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Ted Butler: The Silver Nightmare Will Be Over Soon

The argument for a near-term monster rally
Saturday, November 1, 2014, 1:20 PM

Halloween couldn't have been more terrifying for silver investors. The gray metal cracked under $16/oz on Friday, a price not seen for nearly half a decade.

For years now, it has seemed like silver has been beaten down so badly its price couldn't go lower. But then it has.

Why has silver seen such a gut-wrenching price decline? (now down 2/3 compared to its high in late 2011). And will it ever see brighter days again?

This weekend, Chris has a long discussion with silver expert Ted Butler on the real culprit behind the wild price slams that have plagued silver: unfairly concentrated positions within the derivatives market:

You have to sit back and try and drill down to the cause of what’s going on. Now, the actions by the Bank of Japan and the actions of our own Central Bank have basically been to inflate all investment assets such as bonds, stocks, real estate. And the ironic thing is that in the past whenever we’ve gone through this asset inflation mode ,gold and silver and a variety of commodities have always participated. It stands out this time that, contrary to the movement and all other assets, that gold and silver have been particularly weak.

The only explanation for why this is so is that we’ve developed, not just in gold and silver but in all the COMEX and NYMEX metals -- copper, platinum, palladium, gold and silver, even items like crude oil and even into the grains -- we’ve developed a mechanism that’s so distorted it’s like we’re allowing the inmates to run the asylum. In other words, if you’re looking for the specific cause for why gold and silver have been particularly weak over the last couple of days or any other time period, you can trace it directly to the derivatives market. Specifically the COMEX. There’s such a large volume and it’s not just trading volume, it’s positioning. The positioning is so extreme in these markets and at such a large scale that it actually becomes the tail that wags the dog.

We should remember that derivatives (which futures contracts on gold and silver traded on the COMEX are classified as) are supposed to be derived from the real supply/demand fundamentals of any commodity. And that’s supposed to kind of follow what developments there are in the real world of supply and demand. That’s been distorted. That’s not longer the case.

It's now possible to have a 25% plunge in the price of oil in a few months or the equivalent 25% or greater decline in silver or any other commodity in a very short period of time. Things in the real supply/demand don’t change that fast. It’s a glacial-like change when you’re talking about the production and consumption of copper and oil and silver. And same thing hold's true on the consumption side. What’s precipitating this whole thing is that the derivatives market has become so large, and there are certain specific traders that have figured out how to game the system, that the derivatives market is always the cause for why we have these sharp moves. The crazy thing about it, is that it’s quantifiable. We have governed reports that come out every week in the form of the Commitment Of Traders report from the Commodities and Futures Trading Commission. And it shows clearly and unequivocally that certain large traders are distorting the market. And this is so against commodity law and the principle of free markets and the law of supply and demand that it’s become unattainable. And I think it’s good. It’s gotten so extreme now that I think we may be in a position of a snap-back to where we don’t allow this anymore. 

So I’m hopeful that with more people becoming aware of what this game is all about that enough people are going to sit back and say 'Hey, wait a minute. This is the craziest thing I’ve ever seen!' and demand that it change. Or demand at least that the government or the CME stand up and answer these questions. I mean I’m sitting here accusing them of being crooked and explaining the game; why it’s manipulation, because the futures markets is dictating to the real market what the price should be. That’s crazy. That’s illegal. And yet, there’s no response on their part. They want to pretend that it doesn’t exist.

These days with the mood swings these price lows are causing (silver in particular), we’re going to deal with this real quick. Because it’s terrible that the miners should be subjected to this. If silver prices don’t rally and don’t rally soon, most of the silver miners are going to go out of business. I think silver prices are going to rally and they are going to rally soon. 

Click the play button below to listen to Chris' interview with Ted Butler (45m:42s):

Transcript: 

Chris Martenson: Welcome to this Peak Prosperity podcast. I am your host Chris Martenson. And today we’re going to talk about precious metals. Now these have been pretty savagely beaten down since about 2011, they’ve gone down. Very coincidentally we would note with the onset of quantitative easing programs. Sounds complicated but we’ve been talking about quantitative easing in the context of this thing called "financial repression," which is another fancy term which basically says we’re going to throw granny under the bus in order to save the profits of the big banks. We’re basically going to transfer wealth from the little people or from the masses to a very small financial elite. Not because that’s good for the country. But because they’ve rationalized this to say this is what we have to do to preserve the system, to make sure that our banking system is healthy because all good things flow from a healthy banking system. Whatever their rationalization is, they’ve got it. But the result doesn’t change; which is that the people who are the productive members of society and who attempt to save mostly get punished for those actions, and that’s one thing.

Now, one of the cornerstones of financial repression — obviously remember it's negative real interest rates is the center piece of this. A second piece is that you have to put capital controls so that people, once they start to catch onto this idea that they don’t want to be corralled into this place of accepting negative real interest rates. You don’t want them fleeing the country either.

So you’ve got to put the capital controls in. that gave us FATCA, that act and other things like that; other treasury department actions to “chase down tax cheats” but it’s really to put a bright spotlight on your savings that you might try and move offshore so that the banks that are offshore are like, "that spotlight's too bright and we’d rather not have your business." So that’s a soft form of capital controls.

That’s happening and of course there’s a third element in here which is that you can’t have people seeing that gold or silver or alternative investments make sense compared to the paper currencies, which are the mechanisms for transferring wealth from point A to point B. Isn’t it interesting that in every money printing experiments in the past we’ve seen commodities take off for obvious reasons? They have not done that through QE3. They’ve actually gone in the opposite direction. Now, that sounds a little bit like there’s mechanisms of control and that there’s somebody sort of looking at this overall system and doing this on purpose. Is that true? Is that not true?

Today we’re going to be talking with Ted Butler who I think is one of the people who is most well suited and qualified to be talking about what’s happening in COMEX, the place where metals purchases and transactions are conducted. A little bit of physical in there. The vast volume of what happens there is in the paper gold, paper silver, paper copper, paper whatever markets.

Ted Butler runs his own site, Butler Research, and he’ll tell you more about that in a minute. But he’s been analyzing these things on the internet; precious metals, commentary and analysis. And so I think Ted; was it 1996, if I have my numbers right?

Ted Butler: That’s about right Chris, yes.

Chris Martenson: Excellent. Well welcome to the program today.

Ted Butler: Thank you, thank you it’s good to be with you.

Chris Martenson: So where do we start with this? I think, I’m looking at my screens and I’m seeing a fairly big smack down in gold and silver today. And the news is of course the Bank of Japan has said, "did we say we’re going to buy a few of these bonds, and just a couple of stocks? Heck, let’s really open the flood gates" and they’ve announced an even larger program to buy more stocks and bonds. And of course this ignited all kinds of things; a fall in the Yen, dollars up, stocks are up for some strange reason in the U.S. and gold and silver are down. Ted how do we start to make sense of this move today?

Ted Butler: Well you have to sit back and try and drill down to the cause of what’s going on. Now based on your introduction and the actions by the Bank of Japan and the actions of our own Central Bank have basically been to inflate assets; inflate all investment assets such as bonds, stocks, real estate. And the ironic thing is that as you say in the past whenever we’ve gone through this asset inflation mode gold and silver and a variety of commodities have always participated. It stands out this time that contrary to the movement and all other assets that gold and silver have been particularly weak.

I attribute that to the direct mechanism and really the only explanation for why this is so, is that we’ve developed not just in gold and silver but in all the COMEX and NYMEX metals—copper, platinum, palladium, gold and silver, and even items like crude oil and even into the grains—we’ve developed a mechanisms that’s so distorted it’s like we’re allowing the inmates to run the asylum. In other words, if you’re looking for the specific cause, for instance, why gold and silver are particularly weak the last couple of days or any other time period you can trace it directly to the derivatives market, specifically the COMEX. There’s such a large volume—and it’s not just trading volume; it’s positioning —that the positioning is so extreme in these markets in such a large scale that it’s actually become the tail that wags the dog.

We should remember that derivatives, which futures contracts on gold and silver traded on the COMEX are classified as, are supposed to be derived from the real supply/demand fundamentals of any commodity. And that’s supposed to kind of follow what developments there are in the real world of supply and demand. That’s been distorted. That’s not longer the case.

The reason we’ll have a 25% plunge in the price of oil in a few months or an equivalent 25% or greater decline in silver or any other commodity in a very short period of time. Things in the supply, the real supply/demand, don’t change that fast. It’s a glacier-like change when you’re talking about the production and consumption of copper and oil and silver. And same thing on the consumption side. What’s precipitating this whole thing is that the derivatives markets have become so large, and there’s certain specific traders that have figured out how to game the system, that the derivatives market is always the cause for why we have these sharp moves.

The crazy thing about it is that it’s quantifiable. We have governed reports come out every week in the form of the Commitment of Traders Report from the Commodities Future Trading Commission. And it shows clearly and unequivocally that certain large traders—classifications of traders—are distorting the market.

This is so against commodity law and the principle of free markets and the law of supply and demand that it’s become unattainable. And I think it’s good; it’s gotten so extreme now that I think we may be in a position of a snap back to where we don’t allow this anymore.

Chris Martenson: Now we’ve heard, Ted, a couple of things. I know that the CEO of First Majestic silver talked about potentially—and this is just an idea stage at this point—but saying, "hey, what if we producers got together and said enough of this?" And I’ve been waiting for some producer to say that, enough, enough.

Ted Butler: Right.

Chris Martenson: Where supply and demand—those laws don’t apply or they’re swamped completely where the price determinant is now being dictated by a couple of large traders who are just flipping paper back and forth, and I’m sure it makes paper profits for them, but there are real impacts.

I was just down in Peru. I had a chance to meet with the CEO of Buenaventura, a very large mining operation down there, in fact the largest in Peru. And Rocco Benevides and he said, I asked him "hey silver at 17, are you making or losing money?" He said "that’s below our all-in cost of production. That’s below. No question about it." So as you say, supply and demand should be glacial. We’ll need 3% more silver for our manufacturing processes next year, and we’ll produce 3% more out of the ground—that’s kind of a glacial, 3% over a year. But you’ll see these 15, 20% price swings in a couple of days and below the cost of production.

So, really what you’re saying is this ability to whip these prices around, it’s not good for metal producers obviously. It’s not good for consumers obviously. It’s terrible for investors. But it’s pretty good for people who run the show. And I assume they make a lot of money doing what they do, otherwise they wouldn’t do it.

