Stepping Up To The Silver Plate

June 4, 2015

was originally going to title this piece “Doin’ the Right Thing” after the old Spike Lee movie. I had used that title once before, back in early 2008 in an article complimenting Barclays Global Investors for deciding to publish the serial numbers and weights of the all the bars held in its then-sponsored silver ETF, SLV (now sponsored by BlackRock). I had written several public articles exhorting Barclays to publish the data and was gratified that it did so.

While I lauded Barclays for providing greater transparency to the silver trust, it brought them on a par with what had already been a practice in place for the big gold ETF, GLD, sponsored by State Street. As such, while it was completely proper and laudable for Barclays to list all the silver bars it held for the SLV, it wasn’t precedent setting. Therefore, I decided to use a different title today, to highlight an action that was both the right thing to do and precedent setting.

Following last Wednesday’s article suggesting that silver mining companies write to the CFTC (which I did make public at the urging of subscribers), one mining company (befitting of its name) became the first to do so. The CEO of First Majestic Silver Corp, Keith Neumeyer, became the first miner to write to the CFTC concerning the massive historic one-week repositioning of speculative positions on the COMEX that far exceeded anything occurring in the real world of silver production or consumption.

While I hope additional mining companies take the matter up with the agency, Neumeyer not only did the right thing, he set a precedent that, to my knowledge, had not previously occurred in the 30 years that I have closely followed the silver market and, most likely, long before that. Much to my puzzlement over the decades in alleging a silver price manipulation on the COMEX, was the lack of questioning of the price discovery process on that exchange by those most damaged by it – the mining companies.

US Government data unquestionably prove speculators are setting the price of silver on the COMEX to the exclusion of actual silver producers and consumers and that is so far from the intent and spirit of US commodity law as to be inexplicable. There is no reason to expect silver industrial consumers and fabricators to complain about artificially depressed prices because they have benefitted from the existing price-setting regime. But, it’s about time that silver producers questioned the single most important factor to their financial health – the price of their principle product. For being first to step up to the plate, here’s a tip of the hat to Keith Neumeyer.

Rather than an end, Neumeyer’s petition to the regulator is a start to a process that should have begun long ago. Will it play out as I hope it will? Who knows? But it certainly could. First and foremost, it will do no harm in bringing the question of manipulation to a potentially broader audience. After all, it’s not as if speculators on the COMEX can control and dictate prices any more than they do already, so First Majestic’s petition can’t be considered as emboldening the speculators further.

The big potential payoff is that First Majestic’s petition may set off a process that heretofore has not been allowed to exist, namely, an open and honest debate as to how prices are set on the COMEX. Specifically, how can the price discovery process on the COMEX be considered fair and within the spirit of commodity law if it, effectively, excludes actual producers and consists of only speculators? And how can there be a legitimate economic explanation for why COMEX silver has the largest concentrated short position of all regulated commodities, particularly with prices at or below the average primary cost of production?

If Mr. Neumeyer’s petition results in an open and honest debate on these and related questions, the effect on the silver manipulation and prices could and should prove to be profound. And it’s somewhat unbelievable, in this supposed day and age of transparency, that silver investors and mining companies even have to petition for an open and honest debate on these substantive issues. A fair and open debate is also more likely to attract outside investor interest to silver than any other single factor I can think of. To those who did take the time to write to various silver mining companies at my request, thank you. To those still considering it, please don’t delay.

Finally, in the giving credit where credit is due department, I want to openly thank Ed Steer for consistently bugging me to write a sample letter for what a mining company might include in a letter to the CFTC. His prodding extended back for many months and I’m sorry I procrastinated.

This was excerpted from an article to subscribers June 3, 2015.


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