A Simplot Scenario for Silver

When both Andrew Maguire and Ted Butler write about the same thing over weekend, one should probably sit up and take notice.

In this case, what they were discussing was a possible, end-game scenario for the silver manipulation. The commercial short position has grown so extreme AND the physical supply has grown so tight that, suddenly, these two great minds were exploring the available options for JPM et al as they attempt to extricate themselves from what is growing into an unmanageable and untenable position.

Andy commented that in his "thirty years of experience, he'd never seen a more dangerous situation developing" and that, soon, the only possible way out would be a "back door solution". This "almost certain" resolution would hinge upon the cash settlement of futures contracts that would position paper traders on the sidelines before the "gap higher" next trading day in the new, physical market.

Andy's commentary had already roused my attention and then I read Uncle Ted's weekly review. In it, he discusses the "Maine Potato Default" of 1976. First of all, here are two links that can provide some background for you: http://www.time.com/time/magazine/article/0,9171,947729,00.html & http://news.google.com/newspapers?nid=1988&dat=19760526&id=a2YiAAAAIBAJ&sjid=06wFAAAAIBAJ&pg=1377,2637833

Here's the introductory paragraph of Ted's analysis:

"Since the problem is JPMorgan’s 38,000 contract net short position in COMEX silver, that problem will disappear if the regulators, as is within their powers, decree that a market emergency exists and orders all silver contracts to be unilaterally closed out and settled at an arbitrary price. In an instant, JPMorgan will be let off the hook and the problem, from a regulatory perspective, will exist no more. Yes, it would represent a contract and market default and reflect badly on the regulators, but it would resolve the extreme market structure issue immediately. Further, this is not a resolution that would be without precedent. Almost 40 years ago, the predecessor of the NYMEX defaulted on their important Maine Potato contract because the largest short seller, the late J.R. Simplot, couldn’t deliver as promised. All open contracts were artificially closed out at a set price and that was it. Yes, it was a scandal and a black eye on the world of commodity trading, but not one in ten million even remembers it today. The scandal led to a cessation in the trading of Maine Potato futures and a similar COMEX forced settlement today most likely would lead to the termination of silver futures trading in the US. One could argue that silver trading today is more important than potato trading was in the 1970’s, but my point is that to the average citizen, a COMEX silver shutdown would be forgotten in time and life would go on." Subscribe and read more at: http://www.butlerresearch.com

So why do I bring this up? A number of reasons.

  1. We KNOW that this silver manipulation cannot go on forever. In fact, the increasing physical supply tightness makes this eventuality a possible near-term event.
  2. A Comex/CME cash settlement screw job would not be surprising at all. If you don't believe me, ask anyone who had an account with MFGlobal for their opinion.
  3. Though painful to the short-term reputation of the Comex, the CME and the Silver Cartel (mainly JPM), the event would barely register in the financial press and would soon be forgotten. If you don't believe me, ask yourself the last time you saw a headline on the LIEBOR Scandal.
  4. Though there would likely be a significant runup in paper price and other warning signs of this impending "default", paper traders had better be fully aware of this possibility/probability.
  5. The Maine Potato Default of 1976 clearly shows that there is precedent for this kind of event.
  6. In this scenario, holders of all types of paper silver (futures contracts, paper certificates for physical, ETFs) will cash settled and be left on the sidelines, holding the bag, out of the market and unable to participate in the next-day reset in price.

Once again, your only solution is the purchase and delivery of physical metal. Period. End of story. Yes, it's fun to trade and the leverage applied may allow you to increase the stack of your fiat. However, there is no substitute for physical metal. Holding physical metal is not just the only way you are guaranteed to participate when the Silver Scheme finally unravels, it is also your only protection against the other financial calamities that are just around the corner.

It's nice to see a bounceback in price this morning, though we are clearly seeing some continued volatility. I expect our support levels to continue to hold and I expect a "Happy Tuesday" rally tomorrow as the banks will want to cover some of last week's shorts ahead of the CoT survey. Both charts got painted with ugly, engulfing candles back on Friday so we need to see a rally this week in order to invalidate them and discourage some momo-chasers from piling in. Rest assured, though, I still expect December to be a solidly bullish month that will set the stage for a powerful 2013.