Ted Butler: Absolutely. I was thinking of First Majestic’s CEO while I was talking before and you’ve hit the nail on the head. That’s why I’m kind of encouraged. We’ve gotten to the point where it’s so obvious, where they’ve actually pushed the price of a vital industrial commodity—silver and others—below the cost of production. This is nuts.

Why are we allowing these crooks—and I do refer to them, as you know, as crooks and criminals on the COMEX, run by the CME group, which owns all these exchanges—the COMEX, the NYMEX, Chicago Board of Trade, etcetera—I don’t know why it’s allowed. And it’s good to see somebody like a Keith Neumeyer stepping up to the plate.

You’ve got to be careful though. You can’t come out and seek to form a cartel to control prices, that's strictly against anti-trust law. But I empathize with them and I applaud them because this is a first step. I mean it’s gotten so crazy that for many years, for decades, the miners—the silver miners in particular—have kind of ignored this whole thing. From what you’re seeing down in Peru and from what Mr. Neumeyer seems to be saying, that enough is enough, I’m very encouraged that this is coming out now. It should have come out a long time ago.

Chris Martenson: Yeah, yeah. It should have. And this is not just about precious metals, because I see this behavior in other markets. And all across the commodity complex. And heck I see it in options markets for equities. I see it in equity markets. And what I see, Ted, is I see in the thin trading hours, all of a sudden—or even in during the thick of the hours—I will see orders come in, usually sell orders, that come in that absolutely destroy the bid stack.

So the bid stack, for people listening, is let’s imagine there’s 10,000 investors all trying to buy or sell precious metals. And let’s say the price is $16.00/ounce for silver. There will be people carefully positioned. There will be a set of orders, the ask to buy orders sitting above the price. And there will be a whole bunch of sell orders sitting below the price. And so you look at that and there will be a stack of them sitting there. There will be a whole bunch of bids to buy silver at various levels. And next thing you know, there’s just going to be an order that will come in that will put so many sell orders on top of that bid stack that there’s not enough buyers there anymore and they just get crushed through. And the price just goes violently past that point.

Now, in a free and fair market we would be asking "did somebody do that? Was there one trader, or one set of entities, or maybe even a cartel that said 'hey, let’s put so many orders into this market so fast that we move the price to a new place to a new place where we want it to be?'" Because that’s price manipulation.

Ted, I was glad to hear you say that it would be illegal to form a cartel because that would be a violation of anti-trust laws. Those laws apply. If you break those laws, trust me, someone will come after you and make those laws apply. But price manipulation is against the laws. I’ve checked them. And I see it happen all the time. Because nobody just puts a giant set of orders in to destroy a bid stack accidently. And it doesn’t happen all the time accidently. So it’s happening on purpose. Somebody’s doing it. There should be an investigation. I’m not aware that there’s ever been an actual investigation. I’ve only heard the CFTC said that they’ve looked into it, "trust us, there’s nothing going on here." But I haven’t seen any investigation of any specific incident where somebody said "look at those 10,000 contracts that all got dumped on the market in that one minute window there. Who was it?" I’ve never seen the results of that study.

Ted Butler: No, well it’s starting to come out in peripheral markets. I don’t think anybody wants to touch it when it comes to gold or silver, some of the major markets. But it’s becoming increasingly obvious to more and more people. It’s a shame it had to get to this level where everybody’s asking the regulator to do something or to explain something. But the ironic aspect of this is that it’s the same regulator, the CFTC, that is basically publishing data which proves what you were just saying about intent and deliberate nature for causing these positions to change. It’s like prime aphasia evidence in the Commitment of Traders data that on every big price decline, no exception, every market, it’s always the technical funds (they're in the managed money category). It’s the technical funds that are selling on the way down, buying on the way up, and it’s the commercials (the JP Morgan’s, and other money center banks) that are always the counter parties to these technical funds.

It gets a little bit confusing but the point is that if you open up and know how to read a weekly Commitment of Trader’s data that comes out, it will show that without exception on every major price decline in metals and other commodities—I’m not quite sure about stocks and bonds. I don’t know how to measure that to be honest. But in every commodity—gold and silver certainly—on every major decline it’s always the technical funds that are selling and always the commercials that are buying, with no exception.

The problem with that is: How can that be recurring over and over in a market that is not manipulative? How is it that the commercials can always buy to the downside as they’re buying the last couple of days hand over fist in gold and silver on these big down days? And always that the technical funds are selling it? How is it that there’s never an exception to it?

And the deliberate and repetitive nature to this trade, which is proven in the government's own documents—and it’s astronomical amounts. In oil over the last three months the technical funds sold 150 million barrels equivalent of oil. In silver, at least 250 million ounces have been sold by the technical funds, bought by the commercials. These amounts are staggering. They’re staggering against real-world production and consumption. As I said, it’s come down to this paper tail on the COMEX is wagging the cash market, the real market dog. And what happens is that you get wound up with miners are starting to finally complain and say they’ve driven the prices too low.

This is how they do it. This is the proof of how they do it. It comes in the government's own documents. It's bewildering how long this has lasted and how it’s built up to the extent that it has currently.

Chris Martenson: Ted that’s a great explanation. But I’m confused by something. If I personally was always buying into a falling market I would lose money at that. How is it that the commercials do what they do?

Ted Butler: Well, first of all, the commercials will never run out. JP Morgan can’t run out of money. It’s impossible. If they run out of money, the world is dead. The world is over. The banks are where the money comes from. That’s why Willy Sutton chose to rob them. "That’s where the money is." So they, they’ve never lost, I shouldn’t say never because something can happen. But up until this point banks don’t have to worry about margin calls. They are the money. They are the money source. So they can take a position...

Right now, for instance, for argument's sake, the technical funds are ahead. They have open profits on the contracts that they’ve sold short over the last three months in silver. They’re ahead to the tune of over 600 million dollars today. It’s a phenomenal amount of money, the most in history. It means that on the other side of the equation, the commercials—not just the commercials, but whoever's long against these technical funds is out the equivalent amount.

What I’m saying is that because a good number of the people that are losing—the commercials right now—are apparently taking it on the chin and the technical funds are way ahead on the short position. And it looks like the commercials are in trouble. They’re not in trouble. They’re not like you or I. They have unlimited money. The will buy as much as the technical funds want to sell because they know there’s going to be a reversal. They know that when prices start to turn up—it could be Monday, it could be a week from Monday, it could be a month from Monday, it could be anytime. When the prices turn up, the technical funds that have gone short have to go back and re-buy, repurchase, cover their short positions. They have no ability to deliver actual metal. That’s not in their charter, or it’s not in their capability. So they have to buy back.

The commercials play a waiting game. They know what’s going to happen. They know that these technical funds are going to have to buy at some point. And they can wait them out until kingdom come. They generally don’t wait that long because they’re interested in ringing the cash register sooner than that. But as far as them losing to the technical funds, I think that that’s impossible.

Chris Martenson: Excellent. All right. So I want to start to tie this world of speculation. So this is just paper games right? So you’ve got buyers and sellers. And it’s all paper games. And there’s a little bit of real physical gold and silver that’s sort of underpinning all of this. But by and large, when you tell me that somebody has gone short 250 million ounces of silver, let’s go over and tie that to the fundamental world for a minute. How much silver is actually mined on a yearly basis?

Ted Butler: Maybe 800 million if you average the CPM Group and the Silver Institute Gold Fields Mineral Services together it comes in about 780 million ounces a year. So we’re talking upwards of say 40%. 40% of—there’s been a position change. The technical funds as a group have sold 40% of the world’s annual production of silver in a matter of three months. And I’m asking you, if someone sells 40% of the annual production of the world of a commodity, what is that commodity likely to do in price? And that’s exactly what we’ve seen.

Now the other guy, well somebody will say there’s a buyer for every seller and all this kind of stuff. And there's long for every short. And I understand that. I’ve been in the commodity business for 40 years. I understand how the markets work. Well what I’m saying is that it’s the pattern of how they do it. The technical funds—because they’re technical—they sell on lower prices. They keep selling as prices go down. The commercials know how the technical funds are going act, so they’re sitting there buying, knowing that someday, and someday soon, that the technical funds have to reverse positions when they get their maximum position on, which is looking like it’s now, but I’ve said that for the last couple of weeks.

The fact of the matter is that the game is rigged. But the people who are... One of the main participants, the technical funds, they don’t realize it’s a rigged game. So they’re playing it as if it’s a free market. And because this is a game that’s between two sets of very large and sophisticated traders—the commercial banks basically on one hand and these money managers, professional money managers who collectively have hundreds of billions of dollars of other people's assets under management. So these are not little guys in the street. The little guy, the guy who’s investing in silver or gold or mining shares, doesn’t play a role in this at all. It’s strictly between these two mega groups. It’s like a bucket shop or something on a larger scale that you can imagine that they are playing this private game on the COMEX in paper contracts, as you say. And this is what’s resulting. It’s dictating prices to the rest of the world. It’s the craziest thing you’ve ever seen. It’s completely against commodity law. It’s just that the regulators are so beholden because of this revolving door between industry and the regulatory world that everybody pretends what is happening is not really happening. But we can see it. I mean the CEO of First Majestic wouldn’t come out and suggest something like a cartel to fight these guys if it wasn’t a serious situation. It is very serious.

Recognition of a problem, of course, is always 50% or more of the solution. So I’m hopeful that with more people becoming aware of what this game is all about, enough people are going to sit back and say "hey, wait a minute, this is the craziest thing I’ve ever seen," as it is, and demand that it change. Or demand at least that the government or the CME stand up and answer these questions. I mean I’m sitting here accusing them of being crooked and explaining the game, why it’s manipulated, because the futures markets is dictating to the real market what the price should be. That’s crazy. That’s illegal.

There’s no response on their part. I mean I’ve certainly made them aware of it, as I think you know. But they want to pretend that it doesn’t exist. Those days with these mood swings in prices, these price lows and even silver in particular are causing—we’re going to deal with this real quick. Because the miners, it’s terrible that they should be subjected to this, but if silver prices don’t rally and don’t rally soon, most of the silver miners are going to go out of business. I think silver prices are going to rally and they are going to rally soon. So I don’t think it’s going to get to that. But the simple fact is that at current prices, at $16.00 and below, there are very few silver miners who can stay in business long term with that type of a price environment.

