Is the silver futures market about to crack wide open?

The silver market has been looking interesting for months, despite the price collapse. Beneath the surface of the recent spot price falls the structure of the market is changing in such a way that a powerful bull market is being set up.

Metal holdings for Barclay’s iShares Silver Trust (SLV) have so overwhelmed selling pressure that the trust has added a total of 68,921,884 ounces of silver to its holdings so far this year, reported resourceinvestor.com. Yet late last week the COMEX futures market reportedly held 131,530,256 ounces of silver in its warehouses.

Thus so far in 2008 the leading silver exchange traded fund SLV has added the equivalent of 52.4% of all the silver metal that the COMEX futures market has in its vaults. That surely represents amazing buying pressure at a time when silver prices are in crashing. Something is not right clearly.

False market

Then as resourceinvestor.com comments: “if we consider all of the 95,873 open contracts for silver on the COMEX as of last Tuesday, then we find that the COMEX traders are trading contracts either side, long and short, of 479.4 million ounces of silver but only have 131.5 million ounces behind it.”

Why then have silver prices been falling? That brings us back to the alleged manipulation of the market by two US banks over the summer, now under investigation by the regulator.

Resourceinvestor.com says: “Exactly two U.S. banks continued to keep their thumb on the COMEX silver market as of October 7 when the silver price had already declined from $19.00 to $11.00 and change in the face of severe physical silver shortages of metal on the street. As of October 7 the two largest commercial banks still held a scandalous 23,308 net short silver contracts when the entire commercial net short position was 29,829 contracts. That’s right, two banks still dominated the small silver futures market with over 78% of all the commercial net short positioning.”

This is not only downright illegal and unfair, it is producing a false market. And in false markets things can change very rapidly. Is it any wonder that metal is now flowing out of the COMEX and into the physical market. SLV investors sense a bargain and are effectively pulling silver stocks out of the futures market where the price is false.

COMEX exit

Resourceinvestors.com notes that over two million ounces of silver have fled the vaults of the COMEX in just the last five trading days alone. How long before that trickle becomes a flood and the futures market in silver is effectively shut down and the physical spot market takes over?

Expect to see silver prices head to the moon. In the late 1970s it was a bungled price manipulation by the Hunt Brothers that sent silver prices super high, and bust the market for the next two decades. Silver today is trading at around $10 an ounce compared with an average price of $24 an ounce in 1980. What else today costs a fraction of the price 28 years’ ago?

Now it will be a bungled price manipulation by US banks that releases the silver price from its artificially depressed state. Silver bugs have gotten silver hair waiting for this to happen, but it is finally upon us and nothing and nobody can stop it.

An investment tip: stock up on physical silver, bars, coins and ‘pure play’ silver equities which should deliver the most outstanding profits of all. These are extraordinary times in capital markets and exactly the sort of period when such extraordinary events happen.
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