Lastly, just another reminder of the free webinar on Wednesday. It's scheduled for noon EST and will last 15-25  minutes. It will begin with a brief commentary from Andrew Maguire. He'll discuss the metals markets and the increasing role that the HFTs are playing. Then, Paul Coghlan will give a presentation of his technical analysis methods. This will be extremely valuable information so I strongly encourage you to listen in. The entire presentation will also be recorded for playback by those who are unable to listen live. To access it, though, you must pre-register. You can do so by clicking here: https://www1.gotomeeting.com/register/240678176

OK, that's it for now. I hope everyone has a great Monday!

TF

 

419 Comments

fats's picture

fate

:P

Just thought to myself, "I oughta see if Turd has posted anything today."  I opened the site to see a brand new post.  Couldn't resist clinching the first comment. 

Signed up last week for Wednesday's webinar.  Although I don't trade, I love to learn about TA, trends, and any other industry nomenclature I can.

Turd, looking forward to a new paradigm in price discovery.  Will it be a new exchange in the East?  Supply shortages in the West as laid out by Ned?  A reset as you are discussing here?  Maybe that CFTC investigation will indict some big manipulators (sarcasm).  It seems like the scales of justice are beginning to tip towards true price discovery.  If I hadn't lost all my physical in a game of poker on a river boat that subsequently capsized and never found, I'd really be looking forward to it. 

Silverman's picture

Second

We must be careful about this monthly chart. We already had big movement from 1523-1798. Nearly 300 dollar movement. The thing is monthly stochastic is already in overbought area. Monthly MACD is losing it's steam. We know they printing loads of money. It should be positive for gold price. But they're still controlling  the paper market. So they can slam the paper price with those newly printed fiat. This is my suspicion. Month December might be down. So be careful if you're trading paper gold or silver. 

Big Buffalo's picture

Ass-Kicking

a

joehappen's picture

Thurd?

Could it be?

the_circle's picture

Fifth

Hardly a place worth cheering about. But also a nice measure of whiskey.

philly's picture

On a mission to fill out a

On a mission to fill out a lineup of 1st thru 10th...and, in the process, build my stack of shiny stuff. I'm much closer to attaining my goal on the former than the latter! But if at first you don't succeed, stack, and stack some more while it's still somewhat affordable!

Sixth!

Revelation's picture

This Chart Will CRASH Too

longtermpopulation2.gif

As with the nature of all hyperbolic charts a crash always becomes imminent. Once the global monetary system crashes the global population will crash along with it. We are expecting on the order of at least 2 billion souls departing the world within a very concentrated period of time subsequent to this event. 

27b16802d948.png

prius_driver's picture

I will save you some trouble

There is no bollocks announcement yet, perhaps there never will be.

ratioarbitrage's picture

US Mint totals going expo

This is being discussed on ZH:

http://www.zerohedge.com/news/2012-12-03/us-eagle-gold-coins-strongest-1999-%E2%80%93-hnws-taking-possession

Some of the commentators rightly point out that the lead article is a "mountain out of a molehill" approach. Nevertheless on reviewing previous years I do not see this exponential pattern:

Jul/Aug ~30,000

Sep/Oct ~60,000

Nov ~ 120,000

That seems to mean more than an odd spike of 180,000 which could be into a single stash. Too many exponential curves around. Must be waterfall time.

ancientmoney's picture

Turd--scenario for silver

Agreed.  I have said many times here that your possible scenario is the ONLY scenario.  JPM can never get out of their shorts by delivering silver to longs.  Fiatskis it is.

babaganoush2307's picture

@ Silverbee

In the last thread you said you have your sons birth weight in silver.  That is a fantastic way to save for your kids future, add silver to the kids stack every year based on growth yes

Lovin' it!

billwilson's picture

Miners

A few observations on miners ... as their moves often foreshadow metal moves

1. Strange to see some of the major miners trading higher volumes in Toronto than in NY. This is unusual for the likes of GG, AUY and KGC. Not sure the implications.

