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September 30, 2020 | Rock, Paper, Scissors

No one has followed the silver market trading mechanics for as long or as closely as Ted Butler.

Way back in prehistoric times, before electronic gaming, children used to entertain themselves with certain hand games. I was always more of an “odds or even” gamer in which the choice was to display one or two fingers and outguess your opponent. The more sophisticated version was “rock, paper, scissors” which given the slightly greater choice in hand signals was less straightforward, at least to me. In the game, paper covers rock, rock crushes scissors and scissors cuts paper. Given the simplicity of the hand games, needless to say, children weren’t as likely to become as addicted to playing as occurs with today’s “Fortnite” or “Grand Theft Auto”.

From the start of the COMEX silver manipulation in 1983, the story has been a game of paper covering rock – or paper futures positioning determining prices by overwhelming the forces of physical silver. While there have been some sporadic interruptions along the way in which the physical forces of silver briefly overtook the manipulative price influence of paper positioning, the past nearly four decades have seen paper cover rock.

The key to paper’s control over the physical forces in silver was the overwhelming influence of the largest commercial traders on the short side of COMEX futures contracts, which the CFTC designates as the 4 and 8 largest traders. Almost without exception, the concentrated short position of these big traders in silver has been the largest concentrated short position of any commodity in terms of world production.

It really hasn’t mattered what was going on in physical silver – all that mattered pricewise was what the 8 big shorts were up to. Their trick was the ability to sell short in unlimited quantities to the managed-money traders who bought as prices climbed. When the managed-money traders were done buying, the 8 big shorts then maneuvered prices lower and then bought back their short positions at lower and profitable prices, as the managed-money traders sold out at collective losses. The 8 big shorts gained a new leader when JPMorgan took over Bear Stearns in 2008 and JPM seamlessly stepped into the role of chief silver short manipulator, a role it held until recently.

But following decades of total control over the price of silver, there are now some strong signs that the paper control of physical silver may have run its course. For one thing, JPMorgan has apparently abandoned the short side and further, has used its near-total control over prices to have accumulated massive amounts of physical silver and gold – setting itself up for magnificent profits and an epic double-cross of its former manipulative short compatriots.

The evidence of the JPM double-cross are apparent, in that the rise of silver and gold this year has resulted in more than $15 billion in losses to the 8 big shorts, while profits have accrued to JPMorgan to the tune of $20 billion. The losses to the 8 big shorts are many times greater than the profits they made over the past decades. This year, other unusual developments have occurred in silver, including massive flows of physical metal into SLV and other silver ETFs, the likes of which has never been seen in such a short period. There have also been sharp increases in silver deliveries that have occurred on the COMEX and growth in COMEX silver warehouse inventories to record levels. All these things point to a rearrangement in the decades-old paper-covers-rock silver manipulation.

Since April 2011, when silver hit $50, there has been explosion in the amount of physical silver being trucked into and out of the COMEX-approved warehouses. A typical container truck load amounts to 600,000 ounces.  For the past nine-and-a-half years, the physical inflow and outflow from the COMEX-approved silver warehouses has exploded. This occurrence that has not been seen in any other commodity – just silver. The annual average movement has gone from 250 million ounces to 300 million ounces in recent years. Over the past 8 weeks, the total physical movement has accelerated to 600 million+ ounces annually.

Attention should be focused on the world’s industrial users. Why are they removing the vast bulk of the massive amounts of silver coming into the COMEX warehouses?  It’s not that so much silver is coming into the COMEX; it is that so much (more than 90%) has been immediately moved out. It is the out-movement that is the key. Industrial-user and physical fabrication demand is white hot and that demand is increasing. COMEX silver turnover is the greatest indicator that industrial demand for silver has never been greater.

Back to the paper-versus-rock game on the COMEX. Yes, the crooked paper commercial shorts may still be in partial control of prices, but their financial results over the past year in gold and past couple of months in silver have left them reeling. If there is one thing that can blow the big COMEX shorts out of the water, it is a rush by silver users and investors into physical metal. That’s when the rubber meets the road and the paper control of silver prices ends. The signs of investor and user physical demand converging have never been stronger.

Addendum:

STICKING MY NECK OUT A BIT

Today’s (Monday, Sep 21) selloff in silver of more than 10% has all the makings of a final paper flush out. There wasn’t an unusually large number of speculative long contracts on the COMEX going into this selloff and as a result of the blatant and collusive commercial takedown of price, many speculative long and commercial short positions have been eliminated.

There is always a limit as to how many speculative longs can be induced into selling and judging by the viciousness of the selloff and extremely high trading volume, it seems to me very few speculative longs are left to be liquidated – always the main sign of a price bottom. If, as I expect, physical demand from industrial users and investors continues, the paper flush-out on the COMEX presents a great opportunity to buy or add to silver positions.

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September 30th, 2020

Posted In: Butler Research

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