A London Silver Trader Challenges The CFTC

The following letter is from a London-based silver trader to CFTC Commissioner Bart Chilton.  I wanted to post this letter, which appeared in Friday's Midas report, for those who do not subscribe to http://www.lemetropolecafe.com/.  Anyone who follows the gold and silver markets knows about the severe imbalance which has occurred for several years between the size of the short interest in gold and silver futures vs. the amount of physical gold and silver sitting in Comex warehouses.  As an example, JP Morgan and HSBC combined (and it's mostly JPM's short) have a short position which represents 199 million ounces.  This is nearly 4 times the amount of silver currently listed as "registered," or available for delivery. 

In any other instance,with any other commodity, the CFTC (Commidity Futures Trading Commission), which is the Governmental body which regulates commidities trading, has always enforced "market concentration" regulations and restricted the size of the long or short position which can be held by any firm in that specific commodity.  There is usually a standard applied which measures the amount of short/long interest in a given commodity vs. its available supply on the exchange.  As Ted Butler has been pointing out for years, never in the history of commodity futures trading has the short interest in silver (and gold) come even remotely close to degree of concentration and nominal amount vs. available supply as it is in the silver market.

The issue here concerns the CFTC's refusal to impose the same standards to the silver market which have been applied and enforced in every other commodity market.  Why does the CFTC refuse to address this issue in the silver (and gold) market?  Bart Chilton  represented to Bill Murphy last December that he would address the problem in the silver market.  Since that time, a new chairman - Gary Gensler - was installed by Obama.  Gensler is a former partner at Goldman Sachs (surprise surprise).  He was also part of Robert Rubin's Treasury Department in the late 1990's.  The egregious and balantant manipulation in the Comex gold and silver markets is largely attributed to policies implemented by Robert Rubin.

I wanted to post the following letter to demonstrate how blatantly the CFTC is enabling the massive manipulation in the silver market to continue.  In my view, there is a very distinct connection between the appointment of yet another Wall Street crook to the CFTC post and the lack of enforcement in gold and silver trading.  Highlighted sections are my emphasis:

Further to my letter of the 11Nov. 2009

Dear Mr. Chilton,

I was a little disappointed that you had not acknowledged my letter to you on 11th Nov.I realise you are busy but it would be nice to at least know you were taking my information into consideration and looking into the questions I raised.

You must be aware of the concentrated positions evidenced in your own published data. This information has most certainly been in your hands for a year now. Since that time the concentration has increased to record levels. I realise that you inherited this criminal situation BUT THIS IS NOW HAPPENING UNDER YOUR WATCH.

As you know I am a metals trader based in London and am fully aware how JP Morgan et al is able to move the silver market at will. Indeed I am able to profit from such activity as we are given clear signals by them when they intend to instigate a sell off. If you cared to contact me I would be able to give you information on just how these signals work. You may wonder why I would want to expose such a profitable activity? It is because I want to trade in a fair market and think of my profession as honourable. I believe all human beings should act with integrity and when I look around in church on a Sunday realise that I am deceiving and robbing ordinary hard working god fearing human beings.

It makes me very uncomfortable to stay silent as I witness traders I know profiting from insider information. It is bad enough that a so called respectable bank is allowed to act in a criminal manner but I suggest you check into and audit the personal positions traders acting for a ‘certain bank’ take around the orchestrated sell offs.

I have been asked questions on how traders can justify such large bonuses this year. I think the press will have a field day now that these questions come into focus. Especially when we make them aware that it is not just through legal trading, and that the CFTC is fully aware this is going on.

You and I know that JPMorgan is acting as an agent for the Federal Reserve. It is common knowledge to all professional traders. I can only deduce that your lack of action in tackling this blatantly obvious manipulation because your hands being tied due to pressure from above. The CFTC’s lack of action is threatening to blow up the precious metals market.

This brings me to my main concern. Do you realise that the massive short paper positions are HANGING BY A THREAD? There is simply not enough physical metal available for delivery for the December delivery contract.
Over this Thanksgiving we saw another supposedly marked to market Derivative position blow up causing ripples through the market. Yet this default is just a fraction of what is threatened within 4 weeks in the physical market. I have been just one more voice trying to warn you this is going to end badly no matter how much you are reassured by JPMorgan the positions are hedged. All they can do is now take a MASSIVE risk in adding to the short positions in order to instigate a selloff. Unfortunately Gold will not oblige in assisting this telegraphed action. Are you willing to allow this king of risk to escalate?

