Brad Zigler

Shorts Unable to Stop Silver Rise

Apparently it hasn't occurred to anyone except PM Maven that these banks have offsetting long positions in the physical, forward or derivative markets that are not reflected in the Commodity Futures Trading Commission (CFTC) position reports.

The speculative position limit for silver futures is 6,000 contracts. Any single trader holding more than that must be able to demonstrate a bona fide hedge relationship offseting the futures exposure.

You're only seeing PART of the banks' metals exposure in the CFTC reports.

See: "Has Gold Been Manipulated?" at seekingalpha.com/artic....

On May 30 10:00 AM PMMaven wrote:

> This is very confusing. Are these "Commercial" shorts banks. I am
> under the impression that silver resellers acting as merchant bankers
> would undertake a classic Cash and Carry hedging program. And what
> does annual silver mining output have to do with above ground inventory?

Silver Breaks out, Aims for $17

The alleged short manipulation of precious metals is just that -- alleged. So far, I haven't seen empirical evidence propounded to support the contention that "two top banks" are controlling the price of silver (or gold) through COMEX futures.

Take a look at the last few comments appended to "Has Gold Been Manipulated" at seekingalpha.com/artic.... The exchange between Ted Butler and the author illustrates the paucity of hard data supporting the manipulation theory.

Banks APPEAR short because the CFTC (Commodity Futures Trading Commission) reports don't show offsetting long positions these institutions have in the cash, derivatives and forward markets.

On Jun 02 10:05 AM traderstraffic wrote:

> And now for the COMEX and our two top banks to come in and short
> 98% of the silver contracts. Look out below. Silver at $9, its not
> like it has not been done before.

Has Gold Been Manipulated?

wheelbarrelsofcash -

The economic functions served by the futures market and the stock market are markedly different.

Equities are part of a capital formation market. Stocks are issued initially to raise cash for corporations; trading in the secondary market then provides liquidity for the subsequent chain of stockholders.

Futures make up a risk transference market whose purpose is to provide commercial users and producers a means to hedge the risk of dealing in volatile commodities.

Regulators limit the size of speculative positions in the futures markets (in the case of gold, as discussed above, the speculative position is 6,000 contracts in total, no more than 3,000 of which can be in the spot month).

Exemption from these limits are granted to commercial enterprises engaging in bona fide hedges. As an example, let's suppose a bank undertakes a position putting them long one million ounces of gold in the cash, forward or swap market. The bank would be allowed to sell short up to 10,000 COMEX gold futures (each contract represents a delivery commitment of 100 ounces) to offset its resulting risk.

Any short sales ABOVE 10,000 contracts would be deemed a proprietary speculative position and would thus be subject to limit.

In contrast, a hedge fund, as you posited in your comment--despite its
moniker--is a speculative venture. It has no commercial purpose other than attempting to profit from its bets.

You have to recognize, too, that there are two different regulators involved in the comparison you've drawn. The Commodity Futures Trading Commission has the futures market in its purview while regulation of equities devolves upon the Securities and Exchange Commission. Their differing rules reflect the differing markets.


On May 24 10:56 AM wheelbarrelsofcash wrote:

> So let me get this straight - 1 or 2 firms can account for 25% of
> the short gold contracts out there and that is fine but when hedge
> funds short US equities ( and no where near the 25% number) everyone
> cries foul and demands that short selling be banned? If anything
> the recent bans of short sales financial stocks is proof that gold
> is manipulated otherwise why a ban be placed on short sales when
> the SEC found no manipulation in the shorting of said financial stocks?
>

Has Gold Been Manipulated?

Banks and miners AREN'T allowed to short the market willy-nilly.

Any entity that can't establish off-market offsets to its futures positions will be subject to speculative position limits. Even banks. Even miners.

As illustrated in the table describing bank-held gold futures above, three banks held an aggregate position exceeding 95,000 contracts.

The speculative position limit for gold futures is 6,000 contracts. Any futures position that can't be tied to an offset would be deemed speculative in nature and subject to the limit.

Let's just assume each of these banks held proprietary (non-customer) futures contracts. Speculative position limits would constrain the banks from holding more than 6,000 gold contracts (each) for their own accounts.

If we assume that each of the three reporting banks divided the positions equally among themselves and actually held the maximum allowable proprietary speculative position, each bank could be assumed to hold nearly 26,000 contracts as bona fide hedges -- positions with offsets elsewhere. It's these, and only, these that are not subject to limit.

The important thing to note is that there must be a risk offset to qualify for the hedge exemption to position limits.

Banks (and miners), as the result of hedging, become essentially "market neutral" to the extent of their offsets.

