Why I Would Manipulate Silver, IF
Riaz K Tayob
(IF I were a central bank!)
Silver Stock Report
by Jason Hommel, July 8th, 2009
Goldman Sachs has admitted that they have a computer program that can be
used to manipulate markets.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a_6d.tyNe1KQ
"The bank has raised the possibility that there is a danger that
somebody who knew how to use this program could use it to manipulate
markets in unfair ways,"
For over ten years, www.GATA.org has gathered information and admissions
from central bankers and major bullion banks that the price of gold on
the world market is manipulated lower than it should be. Well, one more
admission is close enough for me to be counted as one more proof.
Many people are paid to deny such manipulation of course, because the
people who are doing the manipulating are earning a lot of money from
their ability to print money at will, without it showing up in a rising
gold price.
One of the more preposterous denials of manipulation is that keeping
silver down in a rising market would simply cost too much, as nobody
could afford the losses.
That's just propaganda, of course. Losses on bad trades, such as being
short the silver market, must be taken by somebody.
But my strength lies in running the numbers, using estimates, and
exaggerations, to prove the point.
At the most, I've seen the silver market with a total open interest of
up to 800 million ounces. This is a rare top, of course, but it can be
used to determine a hypothetical maximum of "total losses" for being
short silver during the entire bull market.
Silver has moved from a low of about $4.15/oz. in early 2003. Since
then, silver topped out at about $21/oz. in the spring of 2008.
Using those three figures can give us a maximum total estimate of COMEX
paper silver losses, assuming 5 unreasonable and exaggerated things.
1. That the short position was all put on, and initiated, entirely, at
$4.15 -- which it wasn't, it was put on starting at the former top in
1980 of $50/oz, and major bullion banks have always been short, ever since.
2. That the short position was completely covered at the top of $21 --
which it wasn't, and it got much bigger at the top, and again, after
that top, around $16/oz, as the banks sold 41 times more paper silver as
was purchased by physical silver investors in a month, which helped to
push the price down to $8/oz, which was very profitable for part of
their position.
See: A Tribute to 7th Grade Math August 31, 2008
http://silverstockreport.com/2008/7thgrade.html
3. That the short position was one size, and held the entire time with
no trading -- which it wasn't.
4. That the short position was always held by entirely one entity --
which it wasn't.
5. That the short position was always a maximum of 800 million oz. --
which it wasn't.
So, given the real facts, the losses on the short position would have
been much smaller, but we are not interested in the smallest possible
cost, but the largest possible cost, to utterly refute and ridicule the
notion that it would be "too expensive" to manipulate the silver market
in a rising market.
So, the difference between $21 and $4.15 = $16.85
The loss of $16.85 x 800 million oz. = $13.48 billion
Even with all the exaggerated figures, exaggerated in 5 ways, still
brings the total losses in silver manipulation to a theoretical maximum
of $13.5 billion. Clearly, the real loss, being short on silver at the
COMEX, must have been much less.
But I would guess that they might even have profited along the way,
instead of taking losses, for several reasons.
First, they have those "manipulation trading programs" admitted by
Goldman Sachs at the start of this article.
Second, their positions are so large, that those who are short, ARE the
market, and I'm sure they use their computer programs to only sell "just
enough" to move the market price nearly at will.
Third, they know their own clients' books, and stop losses, and can run
the price of silver to trigger those stop losses to take over client
long positions, so their clients lose money.
Fourth, the COMEX positions are smaller than their OTC positions, which
are a much bigger liability.
Fifth, rigging the silver price aids the rigging of the gold price, and
both allow the continued existence of a falsely strong U.S. dollar,
which they have printed up over $1 trillion of this year, with no new
"inflation" showing up in the prices of gold and silver.
And that fifth reason is so profitable, that a $13 billion loss in COMEX
trading is just "the cost of doing business", and anyone who can't see
that, is either blind, or paid off, and you don't need a sophisticated
computer program to realize that, but only the willingness to perform
7th grade math on 3 numbers, as I just went over.
The reason for me doing this simple math exercise is to show by
comparison how that maximum figure of $13 billion, is so very miniscule,
so very tiny, compared to that other figure listed as my fourth reason
above, a very important figure, the BIS OTC silver numbers.
The BIS (Bank of International Settlements) publishes a list of the
notional value of outstanding OTC (Over the Counter) commodity
derivatives. The category of interest is "Other precious metals", which
is mostly all silver. The amount in Jan. 2008, was $190 billion.
That consisted of $86 billion in forwards and swaps, and $104 billion in
options.
http://www.bis.org/statistics/otcder/dt21c22a.pdf
In Jan. 2008, the silver price was about $16/oz. Thus, we can see that
the number of ounces short in that "OTC" market was $190 billion / $16 =
11,875 million ounces.
This comparison is extremely important, because the OTC market is much
bigger than the COMEX, which had reported short positions of a maximum
of only about 800 million ounces of silver.
Currently, COMEX silver open interest is 133,000 contracts for 5000 oz.
each, which is 665 million oz.
http://news.silverseek.com/COT/1246909610.php
Clearly, a loss of $16.85/oz., during the entire bull market in silver
from 2003, over 11,875 million ounces in the OTC market, would be a much
bigger loss, as it would be $200 billion!
