Silver price manipulation? If it looks too bad to be true, it probably is - Eric Janszen

[Pascal]

Re: Silver price manipulation? If it looks too bad to be true, it probably is - Eric Janszen

Which comments are you calling "straw men" and to which posters are you responding? Without knowing the context to which you respond, I get lost trying to figure out the meaning of your reply - sorry.

Sorry. I was referring to my post immediately above the one you responded to. Here are my concerns:

Itulip says: 1. "Illegal naked short selling is a phenomenon of the stock market, not the futures market. Most contracts sold in the futures market are "naked," that is, the seller doesn't own the underlying, and this is perfectly normal. It is the intended functioning of the market. There is nothing illegal going on. No conspiracy. No fraud." Itulip point #3 is similar.

Me: Straw man. I do not think this is the allegation. The Gata people clearly know that Comex is a paper market. I believe the allegation is that existing regulations are supposed to prevent very large concentrations unless those positions are hedging. If the LBMA allegations are true then at best the bullion banks are hedging paper with paper, and I doubt that meets the hedging exemption. Also, given the quantities of shorts Butler has cited, there may not be enough physical in existence for them to be hedging.


Itulip says: 2. Contrary to GATA's allegations, Jeff Christian's testimony to CFTC was not an admission of anything. He merely stated several obvious, well-known facts about the futures market. There is no fraud, no cover up, and no conspiracy revealed by his 100:1 comment.

Me: I've only listened to it once but I think Christian said that the LBMA was 100:1 metal sold vs. actual unallocated metal in the vault. Not the Comex, not futures. I know that is how Gata heard it from what Murphy and the other Gata guy said in the follow-up King World interview. If you buy metal on the LBMA you are supposed to be getting actual metal (even if unallocated), not a promise.


Points 4 and 5 simply question the integrity of Maguire based on what he's claimed. As to #6, I apologize, but I do not know who Kirby is or why he is even mentioned.

In any event the key issues seem to be a) whether the concentrated short position is manipulative (xPat seems to agree that it probably is) and a violation of commodity regs, and b) whether the LBMA has the goods or not.

These questions have not been credibly addressed here.


I am not trying to be a dipstick here (cough, cough Metalman). I am no expert on commodities law and I've never owned a future, so I do not know the facts. I also have tremendous respect for EJ as a macro analyst and would gladly vote for him as President or Fed Chairman if that were possible and in the highly unlikely event he would take it. EJ is absolutely the best macro guy I've found in many years of trying to understand the markets.

It just seems to me that Gata and Butler's arguments have been given the back of the hand here based on an incorrect statement of their positions. Given the quality of the minds here I was hoping for a proper knockdown if one is possible.

Thanks for asking.

[Spartacus]

Gold account types at LBMA member companies

If anyone's curious as to definitions and what's promised (or not)

http://www.lbma.org.uk/london/accounts
http://en.wikipedia.org/wiki/London_bullion_market

UNallocated: you own it on paper but if the company goes bankrupt you may not get "your" Gold

allocated: if it's allocated to you, they promise the Gold's YOURS, with no other claims or liens or anything. The Gold you own is documented by bar weight & serial #

Me: I've only listened to it once but I think Christian said that the LBMA was 100:1 metal sold vs. actual unallocated metal in the vault. Not the Comex, not futures. I know that is how Gata heard it from what Murphy and the other Gata guy said in the follow-up King World interview. If you buy metal on the LBMA you are supposed to be getting actual metal (even if unallocated), not a promise.

[Rajiv]

Re: Silver price manipulation? If it looks too bad to be true, it probably is - Eric Janszen

From the Wiki on LBMA

Account Types

Allocated Accounts

Allocated Accounts are accounts held by dealers in clients’ names on which are maintained balances of uniquely identifiable bars, plates or ingots of metal ‘allocated’ to a specific customer and segregated from other metal held in the vault. The client has full title to this metal with the dealer holding it on the client’s behalf as custodian. To avoid any doubt, metal in an allocated account does not form part of a precious metal dealer’s assets. ^[3].
Unallocated Accounts

Unallocated Accounts represent the most popular way of trading, settling and holding gold, silver, platinum and palladium. Transactions may be settled by credits or debits to the account while the balance represents the indebtedness between the two parties. Credit balances on the account do not entitle the creditor to specific bars of gold or silver or plates or ingots of platinum or palladium but are backed by the general stock of the precious metal dealer with whom the account is held. The client in this scenario is an unsecured creditor. ^[3]
Unallocated Risks

