Silver: The Most Manipulated Market in the World

Posted by Wealth Wire - Wednesday, March 21st, 2012

Forget about “Give me a break”, it seems like you can’t even buy a break with precious metals this past week.

The metals still trended down as I suspected they would and even went a little lower than my down side possibility with gold. The recent activity around precious metals and the quick draw down days where the metals get hit hard does reek of manipulation and intervention. I have been asked many times in the past about manipulation in precious metals and the price action we see around key price levels. I feel most markets are manipulated in one way or another and precious metals are no different. 

In fact silver is probably the most manipulated market in the world, I really can’t think of any other market that is so easily manipulated. In a market that has approximately 30 million ounces of silver in warehouses available for delivery, there are days such as February 29 where you can have 255M traded in hours (the total for the day was estimated at over 500M oz traded).  Such a concentration of positions by a few key players can and will move price to a key level, at which point computer trading can further extend the move which is what most likely happened on February 29th of this year. Here is some information and perspective on how much silver was sold in the paper market during that one day:

  • One Comex contract for silver is for 5000 ounces.
  • Average inventory of silver available for delivery is 30M ounces.
  • Silver production for the year is about 800M ounces a year.  
  • Supposedly more than 45 thousand contracts traded on Feb 29 or about 255 M ounces.
  • In a matter of hours, paper silver sold 8.5 times more than inventory for available for sale.

So do I believe that the silver market is manipulated? 

When you have such a concentration of selling on one side by a few sources, unlimited amounts of funds and knowledge of sell trigger points, any market could easily be manipulated. On that day alone, you had paper pushers selling almost one third of a year’s production in a matter of hours. This selling was done by a few commercial firms that are known to have the highest short concentrated position of any market. Common sense tells me price manipulation is possible when you can sell endless amounts of paper silver in a matter of hours. A Price drop of several dollars is easily achievable once stop loss triggers get taken out to the downside. When you have a paper market which has no real bearing on the physical market or accountability for delivery, then anything is possible in terms of price.

So my answer is YES, the silver market can easily be manipulated and most likely is, unfortunately there is no way that we can prove it

I am not the only one to think so; you may want to listen to some great audio interviews on Financial Sense about silver manipulation. Jim Puplava interviews Ted Butler, David Morgan and Eric Sprott about their views regarding the silver market manipulation and getting their response to CFTC’s Commissioner Bart Chilton’s take on the silver market. Even a commissioner from the CFTC believes that manipulation is possible, but no one is doing anything about regulating position limits in the silver market. It seems like the concentration of silver shorts by a few commercials will be overlooked again and the regulators will not get involved in enforcing the rules on position limits by the shorts. So if there was manipulation, the regulators are not doing their job in creating an equal and transparent market, they are allowing the manipulation to happen. 

Here’s the irony I find in the whole situation about manipulation and involvement by regulators. They are currently overlooking this manipulation in the silver market as long as it’s on the short side and is done by their paymasters, the bankers. Back in the 1970’s, the Hunt brothers wanted to protect their wealth and decided to take delivery of as much silver (real money) as possible. At the time, the regulators decided that the brothers were manipulating the silver market to the upside and forced them out of their long side contracts which stood for delivery by changing the rules and not allowing delivery of the physical. Here is a great video on YouTube called SBSS 15 The Real Hunt Story Part 1, which tells the story on why the Hunt brothers wanted to protect their wealth using silver. Now that the silver manipulation is on the short side by bankers and government, everything is overlooked and will not be regulated. Unfortunately this is the market we are dealing with so when it comes to paper silver trading, the paper pushers will get their way and always profit at someone else’s loss.

Taking a look at the one year silver chart below, you can clearly see the big draw down days come very quickly.  It takes a while for price to build a base and move higher, usually a few weeks to several months before we see significant price advances. Price drops seem to come very quickly at key price intervals, only taking days to give back most of the price gains which took months to advance. 