Chris Martenson: Agreed. So let’s go even further into the fundamental side. For a long time, being somebody who’s interested in how this whole game words, I believed in the rallying cry which is someday, this long and this short paper game loses its handle on the game because physical supplies in COMEX, the famed COMEX shortages run out. But COMEX never seems to run out. There always seems to be whatever 100 million ounces of silver kicking around in there and plenty of gold to sort of keep the inverted pyramid of paper working and shuffling.

If this game is not going to be over because the CFTC is going to wake up and say "you’re right, there is something going on. We’ll take a good look." Because wasn’t it, Markopolos was this gentleman who had all the forensic accounting you needed to know that Bernie Madoff was running a scam. Gave it on a silver platter to the SEC, a different regulatory organization, but handed to them. Again, and again, and again and they did nothing about it until the Ponzi scheme blew up. And then they said "we’ll get right after Madoff’s sons" or whatever they decided to do right?

So in this game it looks to me like I’ve lost faith that the regulatory body is going to self regulate. They have no interest in it. They’ve demonstrated that they don’t want to do that. They’ve said that as many ways as they can. So do you think, is there anything in the cards that we can look at and say this game blows up on its own, or do they just keep doing what they’re doing forever?

Ted Butler: Well that’s a good point that you’re raising here. For a long time I expected them to do something, I thought of in the last 30 years. But I’ve long been in the camp now. The CFTC can’t do anything about it because to come out now and say that there’s something wrong is going to put them in such a bind because every body’s going to say "where the heck have you been for the last 20 years or so?" So they’re not going to—you’re 100% correct. Put no faith in the regulators, the CME or the CFTC in doing anything about it. I just keep bringing them up because they should be shamed into doing something. I’m not expecting it though.

More to the point though, what is going to change is not necessarily a COMEX shortage. I’m not looking for a default necessarily on the COMEX, which is popularly advanced from time to time. That’s not what I see. What I see is just a genuine, the price is too low. It’s going to stimulate investment demand. It’s not going to discourage industrial consumption demand of course. And in due course it will have an effect on mine production.

So to put it on fast forward, what you’re going to see is what we saw back in early 2011 when silver did hit close to $50.00 an ounce. It was basically a growing physical shortage. And it doesn’t have to be on the COMEX. I mean that will be the last place that you see it. But it will be in the market. When you put a price too low, when you fix or manipulate a price too low, you’re inviting a shortage. An inevitable shortage. So that’s what's assured is going to happen. And there are plenty of signs now that that’s developing in silver. I don’t know how closely you follow it but there’s been, since the high in silver which was back in 2011 which was brought about not by changes on the COMEX and technical funds. That wasn’t the reason silver ran up back then. It ran up basically because there wasn’t enough physical silver to go around in 1,000 ounce bars. Not eagles, not the small bars. 1,000 ounce industry standard bars were in very tight supply, on the verge of shortage back in the spring of 2011. We know this now in retrospect. And that’s what caused the price to go up.

It’s the same thing that’s going to happen the next time and it’s inevitable because we have the price too low and we’re seeing signs of it now. There’s a phenomenon going on that I started observing about three and a half years ago about when the price when silver got close to $50.00 for the second time. The first time being back in 1980. What’s developed—and it’s gone kind of unnoticed and I don’t know why. There has been a phenomenal, fantastic—I don’t know what the right words are to use—physical movement of silver. And only silver to this point. It’s starting to show a little bit in gold but it’s really been going on in silver for three and a half years. Where they are bringing in—even though there’s about, the amount of silver in the COMEX exchange, the total amount is around 180 million ounces haven’t changed that much over the last year. It’s that amount of metal that you were talking about before. But what has happened is that there’s been just an incredible movement of silver into an out form the COMEX inventory. Which is where this 180 million ounces are.

And it’s disproportionate. It’s like spinning. It’s like we’ve got trucks coming in on a daily basis practically. But certainly on a weekly basis to the tune of almost four and a half, five million ounces of silver are coming into and out from these COMEX warehouses. While it’s not talked about, put on trucks, taken into the warehouses, taken out of the warehouses, put on trucks. Physical movement. No paper games. This is all real silver. And it’s coming in and coming out at such a phenomenal rate that the only plausible explanation that I can come up with—and I’d solicit anybody to come with an alternative explanation—is that we’re moving such inventory like this because we have tight conditions right now.

And when you have tight conditions, and we’ve had tight conditions for a number of years by this COMEX indicator, this physical-warehouse-movement indicator. It’s just a little bit of distance to go from that to a flat out shortage. And I think that’s where we are.

And I think this extreme movement down, this last move in the last couple of days, is going to be the last hurrah. I think they’ve put the technical funds as short as they possibly can get them. And the combination of this extreme—it’s not that commercials were short big at the moment on the COMEX, some of them are but most of them aren’t. The big shorts are the technical funds who have no ability whatsoever to deliver physical metal and at the same time they’re shorting like crazy into a physical environment where there’s nothing but indications that the market on a wholesale, physical basis is very tight. And that’s a combination that you can just blow sky high in price. Will we? I mean I don’t know. We’re going to find out.

All I know is I know that the technical funds have a record short position like they’ve never had before in these paper contracts on the COMEX. I know that physical metal has been coming in and going out at the same time in this COMEX on a physical basis like never before. We’re seeing things like that. Those two being the two main tells as far as I’m concerned. In place and suggesting that something is going to happen soon.

And now we’ve got miners coming out saying the price is too low. And one miner is thinking it’s because there’s manipulation on the COMEX. It’s like incoming mortar. It’s getting closer and closer to hitting the ammo dump, and those are the signs. I don’t know if there’s any other explanation for why prices are low. If it’s not these games on the COMEX what the heck is it?

Chris Martenson: Well it has to be the games on the COMEX. We can speculate as to why those games are played. I know that in the scheme of financial repression, which the Fed is very much actively engineering, controlling the gold price is actually one of the things. And I think silver tracks gold in this story to a large extent. And let me be completely honest and fair about this: If I’m the Federal Reserve and I’m faced with exactly what they’re facing and I knew that financial repression was the one thing that A.) allow me to kick the can down the road and B.) offer a slight glimmer of hope because maybe it could work, because maybe global growth will come back in time to save the day one more time. If I held those views, I would be doing exactly this, which is controlling the price of gold as much as possible.

Now here’s the funny thing. We live in this new global world. And there is this thing called supply and demand that does actually still apply in the world of economics. Take ourselves outside of the crazy world of COMEX and all of that. Gold as you know, and silver have been flowing heavily from west to east. So here’s an email I just received minutes ago from a guy I know. He’s U.S. based out of Menlo Park. He sells a lot of gold. Particularly into Asia and he says, he’s talking about this recent smack down. And he says: "There’s no lack of demand for gold. We were overwhelmed last night and this morning with orders from China and Europe. So he keeps reporting to me that he’s doing not just brisk business but every time the price goes down it gets brisker.

And so we’re seeing this basic hemorrhaging of what I consider to be real wealth from west to east and actually from the U.S. towards Europe now, according to this. Although a lot of the Europe stuff flows back into Switzerland, which gets formed into kilo bars, which ends up on the Shanghai Gold Exchange or it goes off to Mumbai or something, right?

So what are you seeing in terms of that overall flow of gold? And second, editorially, do you think anybody in the United States cares at all? Are we just thinking that this is all a barbarous relic moment and we don’t care?

Ted Butler: Well, you’re probably right on both counts. I mean I think I have to accept the reports of the demand for gold and silver for what they are. We know, we’re producing this stuff, it has to be going someplace. It’s not going here. The other part of your point is that if you asked a 100 people on the street you’d be lucky if anybody could come up with within $5.00 of the current price of sliver or gold. It’s not something that people pay attention too. But that doesn’t change anything. What matters is what you were saying before. What matters is that there’s a physical resolution here that has to come.

You can play paper games. If it was just on paper, I guess you could play it forever. But there is a connection. There is a conversion mechanism between paper and physical on the COMEX where it’s built in. It’s baked into the cake that you have some kind of, at some point you can’t run paper over physical indefinitely. You can run paper over paper forever. Nothing is going to stop that equation. But when you do have a connection, and there is a connection between COMEX contracts, paper contracts and physical. At some point that conversion factor and that mechanism is going to negate the whole process. If you put prices too low, as I would contend that they certainly are in silver, and prices have to rise. What’s going to force that is not the government. It’s going to be the market, the physical market. And we see signs of that.

And it’s likely to happen in gold too. I think it will be more dramatic in silver because there’s so little silver in the world today. At today’s prices with about a billion ounces in total in industrial bullion form, in 1,000 ounce bars, the stuff on the COMEX, the stuff in SLV, the stuff that people deal on a wholesale basis. There’s only a billion ounces of that. And that comes to 16 billion dollars in the world. There’s got to be thousands of companies that have a higher market capitalization than $16 billion. There’s got to be thousands of people in the world that might individually be able to absorb all of the silver in the world, were it available. So that’s where the disconnect is coming, is that they don’t align, and in the end the physical is going to trump the paper. I mean there’s no two ways about it. When a solar panel manufacturer needs sliver and there’s not enough around, buying a paper contract isn’t going to do him any good unless he can take physical delivery. And that’s what it will come down too.

So in the game playing world in which you described, the money game playing world, the Achilles heel for the metals is that they’re physical. And that ultimately there will be a move on the physical. I think it’s happening now, and from what you’re saying it seems to be happening from a different vantage point. It’s only just a matter of time before they collide enough to where we notice it in price.

Chris Martenson: I agree and I’ll tell you what, silver is my favorite, but not for the same reason as gold. People often ask me how I feel about gold and silver as if it’s one word "goldandsilver." They’re two words to me. Gold is a monetary metal and I hold it for reason that have more to do with my belief about what’s going to happen to the world's monetary order in the future, and less to do with anything else beyond that. Silver for me, wow this is my magic substance. So if people ask me "I need a Rip Van Winkle investment. I want to just put some money somewhere. I don’t want to think about. In 20 years though I’d like it to be worth more, maybe a lot more. But certainly not zero." Silver is my number one star for that because I’m looking at the depletion of silver assets across the world. The mines are getting harder to find. The ones that we are, fewer grams per ton in ore grade. So we’re just going through the basic depletion story.

