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Jim Cook



Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive

Opposing Forces

By Theodore Butler

There are great forces currently in play in the silver market.  These are opposing forces that account for the current price volatility. Because the forces are diametrically opposed, only one can ultimately prevail. That resolution will determine the future price level of silver.  One great force in silver are the components that comprise physical supply and demand.  Supply and demand is the main thing to be considered when evaluating a commodity. Silver is unique because it is an industrial material as well as a widely-held precious metal.  This is what drove silver from $4 ten years ago to a ten-fold gain.

Normally, supply and demand is the only force at play in determining the price of a commodity.  But in silver, there exists another powerful force – a paper trading mechanism, which at times is more powerful than supply and demand.  Paper trading mechanisms greatly impact the price of commodities from grains to energies.  However, the paper mechanism in silver stands out.

Paper trading in silver is mostly centered at the COMEX, but also includes OTC (Over The Counter) trading and the short selling of shares in the big silver ETF, SLV. All paper trading is a derivative transaction (derived from an underlying asset) which is different from trading the actual commodity.  Instead of trading actual silver,  what’s traded are contracts to deliver the silver. In a contract there must be two parties – a long and a short. One party, the buyer or long, looks to accept
delivery and the other party, the seller or short, agrees to deliver at some point in the future. In reality, very little delivery takes place in silver or other paper markets.  Most paper trading is a speculative bet on whether prices will rise or fall.  Only a small amount of paper trading exists for legitimate hedging.

According to U.S. commodity law, paper trading is not supposed to set the price of a commodity. It should follow or “discover” the price based upon developments in the real world of supply and demand. But, what actually occurs can be very different from what should occur.  In silver, the paper trading mechanism at times overpowers the forces of supply and demand.   Paper trading hasn’t completely overpowered supply and demand, otherwise the price wouldn’t have risen ten-fold.  But it would be a mistake not to recognize the pricing power of paper trading.

Investors are generally ecstatic about the long term performance of silver and will be excited by its prospects in the future. However, we are concerned with the sudden price plunges, which seem to be inherent in this market.  The conflict is based entirely on the opposing forces at play in the silver market, namely, the clash between supply and demand and paper trading.  Silver has gone up a lot and will continue to go up in the long run because of the fundamentals.  But it is subject to sharp sell-offs because of crooked paper trading.  I believe that grasping this fact will make things easier for silver investors to hold and to be patient.

Don’t expect legitimate supply and demand explanations for any silver sell-off.  I have never found one in 30 years of close observation. The price has gone up in the broad sweep because of the force of supply and demand.   It has only declined on crooked games in the paper markets. I realize this is an extreme view, but it is one of which I am convinced.   If you come to accept this as a core belief, you will be doing yourself a favor.  You should expect, silver will do as well as it has in the past because of the fundamentals.  However, the crooks will engineer sell-offs to shake leveraged paper holders out of their positions.  Faced with this reality,  my solution is holding fully paid for silver.

The silver longs are diverse and unrelated. This is the hallmark of a free market. The short position is dominated by large financial institutions, led by JPMorgan, that are few in number but hold very large positions.   This is the definition of concentration. This is as far from a free market as it gets. Further, the shorts appear to act collusively, generally buying and selling in unison.  The futures exchange, run by the CME Group, has closely related mutual interests with the large shorts.  I describe this arrangement as a criminal enterprise. (They have never once told me to modify this accusation and they get all my letters.)

I think it’s normal to feel outrage that such a circumstance could exist in the presence of federal regulators who have been more than adequately informed of the silver crime in progress. I also think it is healthy to never let up in pressing the CFTC to man-up and end the silver manipulation. But the main take away is that the two opposing forces cannot mutually exist indefinitely.   One force must overcome the other at some point. The good news is that there is no question the force of supply and demand will prevail over the paper trading by JPMorgan and the CME.

In fact, the paper trading mechanism is inherently self-destructive because nothing can overcome supply and demand forever. It was uneconomic short selling on the COMEX ten years ago that created the unsustainable price of $4 silver.  So the manipulators did early silver investors a favor by creating such a low price. Today, even with the price up ten-fold, the concentration on the short side is much more pronounced than it was then.  The issue is more widely debated and understood today than ever before. This  augers well for the future.