What has been occurring within the gold and silver markets is nothing wanting extraordinary. Within the face of all goal and measurable circumstances within the bodily markets pointing to increased costs, as a substitute costs have collapsed over the previous six months by quantities corresponding to the sharpest selloffs in historical past. From the value high of March 8, gold has fallen as a lot as $450 (22%), whereas silver has fallen by as a lot as $10 (36%) in latest dealings.
But, all seen indicators level to excessive bodily tightness, the likes of which I’ve by no means seen, in every thing from essentially the most persistent retail premiums in silver in historical past, to surging wholesale bodily demand in India and China – all with no notable improve in precise provide. To an extent by no means witnessed earlier than, the previous six months have featured the sharpest divergence between surging bodily demand and a steep and highly-counterintuitive historic value collapse. To any believer within the free market legislation of provide and demand, it has been the strangest (and most attempting) time ever – or at the least the strangest time in my close to 50-year expertise.
After all, surging bodily silver and gold demand and collapsing costs can’t happen for no cause and discovering the reason being the accountability of anybody occupied with gold and silver. Actually, there is just one doable cause to clarify the conundrum of surging demand and bodily tightness and sharply decrease costs and it’s the similar cause I’ve superior for greater than 35 years – an ongoing value manipulation on the COMEX. Whereas I’m gratified that extra observers than ever appear to have come to know the fundamentals of the long-term COMEX value manipulation; considerably paradoxically, we seem to have reached (or are extraordinarily shut) the termination level of the long-running value manipulation, no matter public consciousness.
The important thing function of the 4 decades-old COMEX value manipulation has been the power of a tight-knit group of enormous merchants, categorized as commercials (largely banks), to promote future contracts brief in limitless portions to cap and include silver and gold costs. This resulted in COMEX silver having the most important concentrated brief place of any commodity for 40 years when in comparison with precise world manufacturing. A key part of the manipulative limitless brief promoting was the refusal of the business brief sellers to ever purchase again and canopy brief positions on rising costs – solely when costs fell. This was the important thing to absolute value management.
Restricted (by alternative) to solely shopping for again brief positions on decrease costs (in any other case costs would explode increased), the one approach for the COMEX business shorts to buyback and canopy the utmost variety of brief contracts was to create the value surroundings most suited to getting different massive COMEX merchants to promote brief and change the business shorts. Thankfully for the business merchants, there existed such a bunch of merchants, categorized because the managed cash merchants, keen to promote a big (however not limitless) variety of brief contracts below the best technical circumstances. The “proper” technical circumstances had been, primarily, steadily falling costs and this was proper up the commercials’ alley, since they’d ample technique of dictating costs (assume spoofing).
Subsequently, most business short-covering might solely be met with most managed cash brief promoting below a value selloff that was epic in each time and scope. The selloff needed to be each pronounced, but additionally constant and of such length in order to entice the managed cash merchants to fully-load up on the brief aspect. A selloff that might be termed the “mom of all selloffs” (as I not too long ago termed it). It seems to me that the six-month selloff in COMEX gold and silver from the highest on March 8 (the day of the LME nickel default), when gold hit its all-time excessive of $2080 and silver hit $27.50, fully-qualifies because the epic selloff required to induce most managed cash shorting and most business brief overlaying. Perhaps there’s a bit extra to go, however not a lot, for my part.
Since March 8, the entire business web brief place in gold has declined by greater than 230,000 contracts (23 million oz) and by as a lot as 70,000 web contracts (350 million oz) in COMEX silver, among the many largest reductions in historical past. Much more compelling is that the business concentrated brief positions have declined, proportionately, much more, to the bottom ranges in historical past. In case you are in search of the explanation explaining how gold and silver costs might decline as a lot as they’ve over the previous six months, within the face of maybe the strongest bodily demand ever seen, then look no additional. The COMEX commercials got down to induce the utmost quantity of managed cash promoting (in order that the business might purchase) and succeeded masterfully. Now what?
