Sunday, November 29, 2009

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  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.


  1. Dave,
    very interesting. I have always wondered how JPM can be so short silver as the price continues up. I hope they get torched on this, but did they hedge with AIG? Maybe we will have to bail them out?

  2. Did a quick post tonight and included this story, great find! My friend Mark has other ideas about silver so I included his view as well.

    Who is your pick for tomorrow night? I am going Patriots in the shocker. My 2 favorite teams so I win either way!

  3. Question: *why* do JPM and others short gold and silver? I presume that hedging might have something to do with it, but with those positions it's a lot more than hedging.

  4. @U6: I'm not sure there's an argument for banks to be hedging commodities. Hedgers traditionally are the producers of the particular commodity, like farmers, ranchers and resource production companies. And to an extent, manufacturers who use the relevant commodities or jewelers.

    No one has explained to me why JP Morgan, or any bank for that matter, needs to be running a massive short position in gold and silver. It's all part of the thoroughly documented and widely accepted price suppression of gold and silver. There can't be any other explanation. And there wouldn't need to be an explanation if the CFTC were to enforce the regulations on gold and silver trading that it enforces in every other part of the commodities market.

    Is your nickname in reference to the Govt employment report?

  5. @gyc: man, I wouldn't touch that betting spread with a 10 ft pole. with NO giving only 1.5 at home, the betting money is handicapping NE as a the better team on neutral ground. I'm pulling for NE to win to knock out NO's unbeaten status. going to be a great game.

    just read your blog. I don't necessarily agree with Stagflation Mark's thesis behind the aluminum/silver ratio analysis. silver is a monetary metal as well as an industrial metal. not sure there's a pricing correlation with aluminum except maybe a general commodities correlation.

    we can create ratios based on anything and create a story behind the ratio. but does it make sense? The gold/silver ratio makes sense because both metals have been used for monetary purposes for most of the last 5000 years. I've seen gold/silvr ratio charts that go back to like the 1100's.

  6. Thanks for the update, Dave. Your thoughts are very much appreciated! Keep up the good work.

  7. The Gold/Silver short position will never be addressed by the CFTC or anybody else for that matter.

    This is an issue of national security and a continuance of the USD as the world reserve currency. They know when COMEX blows the USD will soon follow.

    Right now, they have their best minds trying to figure out how to slip past this current OI issue. Let's see if the slippery ones can pull it off again.

    Joe M.

  8. Joe, I agree that the gold/silver short position will never be addressed by the CFTC. I agree that one of the excuses would be "national security" as per the Patriot Acts (1 & 2) which were drafted to invoke "national security" in financial issues.

    Obviously it is not an issue of national security. In fact, as per Bill Murphy's warning to Bart Chilton last December during his face to face w/Chilton, at some point the Comex is going to blow up because the paper shorts will be overwhelmed by physical demand.

    I believe the CME allowing the use of GLD to settle a contract was an attempt to override the physical vs paper dilimma. HOWEVER, the instant someone who wants physical is hit with GLD certs, the word will leek out and it will serve the same purpose as a default occurrence.

    These guys are screwed.

  9. They broke the play of the Hunt Brothers who saw a shortage of silver (film was used in 1979-1980) by having the exchange announce that under an emergency provision no more buying could take place in the first three contracts, nor short selling, and it was "liquidation only." I traded in most of the NY pits in the WTC. The exchanges do not exist for "price discovery." They exist to make sure there is a place to hedge "some" product as well as to facilitate the member firms of the exchanges making money off of funds...not losing it.

    What will happen this time? Who know?

    What I do know is that I was told of a number of incidents over the years where the CFTC was quietly handed chapter and verse as to very questionable trading that should have jailed some brokers and they never did anything. Unless it's a very high-profile case, they can't be bothered. Now, with JPMorgan holding more derivitive risk that the entire world combined (see Reggie Middleton's article at ZeroHedge) it is unlikely that they will bury one of their own. The public will get screwed first ...OR...this is where the bubble in all assets break with the collapse of JPMorgan. How fitting indeed.

  10. i own slv etf and i know jpm chase is the custodian, am i ok even if jpm gets busted and the trust is found not to actually have the silver. the more i investigate i feel the only thing to do is to actually hold the phisical silver/ gold - how is anyone here playing the metals market. thnk you

  11. Foolish SLV owner, rush to exchange your paper for physical silver !

  12. I dont see any force in the arguements adduced. Physical buying involves 20 times more money. Most of the buyers who have bought silver will never put that much of money to take delivery of physical silver as simply they dont have that much of money nor can arrange.

    Margin trading always involves excesses, last year when crude traded up the longs built huge positions, if the same arguement is extended , where would they store that much of crude if they really intend to buy physically.