Hedgers utilize the futures market for its economic purpose: risk tranference. By finding counterparties in the exchange marketplace, a bank can reduce the risks undertaken as a consequence of offering financial products to its customers and a miner can protect its profit margins from market volatility during a production cycle.

Yes, position limits are lower in the spot (delivery) month. For gold, the spot month limit ratcheted down to is 3,000 contracts for each trader. That's equivalent to 300,000 ounces of gold. That's not enough for a speculator?

I'm not seeing how the market is "stacked.'




On May 23 12:43 PM BidEd wrote:

> Brad,
> Thanks for the response. You are obviously very well versed in the
> inner workings of the markets.
>
> I do think you have helped me further prove my point that the market
> is "stacked' in favor of the short side. You said speculators are
> limited as to size of position. Then state that Banks aren't speculators
> so they don't have to qualify for those limitations.
>
> So it seems obvious to me that if you have all the producers able
> to hedge their production and the largest financial institutions
> able to hedge at will, the game is at least a little tilted. In casino
> terms the short side is the house. The rules/odds are in their favor.
>
>
> Remember this occurs at the same time that physical delivery is limited
> in quantity from the depository. So physical demand by industrial
> users shouldn't be a big factor for the long side contracts. Those
> users have contracts directly with the miners for the physical product
> they need.
>
> So that basically leaves the long side primarily to speculators.
> Which, you have already said are limited. If you are a big money
> speculator knowing that you are limited in size by the rules of the
> game or even a little time investor, you would most certainly closely
> examine the market. You would see that the banks or miners are allowed
> to short all they want or have production against. You would see
> that there is no way possible that they will be required to provide
> even a fraction of those contracts for physical delivery.
>
> You also know that the other side is limited to actual users of the
> underlying metal. But as a industrial user you would most certainly
> go to the source to get your metal as delivery from the exchage is
> limited. So you might hedge some of your needs in the futures market
> but for the most part you are going to do long term contracts with
> the producers of the metal you need. Leaving only speculators and
> small time investors on the long side.
>
> So given those facts and rules of the market you should come to the
> conclusion that the short side is the preferred side. This is due
> to the fact that it would take an inordinate amount of speculators
> to be able to equal your ability to short because as a bank where
> you have no limits and as a speculator you do. So it would take a
> large group of speculators fighting at one time to drive the price
> higher. That might involve considered collusion, which of course
> would be illegal.
>
> I know you were trying to have someone prove manipulation. I am not
> trying to do that. I just want to show that the rules of the game
> appear to be biased. Some could call that "manipulation" but you
> know the rules of the game going in. So if you don't understand or
> know how the rules of the game are set up be prepared to lose money.
>
>
> Just like in a casino, you can go in and have a good run and make
> money. But the rules/odds of the game are in the Casinos favor. Over
> the long run the casino makes money by statistical conclusion of
> the games rules. I think the short side is the Casino.
>
> Until the banks are required to follow the same rules as speculators,
> which I never see happening, then the biased should be on their side.
> It is the rules of the game.
>
> So Ted can claim manipulation all he wants but the banks are playing
> within the rules of the game. So if his objective is to get the rules
> of the game changed, I wish him good luck, but I don't see how the
> demise/collapse of the metals futures market is going to be allowed.
> They didn't allow it to happen with the Hunt brothers, so it would
> take a much larger force, say a soverign state to force such a change.
> But when examining the rules, a soverign state isn't going to play
> the game, they will just go buy the physical product.
>
> I still state, if you want to be in the precious metals market, you
> should only buy the physical product or the miners of the product.
>

Has Gold Been Manipulated?

But the banks, by your definition, ARE concentrated in platinum and palladium. They report NO long positions in these futures at all. The ENTIRETY of their futures position is short. You can't get more lopsided than that.

World production is immaterial to an allegation of manipulation of FUTURES. For a manipulation charge to stick, the perpetrators must be shown to have skewed FUTURES prices by their actions.

And what actions have these banks actually undertaken? Laying off exposure created by dealing on the long side of the cash and derivatives markets?

Look, the speculative position limits for gold futures is 6,000 contracts. Per the table above, US banks held an aggregate position in excess of 95,000 contracts. Let's just assume that each of the three reporting banks divided the positions equally among themselves and actually held the maximum allowable proprietary speculative position. That would mean each bank is carrying nearly 26,000 contracts EACH as bona fide hedges -- positions with offsets elsewhere.

That's not concentration and that's not prima facie evidence of manipulation.

