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The Criminality of The Comex

Craig Hemke
|
Monday, June 29th

How is this even legal? That's a serious question and I'd like a serious answer after the you read what is presented below.

Immediately following the short squeeze in mid-May that resulted in a 10% price move in just five days, the "Large Specs" in silver set out to rebuild (or were tricked into rebuilding) a massive naked short position in Comex silver. As you can see on the chart below, over the past five weeks, these Large Specs have added 41,806 gross naked short contracts to their accumulated position. This drove their total reported position up from 16,891 contracts on May 19 to last Tuesday's 58,697 and is the sole, primary reason for silver falling by $2 over the same time period. (click to enlarge)

Here is where this "market" becomes fraudulent and clearly fails to serve the world's silver producers and consumers. These "Large Speculators" as a group are collectively hedge funds, managed commodity funds and High Frequency trading funds. By definition, these are trading groups and they do not hold any physical silver. Therefore, they are truly "naked" in their position as they do not have physical silver to deliver to buyers at a future date (one of the rationale for having futures markets in the first place).

And let's put this into perspective...

These Large Speculators added 41,806 naked short contracts over these last five weeks. At 5,000 ounces of "silver" per contract, that's the equivalent of 209,000,000 ounces of silver.

  • In 2014, the entire world only produced 877,000,000 ounces of silver. Therefore, over just five weeks, the Large Specs naked shorted 24% of global mine supply. And, again, this is silver that they don't have.
  • Perhaps you think that, instead, this shorted silver has already been parked at the Comex for future sale. Well, as of Friday, the entire Comex silver vault holds just 183,000,000 ounces. So, over the past five weeks, these Large Specs have naked shorted 114% of the entire (registered and eligible) Comex vault.
  • However, only registered metal is allegedly marked and ready for sale/delivery. As you can see on the CME Silver Stocks report below, Friday's registered silver total was just 58,000,000 ounces. Using the same math, in just the past five weeks the Large Specs have naked shorted 360% of the total Comex registered vault.

Now lest you think I'm cherry-picking information to make my "case", let's venture into the weeds a bit and get down to the nitty-gritty...

The term "Large Specs" is only used on the traditional, "legacy" version of the criminally-complicit CFTC's Commitment of Traders report. On what they call the "disaggregated report", we can find positions assigned specifically to a group called "Managed Money". What is Managed Money, you ask? Here's the definition from the CFTC's own document: http://www.cftc.gov/ucm/groups/public/@commitmentsoftraders/documents/file/disaggregatedcotexplanatorynot.pdf

Money Manager: A “money manager,” for the purpose of this report, is a registered commodity trading advisor (CTA); a registered commodity pool operator (CPO); or an unregistered fund identified by CFTC. These traders are engaged in managing and conducting organized futures trading on behalf of clients.

OK, so this is pretty clear. This is a grouping of "traders (which) are engaged in managing and conducting organized futures trading". Nothing mentioned here about holding physical metal or hedging future delivery. Just traders looking to hold derivative positions for trading profit.

On this week's CoT report, we find the following positions assigned to these traders (http://www.cftc.gov/dea/futures/other_lf.htm):

Managed Money GROSS long contracts: 46,135

Managed Money GROSS short contracts: 53,304

Managed Money "spreading": 11,851

Now what is this "spreading"? What does that mean? Again, from the CFTC:

“Spreading” is a computed amount equal to offsetting long and short positions held by a trader. The computed amount of spreading is calculated as the amount of offsetting futures in different calendar months or offsetting futures and options in the same or different calendar months. Any residual long or short position is reported in the long or short column.

So, to determine the actual number of NAKED SHORT contracts held by "Managed Money", we need to subtract the spreading total from the gross total. Doing so yields a total NAKED SHORT position for "Managed Money" of 41,453 contracts.

Again, please let me remind you of the definition of "Managed Money" from the criminally-complicit CFTC...These are trading funds. They have no physical silver to deliver. They are simply speculating in the paper derivative silver futures market.

At a total position of 41,453 contracts, these trading funds are now NAKED SHORT 207,265,000 ounces of silver, coincidentally almost the same number as above when using the aggregated "Large Spec" grouping. Again, looked at another way, these trading funds are naked short:

  • 23.6% of annual global mine supply
  • 113% of the total Comex silver vault
  • 358% of the total Comex registered vault

 

Now, before you write to me arguing how no one was complaining when these same fund took LONG positions, you must understand that you're missing the point entirely. It's not the speculative trading that bothers me, IT'S THE NAKED SHORTING OF BOTH THE COMMERCIALS AND THE SPECS. The essence and purpose of futures trading is to allow producers and consumers of a physical commodity to either sell or buy forward. The gambling speculators take the other side of these trades. This system DEMANDS physical backing of trades and delivery if it is to have any legitimacy. Remember, "Managed Money" speculators have no metal to deliver. Regardless, they are allowed to naked short metal to whatever extent the cash in their margin accounts allows.

This is insanity and completely against the rationale for having futures markets in the first place as it places "pricing control" in the hands of speculators who have no connection to the physical markets. Silver miners, their employees and all producers of physical silver metal are being explicitly harmed by this process and they should work diligently to end it. The Comex and all unallocated, paper derivative futures trading should be immediately halted due to the irreparable damage it is causing to silver mining industry.

One final note, as you can see on the chart below, the extreme size of the Large Spec short position now exceeds by nearly 24,000 contracts the position held back on May 12 which, when panic covered, led to a 10% price squeeze in five days. This makes another squeeze in the days ahead highly likely and, once it begins, it should be spectacular to behold as all of these trading funds rush to cover at the same time. You might want to keep this in mind as you are bombarded with "analysis" that claims that the next move in silver is lower.

So we close where we began...How is this legal? How can a managed money or hedge fund naked sell silver that they don't own, thereby suppressing price and damaging the businesses that produce the metal and the employees that rely on these companies for their well being? This is the essence of a financial system run amuck, doing more harm than good and operating completely against the rationale of it's creation. Why is this allowed to continue? How can anyone claim that this is a free, fair and honest pricing system?

We all await the day when this fraudulent and unfair scheme finally collapses.

TF

http://www.tfmetalsreport.com/

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