But I’m seeing what’s happening... When I was just down in Lima, Peru they’re very proud and excited because they’re going to have this World Climate Conference that’s coming in December. And the world’s going to talk about things. And one of the things the world's going to come to is an agreement, I bet, that we need to have more solar power. And that to me means solar panels. And since there’s 0.1 grams of silver for every watt of solar panel installed, all you have to do is look at the basic agreements that they think—they throw these crazy numbers out because they’re a bunch of politicians and economists. They’re like "we think the world should have 25% of its energy from solar." Really? Because that’s a number of gigawatts, right? Terrawatts, maybe terrawatts.

And we can calculate that. You divide the number of panels you need into that and you don’t have enough silver to do that. Period. It’s just too big. So the only way we’re going to be able to create that amount is either find a substitute—and nobody has found a substitute for silver yet in that process because it’s the most conductive element out there. You can accept worse panels, not better panels. But worse ones. So you use a substitute and you degrade it. You find a better manufacturing process so you can use slightly less silver. I bet we’ll do that. But meanwhile overall we’re going to be probably wanting more and more silver for that one application in a scale that’s large enough to make me go "that pretty much consumes what we know we’ve got."

And by the way, the stuff we’ve got is depleting. So I put all that together, Ted, and I just go "I’d like to be there." I’m not smart enough to know what it’s going to do tomorrow in price or the week after that. But I look at that trend and I go "I have this faith that we’re going to find more uses for silver, not fewer. I have a faith that we’ve basically run through all the best deposits of silver so they become deeper, more dilute, more difficult to process as we go forward. And I have this other faith that energy is going to become more expensive, not less expensive." Mining uses a fantastic amount of the world’s energy. It’s a very high proportion.

So you put all that into one mix and I go "this is where I want to be." And so that’s my view. And so I watch stuff like this, what happens in the paper markets, and these people who are controlling the price of silver it’s as if they’re doing it for optics and sport. It has nothing to do with helping us as a society, as a species, as a culture to figure out which is the right way to go. Which is the thing that drives me nuts. Because Ted, the pricing mechanism is important to help people make decision. The decision you would make from silver based on its price is: Nobody wants it and it’s super abundant. And neither of those things are true.

Ted Butler: Oh God, you’ve said it perfectly. We use silver, and because we use it and we’re going to use more of it there’s more of a chance of a shortage. What you’re basically saying is that at some point you’re going to hit a shortage situation. And when you hit a shortage situation in silver, or any commodity, the sky’s the limit. Because I’ve got to have it and I’ve got to have it now. If it’s an industrial commodity, as it is, they’re not going to stop—the amount of silver they put in solar panels, they are not going to stop the assembly lines if they have to pay more for silver. And they’ll bid it away from anybody else to get their product finished. They’re not going to send workers home for a lack of a raw material if there’s some way you can go get it. And that’s when the free for all starts. Like you, I don’t know exactly when that’s going to hit, but the conditions that I monitor suggest that they’re much closer at hand than anybody realizes. And certainly much closer at hand than the price would indicate.

Chris Martenson: Great. Now in closing here I want to make sure that we get this one part because we skipped past it. But if I heard you right, you said something—maybe I misheard you so correct me if I’m wrong—but you mentioned that there’s a record short from the technicals in silver.

Ted Butler: Correct, correct.

Chris Martenson: Record?

Ted Butler: Absolutely. And probably more so now. But this is as of the last, as it happens to be, the last Commitment of Traders Report. We have a new one coming out in a couple hours. But the last report, last week’s report showed a record highest level of technical funds, managed money short positions in history. I suspect it's much higher now. Not necessarily in today’s report. But in next week’s report as a result of the price action and volume that we’ve seen in the last couple of days, no two ways about it. Record high technical fund short positions in silver.

Chris Martenson: So, record as in never higher in history?

Ted Butler: Never higher.

Chris Martenson: I just want to be really clear on this. Record?

[Laughter]

Ted Butler: Okay. I mean if you want to call back in two hours and I’ll tell you what they held this week. But the real report is what’s going to come out next week okay. So last week’s report. The most current data I have talking to you it’s a little bit over 45,000 gross contract short in the managed money section of last week’s Commitment of Traders Report. That is an all time record for that category. That’s the category where the technical funds are classified.

Chris Martenson: Wow, all right. Well records, I pay attention to records. Those are important moments.

Ted Butler: I think it’s probably even higher than that now. But this is why we went down. These guys sold an incredible amount. Sold out longs, added short positions to the tune of close to 50,000 contracts or 250 million ounces. There are only about 30 of them; they don’t even realize what the heck they’re doing. There’s no one trader that is responsible for it. It’s that they’re collectively acting, following the same price signal that their trading has one entity. Not intentionally but effectively, and that’s how we’ve gotten to this point. They keep selling as it goes down. It keeps going short adding to shorts as the price declines. But at some point it must stop and reverse. And because we have a record short position that reversal is more likely to be explosive to the upside than not.

Chris Martenson: All right. Well, I do like records. And it’s been a while since I bought silver. I bought it a while…but today’s price has me in a shopping mood. So I’m going to get off this podcast. And I am actually going to be placing an order today for more. Just because there’s a little—I do this just because it’s something I like to do when prices really get run down. I have a little moment where I say "thank you very much for all of my subsidized silver. I appreciate it very much." I just don’t know who to send the thank you note to. So you’ve help me understand that. I should find out who these technical funds are and write them some nice thank you notes at some point in the future. So I’ll do that.

Ted Butler: That would be appropriate.

Chris Martenson: And to the CFTC. I’ll say thank you very much. Thank you. [Laughter]

Ted Butler: There you go, there you go.

Chris Martenson: All right well Ted tell people where they can follow your work more closely because you do some great work and I just love your point of view.

Ted Butler: Well it’s www.butlerresearch.com. All one word. And it’s twice weekly. A report that I put out reviewing the week. And giving ideas. It’s really centered on silver. It’s not broad economic commentary. It’s specific to silver. It’s similar to the stuff that we’ve talked about today.

Chris Martenson: Excellent, excellent. Well thank you so much for your time today, and I really like your perspective. And I just love that, you know, none of us know where the price is going to go, but boy, if you could just start tracking how the system operates and how the fundamentals sort of key into that, we’ve got just, what a monumental disconnect we’ve got today. And I love disconnects. I think those create opportunities.

Ted Butler: There you go. Agreed. Thanks a lot.

Chris Martenson: You’re welcome, thank you.

Ted Butler: Bye-bye.

About the guest

Ted Butler

Ted Butler is an independent Silver Analyst who has been publishing precious metals commentaries on the internet since 1996. At his website ButlerResearch.com, he offers a subscription service with once or twice weekly commentaries including detailed analysis of the Commitment of Traders Report, regulatory developments, supply/demand considerations, and topics of interest to investors in precious metals, with an emphasis on silver.

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53 Comments

Jbarney's picture
Jbarney
Status: Silver Member (Offline)
Joined: Nov 25 2010
Posts: 232
Good Content Recently

Chris and Adam,

You have been putting out a lot of good content of late.  From the blog entries about accumulating gold, to this most recent podcast about silver...you are on a great run.  Even if the current rise in the stock market and the decline in the PMs seem to indicate things are "normal", you are doing a great job.  Keep doing what you do.  Add the updated Crash Course chapters and just know you are delivering critical information about the world.  PP provides a true perspective about value, self sufficiency, and being prepared for an uncertain future.

Like Chris, I see this price drop as a buying opportunity.  Is it the bottom?  Who knows.  Doesn't matter.  It will be worth more in two years...in five years...and just having physical will matter at some point.

More work today getting the land ready for the orchard.  A little more canned food and bottled water in the pantry.  Another day of real work tomorrow.

Best,

Jason

Wildlife Tracker's picture
Wildlife Tracker
Status: Gold Member (Offline)
Joined: Jan 14 2012
Posts: 403
Buena Ventura and First

Buena Ventura and First Majestic are two of the lowest cost producers, if not the lowest. It's very telling to have them come out and say that their all-in costs are above today's market price.

AKGrannyWGrit's picture
AKGrannyWGrit
Status: Gold Member (Offline)
Joined: Feb 6 2011
Posts: 318
Hope Not

The dip in price for silver is a gift!  Wouldn't mind at all if the price stayed suppressed for a while longer.  After all Christmas is right around the corner and silver would make great gifts! Let's see how many shopping days until Christmas?

Granny's happy.... Low silver price means more time to buy and a high silver price means a good investment and I've been telling the family that someday when the price does go way up they will think Granny was a genius. Either way it's a win win in my book.

Timely podcast, I bet you planned it that way.

AK GrannyWGrit

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 3936
The Real Disease

I think what is happening is that the herd has been conditioned to rush over to the feeding trough whenever the central bankers print money and dump it on the stock market. Pavlov's dog and bell.

The bigger the print, the more managers dump their PM's and grab some paper while it is being handed out.

I'll bet once they have a fist full of paper they will be rushing back into commodities. They are not stupid and know that the economy cannot be revived by printing money. CM said that if printing money was the answer then Rome would be still with us today.

This rushing back and forth is just so chaotic- in the mathematical sense of the word. As a system approaches a new Strange Attractor it oscillates wildly between the two stable states.I think what we are watching is a symptom of a far greater malaise than mere money.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 3840
record short interest: Managed Money

Here is Ted Butler's record managed money short interest.  When the trend changes and this unwinds, it should lead to quite the move higher.

The COT report is not a good timing indicator, and its also not a fixed limit either.  This report was as of Tuesday October 28th, prior to the big drop lower this week, so Managed Money probably added another 5k-10k short contracts to this record high.  High short interest can always get higher - that is how records are set, after all.

I would dearly love to better understand his signs of shortage are in the 1000 oz bars, so I can track it.

bwh1214's picture
bwh1214
Status: Bronze Member (Offline)
Joined: Jun 1 2011
Posts: 38
Chris's Incite is About the Best

Chris has good guests but frankly I prefer his thoughts and incites when listening these podcasts.  He may just organize his thoughts better live.  Either way he does an excellent job.  Kyle Bass is another “smartest guy in the room” I enjoy listening too.  Nothing against Ted, I think his writing and research is great but for raw dialog Chris is about the best you’ll find.