The total quantity of unallocated gold is estimated to be 15,000 tonnes at the end of 2008^[4] which supports the 2,134 tonnes on average of spot gold trade through London every day representing 14.2% of the pool. This compares to average daily turnover in UK equities of between 0.34% and 0.63% for the 12 months ending September 2009 ^[4]. While members of the LBMA provide no information on the backing for unallocated gold the improbably high turnover is suggestive they are operating a fractional reserve system where unallocated accounts are only partially backed by physical gold. Similarly to a bank run this makes LBMA unallocated gold accounts susceptible to loss if a sufficient number of market participants request delivery of physical bullion.

I hope that this leads to some clarity -- to me at least what this says is "If you don't have physical you could face problems" but more importantly, it artificially increases the supply, and allows speculators (players that only want to make money on the volatility of the prices, with no real intent to own the gold) to enter the market, and this makes a mockery of price discovery of a commodity that is limited in supply, where quite possibly the demand could outstrip the supply.

At some point, the market for paper gold and physical gold my well diverge.

[jpatter666]

Re: Silver price manipulation? If it looks too bad to be true, it probably is - Eric Janszen

From the Wiki on LBMA

I hope that this leads to some clarity -- to me at least what this says is "If you don't have physical you could face problems" but more importantly, it artificially increases the supply, and allows speculators (players that only want to make money on the volatility of the prices, with no real intent to own the gold) to enter the market, and this makes a mockery of price discovery of a commodity that is limited in supply, where quite possibly the demand could outstrip the supply.

At some point, the market for paper gold and physical gold my well diverge.

Kind of raises some questions regarding GoldMoney and BullionVault.....

[Pascal]

Re: Silver price manipulation? If it looks too bad to be true, it probably is - Eric Janszen

Thanks Rajiv. I know Wiki isn't necessarily authoritative but I find it interesting that "members of the LBMA provide no information on the backing for unallocated gold".

The LBMA tells its customers that when they buy unallocated, the physical is in the vault. It is not legally in the customer's name, but it is there and if delivery is requested then it will be converted to allocated. So yes, it is legally paper, but customers are told the stuff is there. The LBMA is generally described as a physical market.

This is from the LBMA (emphasis added):

"Unallocated Accounts
This is an account where specific bars are not set aside and the customer has a general entitlement to the metal. It is the most convenient, cheapest and most commonly used method of holding metal.
The units of these accounts are one fine ounce of gold and one ounce of silver based upon a 995 LGD (London Good Delivery) gold bar and a 999 fine LGD silver bar respectively. Transactions may be settled by credits or debits to the account while the balance represents the indebtedness between the two parties.
Credit balances on the account do not entitle the creditor to specific bars of gold or silver, but are backed by the general stock of the bullion dealer with whom the account is held. The client is an unsecured creditor.
Should the client wish to receive actual metal, this is done by ‘allocating’ specific bars or equivalent bullion product, the fine gold content of which is then debited from the allocated account."

http://www.lbma.org.uk/london/accounts


I also find it interesting that Wiki speculates that the LBMA members are selling more than they have. Obviously,that is exactly the allegation at question here.

[Pascal]

Re: Silver price manipulation? If it looks too bad to be true, it probably is - Eric Janszen

jpatter,

I have done a fair bit of diligence on BullionVault. Their holdings are allocated and audited. They also provide bar numbers. Seems pretty solid as far as I can tell.

Nothing is crime-proof but they seem to be very different from a paper claim seller.

[ThePythonicCow]

Re: Silver price manipulation? If it looks too bad to be true, it probably is - Eric Janszen

Thanks for asking.

And thank-you for the careful response. While I was reading it, I agreed with what you said (which isn't to deny that I have taken a contrary position three posts earlier or that I will do so again three posts later ;).)

[ThePythonicCow]

Re: Silver price manipulation? If it looks too bad to be true, it probably is - Eric Janszen

jpatter,

I have done a fair bit of diligence on BullionVault. Their holdings are allocated and audited. They also provide bar numbers. Seems pretty solid as far as I can tell.