You have to be able to QUANTIFY and DEMONSTRATE a degree of price alteration to establish manipulation. Merely saying the price OUGHT to be higher is insufficient. HOW much higher? What is the actual damage to the market these participants are alleged to have wrought?

On May 23 12:28 PM Ted Butler wrote:

> Brad,
>
> It’s obvious you didn’t look at the Bank Participation Report before
> you came up with Platinum and Palladium as examples of overly concentrated
> positions. In Platinum, 2 US banks are short the grand total of 295
> contracts, or 1.4% of the market. In Palladium, 3 US banks were short
> 1646 contracts or 11.5% of that very small market. In terms of how
> these amounts compare to real world production, the palladium short
> amounts to less than 3% of world production, while the platinum short
> position is 0.25% (one-quarter of one percent) of world production.
> These don’t come close to the concentrated short positions in either
> gold (10 to 15%) or silver (20 to 25%) compared to world production,
> or the 27.7% in gold or 29.3% in silver, in terms of percent of the
> entire futures market.. Therefore, platinum and palladium are bogus
> examples, just like Treasury Bonds..
>
> In all due respect, I don’t choose to rehash here all the arguments
> I have made in my public articles, except to say that it should be
> obvious that if the concentrated short positions held by the very
> few US banks in gold and silver did not exist, the price would be
> substantially higher. In other words, if these concentrated sellers
> were to be replaced by sellers motivated by free market prices, it
> would take much higher prices to attract them to sell. This is the
> essence of the manipulation.
>
> I have only responded because the premise of your story was simple,
> you referenced me by name, and you were soliciting comments concerning
> that premise, namely, that the concentrated positions in gold and
> silver were normal compared to other commodities. They are not.

Has Gold Been Manipulated?

Yes, platinum and palladium. But what makes you think that these, like the other metals positions, aren't offsets to cash or derivatives positions?

Will you also demonstrate HOW, as asserted in your statement: these "concentrated commercial shorts on the COMEX" actually exploited their "means (through their dominant and monopolistic position)," and utilized their "skill to cause the sell-off" in 2008?

You've alleged a crime, viz: " those responsible for this crime," but haven't established the elements of a crime nor even the basis for a civil action.

What would be the metals prices have been if these U.S. banks weren't users of NYMEX/COMEX?




On May 23 07:22 AM Ted Butler wrote:

> Brad,
>
> I am well-versed on the manipulation points you have outlined, and
> someday I am hopeful that I will be able to debate them with the
> CFTC directly. Even though the CFTC is on their third silver investigation
> in five years, due to my private and public allegations, they have
> yet to engage me. It’s kind of like the police investigating a murder
> for five years, yet refusing to sit down with the sole eye-witness
> who tipped them off in the first place. Personally, I think the CFTC
> is afraid to sit down with me on this issue.
>
> In any event, I don’t see what could be gained by debating all these
> issues here. This is not complicated. You wrote an article, referencing
> me, with the simple premise that the concentrated holdings on the
> short side of COMEX gold (and silver) were not out of line with many
> other commodities. You claimed this invalidated my argument You chose
> as an example the Treasury Bond market, which turned out to be a
> poor choice, as it did not show a concentration by US banks at all,
> or even by foreign banks, as there were too many (15) to qualify
> as concentrated. Others and I pointed this out, and rather than address
> the simple premise of your article you have instead gone off on tangents
> unrelated to your story line.
>
> In the Bank Participation Report of May 5, which you referenced,
> 3 US banks held a short gold position 85 times their long position
> and that short position made up 27.7% of the entire market. In silver,
> 2 US banks held a short position 250 times their long position and
> that short position made up 29.3% of the entire market. These are
> unusually large and concentrated positions, even though they were
> actually lower than they had been in previous months. In addition,
> when converted to real world quantities, the silver short position
> of two US banks has constituted 20 to 25% of the entire world production,
> an unprecedented and absurd amount.
>
> I ask again, can you provide any specific examples where this has
> occurred in any other commodity?

Has Gold Been Manipulated?

In order to qualify for the hedge exemption to position limits, traders are obliged to file reports with, and be subject to the scrutiny of, the CFTC. The CFTC has the power to call for additional information from any trader claiming exemption to position limits.

Once reporting levels are attained (200 contracts for NYMEX/COMEX gold; 150 contracts for NYMEX/COMEX silver), daily reports must be filed by the carrying broker, whether the positions are subject to a hedge exemption or not.

A claim that that "no one can prove" legitimate offsets is specious.

There are no "concentration" limits specified under the Commodity Exchange Act (CEA) or CFTC-promulgated regulations. A bank's large or lopsided short futures position is not prima facie evidence of manipulation, especially in light of long exposures created by dealing in swaps, physicals or forward contracts.

