Why I Would Manipulate Silver, IF
(IF I were a central bank!)
Silver Stock Report
by Jason Hommel, July 8th, 2009
“The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways,”
For over ten years, www.GATA.org has gathered information and admissions from central bankers and major bullion banks that the price of gold on the world market is manipulated lower than it should be. Well, one more admission is close enough for me to be counted as one more proof.
Many people are paid to deny such manipulation of course, because the people who are doing the manipulating are earning a lot of money from their ability to print money at will, without it showing up in a rising gold price.
One of the more preposterous denials of manipulation is that keeping silver down in a rising market would simply cost too much, as nobody could afford the losses.
That's just propaganda, of course. Losses on bad trades, such as being short the silver market, must be taken by somebody.
But my strength lies in running the numbers, using estimates, and exaggerations, to prove the point.
At the most, I've seen the silver market with a total open interest of up to 800 million ounces. This is a rare top, of course, but it can be used to determine a hypothetical maximum of "total losses" for being short silver during the entire bull market.
Silver has moved from a low of about $4.15/oz. in early 2003. Since then, silver topped out at about $21/oz. in the spring of 2008.
Using those three figures can give us a maximum total estimate of COMEX paper silver losses, assuming 5 unreasonable and exaggerated things.
1. That the short position was all put on, and initiated,
entirely, at $4.15 -- which it wasn't, it was put on starting at the
former top in 1980 of $50/oz, and major bullion banks have always been
short, ever since.
See: A Tribute to 7th Grade Math August 31, 2008
3. That the short position was one size, and held the entire time
with no trading -- which it wasn't.
So, the difference between $21 and $4.15 = $16.85
The loss of $16.85 x 800 million oz. = $13.48 billion
Even with all the exaggerated figures, exaggerated in 5 ways, still brings the total losses in silver manipulation to a theoretical maximum of $13.5 billion. Clearly, the real loss, being short on silver at the COMEX, must have been much less.
But I would guess that they might even have profited along the way, instead of taking losses, for several reasons.
First, they have those "manipulation trading programs" admitted by Goldman Sachs at the start of this article.
Second, their positions are so large, that those who are short, ARE the market, and I'm sure they use their computer programs to only sell "just enough" to move the market price nearly at will.
Third, they know their own clients' books, and stop losses, and can run the price of silver to trigger those stop losses to take over client long positions, so their clients lose money.
Fourth, the COMEX positions are smaller than their OTC positions, which are a much bigger liability.
Fifth, rigging the silver price aids the rigging of the gold price, and both allow the continued existence of a falsely strong U.S. dollar, which they have printed up over $1 trillion of this year, with no new "inflation" showing up in the prices of gold and silver.
And that fifth reason is so profitable, that a $13 billion loss in COMEX trading is just "the cost of doing business", and anyone who can't see that, is either blind, or paid off, and you don't need a sophisticated computer program to realize that, but only the willingness to perform 7th grade math on 3 numbers, as I just went over.
The reason for me doing this simple math exercise is to show by comparison how that maximum figure of $13 billion, is so very miniscule, so very tiny, compared to that other figure listed as my fourth reason above, a very important figure, the BIS OTC silver numbers.
The BIS (Bank of International Settlements) publishes a list of the notional value of outstanding OTC (Over the Counter) commodity derivatives. The category of interest is "Other precious metals", which is mostly all silver. The amount in Jan. 2008, was $190 billion.
That consisted of $86 billion in forwards and swaps, and $104 billion in options.
In Jan. 2008, the silver price was about $16/oz. Thus, we can see that the number of ounces short in that "OTC" market was $190 billion / $16 = 11,875 million ounces.
This comparison is extremely important, because the OTC market is much bigger than the COMEX, which had reported short positions of a maximum of only about 800 million ounces of silver.
Currently, COMEX silver open interest is 133,000 contracts for 5000 oz. each, which is 665 million oz.