Nothing is crime-proof but they seem to be very different from a paper claim seller.

The main risks I see with BullionVault are with the bank where I have my BV linked checking account (failure there is more likely to delay access than lose it permanently), and with my government (if they can see it or if they can see my transactions to access it, they can more easily take it.)

If general security in the area of BV's vaults fails, as in time of general war, then there are more risks.

[Rajiv]

Re: Silver price manipulation? If it looks too bad to be true, it probably is - Eric Janszen

In a real sense, they are acting no differently than the Goldsmiths of yore. See Money as Debt

[xPat]

Re: Silver price manipulation? If it looks too bad to be true, it probably is - Eric Janszen

Sorry. I was referring to my post immediately above the one you responded to. Here are my concerns:

Itulip says: 1....

Pascal,

Thanks for clarifying what you meant by a "straw man". But in my own defense, I think it's worthwhile to revisit the history of how this came about:

1. EJ wrote an excellent piece debunking the "Capital Controls" hype that has been circulating in the blogosphere.
2. I thought to myself "Boy, I wish someone would do a similar piece on the hype in the wake of the CFTC hearing, much of which I believe to be sensationalist and factually incorrect."
3. I suggested to EJ that he might pen such an article, and then while rushing to get out the door to make a dinner appointment, I very quickly outlined the major points that were on my mind. I had no idea that EJ would quote those points in his article! Had I known he would, I would have taken more time, chosen my words more carefully, and researched my statements more thoroughly.
4. To my own surprise, EJ quoted my bullet list of gripes almost verbatim, which was a little embarrassing, since they were more sharply worded than they might have been if I knew they would be quoted that way in a "main blog" post.

Also, for sake of context, my suggestion was to do a piece on the hype in the blogosphere about precious metals in general, of which GATA is only a small part. I think the Kirby stuff is by far more outlandish and I was thinking more about the need to debunk that than GATA's part.

"Illegal naked short selling is a phenomenon of the stock market, not the futures market. Most contracts sold in the futures market are "naked," that is, the seller doesn't own the underlying, and this is perfectly normal. It is the intended functioning of the market. There is nothing illegal going on. No conspiracy. No fraud." Itulip point #3 is similar.

Me: Straw man. I do not think this is the allegation. The Gata people clearly know that Comex is a paper market. I believe the allegation is that existing regulations are supposed to prevent very large concentrations unless those positions are hedging. If the LBMA allegations are true then at best the bullion banks are hedging paper with paper, and I doubt that meets the hedging exemption. Also, given the quantities of shorts Butler has cited, there may not be enough physical in existence for them to be hedging.

I never meant to imply that this was GATA's allegation. Remember, my original suggestion to EJ was to do a piece on hype on the 'net, not specific to GATA. The description of selling a futures contract without owning the underlying as "an illegal act" was Kirby's error, not GATA's. I brought that up hoping that EJ would debunk Kirby's article. It has nothing to do with GATA.

Itulip says: 2. Contrary to GATA's allegations, Jeff Christian's testimony to CFTC was not an admission of anything. He merely stated several obvious, well-known facts about the futures market. There is no fraud, no cover up, and no conspiracy revealed by his 100:1 comment.

Me: I've only listened to it once but I think Christian said that the LBMA was 100:1 metal sold vs. actual unallocated metal in the vault. Not the Comex, not futures. I know that is how Gata heard it from what Murphy and the other Gata guy said in the follow-up King World interview. If you buy metal on the LBMA you are supposed to be getting actual metal (even if unallocated), not a promise.

While I do understand that part of GATA's argument has pertained to LBMA, I have not focused on that because I don't think it's what's relevant right now. CFTC has no jurisdiction over LBMA. My interpretation of GATA's statements in the KWN interview was that they are also alleging that Christian's statements reveal a great injustice in the COMEX futures markets. I focus on that because it's what's relevant to the CFTC hearing. I freely admit that I know very little about LBMA and am not even qualified to have an opinion on GATA's allegations there. But I think they are full of it with regard to COMEX.

Perhaps I should have said "I am not qualified to judge the veracity of any claims about LBMA, but there is no fraud, no cover up, and no conspiracy relevant to the COMEX market revealed by [Christian's] 100:1 comment." Apologies if I was less than perfectly clear, but again please remember I had no idea I would be quoted in EJ's article and was only offering a few points I hoped EJ would consider.