For anyone that doesn’t know Kyle Bass hit it big with the subprime crisis as well as Greece.  He has been railing and putting big bets against Japan for the past several years.  Great stuff that he has done on youtube. I think it’s called 2010 2011 or 2012 acac or something to that effect.  I’m stuck on a ship and youtube is filtered out.  Take a look, similar to Chris’s thoughts it leaves little to argue with. 

bwh1214's picture
bwh1214
Status: Bronze Member (Offline)
Joined: Jun 1 2011
Posts: 38
I was waiting for someone to check

Way to be proactive. 

jonarmst's picture
jonarmst
Status: Member (Offline)
Joined: Feb 13 2011
Posts: 16
Man, I don't know...

I was beating the drums for buying First Majestic when it was < $10 and here it is at $5-something with no relief in sight.  I've been buying miners over the last (almost) two years slowly adding tranches thinking I'd get at least a tranche or two near the absolute bottom, but now it looks like the _real_ pain has just begun with no end in sight, and I'm now down to my last few thousand dollars that I'd put aside to allocate to this little beaten-down bear market resource sector market experiment I set up for myself.

Listening to some of these precious metal permabulls is really getting to be a bit painful.  I admit that I used to be close to a true believer in the PM's.  However, I think now that the central banks can keep this little game going for a lot longer (perhaps ten times longer) than any rational person would have thought possible.  Luckily I didn't set aside any money I couldn't afford to lose with my mining investments but I feel for all of the schmucks that bought when gold was $1800 and "going to $5000 any day now" if you were to believe the usual suspects in the precious metals echo chamber.  In hindsight $50/1900 were obvious mid-cycle peaks.  My "pessimistic" price targets at that time were 26 and 1200, which sounded apocalyptic at the time but are looking downright sunny the way the market is right now.

So I dunno, Chris.  All of the logical arguments for Peak Oil, gold ownership, and all of the rest just looked so compelling when I first got into this realm of thought back in 2004-2006 -- and you know what?  The arguments still make sense to me -- yet the world seems to just not agree with this and it keeps moving in an irrational direction.  Am I just missing some factors in the equation here?  I once again adjusted my "apocalyptic" price targets to 14 and 950.  Are those too going to prove optimistic?  The whole "measured in fiat" sorts of arguments have just worn a little thin and now I'm thinking we might see 5 dollar silver before this is all over.

dryam2000's picture
dryam2000
Status: Silver Member (Offline)
Joined: Sep 6 2009
Posts: 238
PM Miners = Gambling

jonarmst wrote:

I was beating the drums for buying First Majestic when it was < $10 and here it is at $5-something with no relief in sight.  I've been buying miners over the last (almost) two years slowly adding tranches thinking I'd get at least a tranche or two near the absolute bottom, but now it looks like the _real_ pain has just begun with no end in sight, and I'm now down to my last few thousand dollars that I'd put aside to allocate to this little beaten-down bear market resource sector market experiment I set up for myself.

Listening to some of these precious metal permabulls is really getting to be a bit painful.  I admit that I used to be close to a true believer in the PM's.  However, I think now that the central banks can keep this little game going for a lot longer (perhaps ten times longer) than any rational person would have thought possible.  Luckily I didn't set aside any money I couldn't afford to lose with my mining investments but I feel for all of the schmucks that bought when gold was $1800 and "going to $5000 any day now" if you were to believe the usual suspects in the precious metals echo chamber.  In hindsight $50/1900 were obvious mid-cycle peaks.  My "pessimistic" price targets at that time were 26 and 1200, which sounded apocalyptic at the time but are looking downright sunny the way the market is right now.

So I dunno, Chris.  All of the logical arguments for Peak Oil, gold ownership, and all of the rest just looked so compelling when I first got into this realm of thought back in 2004-2006 -- and you know what?  The arguments still make sense to me -- yet the world seems to just not agree with this and it keeps moving in an irrational direction.  Am I just missing some factors in the equation here?  I once again adjusted my "apocalyptic" price targets to 14 and 950.  Are those too going to prove optimistic?  The whole "measured in fiat" sorts of arguments have just worn a little thin and now I'm thinking we might see 5 dollar silver before this is all over.

There's a huge difference between PM miners and PM themselves.  I would suggest that there's a good probability that several miners will go out of business because they will not be able to weather the storm of low paper prices for the metals in the short run.  Trying to pick which miners can weather the storm and which ones can't is a guessing game for most people.  In my mind, owning miners is close to gambling, and anything but "investing".  One of the main reasons people like physical PM's is that they can be under their direct control and there are no counterparty risks.

Price suppression schemes will continue until the west's financial shenanigans are near the end.  No one knows when that will be, and it could be many years off.  TPTB can simply acquire silver with their monopoly fiat, and then supply the market such that there aren't any shortages and prices stay low.  They can also buy up the mining companies when they go bankrupt.  There are all sorts of possibilities.  After seeing everything that has been manipulated within the U.S. and amongst all western countries, I've learned to never underestimate the lengths that will be taken to keep the whole game going.  I would think suppressing the prices of PM's would be one of the easier tasks for TPTB.

So, you should never "invest" based soley off of what you read on this web site or any other. This web site offers some great information, but only the Fed knows how the financial future will play out.  Securing one's wealth these days involves many factors beyond economics, the physical world, and such.  Instead, it has much more to do with politics within the U.S., and the geopoltical & military jostling around this globe.  This is the reason PeakProsperity constantly espouses self-reliance and investing resources into your homestead, local community, etc. 

Personally, I don't think it's wise to even consider owning PM's unless one's time horizon is at least 10+ years, and probably closer to 20-25 years.  Also, PM's should only be part of a well balanced collection of assets.  I see them more as insurance than something that's going to make me wealthy someday.

Just my $0.02

HughK's picture
HughK
Status: Platinum Member (Offline)
Joined: Mar 6 2012
Posts: 758
Agreed

dryam2000 wrote:

TPTB can simply acquire silver with their monopoly fiat, and then supply the market such that there aren't any shortages and prices stay low.  They can also buy up the mining companies when they go bankrupt.  There are all sorts of possibilities.  After seeing everything that has been manipulated within the U.S. and amongst all western countries, I've learned to never underestimate the lengths that will be taken to keep the whole game going.  I would think suppressing the prices of PM's would be one of the easier tasks for TPTB.

I agree, Dryam, that buying mining stocks may be closer to gambling than to wise investing.  

I also think there may be some surprises in store for us regarding the ability of the central banks and governments to manipulate things.  On the other hand, the story of diminishing gold and silver reserves in the West does seem supported by data, and so I don't think that the OECD central banks will be able to suppress PM prices with physical metal b/c a lot of it is probably already gone.  

Maybe they can get China to agree to help them with that, though.  And, maybe they can extend the paper game longer than many of us expect.

Bankers Slave's picture
Bankers Slave
Status: Gold Member (Offline)
Joined: Jul 26 2012
Posts: 481
The title of

this piece is wrong.

It should state, "Will the Silver nightmare soon be over?"

It would be interesting to see if Ted was putting his money where his mouth is, and buying silver like there was no tomorrow.

Ted has a business to run and a table to put food on, lets hope he is correct in his analysis, for his sake and the sake of his own.

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2232
Doc Yam...

I agree with most of your points.. some very smart commentators like Andy Hoffman have been warning about mining stocks for a while.  I think there may still be opportunity there ahead, but I am not pumping them as an investment to my friends and family.  I just want to drill down on one comment you made;

TPTB can simply acquire silver with their monopoly fiat, and then supply the market such that there aren't any shortages and prices stay low.

I think some banking propagandists are high fiving each other this morning as they read your comment, because they seem to have convinced you that they can cause miners to, "print" Silver for them.  They seem to have convinced you of their unlimited power.. which is what they want you, and I, and every potential physical metal investor to believe.  It's not true. 

As we know, miners are getting paid the current, low, "market" price for Silver, which is causing them no end of pain, especially the primary Silver miners.  This is why there is now talk of developing a cartel on the supply side.  The "tell" that this is not what is happening, i.e. that some secret flow of money is layering in to the Silver market, is the fact that you and I can log on to a dealer website like Gainesville coins, and by roll quantities of Eagles for the current, suppressed market price + a totally normal $2.59 each premium.  

Endless fiat money can and does distort the paper markets, which for now at least, constitute the price discovery mechanism for the metals.  There may be a warehouse full of Silver somewhere that TPTB are able to use to keep the markets from entering physical shortage for some period of time in circumstances just like this, where they are taking price down below the cost of mining.. but that would be finite in any event.  If that's what is happening, I thank them for the gift.  And I will keep thanking them, and thanking them, and thanking them.        

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 4852
About silver and the miners

Bankers Slave wrote:

this piece is wrong.

It should state, "Will the Silver nightmare soon be over?"

It would be interesting to see if Ted was putting his money where his mouth is, and buying silver like there was no tomorrow.

Ted has a business to run and a table to put food on, lets hope he is correct in his analysis, for his sake and the sake of his own.

I don't know when the silver beatings will stop...presumably not until morale improves.  But yesterday I bought 1,000 ounces (silver eagles) and I have not bought any silver in years.  Whether I am right or wrong, at least in terms of paper dollars, remains to be seen over the near term, but I could not be more convinced about silver over the long term.

I bought that silver yesterday for my grandchildren as yet unborn and completely imaginary as none of my kids are married and/or of age yet.

I really don't let my decisions get pulled around much by the price of things...as I believe we are in a time of extreme distortions where we know the price of everything but the value of nothing.

Some will say the 'markets are always right' but that's patently false.  Were 'the markets' right last year when they were selling water in CA at a fraction of its current cost, with a 300% oversubscription rate, and with an obvious drought underway?

Some would say 'of course, markets are always right' but I disagree.  You see, we have a system of money that systematically takes wealth from the many to give to the few.  That's how it was designed and why it received no opposition when being implemented.  

Once you adopt the view that 'markets are always right' what you've really done is adopted the view that our system of money has integrity.  Once you measure everything in dollars you might as well have your picture placed in the dictionary next to "Stockholm Syndrome."

Money is a system of belief and like all belief systems it will color your view of the world.  It will find data that confirms its validity and reject the rest.  And like any illusion it always seems so very real and tangible right up until the moment until it breaks.  Until the current bubble (in whatever) breaks paper assets are tangible and real.  You can trade them for things of real value, with real utility.  But as soon as the illusion pops, all of that ceases to be true.