Please acknowledge my letter.
Respectfully yours
Andrew T. Maguire

When Bill Murphy met with Chilton last December, he demonstrated with hard data and facts that eventually, left unchecked, that the huge, illegal and unregulated short positions in gold and silver would eventually get blown away by increasing demand for physical gold and silver.  The author of the letter alludes to this in the last paragraph. Chilton has obviously decided to ignor Murphy's warnings, as the net short position in both gold and silver become more extreme every week.

Make no mistake about it, at some point in the future, and possibly starting this month with the December deliveries of gold and silver, it will become apparent to all involved that the physical demand for gold and silver are going to completely blow up the Comex.  Anyone looking to preserve some portion of their financial health with gold and silver should buy as much as they can, as soon as they can.  When this situation on the Comex unwinds, it will catapult the price of gold and silver to unimaginable levels.

Update on December Comex Gold Open Interest: This Could Be Interesting

December open interest is 44,366 contracts. This represents 4.4 million ounces vs. the 2 million "eligible" -available for delivery - ounces of gold in today's Comex inventory report. Anyone holding a long position had to be ready for a delivery notice on Monday, meaning their futures account has to be fully funded and ready to pay for delivery as of Monday.  It remains to be seen how this will play out over the month of the December. Technically, last "notice to deliver/delivery" day is 12/31. I have yet to understand how the delivery notices are assigned (i.e. notices can be assigned anytime from Monday to 12/31), and unassigned contracts can be sold up to 12/30 or tender for cash, but if every single one of those 44,366 contracts has the intent of taking physical delivery, the Comex has a problem.

Eyes Wide Open: How Significant Is The Potential Dubai Default?

The quick answer to that question is that we don't have enough information to make a real assessment.  We know that the Dubai World fund is looking to restructure payment terms on $80 billion in debt.  Dubai World is an investment vehicle owned by the Dubai Government.

That's the devil we know.  The devil we don't know is to what extent Dubai World has off-balance-sheet liabilities.  Even more consequential, we don't know to what extent banks and hedge funds globally have engaged in Credit Default Swaps tied to the debt issued by Dubai World.  Like every other financial accident that has happened - and the bigger ones waiting to happen - the OTC derivatives abortion has the potential to magnify the damages by many multiples and to inflict damage in places where we we least expect it (i.e. U.S. investment and pension funds).

We also know that going back to Long Term Capital and Enron, when smoke started billowing from these entities, it didn't take long for those firms to disappear, incinerated by hidden, off-balance-sheet nuclear landmines.   The long list of financial firms that followed, often vaporized overnight, included Bear Stearns, AIG, Washington Mutual, Lehman, Wachovia and many hedge funds.

JP Morgan is out with a report that the U.A.E. has plenty of money available to bail out Dubai. That may be the case and this crisis may blow over as quickly as it surfaced.  But these sovereign bailouts, led by the multi-trillion dollar U.S. bailout schemes, will eventually become ineffective, drown out by the flood of money printed in order to make them happen.

One thing I do know, all the anti-gold critics and media morons have been quick to point out that gold was sold off hard and thus was not performing as a flight to quality instrument.  What I would like to point out is that gold has actually rebounded 4% off of its overnight lows and is unchanged from where it was trading for most of the day on Wednesday (albeit a bit below Wednesday's close).  No doubt gold was affected by the knee-jerk reaction of hedge funds who piled into gold's upward momentum and other weak-handed holders.  Hedge funds tend to sell anything not nailed down at the first sign of downside volatility, and this would include gold futures thereby exaggerating gold's sell-off.

Quite frankly, in the context of the dollar spike and the hard sell-off in stocks globally, I think gold is holding its own quite well. In fact, gold is outperforming the dollar quite handily since the equity markets opened today.  Keep your eyes wide open to what is happening in Dubai.  Not so much for what is obvious, but for the collateral effects that might not filter out thru CNBC, Bloomberg News, et al.  The event that triggers the next huge cliff-dive in global equity markets is likely to come out left field with little or no warning.  Did anyone expect to wake up yesterday to see European bourses down 3-4% on the news of potential debt default from Dubai?

Is A "Commercial Signal Failure" Upside Explosion Coming In Gold?