2. GG (down 1.5%) and NEM (down 2%), two of the biggest weights in the miner indexes (XAU, HUI) again being solidly capped and pushed lower at every opportunity. I guess it is easier to manipulate indexes if you can just work with two stocks. And yes XAU is being manipulated ... just watch how it comes down to within .01 of where they want it. Pretty impressive when there are 30 stocks in an index.

3.  Have now come down to the same level three times on XAU today ... if it holds .... could see a nice rebound (note : support levels usually fall within 1 minute of my posting).

Groaner's picture

US PIG keeps dropping and yet the metals can

barely get something going here. How tedious.

silver default on the comex??.. Of course there will be. There is no rule of law for the Blood Sucking Elite Scum Bags who are robbing this country blind..

Every market that exists is created for the benefit of the Bankers and their cronies the government who enables them.

They have been stealing from day one, and when the game finally blows up, they still win.. Kleptocracy to the 10th degree.

Terp's picture

Gold?

Do you think a similar situation is likely with Gold too? If not, would it likely spike up if Silver plays out that way?

murphy's picture

TF

How about the nickel default in 2006? I think a little more congruous to silver than the potato default and more recent.

"Nickel stocks are at historically low levels and we now have a genuine material shortage. Our first priority is to ensure that trading remains orderly and to prevent the risk of settlement defaults."

Although there has been widespread reporting of this event in all the popular media and news services, I have been thunderstruck by how mostly all of the reports have danced around the key fact at the heart of this matter. That key fact is that the LME just declared that its nickel contract has gone into default.

While Mr. Heale states that the action by the exchange is designed to prevent default, the action taken is nothing but a declaration of default, rendering his statement as absurd. Default is a simple word. Any time you unilaterally violate or negate the terms and conditions of any legal contract, that contract is in default. Period.

Moreover, a simple analysis of the situation reveals that the LME is aligning itself with the interests of the naked shorts in nickel, as common sense should tell you that no long holder asked the exchange to suspend the delivery obligation of the shorts. < big surprise>

http://news.silverseek.com/TedButler/1156198042.php

http://www.kitcometals.com/charts/nickel_historical_large.html#5years

edit: end of article

What the LME has done in nickel is relieve the shorts of having to round up actual metal to deliver against their contractual promise to deliver, and unilaterally transferred the obligation to the longs, the industrial user. These industrial consumer longs (and other longs) entered into their nickel contracts voluntarily and legally, with the option of taking delivery. Now they are told, with no warning, they can’t take delivery and must secure metal elsewhere. The shorts don’t have to scramble for material they promised to deliver, the longs have to scramble for material they were legally promised to receive. Nothing could be more unfair.

Furthermore, as long as the shorts’ obligation to deliver nickel is suspended, there is no good reason for an industrial user to buy an LME contract. This is the greatest threat to the LME. And it’s not just deterrence for those buyers who want to take actual delivery. With the delivery mechanism destroyed in nickel, the linkage between the price of real metal and the LME contract is also destroyed. Without the requirement for delivery, the price of nickel on an LME contract and nickel in the real world loses its connection. In this case, the price of LME nickel is merely a figment of anyone’s imagination. What good does it do an industrial consumer to hedge on the LME, if there is no assurance his contract will converge with the price of actual metal on the delivery due date? Without the delivery mechanism, there is no linkage between paper contract and actual metal.

This is the real meaning of the LME’s delivery default. It is also the same thing with the short-side manipulation in COMEX silver. It is a coincidence that this LME nickel disaster has occurred precisely at the same time others and I have been alleging a manipulation in COMEX silver. However, nothing could prove our case more clearly.

A long-side manipulation, evidenced by a concentrated long position and prices higher than would be without the concentrated position, is something the regulators have vast experience in dealing with. While disruptive and illegal, long-side manipulations are usually short in duration and easy to terminate. The concentrated longs, usually speculators, are forced to sell their positions, causing prices to collapse and end the manipulation.