Points 4 and 5 simply question the integrity of Maguire based on what he's claimed.

I regret that those comments came across as questioning Maguire's integrity. My point was not about Maguire's integrity, but about how the blogosphere seems to have jumped to the conclusion that all this is "clear proof" of a JPM manipulation and a murder attempt associated therewith. My intent was to point out that there could be lots of explanations, and one possibility could even be that Maguire himself had an ulterior motive. Again, the point was to try to debunk the stuff floating around the blogosphere represented as fact that is really just speculation.

As to #6, I apologize, but I do not know who Kirby is or why he is even mentioned.

Kirby was mentioned because the scope of my original suggestion to EJ was not to debunk GATA specifically, but to debunk the false information in the blogosphere. IMHO Kirby is behind the most irresponsible "reporting", and I was hoping EJ would debunk some of his writings.

In any event the key issues seem to be a) whether the concentrated short position is manipulative (xPat seems to agree that it probably is) and a violation of commodity regs...

Up to that point, I agree that these are the key issues for GATA. I still think the other nonsense in the blogosphere (especially Kirby) is having a very real adverse affect on the markets by putting fear in everyone's heads.

For the record, I am convinced based on Ted Butler's work that the JPM concentrated short exists. I also agree that it probably is manipulative, but that needs to be proven conclusively. Maguire's evidence, if it is authentic, would appear to provide that proof. My hesitation about whether to believe Maguire's evidence comes from being shocked by what I felt were gross misrepresentations about the COMEX market in the KWN interviews. Yes, I understand GATA was also talking about LBMA, which frankly I think was a mistake given what's on the table at the moment is that which CFTC has jurisdiction to regulate. But I interpreted their commentary to mean that the fact that there's way more paper than real gold on the COMEX was some sort of scandal, and I think that's nonsense.

and b) whether the LBMA has the goods or not.

I agree that in the big picture, that's relevant. But honestly I don't think GATA should be focused on that right now. What's before them is an opportunity to persuade CFTC to take action to correct injustices that appear to exist on the COMEX markets CFTC has jurisdiction over. I think they need to be squarely focused on two specific issues:

1. Ted Butler's work credibly reveals that JPM has a VERY big concentrated short on COMEX Silver.
2. Maguire's evidence proves that JPM is intentionally using that concentrated short to illegally manipulate the market.

I'm not saying the LBMA issue isn't important, just that CFTC has no jurisdiction over LBMA and this really isn't the time to be diluting focus away from the key issues that CFTC could take action to correct. Save LBMA for the next fight.

It just seems to me that Gata and Butler's arguments have been given the back of the hand here based on an incorrect statement of their positions. Given the quality of the minds here I was hoping for a proper knockdown if one is possible.

Thanks for asking.

I for one don't find any fault in Butler's work to reveal the JPM short. I find it entirely credible. I certainly have criticized GATA sharply, but honestly I still think they deserve it. The market desperately needs a watchdog to pressure CFTC to clean up the COMEX. I'm not saying GATA's allegations about the LBMA are unjustified - I'm not even qualified to have an opinion on that. But I think they could be doing a much better job of staying focused on the available evidence that proves wrongdoing on the COMEX, where CFTC has jurisdiction.

All the best,
xPat

[Pascal]

Re: Silver price manipulation? If it looks too bad to be true, it probably is - Eric Janszen

xPat wrote:

"This was a CFTC hearing about the U.S. futures market, specifically about position limits on COMEX metals contracts, not about LBMA. I agree that GATA was making allegations about LBMA in the KWN interview, but don't see that as relevant. I watched Jeff Christian's testimony personally, and I interpreted his 100:1 comments as pertaining to the fact that the vast majority of gold contracts traded on the COMEX are never delivered against. How GATA got from that accurate and non-controversial statement to their wild allegations about 100:1 'leverage' and scandals in the London market is a mystery to me."

Thank you for pointing me to this. I went to the CFTC and watched that portion of Christian's testimony. I think he pretty clearly said not once, but twice, that the LBMA was largely a paper market. Here's the link:

http://www.capitolconnection.net/cap...rchive-wmv.htm

The first time Christian said it was when he responded to the Gata fellow's assertion that if Comex shorts were hedging positions on the LBMA then they were hedging paper with paper. Christian agreed with that, defended it, and expanded on it. Take a look at the testimony between the 5:17 and 5:28 marks.