A bear raid, as you postulate, is profitable only if a speculative short seller can eventually buy back positions at a price which is lower than the price at which they were initially sold. Since the number of contracts sold is equal to the number of contracts subsequently bought, this can happen if, and only if, the futures price responds asymmetrically to a speculator’s purchases and sales. That is, the price decline caused by the speculator’s sales must exceed the price rise caused by subsequent purchases.

There is no credible evidence that such an asymmetry exists or has existed in the futures markets. Moreover, it is even difficult to construct a theoretical model that exhibits this property.

A showing of manipulation under the CEA requires four elements: (1) an ability on the part of the alleged manipulator to influence prices, (2) a specific intent to create an artificial price, (3) the actual existence of an artificial price and (4) causation.

Thus, proof of manipulation involves a showing of monopoly or domination of the market, trading practices inconsistent with competitive behavior, and the ability to leverage across markets.

The law defines a manipulative act as one that is inherently capable of causing an artificial price. For a manipulation to be established, there must be a showing of “specific intent" to create an artifical price.

Last, it must be demonstrated that the alleged manipulative act was in fact the actual cause of the artificial price.

In short, the evidence HASN'T yet been produced that establishes manipulation.

Put simply, it boils down to this:

-- What the current price of metal be if the alleged manipulation hadn't occured?

-- Do the banks have the actual ability to influence the price of metal?

So far, there's been no data offered to address these questions.

On May 22 04:17 PM Ted Butler wrote:

> Brad,
>
> Those are all nice-sounding excuses for the super-concentrated short
> position of a very small number of US banks. Even if they did have
> legitimate off-setting positions (which no one can prove) it still
> doesn’t give them a green light to dominate a market. And of all
> markets why is it so extreme as in silver (and gold)? The banks are
> hiding behind the bona fide hedge con to avoid legitimate speculative
> positions. Yes, the CFTC did review this matter in 2004 and 2008,
> and dismissed my allegations of manipulation. Yet they still turned
> around and began a new investigation just months from issuing their
> 2008 review, based upon the new concentration data.
>
> Look, you kept asking for data pointing to a manipulation and I provided
> it. If you can, in turn, provide specific information on other markets
> that show such large concentrations held by so few traders as in
> silver (and gold) and where just one or two traders are short (or
> long) up to 25% of the world annual production of any commodity,
> I’d love to see it. I don’t know how any reasonable person could
> conclude anything but manipulation.

Has Gold Been Manipulated?

As you may know, there are no position limits on bona fide hedge transactions. Thus, banks using futures to offset large long cash or swap market exposures are bound to look lopsided.

Keep in mind that COT reports produced by the CFTC reflect futures (and futures-equivalent options) positions only, so we don't see traders' NET market exposure.

In August 2007, NYMEX (the parent of COMEX) surveyed several of the largest short metals traders, inquiring as to their activity in the cash and OTC derivatives markets. The exchange found that these firms held significant forward agreeements that left them with a net long exposure. The short futures positions on COMEX/NYMEX were found to offset their cash and OTC positions, leaving them essentially "market neutral."

A manipulation would be evidenced by a biased NET market position.

According to CFTC analyses published in 2004 and 2008, overall short-side concentration in precious metal futures is not significantly different from that found in many other active futures markets.

That said, it's important to note that the tables presented in the article show only BANK trading in the gold and bond markets, not the entirety of traders' commitments. That US banks appear so heavily tilted to the short side in metals futures (compared to foreign banks) is an artifact attributable largely to regulatory legacies.

In foreign venues you're much more like to find unitary regulators, i.e., single agencies that govern banking and brokerage. Offshore banks are much more likely to be financial supermarkets, offering their customers one-stop shopping.

For years, the Glass-Steagall Act kept a wall between investment and commercial banking in the US. Even though that legislation has now been gutted, few US banks fully integrated financial offerings to include futures. After all, there are still separate regulators for banking activities, securities transactions and futures brokerage. To offer all services, an institution must submit itself to three different regulatory schemes and capital requirements, a costly investment.

Most futures brokerage and trading in the US is conducted by CFTC-regulated futures commission merchants rather than banks. Brokers' and non-bank proprietary trading positions would not be reflected in the tables.

