Much has been made in this commentary of the soaring silver open interest, which ought to be unprecedented in commodity market history. – Bill “Midas” Murphy, co-founder and Chairman of GATA
The open interest in Comex silver hit another new all-time high yesterday. As of Wednesday’s final open interest report, the open interest in silver was 189.7k contracts. This is the highest the open interest has been based on data I have going back to April 2005.
189.7k contracts translates into 948.5 million ounces of silver. According to the Silver Institute, the total global silver mine output for 2014 was 877 million ozs. The amount of paper silver open interest on the Comex is thus greater than the amount of silver mined in a year globally.
The ratio of silver futures open interest to the amount of silver warehoused on the Comex is even more absurdly disproportionate. As of Wednesday, June 10 the Comex vault operators (JP Morgan, Scotia, HSBC, Delaware Depository, CNT and Brink’s) were reporting a total of 179.7 million ozs of silver in Comex vaults. Of that, 57.8 ozs were classified as “registered,” or available for delivery (the rest was being “safekept” at the Comex by investors or commercial users of silver).
Based on these numbers, the silver open interest is now 5.3x higher than the total amount of silver on the Comex and 16.4x the amount of silver that has been made available for delivery.
Never in the history of the commodities markets has the amount of futures outstanding for any commodity been this extraordinarily disconnected from the amount of the physical supply produced and available for delivery.
Anyone who asserts that gold and silver are not manipulated using paper derivatives just based on the market action alone is either completely corrupted – with a motivated financial interest in denying the obvious – or is a total idiot. But upon examining the Comex data for silver – and accepting it prima facie, which I do not (I believe the real numbers are even more extreme) – anyone who denies that silver is manipulated in extremis has likely received a full frontal lobotomy.
The blatant takedown in gold and silver signals to me that something is coming. I enjoyed Keith Neumeyer’s letter to the CFTC. When a major producer like First Majestic raises the issue I think the CFTC will have a more difficult time blowing it off than another diatribe from Ted Butler. – John Embry
Briefly, the price of gold/silver is manipulated in two ways. The first method involves “bombing” the Comex (either the trading floor or the electronic Globex trading system) will massive futures sell orders, typically during periods of low liquidity or when economic reports are released. This causes the sharp sell-offs. The second method involves price capping, which is achieved by meeting periods increased demand from buyers with added supply of futures.
If the allowable amount of gold/silver futures open interest was pegged to the amount of physical gold/silver available for delivery, it would be impossible for the banks to print an infinite supply of paper contracts to meet demand from buyers. This is how every other commodities product operates. In fact, isn’t this how every other commercial product market typically operates?
The motivation by the Fed/Government to keep a lid on the price of precious metals is certainly understandable. If gold and silver were allowed to operate in a market of bona fide price discovery, they would almost instantaneously re-price at significantly higher levels. This event would completely undermine the legitimacy of the dollar. It would disrupt entire the massive wealth transfer mechanism being operated by America’s corporate, banking and political elite. We’re talking about blood money.
There’s no telling how much longer this extreme manipulation can continue. History has shown that market interventions eventually fail – often with serious consequences. As I have suggested in recent commentary, I believe that the credit market is sending signals which indicate that western Central Banks and Governments are beginning to lose their ability to control the markets.
This whole thing is totally nuts. I still think silver will go bonkers within the next few months. Maybe that is a hope trade of mine, but I smell it as much as I smelled my biggest winner, the copper move of 1987. – Bill Murphy
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