by Ted Butler, Silver Seek:
Generally, for everything that has a price, the price is often the most important feature. Certainly, this is true in financial assets and commodities of all types, including stocks, bonds, real estate, raw and finished materials, as well as transportation, labor and just about everything under the sun (including solar power). As different as all these things may be and no matter how complicated the process of determining the price of all things may be, it is the process that determines the price.
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Therefore, it follows that to understand the price of anything, it is necessary to understand the process by which prices are determined. That’s easier said than done, of course, because each item with a price has its own unique and very wide set of ever-changing factors involved in the process of determining price. Take interest rates, for example, where Fed policy, investor and inflation expectations, debt levels and liquidity, to name only a few, are part of the price discovery process.
For silver, the focus of this service, its price discovery process is different from other commodities, even different other metals, including other precious metals. While the things usually thought to determine the price discovery process in silver, like actual supply and demand, investor sentiment, as well as a plethora of other factors that are assumed to determine price, all these factors play little role in determining silver prices. By far, the most dominant and often the sole driver of price is the positioning of silver futures contracts on the COMEX.
As such, it is impossible to avoid the conclusion that the price of silver is manipulated. As clear and simple as this statement may be, its prevention is the prime mission of the federal regulator, the CFTC, since US commodity law holds that speculative derivatives trading determining prices is illegal. Still, it’s a rather strong allegation to declare that an ongoing manipulative process is what determines the price of any regulated commodity, so substantiation is required. Here, I would ask you to rely on your own eyes.
Do you not see the reports indicating flat silver mine production for more than a decade, accompanied by growing demand over that time? Do you not see dramatically declining levels of visible inventories over the past two and a half years on the order of more than 300 million oz, the largest decline in history? Do you not see the mindboggling physical silver turnover in the COMEX silver warehouses of the past 12 years, now joined by physical turnover in the silver ETFs and recognize this physical turnover is unique to silver and can only be due to physical demand on the edge of going out of control?
Do you not wonder why the CFTC and the CME Group are virtually silent in the face of widespread allegations of a silver price manipulation? Do you not wonder how and why JPMorgan has remained silent in the face on non-stop and personally-delivered allegations of criminal wrongdoing in COMEX silver for more than a decade – except for paying fines and agreeing to a deferred criminal prosecution agreement with the Justice Department? Are you not curious about the Treasury Dept’s Office of the Comptroller of the Currency unit suddenly changing its methodology of recording OTC precious metals derivatives when asked about Bank of America’s explosion of silver derivatives holdings? Or of the US Mint’s refusal to produce Silver Eagles as required by law?
These are but a few observations and questions anyone remotely interested in silver and its price should ask and all lead to the same core fact – the price discovery process in silver is not as it should be. Something has to explain a growing and visible long-term physical shortage in a commodity in the face of flat to declining prices. Something has to explain so much regulatory “smoke” in the nearly impossible-to-count number of findings of price wrongdoing by banks in silver (and gold). Is there any bank that hasn’t been fined for improper trading in COMEX silver?
The common denominator for all the above is the price discovery process in COMEX silver futures; specifically, the banks (the commercials) always selling on rising prices and buying on falling prices. You could say that’s simply good trading, but the consistency of such trading over the decades, coupled with the endless number of regulatory fines would suggest otherwise. If the banks’ trading in COMEX silver were on the up and up, why so many fines?
More to the point, how is it possible for what is largely a derivatives exchange to have come to set and dictate prices to the entirety of the silver world? How is it that what is basically a private betting game between a relative handful of speculators on either side (banks versus manage money traders) has come to capture the price setting mechanism process in silver? The answer is multifold and includes that because the quantities of silver derivatives trading are so much larger than the amount of real silver produced and consumed daily, that the “tail” of COMEX futures trading has always dominated the “dog” that is the actual silver market. Besides, COMEX futures price setting fills the void in that it has emerged as the sole price maker in silver, with everyone else (miners, users, investors) as price takers.
