What Matters Most In Gold And Silver

May 18, 2020

Having focused intently on the running open losses of the 8 big shorts (ex-JPM) for the past year, the latest price surge would seem to put the 8 big shorts in particular serious jeopardy. Simply put, the open losses ($7.8 billion, as of Friday, May 15) have never been larger, while the prospects for the big shorts buying back all or most of their short position at anywhere near breakeven have never been lower.

The biggest hope that the 8 big shorts had to buy back short positions at the sharply lower prices necessary for them to break even would seem to reside in aggressive selling by the managed money traders, either long liquidation of new short selling. But how much long liquidation is possible when existing longs positions are low (7 year lows in silver)? And how much new short selling is likely when the managed money traders didn’t short on the lower prices over the past month? And last week’s increase of managed money short selling in gold didn’t fare so well.

For more than 30 years, I have been almost alone in petitioning the CFTC and the exchanges and every conceivable government official which stood a chance of doing something about one singular issue – the concentrated short position in COMEX silver futures (which later came to include gold). I actually had some initial success in petitioning the CFTC, which would regularly respond to the issue of the concentrated short position in silver.

Thanks to public support, the CFTC even publicly responded in both 2004 and 2008 with 16 page letters (still on its website) that purported to look at the issue of concentrated short selling in silver, but turned out to be a deception because the 2008 letter overlooked the spectacular failure of Bear Stearns, the largest silver and gold short seller at the time. Even a five year formal investigation begun later that year into silver manipulation after the August 2008 Bank Participation Report proved manipulation by JPMorgan turned out to be only a sham and kangaroo court effort which folded quietly five years later as was foreordained from the start.

But despite the efforts of the CFTC to avoid the issue like the plague, the matter of the concentrated short position in COMEX silver just won’t go away. And despite an even more incredible avoidance by just about nearly every analyst and commentator around (Ed Steer being a notable exception), the issue of the concentrated short position in COMEX silver (and gold) remains every bit as central to the price as it always was – even more so today. I don’t know exactly why the issue has remained in the shadows; after all, it’s not that complicated.

Every week, the CFTC publishes the concentrated long and short positions of the 4 and 8 largest traders in every commodity covered in the COT report. This week, the concentrated net short position of the 8 largest shorts in COMEX silver was 74,385 contracts (just under 372 million oz). In gold, the net short position of the 8 largest shorts was 246,385 contracts (24.6 million oz). The concentrated long positions of the 8 largest traders in silver are roughly 40% less than that of the shorts and in gold the 8 big longs hold half the number of contracts of the big shorts, not that anyone would or could argue silver prices were artificially inflated.

But since the question exists of why is silver so cheap both on an absolute, inflation adjusted basis and relative to gold, the matter of the concentrated short position is relevant. If silver were sky-high in price, it would be reasonable to question the role of the big concentrated longs; but since neither the price nor the concentrated long position is high, we can skip that. The price of silver is low and the concentrated short position is very large and that makes questioning the connection relevant.

Specifically, why are 8 traders short 372 million oz, nearly 45% of total world production, which is the largest such short position of any commodity? And in terms of total world silver bullion inventories, the 8 big shorts hold a short position nearly 19% of the 2 billion total oz of silver thought to exist (compared to the less than 1% of world gold bullion inventories (24.6 million oz compared to 3 billion oz of world gold bullion inventories).

Therefore, there is only one real question – why are the big shorts so heavily short and what affect might that have on price of silver? If this concentrated short position didn’t exist, in order for the longs and shorts to balance out at close to current prices, many new shorts would be required to replace the 8 big shorts. But who in their right mind would voluntarily agree to short silver at current prices? The answer is nobody – otherwise, they would already be short.

So if so few would agree to short silver at current prices, why are the 8 big shorts so heavily short? What is their reason or motivation for being short? Some insist they must represent miners, but what mining company would short at depressed prices and lock in no profit, only losses? Others would insist the big shorts must hold the physical silver they are shorting against, but aside from JPMorgan (who is no longer short) there is no evidence of that.

The only plausible reason the 8 big shorts would get as heavily short as they are would be to depress the price and somehow force longs to sell – which the managed money traders did and went along with for years. But that game appears to have ended, now that there aren’t near as many managed money longs left to sell as there once were. It’s as if the tide suddenly went out on a group of predator sharks or orcas and they became stranded. Now trapped and apparently without good chances of forcing managed money selling on sharply lower prices, the best the big shorts can do now is not to panic and rush to buy back on higher prices for the first time ever because they know that will only cause prices to scream higher, worsening their plight. So they hang on, hoping for some type of miracle.

But as the big shorts wait for a miracle, the open losses continue to grow and all the visible signs indicate no new big shorts are about to come in and take their place, Scotiabank seems to want out in the worst way and HSBC reportedly just lost $200 million in a single day. Maybe JPMorgan can stem the tide for a while by continuing to sacrifice more accumulated metal and adding to shorts on higher prices, but that will only increase the focus on how corrupt the most crooked bank of all-time really is.

The CFTC knows for sure the real story, as does the Justice Department as well as well as the super crooks at the CME Group, as it would be impossible for any of them to be that clueless. But aside from encouraging and facilitating short term selloffs, time may have finally run out for the big shorts. Particularly in a macroeconomic environment which would appear to foster continued and increasing gold and silver buying, the 8 big shorts would seem to be in a bad position. And even if they do succeed in smashing prices temporarily, there is no guarantee or even likelihood of generating the massive speculative selling they need to get off the hook.

The silver story was always about the concentrated short position and when the final chapter is written that will become obvious to all.

Finally, here’s an audio interview of Ed Steer by Chris Marcus that states my case as well – no, much better – than I could ever do.

Ted Butler

Website: www.butlerresearch.com

About Butler Research:

After publishing unique precious metals commentary on the Internet since 1996, I have decided to offer a subscription service. The main reason for the change is that I felt somewhat restricted by my weekly format. It is my intention to publish some commentary at least twice a week.

The commentary will include detailed analysis of the Commitment of Traders Report, regulatory developments, supply/demand considerations, and topics of interest to investors in precious metals, with an emphasis on silver. Subscribers will also be able to ask questions.

The service is intended to be source of market information for serious observers of the silver and gold markets, delivered in a no-nonsense manner. No bells and whistles, just unique and valuable content. Always outside the box.

Please note – this is not intended as investment advice and I am not an investment advisor. The service is solely for informational purposes


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