 

If you are going to play the paper game with the big boys, there are a few things you should remember. First, you are playing their rigged game at their casino so do not get disappointed when they pick your pockets. Even if you do win big, they will only pay out in worthless paper dollars unless you specifically ask for delivery of the physical metals. Good luck in trying to take physical delivery of all your contracts like the Hunt Brothers tried to do in 1980. You will most likely end up like they did, forced out of your position with no silver in hand. Remember, you are up against a banking cartel with a legal monopoly on the printing press and the regulators in their back pocket.

But manipulation can only go on for so long; eventually the physical market will take control over the paper market. As new markets and exchanges open that deal only in physical commodities, we should see money flow out of rigged paper markets. There are many new exchanges opening up around the world and many of them offer contracts that actually stand for delivery (spot or futures pricing). Eventually these exchanges and bullion dealers will create the necessary arbitrage in physical metals against the paper market, which will then resemble the real price of silver. My suggestion to investors is to close down your paper accounts with the Comex and move to physical purchases paid for by cash and no leverage. Regardless of the price, at least you still have the physical and not just paper promises to pay you in another form of paper while they change the rules.  

Gold Trading Range

In the last review, we mentioned that gold was trading in a sideways channel and that a move below $1700 could lead to a drop to $1650 which we got late in the week. We also mentioned that we should see some strong buying around $1600, with a possible re-test of the December low of at $1550. That is where I suspect the low for this down wave should occur in gold and where we can see a lot of consolidation and base building.   

For now we are neutral on gold and the price range that it has been trading between. Gold needs to stay above $1600 this coming week in order for us to remain neutral; a bullish move would be for gold to get above $1680 this week. If the short term chart fails at $1620, then a move towards $1550 is very possible but unlikely at the moment with central banks buying and short covering happening at the low $1600s. A negative short term move below $1600 will do more technical damage on the chart, but easily keeps the bull market alive and strong on the longer charts.

Technical Analysis

The RSI also went negative to touch below 40, hopefully we get a bounce higher early in the week and it stays above 40, if not a move to 30 is very possible, which means $1550 on gold comes into play before we get a bounce.  

The MACD has been negative since the end of February and still remains this way. It does look like it could be flattening out over the last few trading days, something we will watch for if price stabilizes at $1650.   

This week’s trading range:

Support: $1650 and then at $1620
Resistance: $1680 and then at $1720

 

Gold Mining Sector Index

Our general outlook on the mining shares has not changed, we still remain neutral and will only look at initiating short term trading opportunities that look promising. Here is our overview of the gold miners as we mentioned before:

The HUI index has yet to break above the negative downwards trend line which has been acting as overhead resistance since the fall. Gold is still outperforming the mining shares, which has been the general theme for the last year. Since we have become neutral on gold, we feel the same for the mining shares. On March 2, we suggested subscribers look at closing down our trading positions and that we will re-evaluate our trading strategy in the coming weeks. We still feel that these share valuations are low and the sector is mostly going higher towards the end of this year. Earnings are increasing with higher gold prices and the value buyers will be attracted to the gold mining as gold continues its trend higher.

Depending on which way gold trades this coming week, the HUI will most likely follow. We tested support just below 480 on the index this past week. This is something that we mentioned could easily happen with the recent smash down in the price of gold. It successfully tested this support level; however upside could be limited for the foreseeable future. Trading opportunities will become limited as the trading range narrows in the falling wedge pattern seen below on the HUI chart. This may be a good time to start moving into cash and waiting out this period of consolidation as the trading range narrows.  

This week’s trading range:

Support: 475 at the lower channel line (buy gold stocks and place a tight stop loss).
Resistance: 520 at the 50 DMA if we get a really bullish move, which is something I am not expecting.

 

Post courtesy of Vin Maru, editor of TDV Golden Trader, and a financial libertarian and hard money advocate with over 15 years of experience as a self- taught private investor and analyst.

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