Fact Versus Speculation
By: Theodore Butler

http://news.silverseek.com/TedButler/1220376924.php

-- Posted 2 September, 2008 | Digg This ArticleDigg It! | Discuss This
Article - Comments: 11

What’s happening in the silver and gold markets is, without a doubt,
the most sordid scheme in the history of finance. It makes a mockery
of financial regulation and the rule of law. It allows a large
financial entity, or entities, to rip off the investing public and
gouge them for obscene profits.

It is cronyism, back-room dealing, market fixing and inside
information at its worst. I am terribly disappointed and dismayed that
such a thing could happen in our great country.

In the following paragraphs I will outline and explain how a major
bank or banks, in likely concert with the U.S. government, pulled off
financial shenanigans that will literally take your breath away. This
is an outrage that cannot be allowed to stand.

The recent revelations in the CFTC’s Bank Participation Report for
August provided stunning proof of concentration and manipulation in
the COMEX silver and gold futures markets. Two U.S. banks held a short
position in COMEX silver futures, as of August 5, of 33,805 contracts,
or almost 170 million ounces, an increase of 138 million ounces in one
month. That increase is equal to 20% of the world mine production. If
one or two entities bought or sold 20% of the annual world production
of oil or wheat in a month, it would bring about a congressional
feeding frenzy.

In gold, no more than 3 U.S. banks sold short in one month more than
10% of world annual mine production. This was the largest short
position in gold and silver ever recorded by U.S. banks. After the
massive and concentrated silver and gold short position was
established by these U.S. banks, the markets experienced a historic
decline in price. It all took place during the first widespread retail
silver shortage in history. It is completely at odds how the law of
supply and demand works.

The facts are so clear that the CFTC should have provided an immediate
explanation as to why this doesn’t constitute manipulation. They
should move against the manipulators just as promptly. Silence is not
an option. The U.S. banks (or bank) in question are at the top of the
financial food chain when it comes to size, power and importance. They
are publicly owned by millions of investors. These banks are generally
open about their financial dealings, which are closely scrutinized.
There is an archaic rule that prevents the CFTC from revealing the
identity of these banks. But there is no rule preventing these banks
acknowledging they were responsible for these silver and gold short
sales and explaining the economic justification behind them. These are
material transactions that should be disclosed to their shareholders.
Apparently transparency does not apply to manipulative transactions.

One U.S. Bank?

While the report lists two U.S. banks in silver and three in gold, it
may be that only one bank, and perhaps the same bank, held the
greatest amount of the total short position in silver and gold. The
published data is not specific enough, but objective analysis raises
the strong probability that just one bank held 30,000 or more short
silver contracts (150 million ounces), and 75,000 gold contracts in
the current report. What are the odds of two or three banks suddenly
deciding to short unprecedented amounts of silver and gold contracts
spontaneously? If it were two or three banks it would raise the issue
of collusion. If it was just one U.S. bank, it would mean that bank
held 34% of the entire COMEX silver market and 30% of the gold market.
Such a concentration would be manipulation to any reasonable person.

The Bank Participation Report is a monthly snapshot on a predetermined
single date. Therefore, it is unlikely to capture the extreme high or
low holdings of participants. Based upon the weekly Commitment of
Traders Report (COT) for positions as of July 22, the 4 largest
traders, including the big U.S. banks, held a record net short
position of 63,740 silver contracts, or 7,779 more contracts than they
held for the COT and Bank Participation Reports of 8/5. Thus, it is
almost certain that the big U.S. bank(s) held a substantially larger
position on 7/22 than it held in the Bank Participation Report of
August 5. That would mean the true net percentage of the entire market
possibly held by one U.S. bank could be even higher than 34%, and may
in fact, exceed 40%. That is truly shocking.

I have a simple solution to determine if what I am suggesting is true.
Let the CFTC tell us. I’m not asking them to violate the rule that
they and the big traders hide behind, the one that protects the
identity of the traders. I’m asking something else entirely. Instead
of telling us what two or three U.S. banks held, as they do in the
Bank Participation Report, or what the 4 or 8 largest traders may
hold, as they do in the COT report, just tell us what the one largest
trader held in silver and gold. That will settle the matter. Let them
protect the identity, just tell us how many contracts the big U.S.
bank held on July 22 and August 5.

This is a perfectly reasonable request. There is no taxpayer cost
involved. It will take one employee only a few minutes to determine
this. There is no valid reason why the CFTC, in the interest of
monitoring concentration and preventing manipulation, should not
disclose what the very largest trader in every market held. The CFTC
should answer forthwith. If they don’t, we must make them, through our
elected representatives. They will try to weasel out of this
reasonable request. We can’t let them.