A short-side manipulation, like those in LME nickel and COMEX silver, is evidenced by a concentrated short position and prices lower than would be without the concentrated short position. (The concentrated short position in nickel has been reported in news stories, while the concentrated short position in COMEX silver is reported by the CFTC). The regulators have little or no experience with short side manipulations, and since the concentrated shorts are industry insiders, rather than outside speculators, there is little incentive for the regulators to move against their own.

The real problem with short-side manipulations is that it is very difficult to terminate without great damage because they have a long duration. When a short-side manipulation is terminated, like in LME nickel, it threatens great and lasting disruption to the actual market because the resultant shortage of material causes real hardship with no easy remedy. This is in addition to the damage caused to an exchange or contract involved in such a short-side manipulation, which ends in a delivery default.

Clearly, the UK regulators and LME officials waited too long to attack and resolve the short-side manipulation in nickel. If they had acted responsibly and forced the concentrated shorts to cease their manipulative activities, the delivery default might have been averted. Now it is too late in nickel, as the damage is done. Is it too late for silver?

I think there may still be time for the US regulators to act in silver and avoid a COMEX silver delivery default. But I also have my doubts. That’s because the CFTC and NYMEX/COMEX officials have been dragging their feet on the issue of the concentrated short position. Instead of promptly responding to allegations of manipulation and a looming delivery default, the regulators are stalling. Stalling didn’t benefit the regulators in LME nickel. It only made matters much worse.

In fact, the main, if not only, difference between nickel and silver is that the regulators will never be able to say they were not warned in silver. And if the regulators in silver still do not see how the recent events in LME nickel are directly foretelling what is going to happen in COMEX silver, then they do not deserve to be regulators any longer.

While I will continue to attempt to end the silver manipulation (with your help), it is entirely possible that government regulators and COMEX officials will continue to evade their legal responsibilities and allow the silver manipulation to exist, right up to the inevitable delivery default. That will be tragic, but it will be on their heads.

Fortunately, there is something else that you can do. You can take the debacle in LME nickel as yet another confirmation as what will happen in silver and position yourself accordingly. If there has ever been an exclamation point given to "buy and hold real silver", it has been given to you by the LME actions in nickel. If an exchange that has been in existence for hundreds of years can suddenly terminate delivery obligations in its contracts, how hard do you think it will be for those issuing pool and leveraged accounts in silver to do exactly the same thing? I think anyone holding such accounts needs to have their heads examined.

But the strongest message of the LME default is being sent to the silver industrial consumers of the world, because the biggest potential losers in nickel are the industrial users. If the LME can get away with suspending delivery requirements in nickel, how hard will it be for the COMEX to suspend delivery requirements in silver? Do you think the CFTC will come to your defense? The same CFTC that is stalling on the concentrated short issue in silver? Even more than those investors and speculators dealing in paper contracts, any user who is not stockpiling real silver inventories, in light of what just occurred on the LME, is missing the boat.

I hope the CFTC and the NYMEX does the right thing with this concentrated silver short position and moves against the manipulators. But even if they don’t, there is no good reason for investors and industrial users to not protect themselves and buy real silver. How many wake-up calls are necessary?

Bollocks's picture

XTY - RE Bacon Whiskey Jam ...

"Place your favourite saucepan over medium high heat"

I'm in trouble right from the start. I don't have a favourite saucepan. I have one that I kind-of liked for a bit, but I then went off it. I have one that I really don't like at all, so I guess the one that I've gone off is a bit more of a favourite than the one I really don't like.

Is it ok to use the one that I used to like but not so much now?

If so, for me the instructions would need to be re-written as follows:

"Place your not-favourite saucepan but the one you did once like but then started to dislike, but at least it's better than the one you really hate, over medium high heat"

Or am I going to have to spend money on a new saucepan which I can call my favourite? I'd like to avoid that if possible.

Thanks for any help.

Bill of Rights's picture

U.S. Eagle Gold Coins Sales Strongest Since 1999

http://www.goldcore.com/goldcore_blog/us-eagle-gold-coins-strongest-1999-%E2%80%93-hnws-taking-possession

New Ben Bernanke printed money is finding its way into the gold coin sector.
November sales of U.S. American Eagle gold coins are on track to be the best in 14 years, reports GodCore.