    Most of the exchanges thrive on day trading based on margin investments, it allows me to own 20 oz of silver against 1 oz if I buy physical silver. Very few put 100% money to buy physicals. The big money which plays short simply knows that world doesnt have money on delivery date to pay full amount and take delivery. This is true of all instruments.

  13. Hey SLV and GLD owners, you might want to buy CEF instead as they hold the real deal. It's about 50% gold and 50% silver. The negative is that it would be a juicy target for confiscation, but so is SLV and GLD.

  14. CEF is in Canada so I would not worry about confiscation.

  15. CEF.A is run by the best.

    When looking for answers to these questions we should just look to history. The bigger they are the harder they fall. I wouldn't want to be short silver and gold at this point. If they haven't already covered there done for.

    History shows even the most powerful banks eventually crumble under there own power trips and greed it's truly the beauty of it all. JPM has to many cards to hold up at once and to many complicated trading systems to manage.. We only simple need to slowly accumulate more physical gold and silver and we have them beat. Physical longs have it easy just buy gold and silver from any where you can get it.

    JPM was a major merchant bank for ABX and I suspect they have had the luxury of covering there physical short position with there hedges with the gold producers. With declining mines production and with the recent hedge buy back from ABX shows the shorts days are numbered. They forgot about the rules they probably where taught in school, a short position is exactly that a position of short period of time. To short for a prolonged period of time is self defeating as all asset prices against fiat currency goes up.

  16. It seems obvious that since:

    1) Pm contracts cannot be covered in the face of demand for physical and,

    2) since supply is far below demand, then,

    3) the only option open to the authorities is to curb demand so that it approaches available supply.

    This will be done by propaganda, prohibiting ownership again and harrassment of known PM owners, to name a few options open to reduce demand. Always to be done in the name of national security of course.

  17. what ever politicians say the exact opposite is true.. other than Schiff of course.

    If you want to know the truth. Just think of the exact opposite what politicians believe the exact opposite what fed chair is the truth etc..

    This also applies to the masses, When everyone believes or when the american Sheeple trend toward something you can rest assure success if you do the exact opposite.

  18. gold is currently one of those "opposite" trades that will pay off.

    If they make gold illegal to own I think that should rise some eye brows in the american people.

    Hopefully they can figure it out sooner rather then later.

  19. GLD and SLV are piggy banks for JPM and GS when they have to cover their bets with physical. Individual investors are not allowed to convert shares to physical silver, gold or possibly tungsten bars.
    Read the prospectus for GLD and SLV. You have no recourse when they go bust.
    The only sources of physical are the miners.
    JPM must be in trouble. Now they want their man (Dimon)in the Treasury.
    Asia will continue to dump the US$ and buy physical gold and silver.

  20. You dude, awesome. But then it meets expectations. Once again you managed to beat by a penny. Still chuckle of the thoguht of Besos draped in Xmas lights on araft floating back to Cuba.

    Bring on the f_cking revolution~!

  21. Here is the only plausible explanation for JPM's enormous and illegal short positions:
    1. JPM esq. was the agent for the most famous 250 year-old international banking dynasty (whose name none dare mention), majority owners of the Bank of England and the USFed. He financed the Rockefellers, Carnegies, Vanderbilts and other financial rising stars as well as the USGovmnt.
    2. JPM, just like GS, still control the Fed on behalf of that family, thereby obviously and blatantly controlling the USGvmt and the rest of the world
    3. That family owns more than 50% of world assets by virtue of making government loans out of thin air, guaranteed by the IRS and world tax collectors' enforcement (2009 has been one of the most productive years for them btw.)
    4. That family stands to own 90% of world assets by creating a super-depression (which has already started and is to be followed by their communist slave world with injected 5 micron nano chips and gulag work camps, pandemics and nuke war for the excess eaters/pensioners and 15,000 guillotines for the disobedient, all those instruments are in place and can be viewed on Google and U-tube btw.), in which their government debt will at least double in value. Their profits from the enormous short positions in Gold etc. and derivatives (bond call options etc.) will help accomplish this final rapid increase in their percentage of world wealth.
    5. Nick Guarino seems to be right on track with his article about Dubai, which will be just one of the nails in our future coffin, see (Petroleum at 5 dollars/barrel).
    Good news: I have been wrong/early before.....

  22. GOLD & SILVER represent HONEST money. If you were a crook, you would short it to ZERO so you could enjoy the benefits of MONEY FROM NOTHING you would create.

    500 year old story, old as the ages.

    Okham's Razor, keep it simple. No ned for wild ass guessing.

  23. 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. serviced apartments london