A commercial signal failure occurs in the commodities market when the amount of demand for physical delivery of a commodity - in this case gold - exceeds the ability to physically deliver the available supply by those obligated to deliver.  In this case that would be the parties who have sold short the Comex December gold futures contract (primarily Goldman Sachs, JP Morgan, HSBC and Deutsche Bank). If this does indeed occur, the price of gold and silver will do a veritable moon-shot in price.

The situation in December gold on the Comex could get quite interesting.  As of today's trade date, there are 94,544 open December gold futures contracts.  Anyone holding one of those contracts who does not or can not take delivery (1 contract = 100 ozs, or roughly $118,000) of Comex gold needs to have that postion sold by the end of trading Friday.  Tomorrow the Comex is closed and Friday will be a low volumn day.  The reason for this is that Monday is what is known as "first notice day," which means that anyone long a gold contact (or silver) can be tagged with a delivery notice.

Now, the amount of gold being reported by the Comex as "registered" (not that we trust that number) - which is the amount that is available for delivery - is a little over 2.1 million ozs. If o/i (open interest) on Monday is any where over 21,000 contracts (2.1 million ounces), December could be a very interesting month for gold.  In other words, if the open interest at the close of trading Friday is greater than 21,000 contracts, the Comex has a delivery problem.  The price will go parabolic.

With the open interest at 94,000+ right now, and with Friday being a very low volumn day, we can expect that the number of contracts that potentially stand for delivery will far exceed the amount of gold available for delivery.  Now, contracts can be tendered for cash instead of gold, and someone holding a contract can sell it after 1st notice day.  But, anyone holding after Friday must have an account fully funded to accept delivery because, in theory, every single long position on Monday could be tagged with a delivery notice (this never happens but theoretically it is possible).  We'll have to wait until Friday afternoon to know for sure, but I suspect the relentless move up in gold prices this week are sniffing out the possibility of a delivery issue as described above.

Two more interesting items of note, and events which confirm the growing demand for physical delivery and possession of gold.  First, it was announced today that the Central Bank of Sri Lanka purchased another 10 tons of gold from the IMF.  They said it was a move to diversify reserves, which means they are dumping U.S. dollars.  Here's the link:  Sri Lanka Buys More IMF Gold.  And India has expressed an interest to buy the rest of the IMF gold for sale:  India Interested In Rest Of The IMF Gold.

It should be clear to anyone paying attention to what is going on in the gold (and silver) market that there is an aggressive movement by central banks, investment funds and wealthy individuals to take physical custody of large quantities of gold.  There is also a massive imbalance between the actual supply of physical gold available for delivery and the enormous amount of paper liabilities for gold.  These liabilities include Comex futures, OTC derivatives, leased gold and, of course, the high likelihood that GLD is largely a massive gold leasing operation.  The paper Ponzi scheme in gold is starting to unravel and this is being reflected by the price behavior in gold, despite tame inflation numbers coming out of the Government.

Have a great Thanksgiving break - GOT GOLD?

There's a Brown Cat sleeping thru this day's show
On top of the woodpile...breathin' slowwwww
(Widespread Panic, Driving Song)

Must-Watch Video - The National Inflation Association's "The Dollar Bubble"

"There will be two social classes of American in the future:  those who sell their U.S. dollars today and buy gold and silver and those who buy into the false hope of an economic recovery."

I suspect that there is a lot of factual information and news reports in this 30 minute documentary that most people who view this video have not seen.  Some of the best footage is of Congressmen grilling Banana Ben Bernanke under oath and his obvious discomfort with the questions and, for those who know the facts, his obvious lies.

"Eventually this dollar is going to stop working and everybody is going to know what poverty is all about."

"Unfortunately, those who buy real estate this time around will get slaughtered."

Consider this video as yet another huge warning shot directed your false sense of well-being.  And also consider that in Weimar Germany, over 80% of Germany's citizens clung to the false hope of their national currency and held onto the (Renten)mark until it was completely worthless by late 1923. 

Presented by the National Inflation Association - NIA



"Those who cannot remember the past are condemned to repeat it." - George Santayana, poet and philospher.

Consider that during the course of this decade, gold and silver have both appreciated well over 450% against the U.S. dollar.  This is without the benefit of perceived inflation and without most large institutions and small investors participating in the "stealth" bull market.  Imagine what will happen to gold and silver when serious inflation hits the system, as a result of the catastrophically reckless fiscal and monetary policies being imposed upon us by the Federal Reserve and our Goverment....GOT GOLD?

The Bell Tolls For Tim Geithner...