Now we’re at or extraordinarily near the purpose of most bullishness, the place costs are fairly able to exploding increased in a way none of us have ever actually witnessed. As a result of there was a lot managed cash shorting in gold and silver and since costs are thus far beneath the important thing shifting averages (notably in gold), these merchants know full-well that they might want to purchase again the majority of their brief positions lengthy earlier than all the important thing shifting averages are penetrated to the upside – in any other case the cash threat is simply too nice, contemplating the scale of the managed cash brief positions, to attend till all the important thing shifting averages (the 50, 100 and 200-day shifting averages) are upwardly penetrated. We’ve seen this in silver not too long ago, as $2 rallies resulted in vital brief overlaying earlier than costs had been then rigged decrease and the manged cash shorts had been enticed again in.
I suppose that it’s at all times doable for much more managed cash shorting on even decrease costs, or that the collusive commercials might toy a bit extra with the managed cash shorts (as they’ve in silver), letting a quantity out on a fast pop up in value, solely to rig costs decrease to convey those that purchased again, proper again onto the brief aspect, however these short-term value wiggles are past prediction (at the least for me). The essential level is to not get hung up on the day by day value gyrations at this level and think about the entire image – which is bullish past phrases.
Thus, the stage has been set for a bear entice of epic proportions in gold and silver. For these unfamiliar with the time period, right here’s a fast description of the arrange –
https://www.investopedia.com/phrases/b/beartrap.asp
It goes with out saying that the important thing to the subsequent huge transfer to the upside is solely depending on whether or not the previous huge business shorts in COMEX gold and silver add aggressively to new brief positions because the rally unfolds. That goes hand-in-hand with the manipulation premise I’ve alleged for 35 years. Whereas nobody is aware of for certain what these huge former business shorts will do, I’ve at all times held it typically doesn’t matter a lot when it comes to prediction, as there’s typically ample warning of what they’re doing within the ongoing COT studies. However along with that, there’s now the case that the bodily market is so tight as to be a discouragement towards renewed huge business brief promoting. Plus, there’s one other new issue arguing towards aggressive brief promoting by the massive business merchants that I’m unsure if I’ve coated beforehand.
That further issue is the cumulative weight on the massive banks led to by years of settlements and fines and convictions for manipulating gold and silver costs, largely as results of spoofing illegalities. Yesterday’s announcement of yet one more main regulatory settlement involving unrecorded conversations between financial institution merchants. Overlooked of the announcement was that the unrecorded conversations had been designed to cheat different market members and additional proof of collusion – in any other case why weren’t they recorded?
https://www.cftc.gov/PressRoom/PressReleases/8599-22
It’s laborious to give you the title of single financial institution that hasn’t settled or been fined for such violations over the previous a number of years, usually accompanied by deferred legal prosecution agreements – violation of which is much more critical. The fines and agreements begin with the grasp valuable metals legal, JPMorgan, and lengthen from there. After all, JPM is sitting fairly, having amassed at the least a billion oz of bodily silver and upwards of 30 million oz of bodily gold over a decade of stealth acquisition.
There’s little question (in my thoughts) that the US regulators (the CFTC and Justice Dept) stopped approach wanting charging JPMorgan and the opposite banks with the kind of valuable metals manipulation that will have put them out of enterprise and as a substitute caught to spoofing and now improper communication prices, which allowed the banks to remain in enterprise. Then once more, it’s not doable that the too-lenient regulatory findings left the banks in a stronger place to proceed the decades-old COMEX manipulation. Trying on the inventory costs for a number of the international banks which settled and paid fines for valuable metals manipulation on the COMEX, they’re basket instances.
My level is that the earlier fines, settlements and agreements have made it much more unlikely for the crooked banks to function as they’ve up to now and improve the probability that the massive former business shorts will stand apart and never add to shorts on the subsequent rally. After all, time will inform, however I doubt greater than ever that the previous huge business shorts may have the gall to re-short aggressively on the approaching rise in costs and the business bear entice of the managed cash shorts seems full or almost so.
Ted Butler
September 29, 2022
www.butlerresearch.com