It's no different than buying into the very obvious illusion that you have your whole life in front of you.  With that frame of mind we willingly waste our moments, perhaps working at a job we hate or tolerating sub-standard experiences with uninteresting people.  But once a terminal diagnosis gets made, we rapidly shift and no longer tolerate wasting time as we suddenly understand how precious each moment is.  The truth eventually is revealed; all we ever have is this moment.  No more and no less.  That was always the truth, the hidden value in life that an alternative belief system carefully hid from view.

I work in the pretend world of money because I have to, because I am left no alternative.  Without money I will lose "my" house which I am really only renting from the local tax authorities who rather tediously insist that paper dollars are the only acceptable form of wealth.  So I play there in the world of money, and manage my money as carefully as I can, but I never confuse money with wealth or value.

Wealth is tangible and real.  Value is in the eye of the beholder.  I am perfectly capable of massively enjoying a $5 bottle of wine and have hated some that cost $100.  I make that choice.  Some let the price tell them what experience they are having.

Finally, as regards the miners, I have not been a fan of miners in years, and have not advocated owning them since 2009 when I sold out of my last positions.  There are a complicated set of reasons but what got me turned off was watching PMs go up and free cash flows from the miners go down as dilution went up.  That told me that the industry was not being managed in a way that made sense to me as an investor.

I see the same dynamic today with the shale operators, but that's another story for another day.

At any rate, our work here at PP is not to give perfect investment tips, we'll leave that to others, but to coach people towards building real wealth into their lives and adding value whenever they can.  Money is a completely manipulated substance and to believe in the current leadership and trajectories is to believe the four most dangerous words in investing:  This time is different. 

It never is.

So thank you paper silver shorts for the heavily subsidized price I received this weekend, and I look forward to many more opportunities in the future as well.  But I am sorry for the miners out there who are now in a steeply negative free cash flow situation because the paper shorts have pushed the price below the cost of production.  Some miners will be completely wiped out.  

On that last point I agree with Ted 100%.  It's just not right that a very tiny cabal of speculators with access to free money printed out of thin air can dictate 'reality' to a much larger group of mine operators, their employees, and legitimate investors.  For my belief system, and I have one just  the same as anybody, that's confirmation of the view that our money system lacks integrity.

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The Market is Always Correct

Chris, 



Again I do not disagree with you on any of what you wrote, but emphasis must be put on how the market IS always correct. It is always correct in the price assets can be bought for and the dislocation between that price and the value of those assets is what creates opportunity for both gain and loss.  



I think many confuse the fact that the market is always correct in setting the price for which you can buy assets with thinking that market participants are always placing the proper price on those assets.  It is obvious that markets can be very wrong in picking the price for assets such as your example of water in California, Enron at 90 bucks, Greek 10 year bonds at 2% in '09, or a one bedroom condo in Las Vegas at 700k in 06'.  The issue is though this concept is very simple for you or I, others for whatever reason can not get past the hard reality of "if everyone can buy it at this price there is not way to argue that it what it is worth"



Even discussing it now it feels odd but still intuitive that market participants misprice assets but I can also understand those who can't get past the price. 



The most important incorrect valuation is that of government debt specifically and all debt in general.  The reason I purchase PM's is simply because I feel as if debt is considerably over priced.  I consider investable financial assets to include cash, stocks, bonds and PM's.  Currently market participants hold cash and bonds for safety and stocks for growth, PM's are simply an after thought.  The current breakdown of these assets in the US is 60% bonds 12% cash 27% stocks and 1% precious metals.  When the bonds of insolvent entities such as the US government are inevitably given their proper, much smaller, allocation the other assets must fill that void. The asset class that will pick up the most slack must be something that is perceived as the premier safe asset at that time.  I don't think I need to tell you what I think that will be. 

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To be clear....

Just to clarify my comments above, I think these silver prices represent an excellent buying opportunity for physical silver for those who financial situation is such that they can afford the very long term investment.  Put another way, one can "mine" silver with a few key strokes for less than what it would cost to invest a huge amount of capital into a physical mine that may or may not pay off in the future without the inherent financial risks.

How's the saying go?....Buy low and sell high.

.....not buy high and sell higher.

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You're preaching to the choir

You're preaching to the choir here.  However, you must admit that if we are to take the fiat-collapse/Peak Everything investing thesis seriously (and I'm assuming that _most_ people on this message board have taken something like this to heart) then one is logically going to be invested in resource stocks, although, yes, I am fully aware of the risks of PM miners.  Still, the recent carnage goes to show that no one really had a good idea how bad things could get.

My gut feeling is that when even a "macro-thesis" guy like myself is at the risk of getting shaken out we are probably near a bottom.

As far as investing based on the advice of one web site -- well, I spend pretty much all of my free time following the financial markets (especially the resource space) so I'm pretty much an OCD-addled information junkie with no life.  The thing is, I've only in recent months reall gotten out of the "mom's basement" that is the PM echo chamber since it became painfully obvious that some of these "gurus" (who shall remain unnamed) have just been wrong, wrong, wrong over the past several years.  You can talk about fiat collapse all you want, and yeah, that day will probably come, but it might not be for another decade or even more and in the meantime people have to eat.  Most people aren't as diligent and obsessive as I am about information gathering and I think a lot of people really got hurt by putting too much money into PM's and then listening to the _King World News_ crowd all the way down.

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Thanks Chris

your comments give much more to me than the podcast managed. And you have followed through with your convictions to invest in silver. To you, and all the other prudent pm investors, onwards and upwards!

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Hat tip Turd's site...

Interesting note from a German coin dealer;

http://www.goldreporter.de/german-precious-metal-dealers-report-huge-run...

Precious metal dealers in Germany have literally been run down after the latest slump in gold and silver. Wholesalers already expect deferred deliveries.

The latest plunge in gold and silver late last week has led to a sharp increase in demand by German precious metals investors, which also continued on Saturday. There was a particularly strong demand for silver coins. “On Thursday and Friday people had to draw numbers in order for us to control the run”, reports Andreas Heubach, CEO of Heubach Edelmetalle in Nuremberg. “On both days we sold each around 40,000 silver ounces – incredible”, he said. “Demand is back – and hysteria as well”, he evaluated.

Tremendous Run
“The run is tremendous, even today on a Saturday”, Christian Brenner, CEO of Philoro Edelmetalle GmbH in Leipzig and Berlin reports. Despite the high counter trade level in September, demand has increased by 100 percent, online-trade even soared by 300 percent.

“Run is not the right expression“, says René Lehmann of Münzland in Dresden. “We’ve seen up to 80 percent of our regular customers taking advantage of the slide to build up more positions. On those two days, on Thursday and Friday, we made approximately 50 percent of our monthly revenue”, he reports to Goldreporter. Maple Leaf (1 oz.), 1 kg Lunar and ½ oz. Great White Shark were particularly in demand, since Münzland had a special offer on them. In gold especially 1 oz. Maple Leaf and 1 oz. bars have been purchased. The ratio of buyers to sellers has generally been at 50 to 1.

The sentence I highlighted is an important point.. one I have brought up before.  Realize please that there is not broad participation in the US for PM buying.. yet I will tell you that Texas Precious Metals, which only sells what they have in stock, and had, prior to the latest smash down, everything in stock for a matter of months, is now out of stock for Maples, Phils, and some 90%.  The stress on the system now is almost completely a result of repeat buyers.. i.e. the AWAKE.  Chris stated he is in for 1000 ounces recently...  I have added as well.   

What happens when more people wake up and want some metal?  If just the small contingent of the monetarily awake can drive retail markets like this... what is to come?    

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Living outside the matrix

Cognitive Dissonance wrote recently about the problem of being a "kept" person within the system.  

The simple act of holding physical silver removes one from a lot of the whipsaw effects of the big players.  It is a simple way to get outside the matrix.

Fruit trees, chickens, compost in the garden, firewood.  Neighbors who are farmers.

Life in the real world.

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Assumptions, Axioms and Superstitions

Time for me to review my assumptions.

  • There will be a market in the future that will resemble the present smoke-and-mirrors show.
  • That milk comes from the corner shop.
  • That airplanes will fly in the sky.
  • That money will be cowerie shells. It's not? Since when? Memo to self: Keep up with the times.
  • That gold is money, like cowerie shells.
  • That all change is bad. (Change for the rich is usually bad, change for the poor is usually possibly good.)

What other axioms am I keeping hidden from view? To what am I blind? (Not willfully blind, but blind never-the-less.) What black ducks are waiting in the wings?

Anyhow, I have got my stash and it is collapsing, as one might expect from my brand of the Midas touch. I turn gold into lead, which is also useful in its own funny way. So now I spend up big on a nice warm dry bed. A bed that attracts no lead.

I cannot seem to keep away from the stuff. Where is my tinfoil hat? Why is it so heavy?

Edit: I have just thought of a Biggie. (Assumption).

  • That I am a victim of my reality. The physicists tell me that one is up for grabs, due to Quantum Erasure.

If that is the case then it all being MY reality- I shall mold it into something very pleasant. I dunno about the rest of you. You are all on your own journeys.

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Arthur

as one might expect from my brand of the Midas touch.

Somewhere in the multiverse, there is an Arthur that is making a brilliant investment right now!

Note:  I do not subscribe to the multiverse, i.e. infinite universes, theory other than to use it for comedic fodder.     

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Silly Noah!

Silly Noah!  It hasn't rained for years.  Are you going to finish building that boat so far from the sea?

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Analyst who predicted $15 silver still very bullish

http://www.silverdoctors.com/silver-analyst-who-predicted-silvers-crash-to-15-three-years-ago-says-massive-rally-coming/

Nearly 3 years ago, with silver trading near $40/oz and gold near all-time nominal highs, SD gold & silver analyst Marshall Swing shocked the PM community by warning that silver would crash to $15/oz, then rocket past $1,000/oz as fiat collapses! 

Fast forward to Oct 31st, 2014, and silver has indeed crashed to a $15 handle.  

Does the ONLY precious metals analyst who forecast silver’s crash from $50 to $15 still believe a silver moon-shot past $1,000/oz is coming along with a full-fledged fiat currency collapse?

Take heart silver investors.  The one analyst who saw this coming remains as bullish as ever:

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Alert! Silver will drop in price

If my current trend in buying Silver continues you should have a chance at lower prices. I just picked up some today and it usually drops in price within a week lol. I still believe it will protect my family in the long run. Good luck everyone.

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Silver @ $1,000 = SHTF?

