblower, Andrew Maguire, also released copies of his e-mails with CFTC enforcement personnel to show how he tried to provide this information to the CFTC in the months before this hearing, but had not received a satisfactory response.

4. On Oct. 26, CFTC Commissioner Bart Chilton issued a statement saying he is convinced there have been violations of the Commodity Exchange Act with respect to the silver market that resulted in the suppression and manipulation of prices. He urged prosecution of the guilty parties.

5. Starting on Oct. 27, a series of lawsuits (now about 25 or so) were filed against JPMorgan Chase and HSBC, the two banks suspected of having the largest silver short positions on the New York COMEX. Two of the suits were filed by law firms who hold the records for collecting the largest settlements under the Sherman Anti-Trust Act, Commodity Exchange Act, and Investment Company Act. These are firms who are able to cherry-pick the cases they expect to win easily, so they need to be taken seriously.

6. After failing to report - and even denying - that big banks such as JPMorgan Chase had been holding a large short position in the COMEX silver market, the mainstream financial media started reporting a few weeks ago that JPMorgan Chase had reduced its short position since the beginning of 2010.

In a Dec. 13 letter to CFTC Commissioner Chilton, analyst Adrian Douglas drew attention to the fact that U.S. banks have been reducing their COMEX gold and silver market short positions over the course of 2010. However, foreign banks that are exempt from CFTC regulations have been increasing their short sales. In the silver market, the new short positions from foreign banks over the past five months have more than offset the decline in U.S. bank short positions. As a result, total short positions continue to rise. You can review a copy of Douglas’s letter to Chilton at

At the Dec. 16 CFTC hearings, Chilton shared much of the information from Douglas’s letter, implying that U.S. banks may be trying to hide their short positions by moving them behind foreign fronts.

7. There are a growing number of reports that owners of COMEX gold and silver contracts, who elect to take delivery upon contract maturity, are being settled for cash instead of with physical metal. In examining the daily movements of silver in and out of COMEX warehouses, the total inventories have declined more than 10 percent since midJune. The analysis also shows that when a large deposit of physical silver comes into the COMEX, it is invariably withdrawn within two trading days. To me that is a sign that there is more demand for metal than the COMEX can supply.

8. Since early October, the 10-year US Treasury debt interest rate has jumped 35 percent. This is a significant sign that the value of the U.S. dollar will fall in the next few months.

9. One of my most accurate sources of inside information, a London metals trader, stated in a recent interview that gold and silver buyers in the Far East were having such great difficulty locating physical metal to purchase that they were now buying paper contracts in order to dump billions of U.S. dollars. It is the purported plan of these buyers to later purchase physical metals as they are able to locate any quantities, with little regard to how much above the spot price they may have to pay, and close out the corresponding amount of paper contracts as they do. In the video posted at, the last tidbit of information is that JPMorgan Chase may be shorting silver to the Chinese government as part of this activity.

10. Much of the gold sold by the International Monetary Fund was channeled through the Bank for International Settlements. The largest chunk of this gold was purchased by India’s central bank. India’s purchases have supposedly been deposited into unallocated storage - where they may be subject to multiple ownership claims. Because of the risk of losing ownership of gold placed in unallocated storage, a growing number of Far East and Middle East buyers of gold and silver are removing their purchases from London vaults to other locations where this risk is absent. If the London contracts really were backed 100 percent by the underlying metal, this would not matter. But, as you can see from the foregoing information, the decline of physical gold and silver stored in London’s vaults is starting to matter very much.

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