Comex Silver Inventory Watch - Heading Into May-July Delivery Period

The long term decline in deliverable supply at this price level could become quite interesting.

The only ways to obtain more deliverable inventory to meet a bulge in demand is to game the rules on the ability to take physical delivery or let the price rise by buying on the open market.    

The push by the CFTC for position limits may tighten the ability to take delivery from 1,500 to 1,000 contracts, but hedgers will be exempt from position limits on the short side.  And the big silver short JPM claims to be a hedger.

I keep hearing stories of negotiated prices above the public quotes to buy off large delivery claims.  I would be interested to know if anyone has proof of this.  We know there are large agreements being conducted around the publicly quoted prices all the time. The FX pit traders walked out in protest over a recent occurrence.  It does not take an economist to understand what this does to price discovery and market efficiency.

The estimates I have seen of how much silver is real and how much is conflicting paper claims (leverage of unallocated claims) is up to 100:1.   Some of those claims are reported to be covered by 'inventory in the ground' which is not readily available for delivery.

One can only wonder how well confidence in the Comex would receive another 'stolen assets' scandal like the confiscation of gold and silver that happened to customers of MF Global.

The central banks have long ago dispersed their caches of silver to the market, so they are not available to supply ready inventory at leased rates.   One might look to SLV and wonder who audits its custodial integrity of unencumbered physical bars and how often.  

As I recall the sponsor of the ETF is Blackrock, but the custodian and keeper of the vault holding the physical silver backing the ETF is JP Morgan.  As you may recall, JPM is holding a massive short position on the silver futures, as best we can determine. 

JPM claims they are a hedge on behalf of other parties.   If they are using the SLV inventory as collateral in any way, then someone needs to be paid a visit by the SEC and CFTC because the owners of the shares have a superior claim to the metal.   That smells like 'hypothecation' in the manner of MF Global.  But I suspect that rather than blaming Edith O'Brien one might blame Bear Stearns.

I am not saying this is 'illegal' but it certainly warrants disclosure if it is occurring.  And if the CFTC knows this and is sitting on the information in their four year old and still unreleased silver manipulation report, then Gary Gensler needs to appear before the Congress and answer some very tough questions about conflicts of interest and withholding of key market information.

Of course the prudential time to ask those questions and obtain the answers is now, and not after the carnage of a commercial failure devastates investors, global industry, and market confidence.

Will anyone listen to this?   Did anyone listen to Harry Markopolos before Madoff's fund blew up?

These days it seems like the US financial markets are a train wreck happening in slow motion.  Or almost like watching a B horror movie.  You hear the music and you know what's coming, but there is no way to warn the campers.

'Our rivals are scared shitless of us.'   Blythe Masters

How Jason P. Morgan sees itself in the markets  lol

Goldman Sachs Employee Facing Insider Trading Probe

And the fails just keep on coming.

They will toss the small fry while the big wheel keeps on turning.

Reuters
Goldman Sachs facing a new insider trading probe
By Emily Flitter

NEW YORK (Reuters) - Federal prosecutors in California are investigating a Goldman Sachs employee for insider trading, according to prosecutors and defense lawyers who attended a hearing in U.S. federal court in New York on Thursday.

The employee is suspected of giving inside information on two public companies to former Galleon Group co-founder Raj Rajaratnam, who was convicted last year in one of the largest insider trading cases in Wall Street history.

The investigation of the Goldman employee was divulged during a hearing involving the insider trading case against former Goldman board member Rajat Gupta.

Gary Naftalis, the lawyer for Gupta, commenting on the newly disclosed investigation, said that Assistant US Attorney Reed Brodsky asked him not divulge details of the matter.

"Per Mr. Brodsky's request, I am not going to name his name," Naftalis said.

In a hearing a month ago, Naftalis revealed that another Goldman Sachs employee had been caught on a wiretap leaking secrets about Intel Corp and Apple Inc.

"That's obviously an area we have been pursuing in terms of our preparation for our defense at trial in terms of his connection to all this," Naftalis said at Thursday's hearing.

