Silver price is a fraud - both ways - long and short

[Filthy Keynes]

The silver price is a total fraud, both the longs and shorts (I am talking about the "price discovery" mechanisms on the COMEX - not real life 'out-right' purchases). The reason is that it is based on MARGIN. So for $6500 you can buy 5,000 ounces of silver - on margin. That is fraud. It ought to be one for one IMHO. Same goes for shorts - if you want to short, then sell the silver you HAVE - one for one!

This from Denninger:


This was foretold a couple of days ago when the margin on silver was raised. I chuckled at the time, because the resulting "flash crash" in the metal, much of which was recovered, said one thing (that I noted in the nightly video) quite loudly: There were far too many people in there speculating with full margin leverage - and they got forced out.

Then Sugar got the same treatment.

Expect this to continue. The CME has access to the margin positions of everyone - how much is posted, and how many contracts are open on which side and who's holding them. They also have unilateral authority to raise margin requirements as they see fit.

Well, if you're buying without leverage and margin goes up, so what? You were socking back the full value of the contract, so the margin change means nothing to you.

But if you were long using only minimum margin, you're in big trouble - and can be forced to liquidate into a hideous loss. If you're in too far you can have your trading account entirely wiped out or even be bankrupted.

Remember that when the Hunt Brothers tried to play this game with silver many years ago Comex pulled margin (that is, dramatically increased margin requirements) on them. They weren't long with their own money - they were using leverage, effectively borrowed money - to buy the contracts. Oops. This caused them to be hit with an instant margin call even though the price hadn't moved!

They had to sell to reduce holdings to get under margin limits. This of course drove other people (who were late to the trade) underwater and they started to take heavy losses - and they sold as well.


more here:


If CME is waking up to this generally and is pulling in margin this is a positive development for the economy even though it will roil markets. Unbridled speculation in commodities is part of what caused the horrific impact on people in 2007/08. Stopping that this time around is a good thing.

But don't be fooled - there's a difference between leverage being forced out (gee, where have seen that happen before in the financial markets?) and eliminating the bad effects of QE2. The most-important is that contrary to Bernanke's claims long end bond rates are going up, not down.

This is exactly as it was with QE1, and is not surprising to me one bit. In fact, it's exactly what I said would happen. It's not like I had some sort of crystal ball either - I only had the last QE attempt to go on, and the inescapable logic - when you debase currency you drive long rates higher as the debasement premium increases and this means that bond holders expect more of it, not less.

In any event trading leveraged positions without stops and in particular holding them overnight is dangerous. Very dangerous - especially when the folks in control of the amount of margin you have to put up are free to change that amount any time they'd like, and they're in possession of exactly how many contracts are out, on which side, and who is holding them.

As I've said repeatedly: If you intend to trade commodity futures in particular, always have a stop active, do so on a daytrade basis and be out and flat by the close of business.

Your trading account's balance will thank you.

[gunDriller]

The silver price is a total fraud, both the longs and shorts (I am talking about the "price discovery" mechanisms on the COMEX - not real life 'out-right' purchases). The reason is that it is based on MARGIN. So for $6500 you can buy 5,000 ounces of silver - on margin. That is fraud. It ought to be one for one IMHO. Same goes for shorts - if you want to short, then sell the silver you HAVE - one for one!

i'm not sure if the $1.30 per ounce down payment for the silver option is fraud in the sense of deliberately deceiving a counterparty in a business transaction ... but certainly there's a lot of fraud in the industry. e.g. Morgan-Stanley's $4+ Million settlement back in 2007, charging customers storage fees for non-existent metal.

but allowing people to speculate so easily - i was surprised to hear how low the number is.

my guess is, the industry makes more money when they make it easy for people to "play".

but yes, it distorts the Fvck out of the price discovery process.


also the artificially low prices don't give producers the incentive to pull metal out of the ground.

the CFTC said they would enforce position limits in 6 months - and that was a few months ago. theoretically, we're in a transition period where JP Morgan & HSBC prepare for a market that they can't manipulate with their massive naked short positions.

but i don't expect too much enforcement to happen. not when JP Morgan & HSBC are acting as the agents of the US & British governments' currency policies.


incidentally, the US $ index is largely based on ... the British Pound ! that $ index is like a horse turd sitting on top of a cow turd.

[Ash_Williams]

Paper silver can only satisfy demand for paper silver.
Demand for physical silver drives the price over the long term.

I never bought the price suppression argument because keeping prices low for years and years is pointless. If you want to profit by shorting, you need a high price going to a low price. Then you allow it to return to the high price. There's no benefit of just keeping the price low.

And also with the claims of naked shorting... it doesn't matter. The people buying physical silver and getting it and the people selling it are selling it. All that is happening with the shorts is that traders are getting paper silver, which they are purchasing just to sell anyway. Paper silver satisfying paper demand. Long term it should have zero impact.

[gunDriller]

Paper silver can only satisfy demand for paper silver.
Demand for physical silver drives the price over the long term.

I never bought the price suppression argument because keeping prices low for years and years is pointless. If you want to profit by shorting, you need a high price going to a low price. Then you allow it to return to the high price. There's no benefit of just keeping the price low.


what if your goal is to prop up a fiat currency that has been posing as the world's "reserve currency" ?

in so manipulating the market, JP Morgan & HSBC benefit everybody who benefits from the scam to prop up the $.

but since they're not charities, JP Morgan & HSBC get something in return. they get a seat on the 50 yard line of crony capitalism. they get the CFTC not doing their job, they even get Alan Greenspan (and L. Summers and Robert Rubin) preventing Brookesley Born from doing her job (as head of the CFTC).

[Ash_Williams]

I just can't see permanent price suppression working this way.

The people actually using the silver buy the physical silver. The investors that want physical, buy physical. The only thing the paper silver satisfies is the people who don't actually want silver.

You could make the argument that if there was no paper silver, all investment demand would be in physical and therefore there would be more demand for physical. At times that would be true. It would also mean all selling would be physical and the physical market would be flooded at times. Investment demand, to me, isn't demand at all because that silver is bought to be sold. Investment demand just turns into investment supply. I think the result there would be more volatility.

To actually suppress the price they'd have to increase the supply (they can't 'cause it's finite), curb the demand (maybe we'll hear silver is toxic), or make up the difference (ie lose money on their trades - buy from the sellers at a high price and sell to the buyers at a low price.)

[mick silver]

as long as the master can keep playing there games everything is a fraud