Bullion dealers in the U.S. report an influx of high net worth individuals that are buying gold coins in volume and taking physical possession of their bullion.

Month to date 131,000 ounces of American Eagles sold, that tripled last year's November sales and is the strongest November since 1998,  according to the U.S. Mint.

American Eagle silver coin sales more than doubled in November going from 1.384 million to 3.135 million ounces.  Silver coin sales were just shy of October's figure of 3.153 million ounces.

beinki's picture

will silver gap up before the end of the world

billwilson's picture

2 minutes

I was wrong ... it took two minutes after my post to break support on XAU. Damn algos are slipping.

Turd Ferguson's picture

In defense of Mr Bollocks

MODERATOR

I've been in contact with him. Here's the deal:

He stumbled into surprisingly candid conversation with a metals industry insider. In his excitement, he rushed here to inform everyone of what he'd heard. Only then did he stop to think that this "insider" might not want his name and company associated with the remarks. Bollocks went back to him and, as you might imagine, the guy didn't want anything on the record and on the internet.

Therefore, it would be unfair to reprint his off-the-record remarks here and it would also be unfair to criticize Bollocks for the situation.

lelford's picture

paper default and PSLV

How would a paper default affect the price of PSLV and CEF funds?  I would assume these would follow the price of silver up the next day.  Can someone correct this thinking?

Bollocks's picture

@prius_driver

Try reading my posts.

Turd Ferguson's picture

Great stuff, Murph

MODERATOR

And a terrific addition to this post. Thank you!

Response to: TF
Bollocks's picture

Thank you Turd!

I really appreciate that. smiley

ag1969's picture

So if it plays out this way......

And I believe it will, that their is a default even if they don't call it what it actually is, and the contracts and SLV are settled in cash, and the paper holders are left out of the next day price revaluation, what should the physical holders do the next day when the price is revalued?  Do I sell or am I still waiting for a dollar collapse?

silver66's picture

Detroit LCS

Was in Detroit this weekend for a hockey tournament. Most important thing is our team won it and opened a big ole can of whoop ass on the hometown team in the finals.

In between games I stopped by some pawn shops and we buy gold stores to see what was up.

One pawn shop the lady behind the counter didn't know they bought gold even though they had a big sign in the window. I am not so sure she was hired for her intellectual prowess, but I digress.

One gold buying shop did no selling.

Found one that did, young kid owned it had a great chat. He had not heard of Turd or ZH or Jim Sinclair. He has now and I directed him to their websites!!

I was able to buy Washington quarters below spot(sweet). He needs to buy some more nowsmiley

I asked why people were selling to him. His answer was times are tough and most need the money, with Christmas on the way they seem to be going into long put away savings.Raising what little money they can

Detroit is a shell, it is really quite sad. That city has been gutted. That being said, as I talked with parents of American players at the games, they were really nice. No in depth talks, but most were hopeful for the future of the state. To bad the government is not like the people

Keep stackin

Silver66

Groaner's picture

The Libor Scandal..

This is the biggest theft of the century and it gets swept under the rug. No one ever gets prosecuted. No news on it. No justice, just a little fine.. 

Hello people, cant see the forest thru the trees? System is insanely corrupt.

http://www.forbes.com/sites/abrambrown/2012/12/03/libor-scandal-extended-to-ubs-bank-reportedly-near-450m-settlement-with-regulators/

ag1969's picture

How does someone like Bollocks......

have a conversation with a "metals industry insider"?  Ten to one says it involved a bathroom stall.  I'm just sayin'.......wink

.000

TexasStacker's picture

a janitor or the lady who

a janitor or the lady who tends the houseplants at gainesville coins could be construed as a metals industry insider.

dont mean to be mean, just snarky.

Pining 4 the Fjords's picture

Beinki - another classic!

Count me as a big fan of your vids, they ALWAYS make me smile! 

Way to dollar-cost average on that awesome calendar, too-  actual cost per month will be even lower for the next 260 centuries as the value of fiat falls. Sweet deal.

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