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July 25, 2023 | More on the Silver Code Red

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

Last week, I made public an edited version of the more extensive weekly review sent to subscribers earlier. As previously stated, I believe there is a current market emergency in the COMEX silver market based upon official data indicating a massive increase in futures positioning of more than 130 million oz (26,000 contracts) as reported in the new COT report, as of July 21.

While I tried my best to rely on the hard data and offer the most reasonable interpretation of that data, this is very complicated stuff, so it’s understandable that things may not seem as clear to others as they are to me. I’m sure many (if not most) are unclear on what I mean by a market emergency, the likes of which hasn’t existed in the COMEX silver market since the Hunt Bros emergency of 1980, 43 years ago. So, let me use instead a more recent market emergency – that of the LME nickel market of March 2022, as a contemporary example of what I’m talking about.  Here’s a good run down of what transpired at the time.

It is no exaggeration to claim that the LME nickel disaster is basically the same, in many respects, as to what I see ahead for the COMEX silver market. The nickel market was in a physical shortage condition at that time, same as the wholesale physical silver market is today. The long and short derivatives position in LME nickel grew to unreasonable levels, with a noted concentrated short position held by a large Chinese trader, identified as “Mr.  Big Shot”.  Just this past week, the COMEX silver futures market had a massive increase in total derivatives positions and the concentrated short position also grew massively as well.

In the end, the LME nickel shorts were no longer able to cap and contain prices and the price suddenly exploded – doubling and tripling in a matter of hours. This led to the LME busting trades, essentially, cancelling and reneging on contractual obligations, setting off an avalanche of lawsuits and instantly trashing the reputation of an exchange that existed for 150 years. Of course, I wrote about it at the time, making the clear analogy to what I saw coming in COMEX silver.

I know many think that I may be going overboard in describing what I see ahead for silver, but an objective review of what took place in LME nickel last year would seem to provide ample proof for what could happen in COMEX silver. While the basics in both markets seem identical – a physical shortage, coupled with a massive derivatives position (including extreme concentration on the short side) – there’s even more to be said about the coming COMEX silver emergency.

For one thing, I’m not aware of any prior warnings to the LME or the UK regulators about what turned out to be the nickel market emergency/debacle beforehand, whereas I know such warnings have been made in the coming COMEX silver market emergency (because I’ve made many such warnings).  I send all my articles to all the commissioners at the CFTC, along with key officials at the Market Oversight and Enforcement Divisions, along with the CEO of the CME Group, Inc. (owner/operator of the COMEX). If the federal commodities regulator, as well as the designated industry self-regulator, are unconcerned about my warnings, it would appear reasonable that both should explain why or take immediate measures to try to head off the coming market emergency. The last thing I would want to do is cry “fire” in a crowded theater for no good reason.

Further, the LME nickel debacle affected very few market participants, whereas silver investors/participants everywhere, in the many millions worldwide, are affected by the ongoing COMEX silver manipulation and the market emergency I see dead ahead. This raises the stakes immeasurably for everyone, particularly the regulators.

Most concerning of all, in the LME nickel default and debacle, the principal player was the big Chinese speculative short seller, greatly assisted by the big banks, most notably, JPMorgan; whereas in the coming COMEX debacle, the banks appear to be directly positioned as the big silver short sellers. This has been the case for 40 years and despite billions of dollars of fines, settlements against too many banks to count and now jail time for bank employees – all for manipulating silver, gold and other precious metals prices on the COMEX and NYMEX – the banks still appear to be the big short sellers to this day.

As expected, the COT report for July 21 fully-confirmed extreme and even record commercial selling, particularly in terms of concentrated and collusive new shorting by the 4 and 8 largest COMEX commercial shorts. The 8 largest commercial shorts sold short more silver contracts, 12,100 (60 million oz), in one week than they had in years and maybe ever. I had made the case that the big commercials would not short big again (as a result of the big 4 not shorting on the $6 silver rally from March to May), but, clearly, those expectations were wrong.

Therefore, a reasonable observer would have to ask what was the motivation for the record one-week commercial selling. With silver so cheap in price in the face of a documented physical shortage and with strong technical buy signals (moving average penetrations) generated in the reporting week, the buyers, be they driven by supply/demand fundamentals or technical signals, need no explanation. It is the aggressive selling by the COMEX commercials (banks) that requires explanation and only one explanation is possible, namely, the commercials sold so aggressively to prevent an even larger run up in price that would have triggered massive new buying in silver away from the COMEX.

What I just described is nothing but in-your-face price manipulation – selling with the sole intent to prevent silver prices from increasing. There can be no other explanation. The fact that COMEX silver is supposed to be a regulated market, by not just the primary federal regulator, the CFTC, as well as the designated self-regulator, the CME Group, and both regulators sit by and do nothing but act as the three blind, deaf and dumb monkeys is nothing less than a national disgrace. The CFTC and CME Group can continue to disgrace themselves, but that’s their choice, as I do intend to press the issue to the best of my abilities.

Worst of all, the massive commercial selling this week is what creates the Code Red market emergency in COMEX silver, as there is no way that I can see that the massive positioning gets resolved without extreme price violence. The responsibility for the disorderly market conditions that I now see as being “baked” into COMEX silver as a result of the massive one-week surge in commercial selling, lies squarely on the CFTC and the CME Group.

I have been after both regulators for the better part of 40 years to address the ongoing COMEX silver manipulation and despite having to contend with their incompetence and malfeasance for all this time, I never thought both regulators would fail to act so irresponsibly as they are now. Neither would dare to openly debate the allegations of a market emergency, the avoidance of which couldn’t be of more significance to each.

What do I mean by a Code Red market emergency? A market condition that must resolve itself in disorderly prices. Those disorderly prices might include a blast to the downside, as the collusive commercials rig prices lower to induce the recent buyers to bail out, before the physical shortage conditions cause prices to soar. Or, the attempt to rig prices lower may fail and silver prices surge without a massive decline first.

In any event, the real blame for the disorderly prices ahead are the regulators, both the CFTC and the CME Group, which fail to address or even acknowledge the blatant manipulation in COMEX silver. I do intend to push both to do the right thing, but based upon their track records, they will be reluctant to address this serious issue. The one saving grace for higher silver prices is the physical shortage, which grows more pronounced daily. Surely, continued suppressed prices will not resolve the physical shortage, regardless of continued regulatory failure.

Ted Butler

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July 25th, 2023

Posted In: Butler Research

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