On May 22 02:20 PM Ted Butler wrote:

> Brad,
>
> You keep asking for evidence, when you’ve already provided it yourself.
> Three or fewer US banks are short 85 times as many short contracts
> as they hold long contracts. Not shown, but also off the same report
> is that 1 or 2 US banks are short 250 times as many silver contracts
> as they hold long. This level of concentration is prima facie evidence
> of manipulation, by the CFTC’s own past standards of prosecuting
> manipulation.
>
> In addition, the concentrated silver short position of 1 or 2 US
> banks has run between 20 to 25% of total annual world production
> since August. Never has such a level of concentration existed in
> any commodity.
>
> While I’m not holding my breath for the CFTC to do the right thing,
> they did, at least, initiate a formal investigation of silver by
> their Enforcement Division after I wrote about these levels of concentration.
> That would suggest they see some evidence of potential wrongdoing.
> Otherwise, they would have responded like you have and saved the
> taxpayers some money.
>
> Ted Butler

Has Gold Been Manipulated?

But that's the odd thing ...you've provided NO evidence of banks' CURRENT manipulation of PRECIOUS METALS FUTURESas alleged by Mr. Butler.

Where's the data?

I supplied the hard numbers in my article to back my contentions. If I can come up with numbers, why can't you?



On May 22 12:33 PM SW Richmond wrote:

> Presenting you with evidence which any reasonable person could use
> to conclude that the sky is blue seems a waste of time. Anyone can
> set up a strawman and knock it over. Your standard of evidence seems
> to be an eyewitness report, one which you know is not forthcoming.
>
>
> Good day.

Has Gold Been Manipulated?

Thanks, but the point of contention here is narrow and au courant.

My question was, and remains, what evidence of current manipulation in the metals futures market, as alleged by Ted Butler, can be produced?


On May 22 06:46 AM SW Richmond wrote:

> Brad,
>
> For your consideration, from the US Treasury Department's web site,
> the history of the Exchange Stabilization Fund. The link between
> currency intervention and gold intervention is clearly established:
>
>
> www.ustreas.gov/office.../
>
>
> "The ESF began to conduct foreign exchange market intervention transactions
> in 1934 and 1935. Also, it entered into credit arrangements, starting
> in 1936. From 1936 to the present, the ESF has participated in over
> a hundred credit or loan arrangements with foreign governments or
> central banks. After World War II, the ESF conducted Treasury's monetary
> gold transactions and widened its participation in credit arrangements.
> Tables presenting data on all ESF intervention operations since 1973
> and all ESF credit arrangements since 1936 can be accessed through
> the links above. Researchers should note that these data are for
> the ESF only and do not cover the operations of the Federal Reserve’s
> System Open Market Account (seekingalpha.com/symbo...).
> Historically, U.S. intervention has been jointly financed by both
> the ESF and SOMA, and the financing has been equally shared between
> the two accounts.
>
> Intervention Operations
>
> Treasury policy during 1961-71 period focused on deterring capital
> outflows from the United States and giving major foreign central
> banks an incentive to hold dollar reserves rather than demand gold
> from the U.S. gold stock. The ESF resumed intervention operations
> in the foreign exchange market in March of 1961 (for the first time
> since the mid-1930s), but it soon became apparent that the resources
> of the ESF alone were too small to sustain transactions of the magnitude
> necessary. At the invitation of the Treasury, the Federal Reserve
> joined in foreign exchange operations in February 1962. The Federal
> Reserve entered into a network of swap agreements with other central
> banks [2] in order to obtain foreign currencies for short-term periods
> for use in absorbing forward sales of dollars by foreign central
> banks hedging exchange risk on their dollar holdings. To provide
> foreign currency to repay the Fed's swap drawings, the Treasury during
> the 1960s issued non-marketable foreign currency-denominated medium-term
> securities (Roosa bonds) and sold the proceeds to the Fed.
>
> In August 1971, the United States ceased conducting gold transactions
> with foreign monetary authorities, and the need to moderate the drain
> on the US gold stock was eliminated. In December 1974, ESF turned
> over, in a sale at par value, a gold balance of 2.02 million ounces
> (valued at $85 million) to the Treasury General Account. This gold
> had been acquired prior to August 1971 through gold transactions
> that the ESF engaged in with foreign monetary authorities and with
> the market for the purpose of stabilizing the value of the dollar
> relative to gold. In a public announcement of this sale of gold by
> the ESF to the Treasury General Account, the Treasury stated that
> the sale was made "in view of the likelihood that the Exchange Stabilization
> Fund [would] not be engaging in further transactions to stabilize
> the value of the dollar relative to gold." [3]
>
> Later in the 1970s, the US monetary authorities built up foreign
> currency reserves substantially. For this purpose, the ESF entered
> in a $1 billion swap agreement with the Bundesbank in January 1978
> (which has since been allowed to expire). In connection with the
> dollar support program announced in November 1978, the Treasury issued
> foreign currency-denominated securities (Carter bonds) in the Swiss
> and German capital markets to acquire additional foreign currencies
> needed for sale in the market through the ESF. The United States
> also drew its reserve position in the IMF.
>
> In the mid-1980s, the major industrial nations embarked on a process
> of intensified policy coordination. The Group of Five's (G-5) Plaza
> Agreement in September 1985 served to reinforce exchange rate adjustments
> among the major currencies and occasioned substantial coordinated
> intervention sales of dollars. The G-5 "agreed that exchange rates
> should play a role in adjusting external imbalances … should better
> reflect fundamentals … and that … some further orderly appreciation
> of non-dollar currencies against the dollar is desirable." In the
> Louvre Accord of February 1987, the major industrial countries agreed
> that the exchange rate changes since the Plaza Agreement would "increasingly
> contribute to reducing external imbalances and … [had] brought their
> currencies within ranges broadly consistent with underlying economic
> fundamentals …[and] agreed to cooperate closely to foster stability
> of exchange rates around current levels." They adopted specific measures
> and cooperative arrangements reflecting their view that their currencies
> were broadly consistent with underlying economic fundamentals. This
> framework for cooperation on exchange rates complemented the broader
> economic policy coordination efforts to promote growth and external
> adjustment. In December 1987, the Group of Seven (G-7) reaffirmed
> Louvre's basic objectives and policy directions and agreed to intensify
> their economic policy coordination efforts and to cooperate closely
> on exchange markets. There was continued active cooperation through
> late 1989, but such activities became less frequent thereafter and
> halted in mid-1990.
>
> From the time of the Plaza Agreement until mid-1990, the U.S. monetary
> authorities were involved in episodes of net purchases of dollars
> vs. foreign currencies and episodes of net sales of dollars vs. foreign
> currencies. These operations were generally carried out in conjunction
> with operations by a number of other countries’ monetary authorities,
> including those of the major industrialized countries.
>
> During 1993-1995, the U.S. monetary authorities again joined other
> monetary authorities in purchases of dollars vs. other major currencies.
> In one instance, this joint intervention was explicitly linked to
> a view among the G-7 countries that exchange rate movements had gone
> beyond levels justified by underlying economic conditions. In June
> 1998, the U.S. monetary authorities purchased yen in the context
> of Japan’s plans to strengthen its economy. In September 2000, the
> U.S. authorities bought euros in a coordinated intervention operation
> that the European Central Bank initiated out of concern about the
> potential implications of euro exchange rate movements for the world
> economy."