A U.S. Government Silver Intervention?

For many years, I have openly alleged an ongoing manipulation in the
silver (and gold) market. As that message became more believable to
growing numbers of readers, their feedback indicated that their most
popular motive behind the manipulation was some type of U.S.
Government involvement. I rejected these "conspiracy" theories,
preferring instead my simple explanation of control by big financial
firms.

There were a few things I didn’t report on in my previous article,
"The Smoking Gun" (By the way, since so many have referred to that
article, let me acknowledge and thank Carl Loeb for his valuable
contributions to that article.) It wasn’t just that 2 U.S. banks were
short almost 34,000 silver futures contracts, as of August 5. It was
also that they replaced what the other big financial entities had been
short. The key here is the replacement angle. The data in the weekly
COTs, and in the monthly Bank Participation Report, confirm this. What
does this data mean?

I am going to speculate based upon the known facts. Maybe I will be
proven correct, maybe not. However, the nature of this speculation is
so disturbing, that I hope I am wrong. But I need to state it because
if I am close to the mark, the implications for the silver market are
profound.

I think the data in the COT and the Bank Participation Reports
indicate that the U.S. Government may have bailed out the biggest
COMEX silver short by arranging for a U.S. bank to take over their
position. This coincides with JP Morgan’s takeover of Bear Stearns. In
fact, it would not surprise me if the bailout was JP Morgan taking
over Bear Stearns‘ short silver position, at the government‘s request.
While this silver bailout (if it happened) was no doubt undertaken
with financial system stability in mind, it has disturbing
implications of legality and equity.

JP Morgan has been mentioned as a possible big silver and gold short.
If it’s not them, it is someone like them. How many big U.S. banks fit
the profile? Certainly, if JP Morgan isn’t one of the big silver or
gold shorts, they can instantly dismiss such talk by stating so.

Logically, there would appear to be no way that a big money center
U.S. bank would choose this time and place to suddenly decide to short
150 million ounces of silver and 7 million ounces of gold voluntarily.
The banks are hemorrhaging losses due to poor quality mortgages and
other ill-advised bets. They’ve cut back credit and are circling the
wagons. A CEO, like Jamie Dimon, is not going to risk the wrath of
shareholders with a massive and dangerous impromptu bet on the short
side of precious metals. No bank CEO would, as it is too reckless to
contemplate. And no CEO would do it without prior approval from the
regulators.

I believe the bank involved did not seek approval, but merely followed
the request of the U.S. Government to sell quantities of silver and
gold to bailout the former big short. If that former big short bought
back this position, we would have seen $50 or $100 silver in a flash.
If my speculation is correct, someone in the government wished to
prevent that. Worse, the government (most likely Treasury and the
Federal Reserve) allowed the new short to further rig the market to
the downside with a variety of dirty tricks.

In other words, it was the U.S. Government that arranged and
sanctioned the sell-off. That the government might undermine
confidence in our markets and sanction manipulation and illegal market
behavior for any reason is beyond my understanding. I love this
country. But I certainly don’t love our government. Nor do I trust
them. What to do about it?

Well, a start is to insist that the CFTC disclose how many contracts
the largest trader held short in COMEX silver and gold futures on 7/22
and 8/5. Ask them and ask your elected officials to ask them. I’m
including the e-mail addresses of the commissioners and the Inspector
General.

Wlukken@cftc.gov
Mdunn@cftc,gov
Bchilton@cftc.gov
Jsommers@cftc.gov
Alavik@cftc.gov

Now that the Chicago Mercantile Exchange Group is the new owner of the
NYMEX/COMEX, they should be notified of the alleged manipulation and
also asked to provide the number of contracts held net short by the
largest short position holder on 7/22 and 8/5. I’m including the e-
mail address of the Chief Regulatory Officer. Dean.payton@cmegroup.com

If my speculation is close to the mark that the U.S. Government is now
involved in the silver manipulation, does this mean the manipulation
can be extended indefinitely? In my opinion, the answer is no. In the
end, what will terminate the manipulation will be a lack of adequate
wholesale supplies of silver to the industrial users. It’s similar to
what is now happening in the retail market. Uncle Sam does not have
any silver, and is powerless to secretly subsidize the users.
Additionally, the government is more subject to scrutiny than others.
The single inevitable solution to this manipulation is higher prices;
sharply higher prices.

What I’ve explained here, if true, cannot be condoned for any reason.
It’s illegal and contrary to everything that America stands for.