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My question is simple. What are bankers like J.P. Morgan and HSBC doing playing in such size in this market? What is the economic and productive benefit? Perhaps there is a good answer. The taxpaying public certainly deserves to know. The CFTC says they have looked into this, but the detailed results of their findings remain less than forthcoming.
IF this is legitimate hedging for producers then all well and good, but then there is no justification for secrecy. If these are trading positions held by the bank, or by the bank as agent for speculators, then there may be a greater reason for secrecy, but the magnitude of the shorts is far out of bounds in size. Ten years of production is not a short position, but the entire market and then some.
The CFTC certainly appears to be acting poorly as the market regulator for the people. Given the regulatory failures of the past ten years that lead to the financial crisis, it would be useful if the Congress were to make very pointed inquiries regarding this situation. But given the performance of the Congress, and their affinity for the deep pockets and big contributions of the financial sector, that may be too much to hope for.
I think it is worth noting that the BIS data, which I use myself, is very good, but normally six months in arrears or more. I tend to use it to track the float in eurodollars which the Fed stopped publishing when it also halted the production of M3 data. But this is not Harvey's fault, but merely another sign of the opaque nature of the US markets. There is no reason not to demand monthly disclosure. Investors and depositors are always expected to make informed decisions, and then they are denied the information from large market participants using their positional advantage.
The comment and analysis below is from Harvey Organ's most recent commentary.
"The huge rise in silver price has caught the silver bankers totally offside on the silver banking. The BIS data released in November (www.goldexsextant.com) shows that the G 10 bankers have collectively sold forwards and swaps to the tune of 4 billion oz and short naked calls for another 3 billion oz. The total, 7 billion oz represents 10 years of production. If you just do the forwards, then it is 7 years of annual silver production.
Let us say the average cost of acquiring these derivatives and forwards equate to $15.00 for silver. Thus collectively the entire G10 bankers are feeling massive pain (losses) to the tune of:
7 billion oz of silver( 32.30-15.00) = 7 billion x $17.30 = 121.1 billion dollars of losses.
This is in a market of only 14 billion dollars. It begs the question to what economic need was this done.This is still off balance sheet.
If you include only the forwards or swaps (the lending of actual metal to which nothing has come back yet) then the losses are:
4 billion x 17.30 or 69 billion dollars.
Regardless how you look at it, the bankers are in serious trouble with this huge rise in silver prices. I hope you understand the severity of the situation."
This situation merely highlights Obama's failure as a reformer, and the general failure of both parties to act in positions of trust for the American people, rather than the special interests that provide them money and sincecures after they leave office.
As I noted on my own silver chart, I am no longer will to forecast anything but intermediate targets for silver, given what appears to be widespread imbalances and crisis-inducing leverage in the market, especially given the strong demands on the bullion market from the sovereign and individual buyers in the BRIC countries.
It is never pretty when a fraud collapses, and this one in particular is difficult because it seems to encompass those stewards of the market upon whom one generally relies for information and some measure of confidence in the data.
The market will clear when it clears, and seems to be defying 50% margin requirements increases and well placed disinformation campaigns in the process.
The short squeeze in silver is fairly remarkable and obvious to all but the most pig-headed or willfully misdirecting. Looking at the Comex warehouse, SUPPLY is consistently and smoothly decreasing even while PRICES are increasing sharply.
Silver does appear to have hit a bit of a 'high note' here perhaps, and has once again come far and fast. A consolidation or a pullback might not be unexpected, depending on what US equities might do. For now many things are riding on the dollar liquidity bubble, including those who are merely fleeing it and seeking safer stores of wealth, particularly in Asia. Silver is outperforming gold as demonstrated by the decreasing gold to silver price ratio, no doubt influenced by the fact that the central bankers have access to gold in their national treasuries, but few have any silver. Silver is in a short squeeze, and so volatility and upside surprises are to be expected.
Intraday comments on the Comex Silver market were given here.
As for gold, the Financial Times notes that the world demand for gold is doing better than you might have gathered from the mainstream media.
"Unbelievable. Explosive. Insatiable. These are some of the words bankers are using to describe the gold market. That may come as a surprise, as the gold price has had an uncharacteristically quiet start to the year, for the most part trading either side of $1,350 an ounce.
The dramatic language is being applied to the strength of Chinese demand. Many have been truly shocked by the level of Chinese buying in the first few weeks of the year. As one senior banker (who is not prone to hyperbole) put it: “The demand in China is vast. It’s unbelievable. Whatever you think the demand is it’s much bigger… I’m really staggered.”
Perhaps the Federal Reserve and Wall Street Banks can send some one of their missionaries to China to educate them on what constitutes real wealth. Timmy may be ready to give it another go.
Isn't American crony capitalism marvelous?
Third bubble in eleven years.
Here is a chart of registered silver ounces available for delivery in the Comex warehouse. Nine out of ten Americans may notice a trend.
If it seems somewhat counter-intuitive that the available supply continuously declines even as the price soars, you may begin to obtain some sense of the true nature of the management, regulation, and character of this market.
Comex has two categories of silver in its warehouse.
The eligible category merely means that the silver is in a condition to conform to the standards of delivery. Size and quality of the bar in other words. It is being stored at the Comex warehouse, but is not offered for delivery into contracts.
Registered means that the silver is available for delivery to those who demand bullion.
Eligible silver can become registered and deliverable if the owner of the silver declares it saleable at some price. And of course if it is there, and otherwise unemcumbered by senior obligations or conspicuous absence. There are a little over 60 million ounces of eligible silver being stored by customers at the Comex, in addition to the registered dealer inventory.
The registered inventory of silver at the Comex, 42 million ounces, is worth about 1.34 billion dollars at today's prices.
The entire silver inventory at the Comex warehouse, roughly one hundred million ounces of silver, is worth about 3.2 billion dollars at today's prices.
There are some rules passed a few years ago, delivery limits sanctioned by the CFTC, that prevent a large entity from taking too much physical bullion in a single month, and enforcing a paper settlement. I think that is why the inventory is undergoing a slow but very steady drain.
In other words, THEY can SELL as much as they wish, but YOU can only TAKE as much as they allow you to take at the current prices. That might sound like a con by any other name, but it is certainly no definition of market pricing of a physical commodity when you can sell what you wish at whatever prices you set, but then refuse delivery at those prices.
When and if this market leverage breaks, the silver on the periphery, the non-eligible supply of smaller bars and coins, is going to evaporate given the large amount of leverage in the unallocated silver bullion that people believe that they own, and the realization that the confidence which investors have had in the integrity of US markets has been abused. The silver on the periphery is a relative drop in the bucket compared to the growing demand from millions of buyers, however relatively smaller than the bullion banks which each individual buyer may be.