Has Gold Been Manipulated?

BidEd -

The deck ISN'T stacked against shorts. Speculative positions limits are imposed on BOTH long AND short positions.

The operative word is "speculative" here, because there are no limits to bona fide hedge transactions. A trader can establish futures positions on either side of the market without limitation if those positions offset a cash market or derivatives exposure that arises as part of the trader's line of business.

A miner can, for example, can sell metals futures to equal anticipated production. Short sales beyond the miner's production capacity would be deemed speculative and subject to limits.

Likewise, a market maker or swaps dealer can hedge, without restriction, up to the net exposure on its books.

For NYMEX/COMEX metals, speculative position limits are currently set at 6,000 contracts on either side of the market.

Position limits for contracts in their expiration month are often set lower in order to dampen end-of-contract volatility and smooth delivery flows. Margin requirements may also be raised in for contracts held into the delivery period.

Reporting levels are set at much lower levels.

For full-sized (100-oz) gold contracts, the reporting level is pegged at 200 contracts; for 5,000-oz silver futures, reporting is obliged once a position of 150 contracts is obtained.

Daily reports to the CFTC must be filed daily by the broker carrying the account of a trader meeting or exceeding a commodity's reporting level, whether those contracts are speculative in nature or bona fide hedges.

You should know, too, that margin requirements are higher for speculators -- short or long -- than those imposed for bona fide hedge transactions. The important part to remember is that requirements are the same for BOTH sides of the market. Shorts put up the same bond as longs.

The futures exchanges are free, subject to oversight by the CFTC, to change position limits, as well as margin requirements, as conditions warrant to encourage or discourage speculation and maintain market integrity.

An exchange can impose severe limitations on traders in an attempt to prevent manipulation, including raising margin requirements up to full contract value and limiting purchases OR sales by speculators to "liquidation-only."










