Is COMEX the Center of World Silver Price Discovery?

In our recent LIVE Q&A interview with renowned silver analyst, Ted Butler, the following question came up. Below is the transcript of Butler’s response.

Ted:       Its a great question. COMEX is the center of the gold and silver universe.

Technically, there is trading on these other exchanges. Take the LBMA for example.

I don’t trust any of their statistics, mainly because they don’t provide that many statistics and they don’t provide them in detail. They come out once a month, give you a volume figure for what they traded in a month and that’s it.

With the COMEX, you got this exquisitely detailed information on every aspect of the trade. I don’t think you get anything in London. And perhaps for this reason, the COMEX is the price setter. Everybody follows the COMEX.

I don’t know if it’s a combination of tradition – or where are big players go…

But when you’re looking at something that happened on a Tuesday, at 5:00 in the morning, someone says, “Oh, they must be selling in London or they must be selling in China. Wherever.”

But they’re not selling in those places. They’re selling on the COMEX. It’s all an electronic market, it’s all done in the GLOBEX system and we accept it. It’s just everything in the world is priced off of the COMEX. There’s a basis trade. In other words, it’s just the way that it is and it’s what’s enabled the thing to go a little bit haywire.

I admit that it’s crazy that one exchange would have such a powerful, inordinate, dominate control on pricing. I’m not cheering it, I’m just admitting it. I’m just observing it.

If you’re looking at why prices move, all you’ve got to look at is what’s happening on the COMEX and what’s happening on the COMEX is reflected in the Commitment of Traders Report. And while I can’t predict what’s going to happen tomorrow or next week or whenever, I can explain what has happened to prices and why prices have gone up and down. It goes back to this silly game between the managed money traders and the commercials.

At one time many years ago, thirty years ago or so, it was a situation where it was always the commercials. It’s always the banks on one side of the equation, there’s always somebody else on the other.

Decades ago it was basically the little guys hanging around brokerage offices throughout America that were buying and selling on an individual basis. But they were also mostly deploying on technical considerations and they were basically the counter parties to the commercials.

That’s changed. The little guy doesn’t trade futures as much. He’s not as dominate an influence in the market as he once was. Essentially, everything was turned over to professional money managers. And now it’s become the managed money traders against the commercials. It’s not right and it has enabled this artificial pricing structure to come into being. It’s already accepted by tradition.

I hear stories from time to time that there’s going to be a new exchange in China – or that they’re going to trade gold on a fully allocated and backed basis. But for now, everyone is plugged into the COMEX, and for very good reason. Invariably inertia and momentum have a lot to do with it.

We can argue or discuss why it came into being, but the reality is the COMEX is where the price is set. It’s not set any place else.

(I do notice though from time to time like when the SLV is open for trading, it’s a limited time, 9:30 EST to 4:00 with the rest of the stock market. Sometimes it can have influence on the price of silver, but not the kind of force that is moving prices at 5am).

It’s just the way it is and it’s just why it’s morphed and it’s turned in to be this manipulative price discovery process. That’s why we have a manipulation because the COMEX is so dominant.

This question and answer begins around the 1 hour 3 minute mark…

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