Banks are the new Hunts: highly bullish short position for silver!

Silver investors owe a serious debt of gratitude to Theodore Butler for alerting the US regulators to the manipulation of the silver market in August by two major banks in one of the most blatant actions since the days of the Hunt Brothers in the 1970s.

Mr. Butler has seen this many times before and does not expect the authorities to take any action this time because they may be giving tacit approval to such shorting to keep silver prices down. But in the current ‘anti-short’ and ‘anti-Wall Street’ mood gripping the US public investigators may be less inclined to brush this under the carpet.

It certainly appears a very simple case – and not one needing much investigation as the alert from Mr. Butler followed an analysis of data collected by the same authorities now leading the investigation. Here are his conclusions which I hope he will not mind me lifting from his latest article which can easily be found in full on www.silverseek.com:

“The data is clear – one or two U.S. banks sold short the equivalent of 140 million ounces of silver in one month. That’s more than 20% of world annual mine production. Less than three U.S, banks sold more than 10% of world annual mine production of gold simultaneously. The price of silver and gold then collapsed by an historic amount. These same banks have used the sell-off as an opportunity to buy back as many of their short positions at a giant profit. Those are the facts.

It is important to put these numbers into perspective, in order to appreciate their significance. One way to do that is by comparing what just took place in silver to other commodities. If one or two U.S. banks sold short, in a period of one month, the equivalent of 20% of world annual production of corn, that would equal one million futures contracts. (25 billion bushels x 20% divided by 5000 bushels). Since the entire open interest in corn futures is one million contracts, a sudden short sale of that amount would crush the price.

If one or two U.S. banks sold short 20% of the world annual production of crude oil, that would be the equivalent of 6 million NYMEX futures contracts. (30 billion barrels x 20% divided by 1000 barrels). Since the entire open interest on the NYMEX is around 1 million contracts, a sudden sale of 6 times that amount would drive the price of oil to ten cents a barrel. It would also be market manipulation beyond question.

The CFTC doesn’t need to investigate. They only need to explain why their own data fails to prove manipulation in silver and gold. Save the taxpayer some money and all of us some time. This needn’t take days, weeks, or months. This should take, literally, minutes. Why maintain and publish the data in the Bank Participation Reports if the CFTC won’t recognize an obvious manipulation that is a crime in progress.

The latest COTs confirmed the one thing I was hoping and expecting them to confirm, namely, that the biggest shorts continued to cover their short positions in gold and silver. What makes their short covering most noteworthy is that the buybacks in the most recent report occurred on a sharp rise in price, some $3 in silver and $120 in gold for the reporting week. This tells me that the big short, the U.S. bank(s), is serious about getting out of as much of its massive silver short position as it can.

From the time of the August Bank Participation Report, the big shorts have now covered nearly all of the gold short position put on during July. Therefore, the manipulation in gold was a complete success. In silver, while the manipulation must be considered a success, because the big short has covered an impressive amount, it has not covered all of its manipulative short position. In looking at the structure of the COTs, it does not appear to me that much further liquidation can occur to the downside. To say that the COTs are structured bullishly, would be a gross understatement.”