Then later Christian said that the term "physical market" was really a misnomer. He said it includes options and a lot of things besides physical, adding that "there's not that much physical out there". He repeated the 100 to 1 estimate. Take a look at around the 5:32 mark.

I also found it interesting that the CFTC head of Market Oversight testified that two large banks were manipulating the market and setting the prices (pretty close to his words). See Sherrod's testimony around the 5:23 mark.

I haven't listened to the whole thing. It's over 5 and a half hours long. Hope to finish it tomorrow night.

[Pascal]

Re: Silver price manipulation? If it looks too bad to be true, it probably is - Eric Janszen

I do not have a transcript but I did go to the CFTC website and found a video of the testimony. It's good quality and pretty easy to understand what they're saying. I thought parts of it were very interesting. I also think Christian pretty clearly says that the London market is mostly paper. He may have misspoke, but he said it twice. Here is a comment I posted a little earlier with a link and sections you might find interesting:


http://www.capitolconnection.net/cap...rchive-wmv.htm

The first time Christian said it was when he responded to the Gata fellow's assertion that if Comex shorts were hedging positions on the LBMA then they were hedging paper with paper. Christian agreed with that, defended it, and expanded on it. Take a look at the testimony between the 5:17 and 5:28 marks.

Then later Christian said that the term "physical market" was really a misnomer. He said it includes options and a lot of things besides physical, adding that "there's not that much physical out there". He repeated the 100 to 1 estimate. Take a look at around the 5:32 mark.

I also found it interesting that the CFTC head of Market Oversight testified that two large banks were manipulating the market and setting the prices (pretty close to his words). See Sherrod's testimony around the 5:23 mark.

I haven't listened to the whole thing. It's over 5 and a half hours long. Hope to finish it tomorrow night.

[ThePythonicCow]

Re: Silver price manipulation? If it looks too bad to be true, it probably is - Eric Janszen

Thank-you for your clarifications, xPat and Pascal. In my view, xPat, EJ owes you a bit of an apology, but that's not really my business.

When I read both of you, xPat and Pascal, I tend to nod my head in agreement with just about everything.

Are you two largely in agreement (despite perhaps having started the dance out of phase) or are there still some key disagreement(s) that my quick and novice reading is missing?

[xPat]

Re: Silver price manipulation? If it looks too bad to be true, it probably is - Eric Janszen

Hi again Pascal,

Thanks for continuing the discussion! If I'm wrong here I certainly want to get to the bottom of it and correct my own understanding. So I welcome the criticism. But having said that, I went back and watched the video again, and I still don't think Jeff Christian said anything extraordinary or scandalous about the markets. Specifics below...

The first time Christian said it was when he responded to the Gata fellow's assertion that if Comex shorts were hedging positions on the LBMA then they were hedging paper with paper. Christian agreed with that, defended it, and expanded on it. Take a look at the testimony between the 5:17 and 5:28 marks.

The first time I heard the "trade in multiples of a hundred" comment to which you refer, I interpreted it completely differently. I took this to be a reference to the fact that a standard futures contract is for 100 ounces of gold, in other words, gold is traded in multiples of 100 [ounces per contract].

But it was ambiguously worded and I certainly concede that he could have been referring to a 100:1 paper to real metal ratio in this reference. But even if he was, I didn't find it to reveal anything controversial. He most certainly did not say anything like "The LBMA is 100 to 1 paper over real metal". He made a reference to metal being traded in multiples of 100, without any specific reference to what market he was talking about. In other words, I don't think this statement in any way indicated that physical gold markets are 100:1 paper to reality. GATA does seem to be trying to imply he said that, but he sure didn't say it at this point. The next reference you pointed out seems to be slightly more germane:

Then later Christian said that the term "physical market" was really a misnomer. He said it includes options and a lot of things besides physical, adding that "there's not that much physical out there". He repeated the 100 to 1 estimate. Take a look at around the 5:32 mark.

This is the specific comment by Jeff Christian that I have been assuming all the "100:1" hype has been based upon, and I stand by my argument that GATA has completely missed the boat here by trying to make an issue out of absolutely nothing. What Christian actually says here makes perfect sense, and isn't an "admission" of anything.

