I have been writing for some time that I could not get my hands around the silver trade. I had a feeling when the market went up 202 points on Tuesday that gold and silver would sell off into a healthy pullback, and they both did. Yesterday I was very surprised and confused to see gold and silver put in very strong showings. As I wrote yesterday, I expected them to continue to sell off to about $35.00 in iShares Silver Trust (SLV) and $141.50 in SPDR Gold Shares (GLD). (See Has the Rally in Gold and Silver Run Out of Steam?) They did not act as scripted. What was I missing?
On Tuesday I spoke to Christian from GoldSilver.com and he pointed me to a link on YouTube by someone using the nom de plume Brother John F. I watched this video in stunned disbelief. This man had a live stream from the Commercial Mercantile Exchange (COMEX) for the minute by minute trades. Silver contracts were selling higher and at about 1:40PM they started to sell off for no reason. Then at 2:03PM there was a trade for 50,000 contracts of silver sold. (This would lead anyone to conclude that the sale was known 23 minutes before it occurred.) This is not a typo -- 50,000 contracts in one minute! Each contract is for 5,000 ounces of silver. So if we do the math 50,000 contracts by 5,000 ounces per contract equals 250,000,000 ounces of paper silver contracts. If we do some further math and we multiply 250,000,000 contracts by the proxy price of silver yesterday, which was $40.00 per ounce, then that trade was for 10 billion dollars in one minute.
I'll take this one step further. According to Jason Hommel writing on behalf of the US Mint, the amount of silver produced per year in the entire world is roughly around 680 million ounces and the amount mined in the US last year was 50 million ounces. The amount that was traded on the CME on Tuesday was approximately one third of all of the silver mined in the world. It was 5 times the amount mined in America.
Why is this so troubling? The reason is that there are rumors that the SLV is rumored to not have the silver that the paper purports to represent. There are reports that if SLV was ever called upon to produce the underlying asset it represents it would be unable to do so. Is there any wonder why this commodity is so volatile?
The fact is that the silver market is being manipulated. However, that is about to change. On Friday, July 22nd the Hong Kong Mercantile Exchange will start trading dollar denominated silver futures contracts with the hopes of tapping into the growing demand for the metal in China and India. The new contract will enable buyers and sellers in China to trade effectively with their counterparts around the world, while at the same time allowing investors to gain exposure to silver price movements and broaden their investment portfolio. The exchange also plans to roll out Yuan-priced gold and silver futures to capitalize on growing investor demand for China’s strengthening currency. They also have ambitions for products in base metals, energy, and agriculture.
This was the missing piece of the puzzle I could not find. Starting tomorrow the Anglo American monopoly on silver is over. This will be the first time that Asians can buy and take future delivery of silver in Asia. No longer can the CME raise margins close to 100% in eight days. The silver shorts are and should be afraid of the hundreds of millions of Asians that will be entering this small market. China alone has trillions of dollars and they could drop 0.01% of that money into silver, leaving it beyond the control of the American elite.
The one that has the most to fear is the COMEX. Yesterday’s manipulation 23 minutes before the trade of 50,000 contracts was consummated only proves that the exchange has been manipulating the market. There has never been true price discovery as this manipulation of the market has kept the true price of silver hidden. Well, I see dark days ahead for the COMEX. There will be investigations, there will be discoveries, there will be trials, and there will be jail sentences handed out. Market manipulation is not something the Feds take lightly.
I'd encourage readers to buy as much physical silver as they can. Until I am convinced that the markets have established a transparent state where true price discovery is possible I will stay away from paper vehicles. I do exclude Sprott Physical Silver Trust (PSLV) form this list as their paper is really backed up by the physical it purports to represent.