In Ted Butler's Archive


Prices for precious metals and other commodities are set by futures markets in which few actual producers, consumers and investors participate. In their place has emerged a unique set of huge corporate futures traders. While small in number, these paper traders assume positions so incredibly large they crowd out any price influence from producers and consumers. One need look no further than weekly U.S. government-published data to confirm what I say. Futures trading has evolved into the managed money category (technical funds) on one side and commercials (big banks) on the other side.

The bets being placed on either side are essentially a giant private poker game which has become so large it dictates prices to the world. These bets have only grown larger and this artificial pricing more pronounced. And “artificial” is not a strong enough word to describe the situation; manipulative is more accurate. It’s completely absurd (and illegal) for these few large paper traders to set prices for the rest of the world.

History has demonstrated that the technical funds in the managed money category are largely the dupes and stooges in this private betting game. Data from the Commitment of Traders (COT) reports show consistent price rallies when the technical funds get extremely short. Currently, the technical funds are heavily short in gold, and in silver hold record or near-record short positions. This is highly indicative of an impending rally of significant proportions. The odds of a bottom are better when these record positioning extremes are at hand – like now.

The data show that JPMorgan has been the single biggest buyer in COMEX gold for the past three months and in silver for the past five weeks. As a result, JPM has significantly reduced its paper short position in each and the bank now holds its largest net long position due to its massive physical ownership of each metal. In simple terms, this means that JPMorgan has never been better positioned for an upside move in gold and silver.

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