Wednesday, March 30, 2011

Silver Market Update

This site has thoroughly covered the fundamentals driving silver prices higher on the physical market.  For new readers, Bear Stearns had a large silver short trade that was effectively scalping profits on the spot markets for years while suppressing the price of silver.  JPM inherited this book of positions when it "purchased" BSC for $2 a share, later raised to over $10 but still an undeserved government backstopped gift for JPM.

This trade continued to work until last summer when the massive quantity of short contracts began to put pressure on JPM.  In August the spot price began to rise rapidly eclipsing $30/oz before the end of 2010.  Exacerbating this problem was the fundamental fact that the earth's crust contains 17:1 parts of silver to gold while the value ratio on the spot market at times was more than 70:1 in favor of gold.  This divergence simply could not continue and aware market participants favored silver metal and miners to gold.

Now comes the next level of fraud which we must make readers aware of.

Physical metals trade in contract form on the Comex which is a division of the Nymex.  Contracts usually change hands many times but settle in cash allowing producers to sell production in advance.  This makes running their business much more predictable.  If the contract holder desires delivery at the end of the term notice must be given in accordance with Comex rules.  Physical metal in the quantity noted on the contract will be delivered from a Comex approved vault.  The process to become an approved vault is obviously cumbersome as the integrity of this system supports the market's faith in the process.

Kwan Box editors sensed that something fishy was happening when JPM began accepting physical metals as collateral on certain loans.  Now our suspicions are confirmed as we hear that this month JPM dashed through the Comex vault approval process in 2 days.  March is a delivery month on the exchange and guess who is one of the largest contract holders requesting delivery?  That is right, the same crime syndicate that holds the troubled short book can now deliver metal to it's own approved vault and settle it's own contract obligations.  This is truly amazing.

We must caution readers to avoid the temptation to label us "conspiracy theorists" and throw out these facts since the Wall Street Journal somehow missed this.  We are merely mercenary traders who attempt to profit from herd mentality behavior and fraudulently induced government protected manipulation.  This situation happens to have been a 2010 favorite trade as it satisfied both of these prerequisites.

Avery Goodman, a Seeking Alpha contributor, provides excelent commentary on this issue.

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