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Debating Silver Manipulation

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Last week, I wrote a piece about the purported “debate” which took place on BNN earlier that week – on the subject of silver manipulation. This event was in response to the stunning remarks of CFTC Commissioner, Bart Chilton: that he had observed enough evidence of such manipulation in the public domain to conclude that U.S. bankers had “fraudulently” and “deviously” sought to manipulate the silver market via the U.S.’s “Comex” exchange.

Presumably, such a debate would have attempted to piece-together such evidence with one side arguing in favor of such evidence, and the other side arguing against it. In fact, during this 9-minute sham, no significant evidence of any kind supporting “manipulation” was raised (by either side), but rather the whole point of this exercise  seemed to be not about “debating” silver manipulation, but rather simply discrediting Commissioner Chilton, following his courageous and unprecedented remarks.

To support my conclusion, let me briefly introduce a small portion of the evidence which could have been argued in a serious debate.

Previously, when the subject of “silver manipulation” was raised, the response of people such as Jeffery Christian (who argued against manipulation on BNN) would be to ask the rhetorical question: “if there is widespread manipulation of the silver market, why haven’t we seen some ‘whistle-blower’ step forward to acknowledge these illegal acts?”

Christian never made that remark on BNN’s “debate”. Why? Because earlier this year, veteran metals-trader Andrew Maguire did emerge as a whistle-blower. Indeed, he attempted to testify at the CFTC’s spring hearings on the issue of precious metals manipulation. He told the CFTC (privately) that not only had he heard traders for the bullion-banks personally bragging about repeatedly manipulating the silver market, but he said he was familiar enough with their practices to not only detail a major, previous episode of manipulation, but also to describe to the CFTC a manipulation that was in progress while he was in direct contact with CFTC officials.

The response of the CFTC? They would not allow Maguire to testify. Let’s be clear on what this signifies. It was always open to the CFTC to “hear” Maguire’s evidence (officially), and then to conclude they didn’t find it persuasive. However, in simply refusing to give Maguire the opportunity to present his evidence – as the whistle-blower that (presumably) CFTC investigators wanted to hear from – the CFTC completely discredited itself, as the personification of the “see no evil, hear no evil, speak no evil” monkeys (Commissioner Chilton, aside). Indeed, were it not for the efforts of GATA to publicize Maguire’s efforts to alert the CFTC, we might have never become aware of this whistle-blower.

If we needed any further evidence of the lack of good faith exhibited by this so-called “regulator”, the CFTC has provided it, or rather a soon-to-be-retired judge who presides over CFTC investigations has provided it.

Judge George Painter is one of the two administrative law judges who presided over CFTC investigations/complaints (for the last two decades). Judge Painter recently announced his own plans to retire. Here is what he had to say about the CFTC’s other Judge: Bruce Levine:

On Judge Levine’s first week on the job, nearly twenty years ago, he came into my office and stated that he had promised Wendy Gramm, then Chairwoman of the Commission, that he would never rule in a complainant’s favor. A review of his rulings will confirm that he has fulfilled his vow…

Judge Painter had even more to say about his colleague for the last twenty years, but let me interrupt that to make fully explicit what Judge Painter implied. This is not simply an accusation of “bias”, but one of corruption. It was “good for business” (i.e. the large U.S. corporations getting fat off of these markets) for plaintiff’s to never win – since who wants to invest in (get “fleeced” in) markets where those doing the trading are regularly found to have been engaging in various forms of fraud? And since it was “good for business”, Judge Painter was going to ignore his own, professional duty and all the principles of “justice” which he had sworn to uphold. Judge Levine has made no public attempt to refute Judge Painter’s criticism.

As badly as this reflects on Judge Levine, it paints an even more disturbing image of the former Chairman. When Wendy Gramm received the purported “pledge” from Judge Levine, she should have instantly revoked his appointment. The fact that this did not happen, implies that Ms. Gramm either condoned Judge Levine’s attitude or had made that a condition of his appointment.

How did Judge Levine’s corruption manifest itself on the bench? Judge Painter had this to say:

Judge Levine, in the cynical guise of enforcing the rules, forces pro se complainants to run a hostile procedural gauntlet until they lose hope, and either withdraw their complaint or settle for a pittance, regardless of the merits of the case.

In other words, in many of these complaints, the evidence was so overwhelming against these defendants that Judge Levine couldn’t even manufacture a pretext for dismissing complaints, but rather abused his position in order to prevent justice.

Readers should understand that it is extremely rare for one judge to criticize another (even after both are no longer on the “bench”). For a serving judge to publicly criticize a fellow serving judge  - and criticize that judge in incredibly strong terms – is utterly unprecedented in our legal system.

In the same letter, Judge Painter states that seven “cases that are currently on my docket will need to be reassigned”. It was later revealed that none of those seven cases included the CFTC’s current “investigation” into silver manipulation.

What this means is that current CFTC Chairman (and Goldman Sachs alumnus) Gary Gensler has assigned the silver case to Judge “I never met a defendant I didn’t like” Levine. In other words the “fix” is in. Not one word of any of this ever came up among the “expert” panel debating silver manipulation.