So, if silver goes to $1,000, aren't we looking at some sort of Mad Max scenario with the general populous?

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Just remember.....

... the old adage:

"A market can remain irrational longer than you can remain solvent."

Be careful out there!

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Gentlemen, prepare to defend yourselves!

T2h wrote:

So, if silver goes to $1,000, aren't we looking at some sort of Mad Max scenario with the general populous?

YES!  And no one wants to live in a world where silver is $1,000/oz.  And that includes people who loaded up on cheap silver in advance (including me).  But it doesn't matter what I want.

Tom

"Welcome to the Hunger Games.  And may the odds be ever in your favor."

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HughK wrote: Maybe they can

HughK wrote:

Maybe they can get China to agree to help them with that, though.  And, maybe they can extend the paper game longer than many of us expect.

I wondered that too but when you look at Koos Jansen's numbers, and others, you see that around 3000 tons per year is imported for private individual sales in India and China alone. That is independent of all the other demand from the rest of the world. There seems to be a 2000 ton per year annual gold deficit. So the PBOC would have to cough up a lot of physical gold to keep that going, which I doubt they are willing to do as it wouldn't last long.

So, for this scam to continue on years in the future, then either the numbers we are seeing for India and China are wrong, the official mine supply totals for the world are wrong, or there is some unknown vast supply of gold flooding the market. I don't think any of those are the case. So I just sit and wait. Years ago when people were debating where the pog was going I secretly thought to myself, "wherever the planners want it to go, until the system collapses". I didn't verbalize that (I should have, then I'd be able to point to it today!) but because of this I'm not surprised by the action. The printing press still rules, so anything is possible. I envision that before the end, PM prices will totally crash. This may be indicative that we are near the end, but then, "how many times have we heard that before". I just have faith in the numbers and the fact that you can't print oil, gold, and silver, and based on this it's just a matter of time.

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Jim H wrote: The stress on

Jim H wrote:

The stress on the system now is almost completely a result of repeat buyers.. i.e. the AWAKE.

I wonder how many of those repeat buyers are elites themselves. I'm sure they'd rather have small coins than big bars.

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Great scene from a great movie

Tom,

I had almost forgotten about that movie. Thanks for jogging my memory banks.

      "Custer was a pussy!" -----Sgt. Plumley

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Merry Christmas. :-)

From Zerohedge tonight.  This is a relentless attack.  I wonder if this is the elites chance to load up before the crash?  (Good idea Mark_BC)  I believe that it is very safe to assume elites are NOT stupid, or at least that they employ some very bright thinkers to give them advice.  (And some may subscribe here to PP.)  When it comes to taking care of themselves, I am sure they are doing their best.

For me though, a second purchase tomorrow.

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Me too

gotta milk first

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Debt Bomb

[Moderator's note:  Link to YouTube video "Debt Bomb" by Dominic Frisby.  A well-made video, but also slightly lewd and adds nothing to the discussion.  Could perhaps be posted in the definitive humor thread.]

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Thanks for the

top tip. Please let us all know when you are making your next purchase. Its all good when you buy! wink

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Bankers Slave

Just replying to your request.  I bought this morning 100 ounces at 15.29.  At these prices I would normally split my purchase into two on the 5th and 20th of the month, but its just too painful and I decided to just buy all of it now and ignore the price until the end of the month.  I have striper fishing to think about :)

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00:30 EST dumpfests

If you've ever lived out of the country - Europe or Asia - you have a keen grasp of other timezones.  That's because you end up chatting with your friends very late at night, or early in the morning.  You are very aware that midnight for you means its noon in New York.

So regarding this 0030 dumpfest, that turns out to be 230 PM in the afternoon in Japan, and 130 PM in Shanghai.  Rumor has it, they trade a whole lot of gold there in Shanghai.  At least thats what I read over at Harvey Organ.

I'm not quite sure why people in the US have such trouble imagining that a few billion people are awake (and a number of them are keenly interested in trading - especially in gold) during the "wee hours of the morning."  Perhaps some of us just never travel too far out of our timezones.

Try living on another continent, 12 timezones away from the Eastern timezone.  Then, when you read about someone referring to "wee hours" trying to paint a picture of some sort of night-time financial Pearl Harbor attack, and you look at the clock and you see the sun shining and its straight up noon, maybe you'll realize just how hopelessly US-centric the whole thing sounds.

All I see is, someone most likely in China or Japan is dropping a bunch of shorts on the futures market.  More than that, I struggle to see the significance of.

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Thanks for the clarification

davefairtex wrote:

If you've ever lived out of the country - Europe or Asia - you have a keen grasp of other timezones.  That's because you end up chatting with your friends very late at night, or early in the morning.  You are very aware that midnight for you means its noon in New York.

So regarding this 0030 dumpfest, that turns out to be 230 PM in the afternoon in Japan, and 130 PM in Shanghai.  Rumor has it, they trade a whole lot of gold there in Shanghai.  At least thats what I read over at Harvey Organ.

I'm not quite sure why people in the US have such trouble imagining that a few billion people are awake (and a number of them are keenly interested in trading - especially in gold) during the "wee hours of the morning."  Perhaps some of us just never travel too far out of our timezones.

Try living on another continent, 12 timezones away from the Eastern timezone.  Then, when you read about someone referring to "wee hours" trying to paint a picture of some sort of night-time financial Pearl Harbor attack, and you look at the clock and you see the sun shining and its straight up noon, maybe you'll realize just how hopelessly US-centric the whole thing sounds.

All I see is, someone most likely in China or Japan is dropping a bunch of shorts on the futures market.  More than that, I struggle to see the significance of.

Thanks for clarifying.  It all makes perfect sense now.  I know when I want to sell a huge number of contracts I always do it all at once over a second or two without regards to price.  Who has time to sell over any longer period of time?  I'm usually in a hurry to get to the golf course, Starbucks, or the like.  I simply do not have time to sell into the market over any longer period of time even if it means my total sell price is much less.  Yes, those huge instantaneous  sell orders during times of very low volume make perfect sense.

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Purpose behind gold dumpfests

The question is the purpose behind the 0030 dumpfests. 

Are they:

1.  A coordinated action of political/economic big players, working together, to defend the fiat system.

2.  Uncoordinated actions of individual big players, competing against each other, aimed at making money quickly by purchasing huge numbers of short contracts abruptly.  The abruptness of the purchase serves to 1) moves the price lower, 2) runs the "stops" of those holding long contract, forcing them to sell, further lowering the price. Called a bear raid.  Done for a quick profit.

Option #2 is permitted due to "regulatory capture" of the CFTC, the FED, the US Treasury Department and the financial press by big money.  The referees in the game, whose salaries are secretly paid by one team, are assigned the job of running around in their striped shirts looking official but to not blow their whistles.  Thus Option #2 is actually a conspiracy theory also.  Though the conspiracy is structured differently than the conspiracy of #1.

I think that everyone agrees:  Someone who actually owned gold would never sell in this way.

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without regard to price

dryam-

Thanks for clarifying.  It all makes perfect sense now.  I know when I want to sell a huge number of contracts I always do it all at once over a second or two without regards to price.  Who has time to sell over any longer period of time?  I'm usually in a hurry to get to the golf course, Starbucks, or the like.  I simply do not have time to sell into the market over any longer period of time even if it means my total sell price is much less.  Yes, those huge instantaneous  sell orders during times of very low volume make perfect sense.

I've posted this a dreadfully large number of times, but I'll do it once more.

Purpose for dumping a large amount of contracts on the market is to run stops.  If you don't know what that means, I'll be happy to point you at an article I wrote explaining the technique in more detail.  [Or you can read the briefer explanation by sand_puppy above...]

Looks like some people in China or Japan wanted to run stops today.  That move failed.  Longs won, regardless of the "very low volume" you find so significant.  That's what happens at the bottom, and its an occupational hazard with stop-running.

Stop-running happens in most everything that is traded - just that a lot of people who happen to be fascinated by gold only look at gold trading patterns and assume its a gold-only phenomenon.

Isn't it interesting how the shorts ended up being hosed "in the wee hours of the morning" so thoroughly, at a time of such low volume?  I wonder why that is?  Perhaps a bunch of longs stayed up really, really late, waiting for just such an event to happen?

Or maybe they just live in a different timezone than US/Eastern.

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What is always left unsaid..

In these discussions is the idea of open interest.  This is the number of futures contracts sitting out there open by shorts and longs.  Because the bullion banks always have the choice of taking either side of a contract, and in the process, creating a new contract (thus adding to open interest) they have a very, very powerful lever with which to nudge price.  

If there were a fixed number of contracts.. or seats available.. then price would roughly reflect supply vs. demand for seats over time.  But there are not a fixed number of seats.  The cartel can, if they wish, absorb a huge amount of demand for long positioning by supplying contracts... they can supply so many that price can go down on days when news would seem to suggest Gold should go up.  Today looks to me like the cartel has taken their boot off for the moment... i.e. nobody, neither the cartel nor the algo hedge funds, want to go any more short.  At this point, the constant upside pressure reflected in the huge china buying, the hugely (most since 2001) negative GOFO, starts to take charge a bit.  I for one am not convinced that this is, "it".  The psy ops demands that there be periods where hope can re-emerge, only to be dashed again.  Do you think hope will be allowed to flourish in the lead up to the Swiss Gold vote? 

My take;  Pressure had to be relieved.  Hope must be renewed before it can be squashed yet again.  Maybe I am being a contrarian indicator.. not sure.. but I am not betting the brokerage account just yet.       

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Interesting Contrasts

Gold yes? (Greenspan - Oct 31, 2014)

Gold no? (Bernanke)

Are you not entertained?

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Jim H wrote: The psy ops

Jim H wrote:

The psy ops demands that there be periods where hope can re-emerge, only to be dashed again.  Do you think hope will be allowed to flourish in the lead up to the Swiss Gold vote? 

My take;  Pressure had to be relieved.  Hope must be renewed before it can be squashed yet again.  Maybe I am being a contrarian indicator.. not sure.. but I am not betting the brokerage account just yet.       

