The key to understanding where silver prices come from is the COMEX futures market.
It is undisputed that the 4 and 8 largest traders hold a massive paper silver short relative to all other commodities in it’s class.
And it’s obvious that they are not legitimate producers or users…
(It is also worth mentioning that despite some of these shorts being held on behalf of a diversity of clients, the fact remains that the positions they control (as a whole) are manipulative based on concentration alone).
But why would any banking institutions go so dangerously short?
The short answer is that it’s profitable and they can get away with it.
Mainly because they are effectively the ONLY shorts.
But also because they’ve been able to build these positions, and then subsequently push prices over the edge (using all manner of advantages and age-old futures tactics) and thereby cover positions for a profit.
Over and over again.
It is clearly portrayed in the public archive CoT data.
For silver, the “position as the only short” against a diversity of longs evolved in the aftermath of the Hunts. From J Aron, to Goldman, to Drexel, then AIG, Bear Sterns, and now JP Morgan.
The big short has been passed along through the decades – effectively quelling paper prices (at a profit) – as the underlying physical silver market became tighter.
Overall physical supply constraints continue to be masked and perpetuated by poor sentiment and ‘just in time’ inventory practices used by nearly all industrial users.
Again, they just use the position to profit.
Excepting for the run up btw Aug 2010 and April 2011 where they faced massive losses (like today) – they’ve been largely (and insanely) successful. No one is right all the time.
In fact, what we are witnessing now is the reversal of the largest commercial silver short in history, ensuring that the big banks will be successful again.
The current move back down under $20 – while painful and/or another buying opportunity – was easy enough to telegraph.
That’s worth highlighting in an environment where pundits were making bold predictions for higher prices.
Yes, the big commercials banks are TBTF institutions with a quasi-government guarantee.
Of course, the government has an incentive to ‘look the other way’.
Controlling the price mechanism with dirt cheap leverage has been a huge part of how we’ve been able to get this far down the fiat path.
Especially for silver because the (visible, readily available) physical market is so thin.
True, the bullion banks manage almost every aspect of metal movement and trade. In fact, they broker for the hedge funds who make up the other side of the trade.
But that short position is certainly not composed of a hedge for a variety of clients. It would be a horrible one if it was.
And even if it were a ‘legitimate hedge’, it’s dangerous and susceptible to major disruption.
Additionally, based on observable data, a decent case can be made (based on deliveries it has amassed for its own account) for the fact that JPM has acquired a large physical long that could be used to offset its 25-30,000 contract net short.
In the process, it could step away while the rest of their counterparts get buried.
A clear perception of the relative size of the short compared to any other commodity could be enough to make COMEX price discovery obsolete once and for all.
(I do realize that many do not ‘trust the data’. But why would they make up stuff like that? They could just hide it all like LBMA).
Word of cash settlement or a significant supply bottle neck would be a tough scandal to cover up.
Deep enough pockets with clear understanding could potentially push things over the edge.
Finally, unlimited liquidity will be used when it is needed – but that is inevitable no matter how we get there.
Courtesy: Dr. Jeffrey Lewis
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