What other evidence was “overlooked” in the debate? Noted silver authority Ted Butler (the person who should have been invited to debate Christian), has spent much of the last two decades methodically documenting the excessive and outrageous “short” positions in the Comex silver market.

How “excessive”? Year after year, a handful of large bullion-banks (led by JP Morgan) hold a “concentrated short position” equivalent to roughly ¾ of all short positions on the Comex silver market. To illustrate how historically extreme is this concentration, it is more than five times as large as the “Hunt Brothers” long position was – when they were found to be guilty of manipulation (or trying to “corner the market”). If a single “player” holding about 15% of the market (on one side) can be considered to be improperly “cornering” the market, what are we to conclude about the small cabal of bankers who are allowed to “corner” as much as 80% of this market (on the other side), year after year after year?

Let me make another explicit point here. The reason that the Hunt Brothers were forced to reduce their own concentration in the silver market was due to the market reality that a very “large long” can force upward the price in any market – an unethical (and illegal) manipulation of that market. Thus, the clear implication of the over-concentration on the short side is that these bankers have been allowed to permanently depress the price of silver (also illegally).

Beyond the obvious (and obviously illegal) concentration on the short side of the market, the sheer magnitude of this short-position also illustrates its malicious intent. Relative to the total size of the silver market, the short position in the silver market is roughly five times times larger than the short positions of virtually every other commodity market on the planet (except for the other precious metals markets).

Commentators (including myself) have presented vast amounts of evidence that silver is not simply “fundamentally undervalued”, but arguably the most under-valued commodity in the history of commodity markets. Since an excessive short position would (inevitably) cause silver to be under-priced (year after year), the fact that silver is so grossly undervalued is a powerful “smoking gun” in terms of circumstantial evidence. Among this mountain of evidence, I’ll cite only two pieces of evidence.

Over a span of nearly 5,000 years, the gold/silver price ratio has averaged roughly 15:1. This is very logical, in that silver (as an element) is about 17 times as common as gold in the Earth’s crust. Today, even after the recent spectacular “run” in the silver market, that ratio remains at greater than 50:1.

What makes this huge imbalance in the price ratio even more shocking is that silver inventories and stockpiles around the world have been decimated – as the world’s silver supply has literally been consumed. As I frequently remind readers: anything which is under-priced will always be over-consumed. To illustrate how “over-consumed” silver has been, between 1990 and 2005, official silver inventories plummeted by 90%.

We have no idea what has happened to silver inventories since 2005, due to what can only be termed organized inventory-fraud – something which I have explained and documented in many of my own, previous commentaries on the silver market. The rapid “disappearance” of silver in our markets is conclusive proof that silver has been grossly undervalued year after year. If chocolate bars sold for a dime apiece, store shelves would be cleaned out in a matter of days.

The extreme and chronic under-pricing of silver, in turn, is conclusive proof of market-manipulation. In any “free market” prices inevitably rise high enough to discourage consumption, so that inventories can be re-stocked to healthy levels. Instead, what we have are ever more desperate attempts to cover-up the fact that the world’s silver “cupboard” is empty: the inevitable result of decades of ruthless (and illegal) price suppression.

Not one word of this made it into the BNN “debate”. This was an “operation” whose sole intent was to attempt to neutralize perhaps the most-powerful evidence of silver-manipulation yet: the unequivocal conclusion of one of the CFTC’s own Commissioners. In turn, we must suspect that Commissioner Chilton chose this time to speak out after becoming aware that Chairman Gensler had already assigned this “investigation” to a judge who willingly and enthusiastically protects defendants from any and all attempts to punish their actions.

Those knowledgeable silver investors frustrated by the endless efforts of big-banks, the corporate media, and the corrupt CFTC to hide the endless crimes being committed by the bullion-banks in this market should take a moment to thank all these “bad actors”. If not for their actions, few of us would have had the final opportunity to load-up on silver – at what are literally once-in-a-lifetime prices.

Meanwhile, the price of silver blew-past the $25/ounce mark today, illustrating another “truth”: supply-and-demand will crush these manipulators. With silver bullion-buying by India and China up 500% and 400% this year respectively, such large-scale buying is a juggernaut which will ignore the “wall of paper” created by the banksters (their final, feeble “defense”).

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Jeff Nielson
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written by Jeff Nielson, November 05, 2010
Paxjds, we're going to have to get used to an even higher level of disinformation.

1) The bankers have very little physical bullion left to manipulate markets, and so "jaw-boning" the price lower is about the only tactic they have left - other than ratcheting-up the leverage on their paper-short positions still higher.

2) If there were plenty of "buyers" of the myth of a "gold bubble" in the $1000 to $1200/oz range, then we can only expect MUCH more of such disinformation with gold at $1500+ and silver at $30+.

Personally, I would be quite happy to be able to accumulate more (relatively) cheap silver and gold. AND such propaganda serves to prevent a "mania" phase from arriving too soon. While those who have already finished loading-up would probably be quite happy to see some massive spike, such irrational moves always do damage to a market - and could derail the "bull market" for years.