On May 22 01:21 AM BidEd wrote:

> Brad,
> I personally think the most important characteristic of the gold
> and silver futures market are the rules of the game. They are stacked
> against being long the contracts. Due to the Hunt Bros., the CFTC
> and the Federal Reserve changed the rules of the game. They set position
> limits on the long side and the combined amount of physical metal
> that can be taken for delivery in any single month is limited. Those
> changes are very important rules when considering investing in the
> metals futures market.
>
> So while the market might not be "manipulated" in a conspiracy since,
> it does appear the rules are set up in favor of the shorts or at
> least the threat of a rules change works as a deterrent from building
> a large position.
>
> At the top of the silver market, the banks were huge shorts against
> the Hunt Bros. They forced changes in margin requirements for the
> long side, and banned opening transactions. That's right when the
> banks were fully short, they restricted anyone new from joining the
> party while they took the bull in the market out and shot him. Hunt
> bros and followers were forced to cover in a market where the only
> people on the other side were the short banks. There were no changes
> in margin rules for the shorts, of course not, it was the people
> making and influencing the rules. So they could wait while the margin
> calls hit and just watch the market crash. The big banks were the
> biggest winners from the Hunt bros attempt.
>
> It is like Hank Paulson said, if you show them you have a bazooka
> in your pocket, you shouldn't have to use it. Well, history shows
> us the Fed and the CFTC will make sure that no financial ruin comes
> from a run on the physical commodity on deposit at the COMEX. In
> today's ideals of too big to fail, I am sure the COMEX would make
> the list.
>
> I would suspect that if gold and silver on deposit get below levels
> they are comfortable with, all contracts will be forced to settle
> in cash or no new opening contracts will be allowed. That should
> limit the price. If you want the physcal metal but aren't allowed
> to take delivery. Then what good is the contract to you? That isn't
> a true manipulation because it is the known rules of the game. So
> caveat emptor.
>
> I would suggest if you think the prices are being manipulated lower,
> then send a thank you letter to the FED and CFTC as well as JPM (likely
> one of the big shorts) and then take advantage of the 50% off SALE
> they are running and buy the physical metal.
>
> But know the rules of the game in the PM futures market aren't going
> to change to the detriment of the banks that are short. Our system
> doesn't work that way.
>
> On May 20 09:29 AM Brad Zigler wrote:

Has Gold Been Manipulated?

5142152-337 -

Despite your claim, government agencies HAVE responded to inquiries regarding manipulation

Specifically with respect to the claims made by Ted Butler, the Commodity Futures Trading Commission's Division of Market Oversight (DMO) analyzed the activity in the silver futures market in 2004 and, in an open letter from the division's director, concluded that the existence of a long-term manipulation was not plausible.

In 2008, again in response to commentators and investors reassertions of manipulation , the DMO re-examined the market. Once more, analysis established that the claims of price suppression were not credible.

Specifically, the DMO drew these conclusions in most its recent examination:

-- Siver cash and futures prices rose dramatically between 2005 and 2007. Silver. In fact, outperformed gold, platinum and palladium during that time, suggesting that silver future prices were not depressed relative to other metals.

-- NYMEX/COMEX silver futures prices track the price of physical silver closely, If NYMEX/COMEX futures were manipulated downward, observers would expect to see futures trade significantly below the cash price.

-- Concentration levels for the top four short traders in silver futures are comparable to those observed in the gold and copper markets and are generally lower than the levels seen in the platinum and palladium markets.

-- The composition of the traders comprising the top four short futures traders (by net positons) changes over time. These traders represent a diverse group and their futures positions are driven by an even more diverse customer base.

--There is no observable relationship between short-futures-trader concentration levels and the price of silver futures.

-- There is a slighly positive relationship relationship between the total net position of of large short traders and silver prices, suggesting that larger short poistions are actually associated with HIGHER, not lower prices.






On May 20 08:23 PM 5142152-337 wrote:

> Nathaniel C:
>
> Zigler will not accept your (or any) proof as PROOF! Why? Who knows?
> But it is obvious he has a blockage SOMEPLACE in that the VERY SUBJECT
> OF MANIPULATION is such that NO government watchdog agency will even
> respond to inquiries, much less investigage such allegations of manipulation
> in the commodities market. The PEOPLE rule! The surefire way to eliminate
> the manipulation is for you and I (the people) to buy PHYSICAL gold
> (and silver) which eventually will strip the JPMorgans and their
> ilk of their shroud of manipulation. Then, you will see the true
> price of these PMs. Right, Brad?

Has Gold Been Manipulated?

Nathaniel C-

The suit you cite was dismissed as to all parties on the defendants' motion in an order dated March 26, 2002. The plaintiff was found to lack standing to bring suit under the Sherman Antitrust Act and the Securities Exchange Act, among other things.