What he actually says is that it's unfortunate that people use the term "Physical market" imprecisely. He describes how people use the words "Physcial market" to incorrectly refer to a collection of several things, including the OTC derivatives market, and he describes the common use of the term "physical market" as "a misnomer".

I agree with him completely! Using the words "physical market" to refer to not only the LBMA and other true physical markets but also to the OTC derivatives market is entirely misleading and the world would be a better place if the industry on whole were more precise in their language.

Christian goes on to say very clearly that because the term "physical market" is mis-used to include OTC derivatives and a bunch of other things, there is probably 100 times as much paper as there is real gold. That should surprise nobody. It's not a revelation, it's not a scandal, and frankly it's not particularly important. Everyone knows there's more paper in the derivatives markets than there is physical gold, and Christian makes it very clear that he's referring to the collection of both real physical markets and also the OTC market and other non-physical markets. He was crystal clear on that point!

Now if Christian had said something like "With regard to the true physical markets like LBMA, there is 100 times as much paper as real gold there too", well then certainly that would be a scandalous revelation. And that's exactly what GATA seems to be trying to persuade everyone that Christian said. But he didn't say anything like that. All he said was that a lot of people in the industry use the words "physical market" loosely to also include OTC and other non-physical markets, and collectively all those things together are probably 100x larger than the real physical market. Nothing new there, and nothing contentious or newsworthy.

Again, I find zero evidence of scandal, revelation or intrigue. Just a perfectly reasonable statement about the market that seems to me to be correct and no cause for contention or drama.

Assuming that this statement at approximately 5:32 is what GATA is making a fuss over, I stand by my contention that they are full of hot air. But more importantly, they do seem to be in posession of damning evidence of a real manipulation (Butler+Maguire). The fact that they are making a big fuss over the 100:1 thing and not focusing on the far more relevant information they have in hand is what led me to my allegations of incompetence on the part of GATA.

Now, if there is some other 100:1 information elsewhere in the testimony that I've missed, then maybe I'll end up with egg all over my face. But if what GATA is talking about is the stuff at 5:32, I stand by my earlier criticisms.

xPat

[xPat]

Re: Silver price manipulation? If it looks too bad to be true, it probably is - Eric Janszen

Thank-you for your clarifications, xPat and Pascal. In my view, xPat, EJ owes you a bit of an apology, but that's not really my business.

Thanks for the concern, Cow, but for the record I don't feel that way at all.

I posted a comment in the Capital Controls thread saying "Hey EJ, how'bout doing another debunking article on the gold/silver hype?". Less than 12 hours later, EJ posted the article I requested (the base post of this thread). I count that as damn good customer service when a subscriber request gets translated to an article in a few hours' time.

It's true that my bullet list was rushed and that I never expected it to be quoted, and for that reason the language and tone was a little stronger than I might have preferred to choose for making a first impression on this community. Frankly, I do believe everything I wrote about the competence of certain individuals, but had I known it would be quoted in an article I would have phrased my statements in more processional language. But hey, s**t happens.

I think the real disconnect in terms of how people took it is that EJ decided to write his article principally about GATA, which is certainly his prerogative. So everyone's mental frame of reference was around GATA. Then he quoted my bullet list, and most of it wasn't even about GATA-related issues. It was about "illegal" naked futures shorts (sic), Ron Kirby, tungsten salted gold, etc. So when people read my comments after they had a mental picture of a GATA-related discussion, it understandably raised a few eyebrows.

Bottom line, I'm honored that EJ thought enough of my views to quote me. EJ, next time you feel inclined to do that, please let me know first, and I'll send you something a little more professional and "suitable for framing", so to speak...

When I read both of you, xPat and Pascal, I tend to nod my head in agreement with just about everything.

Are you two largely in agreement (despite perhaps having started the dance out of phase) or are there still some key disagreement(s) that my quick and novice reading is missing?

I'd love to hear Pascal's take on that. I certainly don't think we started in agreement. Pascal has done an outstanding job of challenging the basis of my various criticisms, and I welcome that sort of polite intellectual discourse. I think I satisfied the last of his challenges in a post elsewhere in this thread just a few minutes ago, but if not I'd like to know what's still outstanding so I can either straighten him out or straighen myself out, i.e. get to the bottom of any disagreement and let the facts decide the case.

xPat