In Ted Butler's Archive


Despite what you may have read, the big banks did not sell gold and silver to depress the price on the big drop recently. The data will show, just as they have always shown that the managed-money traders (computer-driven hedge funds) were the big sellers and the commercials (big banks) were the big buyers. In that fashion, JPMorgan and the big banks successfully closed out a large portion of their profitable short positions. The commercials rig prices lower through the magic of spoofing and other computer scams, but they do so only to generate managed-money selling, so that the commercials can then buy. And this week, the managed-money traders sold COMEX gold and silver in droves, while the commercials bought every contract sold. That’s the game. With record trading volume, this past week was among the best financially for the commercials and worst ever for the managed-money traders in gold and silver. Including the extraordinary price turnaround on Tuesday evening into Wednesday, I’d estimate that JPMorgan and the other commercials made more than $3 billion in gold and silver this week and the managed-money traders lost the same amount.

That’s a far cry from the near $4 billion the commercials were in the hole for during the summer price highs. This is the money game that drives gold and silver prices. The good news is that the market structure is nowhere near as bearish. We have taken a large step towards getting most of the downside price damage behind us. The commercials whacked huge chunks off the price and there seemed to be an urgency in getting the job done.

When the selloff is done, it is likely to be the final selloff in silver. JPMorgan is in the best position for a silver blastoff than it has ever been, particularly after this week, with its largest physical position ever and a sharply reduced paper short position (the whole point of the selloff). It is impossible that the commercials aren’t tuned into the managed-money traders’ behavior, especially considering how few in number are the large commercials. Earlier this year, the commercials were in the hole $4 billion in gold and silver, only to have made that back and $3 billion more over the decline. These are stakes guaranteed to get attention.

The reason for the $4 billion loss was that the commercials miscalculated in allowing themselves to sell short to the managed-money longs at too low gold and silver prices earlier in the year. The reason the commercials miscalculated is that they misjudged the extent to which managed-money traders have attracted investor money. It was large investor inflows that created the much larger positions the managed-money traders put on this year.

Better than anyone else, the commercials and in particular JPMorgan now fully appreciate the tremendous buying and selling power that the managed-money traders possess. Armed with this knowledge, the commercials will never sell as aggressively at low prices when the prospects are for much more managed-money buying to come. It will be to the commercials’ advantage to lay back and hold off when the managed-money traders begin to buy, rather than rush to sell too soon as was the case earlier this year. This would result in much sharper price moves for silver than we’ve witnessed to date.

The right time to buy silver is after it has fallen sharply in price. That’s true with many investments, but buying silver at the right price can make you more money than just about anything else. The good news is that silver has fallen sharply from its summer price highs; making it a better buy now than it has been in many months.

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