A spokesman for the U.S. Attorney's Office for the Central District of California declined to comment.

The attorneys at the Thursday court hearing said the employee in the California investigation still works at Goldman.

A spokesman for Goldman Sachs declined to comment.

Gold Daily and Silver Weekly Charts - Winding Up for a Move - Tomorrow Is Stock Option Expiry

The trick in trading is not to 'predict' in advance which way the metals will break in the short term, or any market for that matter. I have seen plenty of guys waste their trading accounts and their time trying to find 'the perfect system.' 

Believe me, if there was such a system, you would not find it.   And especially you would not find it on a publicly available site.

The best system is to sit as the house, and make money no matter which way the market goes, and have plenty of advantageous knowledge of the order flows to boot.  The US markets are all about the asymmetrical dispersion and control of knowledge.  And HFT has taken it to a literally inhuman degree.

Well, absent that exorbitant privilege of insiders, all we can do is trade to avoid the losses, and learn to recognize trends, and play them with some discipline.

Right now gold and silver are not trending, they are consolidating and winding up before they begin another move. I can argue the reasons for a move either way, and unless you are Ben Bernanke and ready to show your hand honestly I am not particularly interested in what you have to say, because you just don't know. And neither do I.  This is not a 'natural market.'

But we can hope to find the trend as it begins again, miss part of it, but be sure to hop on board and take it for a ride. For most people, they have neither the time nor the inclination to do this for the short term, and probably even for the intermediate term. They just feed the trading letters and system creators and of course the brokerage firms.

Chat boards are a nice way to spend the time you may have on your hands in socializing, if you have nothing more pressing, but they offer little in the way of constructive trading advice.    To paraphrase Dr. Greg House, traders lie.   And most amateurs become bitter with their losses.  Misery loves company.

Don't get me wrong.  Fundamentals still matter in the longer term, and in the lesser covered stocks one can always find the undercovered gem or two, if you have the stomach for the risk and can wade through all the price manipulation and naked short selling that is tolerated, especially north of the US border.

So for now I am long bullion and short stocks, in a pretty robust hedge. I have taken the profits out of miners but am still willing to flip a trade in the case of some unusual deviations from trend.  And they certainly happen.  Sometimes you just have to wonder.

I am waiting to see which way the market breaks and if stocks continue to move with the metals or if there is a divergence developing.  My 'bias' if I have one is to see the metals bounce and rally up to the top of the larger symmetrical triangles, but that is a 60-40 proposition at best.  I mean, the market is being rigged, or isn't it?  And if it is, probabilities are being written by other than 'the invisible hand' of supply and demand.

I am not trading nearly as frequently or aggressively as in the past because a) I am getting older b) these markets are almost ridiculous.  Its like playing cards with the little girls.

If I put in a order for a few thousand shares, the liquidity from a large offered set of multiple positions evaporates instantly and I close on maybe 100 shares.   If I offer to buy above market but below ask I get ten 'friends' appearing instantly along with my bid. 

There is little genuine liquidity in the equity market.  It is mostly a sham, a flash crash waiting to happen unless the ESF intervenes which I am sure they will.  At the first sign of real trouble it will collapse like a house of cards.

As for gold and silver, price discovery is buried under a mountain of paper and faux trades.  With 100:1 leverage and naked positions dominating the trade, its a bit of game in the short term at best, and not a particularly honest one at that. 

Don't exhaust yourself chasing rainbows here.  Sometimes the best trade is to stay out of the short term scrums, the wash and rinse cycles, and just ride the macro trends, ignoring the day to day noise.  And judging by the shrinking volumes and low open interest, quite a few people are fine with that decision.

The pit crawlers had best start studying origami and advanced airplane design to while away their empy hours, with only phony computer generated order flows and Fed buying programs to light up their screens.

SP 500 and NDX Futures Daily Charts - Coiling Ever Tighter Into the Apex

VIX remains above the 50 DMA but fairly low so the 'yellow flag' is out.

Hedges in place.

As a reminder tomorrow is stock option expiration.