Dear Friend of GATA and Gold:
of Sitka Pacific Capital Management in Edmonds,
Washington, who writes Mish's Global Economic Trend Analysis letter, today tried
to rebut those who complain about manipulation of the gold and silver
markets, replying particularly to the most recent reports by Ted Butler and
Rob Kirby about the increasingly concentrated short positions in the metals
on the commodities exchange.
response is only a slogan: "For every long there is a short." A
slogan is not an argument, and this slogan is utterly empty and disingenuous.
For if someone sold futures contracts for more metal than there is in the
whole world, there still would be a short and a long for each of those
contracts, even as the price was driven down toward zero for something that,
in fact, was not even available.
Commodity trading and anti-trust law
recognize and forbid all sorts of market-manipulating schemes that operate
wonderfully with the slogan "for every long there is a short." Commodity
trading and anti-trust law also recognize that the likelihood of market
manipulation increases as market positions become more concentrated.
The problem is simply that, for corrupt
political reasons and even for geo-political reasons, these laws are no
longer vigorously enforced and that, as the Washington Post demonstrated the
other day in regard to oil, the chief regulator of the commodity markets, the
U.S. Commodity Futures Trading Commission, is no longer even competent to see
what is going on right under its nose:
This failure to apply the ordinary
principles of honest markets always has been a major complaint of those who
contend that the gold and silver markets are manipulated. Indeed, as
Blanchard & Co. argued in its anti-trust lawsuit against Barrick Gold, the major shorter of gold, and Barrick's bullion banker, JPMorganChase,
Barrick had access to so much borrowed central bank
gold through MorganChase that Barrick
could drive the gold price up or down at will.
essentially admitted as much when it sought dismissal of Blanchard's lawsuit
on the grounds that Barrick had become the agent of
the central banks in regulating the gold market and thus should share their
sovereign immunity against suit:
But a better response to those who, like
Shedlock, believe so naively in the integrity of
the commodity exchanges may have been given today by Randy Strauss, Webmaster for Centennial Precious Metals in Denver (http://www.usagold.com/).
"It doesn't take a loosely
organized group of conspirators to weigh depressingly upon the mechanism of
price discovery coming out of the NYMEX/COMEX futures exchange. All it takes
is for the participants who have common sense to gain the upper hand over
those who stubbornly don't have any.
"The futures contracts are put
forth by the exchange as if they were actual contracts between counterparties
looking to actually buy/sell the corresponding quantities of metal at their
contract's snapshot price.
"But everyone with common sense
knows that the physical element of the contract is just a pretense,
and that after paying a simple margin to play the game for a brief while, the
vast majority of these contracts will be settled with cash. That is, they
will be closed out with an offsetting position in yet another contract rather
than through a full-bodied payment of cash for delivery of metal between the
"Those with common sense (and a
memory of the Hunt brothers' experience nearly 30 years ago) know that there
is no meat on the bones of these contracts and when crunch time arrives, default is the institutionalized and well-worn path
of least resistance.
"It doesn't take conspiratorial
planning for a preponderance of participants to know enough either to steer
clear of these contracts or to short the hell out of them at such times as
may be deemed advantageous. With an eye to the big picture, the shorts know
that they're simply selling a 'contract' that's inevitably to be universally
recognized as all fluff and no stuff. It's easy to sell a sure loser right
down the river.
"And on the other side of the
equation are the longs -- the very few who haven't yet realized that nothing
materially is ever going to be coming out of those contracts -- except
perhaps some short-term cash if they can trade in and out nimbly enough.
"But in the longer term, everyone
with common sense understands the pretense and
therefore knows that the contract is effectively rubbish, thus ever and
always giving the shorters the upper hand when they
square off at the exchange against the addle-headed longs who
stand to gain nothing material out of their position in the overall equation.
"This situation reminds me of a
story shared by a friend of mine who himself is a natural-born
wheeler-dealer. His young son was being 'interviewed' by an elementary school
administrator to assess whether the boy was developmentally mature enough to
enter kindergarten that August versus waiting another year. To assess basic
coping skills, the child was asked, 'What would you do if you went into the
bathroom and discovered that the toilet was broken?'
"The boy's response: 'I'd sell it.'
"A chip off the old block, if ever
there was one. If the kid could wrap his mind around the structure of a gold
futures contract, I'm sure he'd know exactly what to do with that too.
"For those who insist on the
conspiracy story, I guess my point is that you can sleep extra soundly
knowing that there is a wider population of potential co-conspirators that
you can add to your list.
"The bottom line: Take advantage of
the physical market for as long as the scarce metal is still available at the
deeply discounted prices of its exchange-traded papery derivatives."
You can find Shedlock's
commentary, "The Great Gold, Silver Conspiracy Explained," at the
Global Economic Analysis site here:
Or try this abbreviated link:
Of course there are a dozen other
documentations and even official admissions of gold market manipulation that
await Shedlock's analysis. But some people probably
still will be chanting "for every long there is a short" even when
the commodity exchange and the CFTC report that a single bank is
responsible for 100 percent of the short position in gold and silver.
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