Both comments you reference were cited by the plaintiff in support of his complaint.

The statement attributed to Mr. George is hearsay. According to the Court, the plaintiff relied upon a third party account in his citation.

Mr. Greenspan's quotation has been isolated from its preceding context. In the then-FRB Chair's testimony about OTC derivatives, Mr. Greenspan said virtually the same thing about the oil market, i.e., "... private counterparties in oil contracts have virtually no ability to restrict worldwide supply of this commodity. Even OPEC has been less than successful over the years."

None of the plaintiff's contentions were, or have been, tried on their merits.




On May 20 07:57 PM Nathaniel C wrote:

> Mr Zigler--Here is the proof.
>
> Alan Greenspan, at a testimonial at a 1998 House Banking Committee
> hearing: "Nor can private counterparties restrict supplies of gold,
> another commodity whose derivatives are often traded over-the-counter,
> where central banks stand ready to lease gold in increasing quantities
> should the price rise."
> Refer: 192.168.0.104/~trevor/gata.org/gata.org/howe_complain...
> (Section 38)
>
> From the Complaint in Howe v. Bank for International Settlements,
> et al., United States District Court for Massachusetts, No. CV-00-12485-RCL
> (www.goldensextant.com/...): The reaction of the
> Fed and other central banks to the sharp rally in gold prices triggered
> by announcement of the so-called "Washington Agreement on Gold" in
> September 1999, as described by Edward A. J. George, Governor of
> the Bank of England and a director of the BIS, to Nicholas J. Morrell,
> then Chief Executive of Lonmin Plc, a principal shareholder in Ashanti
> Goldfields Ltd. (paragraph 55):
>
> We looked into the abyss if the gold price rose further . A further
> rise would have taken down one or several trading houses, which might
> have taken down all the rest in their wake. Therefore at any price,
> at any cost, the central banks had to quell the gold price, manage
> it. It was very difficult to get the gold price under control but
> we have now succeeded. The U.S. Fed was very active in getting the
> gold price down. So was the U.K. [Emphasis supplied.]
>
> From Chairman Greenspan's letter to Senator Joseph I. Lieberman,
> Connecticut, dated January 19, 2000, elaborating upon the foregoing
> testimony (groups.yahoo.com/group...):
>
> This observation simply describes the limited capacity of private
> parties to influence the gold market by restricting the supply of
> gold, given the observed willingness of some foreign central banks
> -- not the Federal Reserve -- to lease gold in response to price
> increases.
>
>
>
>
>
>

Has Gold Been Manipulated?

Mr. Butler alleges manipulation of both markets. As he wrote in
his "Smoking Gun" commentary:

"For years, the data contained in the weekly Commitment of Traders Report (COT), issued by the CFTC, have indicated that several large COMEX traders have manipulated the price of silver AND GOLD." [Emphasis added]


On May 20 04:52 PM rick flair wrote:

> ummm...Zig.....you got the wrong metal...its silver he's talking
> about....he's mentioned gold about 2 times in the last 10 years....you've
> COMPLETELY MISSED the point and published a foolish article. Shame
> on you for not even getting the commodity right.....pathetic Brad
> ,WAKE UP.....

Has Gold Been Manipulated?

I refer you to the response posted to "au godfather:"

There are inherrent differences between US and foreign banks, mostly attributable to regulatory legacies.

In foreign venues you're much more like to find unitary regulators, i.e., single agencies that govern banking and brokerage. Offshore banks are much more likely to be financial supermarkets, offering their customers one-stop shopping.

For years, the Glass-Steagall Act kept a wall between investment and commercial banking in the US. Even though that legislation has now been gutted, few US banks fully integrated financial offerings to include futures. After all, there are still separate regulators for banking activities, securities transactions and futures brokerage. To offer all services, an institution must submit itself to three different regulatory schemes and capital requirements. It ain't cheap operationally.

Most future borkerage in the US is conducted by CFTC-regulated futures commission merchants rather than banks.

What the CFTC data tables don't show you is the qualitative distinction between speculative and hedge transactions in those short positions.

CFTC staff reports that the vast majority of large trader positions in the metals market are customer-driven hedges. In other words, they offset transactions the trader has made in the cash or OTC swap market.

Thus, these firms are more likely to be market-neutral. We just see HALF of their exposure in the CFTC reports.


On May 20 03:51 PM orangutan wrote:

> I wondered how long it would take someone to point this out. The
> difference between US and non-US is extreme. It completely undermines
> the author's argument, and itself is evidence of market manipulation.
>
>
>