Man Bites Dog

Here’s an excerpt from Saturday’s Weekly Review for subscribers

Getting back to gold, it’s not just this week’s increase in the concentrated short position of the 8 largest traders or the sharp increase in net buying by the other large reporting traders that stands out. In a truly “man bites dog” affair, this week’s new concentrated short selling occurred on, essentially, lower prices (save for the rally on the cutoff day). Moreover, it’s not just a one-week development. As I reported on Wednesday, the 8 big gold shorts have been selling short on declining gold (and silver) prices since the price highs of early August (while the other large reporting traders have been buying on those lower prices and the managed money traders have stood pat). Stop the presses!

What I just wrote would seem to be impossible, yet there can be little doubt that it has occurred. The pattern for decades has been that the managed money traders buy and the commercials sell short to them on higher prices. That’s what made including COT report analysis part and parcel of just about every commentary out there. But this week and for the past four months that is no longer true.

Adding on to my comments on Wednesday, the 8 big shorts have now added 53,000 net contracts (5.3 million oz) to a short position amounting to 263,000 (26.3 million oz) from 210,000 contracts on Aug 4, as gold prices declined by $300. This is the very first time the big concentrated shorts have added significant numbers of new shorts on a substantial price decline. Now, I know why the 8 big shorts have added so many new gold shorts – because the other large traders have bought almost exactly as many new longs – but put that aside for a moment and focus strictly on the 8 big shorts’ substantial new shorting. How in the world can this new shorting be considered legitimate?

My prime concern has been and is whether the 8 big shorts in gold and silver will add aggressively to new shorts on higher prices. I must confess that them adding aggressively to new shorts on substantially lower prices was never seriously considered because it makes no legitimate sense. We know that the new short selling isn’t coming from mining companies (try naming one) and it makes no sense for a legitimate owner of bullion to sell short on lower prices, particularly when such selling will only depress prices – not what any real owner would ever do.

At this point, it should hit you – the only reason for the new aggressive concentrated short selling by the 8 big gold (and silver) shorts on lower prices – is to depress prices. That’s as far from legitimate and as close to manipulative as it gets. In fact, it can’t get any more manipulative and illegitimate than this. I’ve always claimed the concentrated short selling by the 8 big shorts on higher prices was manipulative (and I still do) – but try coming up with a non-manipulative explanation for concentrated short selling on declining prices as well and you’ll win a Noble Prize - mainly because such an explanation is impossible.

Think of it this way, these big traders have sold short aggressively no matter which way prices moved – up or down – does that make any sense? I should ask, does that make any legitimate sense, because I can easily come up with an illegitimate reason for selling short aggressively on lower prices, namely, to temporarily keep prices under pressure and prevent higher prices from creating massive losses on an existing excessively large short position. But as with all such cockeyed schemes – where and how does all this end?

Do the big concentrated shorts plan to add shorts to infinity, no matter what prices and the underlying circumstances may be as recent developments suggest? And where the heck are the regulators from the CFTC and CME Group while all this verifiable concentrated short selling on now lower prices is occurring? Before I forget, let me add that the new Bank Participation Report indicates that the new shorting is likely coming from US banks and not non-US banks. And also that the recent explosion in trading volume in the 10 ounce micro gold contract is mostly uneconomic day trading in which there is zero commercial participation and, therefore, not the slightest hint of the possibility of legitimate hedging, only pure speculation, which is against why Congress allows futures trading. Therefore, the crooks at the CME Group have introduced and sanctioned a contract completely devoid of economic legitimacy. Way to go guys.  

For decades, I have railed against the concentrated short position in silver and, by extension, in gold. As testimony to that effort, I did succeed in getting the CFTC to publicly respond twice to the issue in 15 page public letters, in May of both 2004 and 2008. Later in 2008, I succeeded in getting the CFTC to initiate a formal five year investigation by their Enforcement Division due the unusual concentration by a US bank (JPMorgan) in COMEX silver and gold, as revealed in the Bank Participation Report of August 2008. True, the letters were nonsensical and the investigation went nowhere, but the fact remains the CFTC reacted because the issue of concentration on the short side was that important.

Since then, of course, the CFTC has chosen not to touch the issue at all, regardless of how egregious the short side concentration becomes. I guess if you can’t possibly come up with a legitimate sounding explanation, it’s best to remain silent. But recent data, since August and into this latest reporting week is making the CFTC’s ostrich-like head in the sand approach look increasingly more ridiculous. Aggressive new concentrated short selling no matter which way prices move and the most compelling explanation being that the big shorts buying time against a coming conflagration to the upside? Has it really come to this?

Even more perplexing and outrageous is the failure by about every precious metals analyst and commentator to even mention the concentrated short position (with Ed Steer being a notable exception). Is it because the slightest bit of hand calculation is required (simple multiplication) that prevents the many commentators who have come to embrace the COT report from recognizing the manipulative effect of the concentrated short position in COMEX gold and silver? Let me put it bluntly – any commentator who overlooks the concentration data should in turn be overlooked or at least have a good explanation for ignoring the concentration data.

For my part, nothing could be more important than the concentrated short position in COMEX gold and silver, particularly including the recent sharp increase in such shorting on lower prices. This is a very dangerous market situation that, for sure, will end in sharply higher prices in time, especially in silver. As to how it plays out in the short term is, of course, less certain, but if these 8 big traders are adding significant amounts of new shorts on lower prices for the reason most apparent (to prevent prices from inflicting massive mark to market losses), then they are only tightening the noose already around their necks. And through all this, the super crooks at JPMorgan must be smiling like it is in the catbird’s seat (which it’s in).

Ted Butler

www.butlerresearch.com