The NY Times is reporting that Jamie Dimon, CEO of JP Morgan, is being touted behind the scenes as a possible successor to Tim Geithner.  The NY Post also had the story.  The fact that this story has surfaced like this suggests that the end is near for Tiny-Brain Tim:

Mr. Dimon “would love to serve his country,” the newspaper quoted people familiar with his thinking as saying...here's the link:  NY Times: Geithner May Be Done

If Obama really wants to clean up the mess in the financial sector, he would find a replacement that has absolutely no economic ties to Wall Street or the Fed.  Since the primary purpose of the Treasury Department is to oversee the collection of tax revenues, the disbursement of those revenues and managing the liability side of the Government's balance sheet (i.e. issuing debt to finance the Government), perhaps someone with a solid background in accounting and bread and butter banking operations would be a good choice.  Since regional banks are the backbone of small business lending, and small business growth is the backbone of job growth and econmic stability, perhaps a solid candidate might be the CEO/CFO of a successful regional bank.

The problem with Jamie Dimon is that he would be nothing more than a retread of Stuttering Henry Paulson  - albeit a version of Paulson less the stuttering speech impediments.  Recall that Paulson is the person who essentially hijacked $700 billion from the Taxpayers and shuffled a large portion of that money thru AIG to Goldman Sachs, JP Morgan and others.  How can we possibly expect Jamie Dimon to act differently that Paulson did, which would be for him to act in the interests of the American Public and not the corrupt Wall Street Community?

This just in from a loyal reader:  The overall strategy needs to be to avoid Wall St and anyone who may be connected to that avenue. The Treasury needs to be about protecting the taxpayers $ - Wall St is inherently set up to abscond with it.

My response:  Putting Dimon in there would be nothing more than replacing a barking chihuahua with Godzilla dressed up as Florence Nightingale.

No Country For Old Men...

"People were always getting ready for tomorrow. I didn't believe in that. Tomorrow wasn't getting ready for them. It didn't even know they were there" ("The Road" by Cormac McCarthy).

This country needs to take care of its problems today. It is getting worse by the hour. In Colorado, public school teachers are going to face up to 17 days of furloughs next year. The State was trying to keep this a secret but an incompetent high school prinicipal let the cat out of the bag and concommitantly the fact was confirmed on NPR radio last week. The Jefferson County school district is facing a $42 million budget shortfall and deep cuts will be made to the educational protocol, but not to the incompetent bureaucracy that oversees the mess - nor to the incompetent politicians overseeing the incompetent administrators. Foreclosure filings in Colorado hit a new record during the 3rd quarter and Colorado has one of the stronger State economies. Nationwide over 14% of all mortgages were either delinquent or in foreclosure. A new record high for the 9th consecutive quarter. In some States the foreclosure/delinquency rate is over 20%.

Conditions in this country are getting worse for everyone except those in position to loot the system. Tim Geithner gets in front of Congress and ignorantly and arrogantly proclaims that he and Obama saved the system from collapse and that economic conditions are improving. THAT is an outright lie.  Real unemployment (not the Government-concocted crap numbers) increases daily, banks are jacking credit card rates to usurious levels and thereby choking off holiday shopping and State Governments are in the process of financially collapsing - all this after trillions of "stimulus" and bank bailout money was injected into the system. The reality is that Geithner and Obama have transferred 100's of billions of dollars from the Taxpayers to the big banks and big corporations. Does everyone realize that there's a tax break which gives new homebuilders billions in tax credits buried in the Bill that extended unemployment benefits and homebuyer tax credits?

Taking care of today means getting rid of Geithner, Bernanke, Summers and most of the rest of Obama's corrupt Administration. Until that happens, the problems are getting worse by the hour for everyone except the big bankers, who are getting paid record bonuses this year to do "God's work."  The only problem is that the money being used to pay those bonuses is coming from the Taxpayers. If Goldman Sachs CEO Lloyd Blankfein is doing "God's work," as he so proudly proclaimed last week, what is it exactly that Obama is doing?  Should we be pledging allegiance to the United States of Goldman Sachs, one Nation under Llyod Blankfein? Is this what everyone who voted for Obama voted for?  Obama ran on a campaign platform that was supposed to clean this mess up, get rid of the corruption, and CHANGE the way DC operates.  Instead, he's taken the problems perpetuated by many previous Administrations and is making them even worse.  Maybe this is No Country For The Middle Class...