Better to put up with the bankers disinformation, accumulate as much as we can, as cheaply as we can - and use the MINERS to get the sort of leveraged-gains which we might otherwise be getting with bullion right now.
paxjds
...
written by paxjds, November 05, 2010
Jeff, you are correct, but today I noticed a trend on the blog Seeking Alpha, that some say is a front for GLD and SLV banksters. More and more commentators are suggesting people "Take some Profits" by selling some of their Silver and Gold, to take some Profits now in case of a price drop. I about regurgitated all over my laptop when I read this.
If anything, people should be buying Both more PHYSICAL gold and silver right now with the pressure being put on Bankster Shorters like HSBC and MorganChase. This will help Break the Backs of these Price Fixing Crooked Banksters.
Ironically, RICO racketeering charges were brought against the Banksters for their price fixing schemes. My poor stomach is usually correct as I expect The Court Fix is in, the Banksters go free, and corrupt markets will go on in the markets. Al Capone type payoffs are apparently more prevelent in Washington today than Chicago in Capones time.
Jeff Nielson
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written by Jeff Nielson, November 05, 2010
You're all most "welcome" - for benefiting from your own common sense, in seeing that the "case" for silver was air-tight.

The point to keep in mind that even with all the price-gains in the bullion market since the decade-long bull market began (and especially with silver), these metals are likely "more undervalued" TODAY then they were a decade earlier.

This is how much "damage" has been done to the international monetary system. In just a few short years, a system where the largest capital flows had been expressed in the $100's of billions has now moved up to "trillions", nearly an order of magnitude greater than the scenario when the bull market began.

Thus, there is absolutely no reason for people to ever think about "profit-taking" with their bullion (unlike the shares of the miners, where profit-taking is encouraged). If we should be LUCKY ENOUGH that most or all of us are not FORCED to use our bullion as money in the not-too-distant future, then this is the sort of asset we should think about passing on to our children/grand-children.
Posthumous
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written by Posthumous, November 05, 2010
When I sold my house in february to move to a new distict, I gathered from internet sources, that House prices were heading south.
It took all my persuasion powers to convince my wife to rent...for a while at least.
So I had a substantial sum sat in a current account...so what to do...I already had $15000 in Gold...Conventional thinking told me to find a "High Interest account".

Something told me "why let the Banks have all this loot!?

The upshot is I put the largest slice in a Corperate bond fund...Rubbish...Seriously.
...and the next largest in Gold...although my broker advised me to spread over silver and platinum too...and so in learning about silver..I read the "Silver price Spiral...

Thanks very much Jeff.
Jeff Nielson
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written by Jeff Nielson, November 04, 2010
Navderek, this is what I was getting at in the hyperinflation argument: the numbers are getting so big that people (including the politicians themselves) have no idea how big these number are.

Abperusdisvet, while there are some subtle nuances to understand, the silver "story" is really quite a simple one. So I don't claim any great credit there. Instead, I look at this on the negative side: how could anyone look at this market and not see a great opportunity. And don't neglect gold entirely!

Mathnerd, because there will always be some uncertainty as to how big global stockpiles are, we will equally be unable to simply "deduce" how small silver inventories really are. One would assume that there couldn't be much more than a couple of hundred million ounces.

However, remember that in the news that Indian silver buying was exploding upward, we also heard that demand had collapsed from its peak. So while I totally reject that silver inventories have quadrupled from their low, it IS possible that much lower Indian demand could have permitted a small build.

Conversely, with Indian buyers "back" that can only mean that inventories start shrinking very quickly - which is what the soaring market this fall could represent.
mathnerd
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written by mathnerd, November 04, 2010
Peter Schiff really gave a good soundbite when he started calling QE giving alcohol to an alcoholic as a cure for the alcoholic's hangover - similar to your drugs analogy, navderek.

Here's hoping Judge Painter won't suffer threats as Maguire when Maguire broke the news that he was a whistleblower on the silver market.

Because of the silver inventory fraud of the last five years, the actual total above-ground inventory is no more than the reported amount of a few hundred million ounces. Do any of you have an educated guess of the true above-ground inventory?
apberusdisvet
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written by apberusdisvet, November 04, 2010
Jeff: In a way I definitely owe you big time. Before the Andrew Maguire story broke, I was heavy into Gold (average at $600) adding quite a bit when Obama got elected because I smelled economic disaster coming and a big fall in the USD. After the Maguire story broke, I found your website and your articles made me understand that silver was the more definitive play; not necessarily short term but definitely for a longer view. Since then I cashed out stocks, except for junior miners and I've bought only silver (average at 19.60) and have been well rewarded. Thanks much!!!
navderek
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written by navderek, November 04, 2010
Silver is really starting to take off. Hats off to all the people who saw this coming much much earlier than I ever did.

On a side note, did anyone notice how the $600 Billion QE#2 injection was barely talked about in the main stream media? It's almost as if this injection was just a "fix" for the drug addict and he is no longer getting high off the drugs. I feel as though these "injections" will become the norm for a long time to come.

OK maybe that's not much of a side note because if these injections continue it can only spell ++++ for silver, gold, or any other REAL hard asset!

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