Yes, in "OTC Bullion Accounts", world bankers have a potential loss of
about $200 billion, if they could even deliver 11,875 million ounces
that clearly doesn't exist in their vaults, and doesn't exist in the
world even to buy!
It is also extremely important to note at this point that the world's
silver mines only produce about 600 million ounces, and world physical
investment demand is only about 100 million ounces, or about $1.3
billion at the current $13/oz.!
So, if you were one of those bankers, and you had a potential loss of
$200 billion wouldn't you rather lose $13 billion trading at the COMEX
to save the $200 billion loss in the OTC market? I would.
That must be very near to how they rationalize it.
After all, if you can control the reported price on the open markets,
then your losses in the "over the counter" market is much smaller.
And it's a great scam, as long as people continue to be convinced to
hold paper silver other than real silver, which they are, as the numbers
prove it.
With only $1.5 billion going towards the purchase of actual physical
silver in a year, while $200 billion is sitting in OTC "other precious
metal" accounts, it goes to show that the vast majority of people who
own silver, or about 99% of assets in "silver" are really paper silver,
most of which could not possibly exist as real silver.
And that still does not include all the other paper markets!
For example, another paper market is the silver certificates issued by
Canadian banks, that the Banks are no longer redeeming. The refusal and
inability to redeem Canadian silver certificates has continued without
much notice, and no official reports or admission. It's like a silent
bankruptcy, not even getting any press or much blog coverage, because,
still, so few people even attempt to redeem them. But my point is that
I have no idea of the size of that paper market, it could be in the
billions, too.
And those BIS numbers also don't include the LBMA accounts that trade up
to 30 billion ounces of silver per year, which is about 120 million
ounces of silver per day, on a base of 75 million ounces of physical
silver, which is another absurdity, of course! Those numbers were
reported in the CPM Group's annual silver book for 2008.
And those BIS numbers don't include the ETFs either, since the ETFs are
not an "over the counter" market, but a transparent one, and also don't
likely have any silver, since the custodian is JP Morgan, who has also
been identified as the key bank that is short in the silver market on
the COMEX.
So, perhaps much less than 1% of people who think they have silver,
actually have any physical silver.
Furthermore, those people who are blissfully happy to let their assets
sit in "paper silver" accounts are nearly guaranteed to not make any
significant money in silver, if only because when silver does soar past
$100/oz., there's no way that those bankers would pay out $100 x 11,875
million ounces = $1,187 billion dollars to those paper silver holders.
And of course, 11,875 million ounces of silver does not exist in the
world for them to buy, cover, and pay out, in any event!
Instead, the banks will do as they always do, and merely change the
rules, or force a cash settlement (which is a quasi-"bankruptcy") at
much lower silver prices. They will simply default, which means that
they will fail to deliver silver that they don't have, of course.
Their danger, of course, in doing even that, is that people might begin
to wake up, and demand real silver if they can't have paper silver.
After all, paper silver serves its purpose to manipulate silver prices
downwards, only if it serves as an alternative to prevent people from
buying real silver.
Here's an additional cost of the manipulation. Manipulation only works
if they can actually deliver real silver, at lower than market prices.
I have heard of offers to miners of up to 4% over spot for access to all
of their silver. Isn't that kind of offer evidence that the "spot"
price is manipulated lower than the real cost of real silver?
So, let's calculate the maximum potential cost of that. Suppose the
world bankers bought 100% of world production this way, at 4% over spot,
from the miners and refiners, and then turned it around, to sell it at
what becomes "spot", for 4% less, at a manipulated "loss", a loss to
manipulate the markets. With 600 million oz. of world mining
production, at $13/oz., x 4% is a mere $312 million, a tiny cost of
"doing business" to keep manipulation going, and to continue the COMEX
rigging, and to prevent the bankruptcy and loss of $200 billion in the
OTC markets!
And even that $312 million "loss" could be mitigated, by moving the
price of silver lower, at will, on the "spot" futures market, precisely
on those days that miners or refiners sell to the bankers "at 4% spot".
I've always wondered why miners always seem to report sales prices lower
than average for the quarter, while often claiming to be using some sort
of price protecting hedges to get "above market" prices. That must
explain it, in part.
And so, that's why I would manipulate silver, and gold, if I were a
blood-sucking vampire of a central banker, who had no conscience, and no
knowledge of the importance of honest dealings.
One of my goals is to fight such wickedness in high places, as I strive
to expose those evil ones to the light of truth to end their evil
oppression.
I believe the manipulation can end suddenly, at virtually any time, as
any one of nearly 1000 billionaires, funds, or nations, could decide to
buy silver at any time, causing delivery defaults, and market failures,
and major price dislocations.
I believe the manipulation usually ends when they run out of silver to
deliver, and then, people begin to stop trusting in paper promises, such
as happened to gold in 1933 and 1971. If the failure to redeem Canadian
silver certificates is any indication, the world is scraping the bottom
of barrel for silver.
I believe that when the manipulation ends, with delivery defaults,
precious metals prices will rise with shocking speed, and even my own
re-supply sources will likely dry up, and you might not be able to buy
silver at any price, for an extended time, until the market price is
much, much higher.
Sincerely,
Jason Hommel
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Silver Stock Report: Why I Would Manipulate Silver, IF! (9 July 2009)
http://silverstockreport.com/2009/manipulation.html