Clearly, a loss of $16.85/oz., during the entire bull market in silver from 2003, over 11,875 million ounces in the OTC market, would be a much bigger loss, as it would be $200 billion!
Yes, in "OTC Bullion Accounts", world bankers have a potential loss of about $200 billion, if they could even deliver 11,875 million ounces that clearly doesn't exist in their vaults, and doesn't exist in the world even to buy!
It is also extremely important to note at this point that the world's silver mines only produce about 600 million ounces, and world physical investment demand is only about 100 million ounces, or about $1.3 billion at the current $13/oz.!
So, if you were one of those bankers, and you had a potential loss of $200 billion wouldn't you rather lose $13 billion trading at the COMEX to save the $200 billion loss in the OTC market? I would.
That must be very near to how they rationalize it.
After all, if you can control the reported price on the open markets, then your losses in the "over the counter" market is much smaller.
And it's a great scam, as long as people continue to be convinced to hold paper silver other than real silver, which they are, as the numbers prove it.
With only $1.5 billion going towards the purchase of actual physical silver in a year, while $200 billion is sitting in OTC "other precious metal" accounts, it goes to show that the vast majority of people who own silver, or about 99% of assets in "silver" are really paper silver, most of which could not possibly exist as real silver.
And that still does not include all the other paper markets!
For example, another paper market is the silver certificates issued by Canadian banks, that the Banks are no longer redeeming. The refusal and inability to redeem Canadian silver certificates has continued without much notice, and no official reports or admission. It's like a silent bankruptcy, not even getting any press or much blog coverage, because, still, so few people even attempt to redeem them. But my point is that I have no idea of the size of that paper market, it could be in the billions, too.
And those BIS numbers also don't include the LBMA accounts that trade up to 30 billion ounces of silver per year, which is about 120 million ounces of silver per day, on a base of 75 million ounces of physical silver, which is another absurdity, of course! Those numbers were reported in the CPM Group's annual silver book for 2008.
And those BIS numbers don't include the ETFs either, since the ETFs are not an "over the counter" market, but a transparent one, and also don't likely have any silver, since the custodian is JP Morgan, who has also been identified as the key bank that is short in the silver market on the COMEX.
So, perhaps much less than 1% of people who think they have silver, actually have any physical silver.
Furthermore, those people who are blissfully happy to let their assets sit in "paper silver" accounts are nearly guaranteed to not make any significant money in silver, if only because when silver does soar past $100/oz., there's no way that those bankers would pay out $100 x 11,875 million ounces = $1,187 billion dollars to those paper silver holders.
And of course, 11,875 million ounces of silver does not exist in the world for them to buy, cover, and pay out, in any event!
Instead, the banks will do as they always do, and merely change the rules, or force a cash settlement (which is a quasi-"bankruptcy") at much lower silver prices. They will simply default, which means that they will fail to deliver silver that they don't have, of course.
Their danger, of course, in doing even that, is that people might begin to wake up, and demand real silver if they can't have paper silver.
After all, paper silver serves its purpose to manipulate silver prices downwards, only if it serves as an alternative to prevent people from buying real silver.
Here's an additional cost of the manipulation. Manipulation only works if they can actually deliver real silver, at lower than market prices. I have heard of offers to miners of up to 4% over spot for access to all of their silver. Isn't that kind of offer evidence that the "spot" price is manipulated lower than the real cost of real silver?
So, let's calculate the maximum potential cost of that. Suppose
the world bankers bought 100% of world production this way, at 4%
over spot, from the miners and refiners, and then turned it around, to
sell it at what becomes "spot", for 4% less, at a manipulated "loss", a
loss to manipulate the markets. With 600 million oz. of world mining
production, at $13/oz., x 4% is a mere $312 million, a tiny cost of "doing
business" to keep manipulation going, and to continue the COMEX
rigging, and to prevent the bankruptcy and loss of $200 billion in
the OTC markets!
One of my goals is to fight such wickedness in high places, as I strive
to expose those evil ones to the light of truth to end their evil