I agree, but what amazes me is that people even allow their hopes to get built up and then dashed at all. This is obviously not a physical market and therefore price has zero relevance to real supply and demand. The price means nothing, except for how many dollars you need to fork over to buy some real metal and how much a miner gets for pulling it out of the ground. Beyond that, as you say, it's psy ops. It's almost funny watching people get so distraught when the price drops ... yet again! Well what do people expect? The cartel is in control, and until they lose control, price means nothing. Obviously they aren't going to allow the price to get out of control, while they still retain control! Duh! I can assure everyone that when they do lose control it isn't going to be on some relatively news-less day or week like we have now, leaving us wondering. It will be in the context of global chaos and there will be zero doubt that they have lost control. So until then, even if they let pog rise up to $1500 (and then, gasp, crash it back down to $1,000 -- oh I don't think my heart can take this roller coaster!!!) I wouldn't place any more significance behind that then "this is what they want the price to be". It's like, every sane person knows the price is manipulated, yet they somehow at the same time don't know it's manipulated...

BTW I got some cute little 1/20th oz Au maples today in Canada. They aren't sold out, I asked and she said more people are buying them, but they certainly didn't seem sold out of anything. Not sure how that jives with recent reports that the mints have suspended production for the year, maybe the dealer is just burning through inventory while they have it.

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the business of forecasting in economics

thc0655 wrote:

"Analyst who predicted $15 silver still very bullish ... "

Dear Tom,

predicting is possible to some extent in the natural sciences.

In economics one and the same forecaster regularly and intentionally claims / alleges almost anything at any moment. They don’t worry about what they said the day before. All they need is the one lucky strike knowing that all their false prognoses are long-forgotten. By covering the whole spectrum of possible scenarios / outcomes they make sure being right with one of them.

I suppose that it is a tacit alliance in self-advertising / a collusion / a fixed game between he media and these so called forecasters under pressure of competition.

All the wrong forecasts are willingly put under silence both by the media and by the forecaster himself / herself.

A forecaster needs the lucky strike in order to pass as a guru. The numerous media being in competition with each other want to present >>he one and only guy who got it right<< setting them apart from their competitors.

Unfortunately this is made possible by our own stupidity and credulity when we listen to them.

Best regards

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manipulations & correlation

The whole manipulation argument would carry a whole lot more weight with me if many of the other commodities in the commodity complex weren't dropping right alongside gold - some items dropping much more severely than gold.

Is there a conspiracy to manipulate platinum prices? Oil prices? Iron ore? Copper? Zinc? Tin? how about the rest of the commodity complex? Let me guess: everything is one giant conspiracy and the big guys control every price everywhere.

I don't buy it. We had an 11 year bull market in gold. Worst Conspiracy Ever. Jim tells me "they just weren't trying during those 11 years, but now they really are." That's an awfully convenient explanation, gold being so critical yet The All Powerful Cartel simply ignored it for 11 straight years, only to have some kind of Come to Jesus moment in 2011 that spurred them to jump all over PM.

And they decided to control everything else at the same time - because they all peaked, and started dropping at the same time.

Or - just maybe - we're just in a correction, along with the rest of the commodities that have dropped in price from 2011 through today because inflation has slowly vanished from the scene. Reflation largely failed, credit growth is anemic, and even with peak cheap oil and a whole lot of money printing, the Fed still can't seem to get its beloved 2% inflation...

dryam2000's picture
dryam2000
Status: Silver Member (Offline)
Joined: Sep 6 2009
Posts: 238
Whatever...

davefairtex,

http://www.zerohedge.com/news/2014-11-09/another-conspiracy-theory-bites...

Not sure why you think the way you do.  Your steadfastness & unwavering beliefs makes me wonder if you have an agenda or are simply oblivious.  Just being honest.

dreinmund's picture
dreinmund
Status: Member (Offline)
Joined: Mar 19 2011
Posts: 20
Technical funds vs. Commercials

What I’m saying is that because a good number of the people that are losing—the commercials right now—are apparently taking it on the chin and the technical funds are way ahead on the short position. And it looks like the commercials are in trouble. They’re not in trouble. They’re not like you or I. They have unlimited money. The will buy as much as the technical funds want to sell because they know there’s going to be a reversal. They know that when prices start to turn up—it could be Monday, it could be a week from Monday, it could be a month from Monday, it could be anytime. When the prices turn up, the technical funds that have gone short have to go back and re-buy, repurchase, cover their short positions. They have no ability to deliver actual metal. That’s not in their charter, or it’s not in their capability. So they have to buy back.

The commercials play a waiting game. They know what’s going to happen. They know that these technical funds are going to have to buy at some point. And they can wait them out until kingdom come. They generally don’t wait that long because they’re interested in ringing the cash register sooner than that. But as far as them losing to the technical funds, I think that that’s impossible.

I'm not quite sure I follow and agree on Ted's comments.

What I'm hearing is this: "Don't worry, the Commercials got limitless money, they will wait it out and win in the end. They (the Commercials) are really not the bad guys, but the Technical funds (driving the price down) are."

To me, this makes NO sense at all.

  1. Where do the Commercials get their unlimited funds from ? The only unlimited funds I know of is the Fed / Central Banks. The purpose of the Funds is, of course, to suppress the price of precious metals.
  2. If that's the source of the Commercial's funds, the PURPOSE is NOT to turn a profit.
  3. The game as it presents it to me is this: for every futures seller, there needs to be a buyer. Commercials and Technical Funds play hand in hand. The Commercials willingly take a loss buying the futures contracts that the Technical Funds sell short. The Commercials willingly take a loss, because it's not about making a profit. They don't need to make a profit, because they get free money from the Fed.

In short: the Commercials and Technical Funds are in cahoots, and in the process, keep driving the price of PMs lower and lower (on paper). This is not going to just end without a reason or due to  "fundamentals".

This is going to end only if

  • a) Prices of Paper PMs and Physical PMs decouple, or if
  • b) The unlimited funding of the Commercials dries up.

Sorry to say, but we're not even close to the PM manipulation ending. The Central Banks have too much to lose.

locksmithuk's picture
locksmithuk
Status: Bronze Member (Offline)
Joined: Dec 19 2011
Posts: 91
Manipulation

dryam2000 wrote:

Your steadfastness & unwavering beliefs makes me wonder if you have an agenda.

You aren't alone in wondering.

Time2help's picture
Time2help
Status: Diamond Member (Offline)
Joined: Jun 9 2011
Posts: 2331
Or maybe...

locksmithuk wrote:

dryam2000 wrote:

Your steadfastness & unwavering beliefs makes me wonder if you have an agenda.

You aren't alone in wondering.

Or maybe it's just a main course of normalcy bias with a side of cognitive dissonance.  I know I have that meal at least once a week myself. Tasty.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 3840
why i think the way I do

dryam-

Not sure why you think the way you do.  Your steadfastness & unwavering beliefs makes me wonder if you have an agenda or are simply oblivious.  Just being honest.

I notice a variant of the "have you stopped beating your wife" tactic.  Gotta love those ad-homenem attacks all wrapped up in the flag of "just being honest."

This is a bit long, because it talks about evidence, not about stories.  Let's face it, stories are more fun.  Evidence is boring.  But if you really want to know why I think the way I do (as opposed to just being angry or offended that I challenge your favorite story), please do me the courtesy of reading through to the end.

Let me start by agreeing with that article you quoted.  Tactical, intraday rigging "at the fix" for about 15 minutes is something I proved to my own satisfaction more than a year ago using intraday data and have posted about a large number of times here at PP.  The rigging is clear and undeniable, and is similar in character to the "banging the close" that the bankers did with the forex market in order to make a quick buck at their customer's expense.  It is a prime example of the banker's focus on ripping off their customers skimming a quick profit with no risk.

However, a daily 15-minute no-risk customer ripoff is not the same thing as a 24/7/365x3 year committment to suppress gold prices below their natural level.  That's because the energy required to depress prices one percentage point for 15 minutes, only to let it rebound 15 minutes later is relatively small.  The energy required to suppress price every day over a 3 year period is vastly different, as is the risk of losing money if the trade goes against them.

Holding your breath and swimming the length of a pool is not the same level of effort as holding your breath and then swimming the English Channel.  Just because you can swim the length of the pool does not mean you can cross the Channel.

As to why I think the way I do - I'm evidence-driven.  When the intraday evidence proved the bankers were rigging the London Fix, I was instantly convinced.  I got great satisfaction proving to myself that the stories were true.

Now about the likelihood of complete trend manipulation by a shadowy cabal - one that ignored gold for 11 years, and then suddenly got all upset and hammered the price down starting in 2011 and continuing through to the present day.  What does the evidence suggest to me?  Evidence suggests price correlation with other commodities is a more likely explanation than your shadowy cabal for gold's price movements - over the long term.  Most definitely short term price manipulation happens, almost every day.  But that's swimming underwater for short periods.  It is not the same thing as swimming the Channel underwater.

A lot of items rallied from 2000-2011 - metals, oil, coal, the entire food index.  Not all with the same exact pattern, but many were similar in general pattern to gold's rise.

Then in 2011, a lot of things started dropping.  Some dropped faster than others.  Copper's drop matched's gold's drop pretty closely, although copper peaked first, and dropped faster.  Coal did so too, as did tin, as did the food index.  But the song was largely the same - peak around 2011, drop off until today.  I could provide charts, if you are interested in my evidence.  (No goldbug to date has ever has asked me for my evidence; perhaps you'll be the first)

My sense is, the Food Index price drop wasn't due to a suppression scheme.   And gold dropped in price along with this index.  Therefore, its unlikely that gold's drop was primarily due to a suppression scheme.  More likely, it was just roughly correlated with commodities in general.

Based on the evidence, I believe the biggest factor in gold's price drop was falling expectations of inflation from Western hedge fund buyers, driven mostly by reductions in Chinese money supply growth as well as deflation in the eurozone.  You think the most likely factor in gold's price drop is a shadowy cabal, and you think that the fact that commodites overall have dropped since 2011 had virtually no part to play in gold's price drop.

If commodities overall had continued rising, but gold price dropped - now THAT would get me very interested in chasing down suppression evidence, because that would fly in the face of long term correlations I've observed.  But of course that's not what happened.

I'm ok with my position.  It fits the data I've seen.  Until I get different data, why should I change my position?

If you have data - data that proves or even suggests successful trend manipulation - I'd be happy to look at it.  Thats my hobby.  I like nothing better than finding a new timeseries.

Michael_Rudmin's picture
Michael_Rudmin
Status: Platinum Member (Offline)
Joined: Jun 25 2014
Posts: 666
thriller?

Man, that has the makings of a morris west thriller.

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