What Happened In The Silver Market Friday?

Well the silver market has been pretty interesting the past few days. We have just witnessed a sizable draw-down on the Comex that immediately led to significant drop in silver’s price. Is it fair to suspect more manipulation in the silver market?

Late in the day on October 6th a very large order requesting 3.6 million ounces, which is 17 percent of the entire silver inventory registered at the Comex, was to be moved. However the bank handling that big transaction (none other than JP Morgan) was only able to move 1.6 million ounces. Why didn’t JP Morgan move the whole order? Could it be in-fact they don’t have the actual quantity in there vault’s. What happened to the remaining 2 million ounces? It’s a good question. Short on supply obviously, but why?

Under normal circumstances moving a large amount of physical silver in this quantity would force market prices up. However, late in the trading day we experienced a round of massive short positions being bought which of course is designed to drive market prices down. And it would not be at all surprising to find JP Morgan behind these recent manipulations on the short positions.

What could the outcome be if say several more large players were to cash in their silver futures contracts for physical silver all at once? Could this turn into a shortage or default at the Comex?
It is apparent now that this someone (above) is tired of all the paper games. This person surely has made huge profits already with his/her sizable silver contract positions. But now it is time to get out and convert all the paper to physical. There is a problem with this however; because there is in-fact more than 100 times as much silver in the form of future contracts than physical silver to back it.

This boils down to the reality where many people who believe they actually own real physical silver while holding only contracts for silver futures don’t own anything but worthless paper. As this investor is fighting to get his full 3.6 million ounces today; others in the future will not be as lucky because the silver will be long gone along with their original capital as they all try to get out at the same time.

This recent move in silver was a total of 17 percent of the total silver inventory at the Comex. Should more large investors make such moves in quantity, silver stocks at the Comex would be depleted. The possibility of a collapse in the silver market would be likely and many people already fear this.

With last Friday’s large silver movement, questions need to be asked.

1. What are the chances that anymore sizable claims on silver contracts won’t be converted into physical silver in the short term? Last Friday’s events do certainly raise concerns as well as the odds of other silver contracts being exchanged for the physical metal. In-fact now many dealers are purchasing quantity to add to their own stocks which potentially can turn this into a frightening scenario.

2. At any time in the past, has the Comex ever been in default over gold or silver?Thus far, no known default exists past or present where their vaults would have been in-danger of being completely emptied out. If the vaults were stripped-out of its silver bullion, this would become an event of awful proportions. While gold is not as pressing an issue as silver, gold is still attached firmly onto gold futures contracts, where the amount of contracts outstanding far exceeds that of physical gold bullion to back it as well.

3. As a physical silver or gold investor, what happens in the event the Comex defaults? What would be the next course of action to take? Should the vaults at the Comex run bare; the only gold or silver bars that are acceptable to re-supply the Comex’s bullion stocks must come from the ten Comex approved major fabricator/suppliers such as Johnson Matthey, Engelhard, ScotiaMocatta and the Royal Canadian Mint to name a few. These suppliers are already approved with bars for future Comex delivery meeting all Comex’s standards. The Comex cannot use any un-approved sources for re-supply.

Once the vaults at the Comex are in-fact empty of gold and/or silver bullion if you’re lucky enough to be the owner of any of these types of bars you will see their prices sky-rocket along with larger premiums being placed upon them due to the lack of availability. People who have sizable investment capital do purchase Comex bars instead of coins for this reason.

Regardless of conditions at the Comex, premiums placed on gold and silver bars beyond the spot price, are always cheaper than that of minted coins. The reason is because these bars are not made by a specific country, but by the major refineries. Therefore the premiums are much lower.

Derivatives Market – Next $100 Billion Loss & Resulting Economic Impact

In this video (see below) Lindsey Williams is warning that an event signaling the collapse of the global economy will be from the collapse of the derivatives market. Furthermore this could lead to the destruction of the US dollar.

JP Morgan’s $2 billion dollar loss in the derivatives market several months ago due to a “huge” trading bet to the wrong side, could actually be continuing on its losing streak.

The unexpected shock that follows may possibly come from the illegal actions on behalf of the CIO office and the London Whale. These illegal actions could be enough to disrupt markets and derail the Federal Reserve’s stimulus programs, sending the developed world back into a global recession once again.

For JP Morgan, this mistake that started back in April and May of 2012 is in no way over. Enormous losses occurred over their “trading mistake” and hedging strategies that initially cost Jamie Diamond and his bank $2 billion dollars. In the end, this was nothing more than a severely leveraged speculative bet that now has the growing potential to consume the banking giant’s entire portfolio putting them $100 billion in the RED.

Earlier, Lindsey Williams cautioned everyone to be watchful of a “triggering event” that would potentially activate the “end-game”. Also that the final collapse would be due to a total collapse in the derivatives market. Could this event be only a matter of days or weeks away? It is very likely, as it seems the government has been preparing for this for some time. Have you?
Watch the Video:

Market on the Verge of Collapse

In closing, I would like to remind everyone if you normally purchase gold and silver on a regular basis to continue on that path. Should next week be the time you would normally buy then do so. Never try to time the markets. At the end of the day, dollar cost averaging will end up costing you less.

Investors seeking to add additional quantities of junior mining shares to their positions should do so during signs of additional weakness inside the mining sector. A good indicator for this would be when the HUI index is down between 475- 480.

Remember that all of us holding positions in the physicals, mining shares or both must be resolute in our decisions to hold fast. Don’t give way to the temptation to liquidate. Weak hands will be shaken out, especially those who don’t have the stomach to ride out the entire bull market. During these times; patience, courage and conviction will prevail.

Tom Genot –
 

Photo Credits: Chicago Mercantile Exchange building 20 S. Wacker Dr, By CME Group/Henry Delforn/Allan Schoenberg (CME Group) [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons