FMX Connect Morning Gold Fix: Silver Warehouse Shenanigans Or The Real Deal?

Tyler Durden's picture

From FMX Connect

Silver Warehouse Shenanigans or the Real Deal?

Our friends at Zerohedge did some excellent discovery and analysis last night on the recent drawdown in Comex Silver stocks eligible for delivery. We have personally seen this activity before, and while we do not doubt the authenticity of the draw down from the Registered (for delivery) stockpile described below; We add that this has happened many times in the past in short -cons meant as exit strategies for big longs.

So far, if this is an exit strategy, it is basically what happened in 1997 when Buffet took delivery, but on a much bigger scale, a long –con if you will. But if the reason is that someone bigger that the usual investor community with pockets and a will deeper than all the Bullion Banks combined has decided to de-dollarize their FX reserves, like say China, then this is the way to do it. We think this is real and will describe why briefly after the ZH analysis.

The essence of ZeroHedge’s work is here:

A week ago we noted something peculiar: in one day, COMEX depository Scotia Mocatta (one of five in the world) saw a 25% transfer of silver from "registered" (or deliverable physical) to "eligible" (or "undefined" - a distinction discussed previously, and also below:….And while last week it was Scotia Mocatta, today it is HSBC and the Delaware Depository, and the reason given: "Adjustments include reporting classifications of t oz that were moved from Registered to Eligible. Please see Special Executive Report reference 5736 for additional information."

The CME’s Detailed explanation goes like this:

A correction to the COMEX Metal Depository Statistics Stock Reports published on April 27, 2011, has been made to reflect a change in the reporting of metal from the Registered category to the Eligible category. This change reflects paper warrants that have yet to be converted to electronic form. The metal represented by these paper warrants, which will now be reported in the Eligible category, will continue to remain eligible for delivery against COMEX futures contracts provided holders of the paper warrants convert them to electronic form.

Exchange metal reported in the Registered category represents troy ounces of metal that meet the contract specifications as defined in the Exchange Rules for which an electronic warrant has been issued.

Exchange metal reported in the Eligible category represents troy ounces of metal that meet the contract specifications as defined in the Exchange Rules for which an electronic warrant has not been issued.

They go on to cite SilverAxis in describing what Eligible vs. Registered means

And as a reminder for those unfamiliar, here is a distinction between "registered" (real) and "eligible" (somewhat "questionable"), courtesy of SilverAxis

For those who aren’t familiar with the terminology, the registered category of COMEX warehouse bullion stocks generally refers to gold and silver bars against which COMEX warehouse receipts are outstanding. The COMEX publishes these stocks on a daily basis and they can be found here: Silver | Gold. The registered category is the total pool of gold and silver available at any time to meet delivery requirements under expiring futures contracts or to establish initial futures contract positions through a transaction called exchange-for-physicals (I’ll explain this another time). It is important to realize, however, that many parties holding COMEX gold and silver in registered form have no intention of making their holdings available for delivery. By this I mean that such parties are neither (1) holding a short futures position against the warehouse receipt nor (2) willing to sell their registered metal (warehouse receipts) to a party with a short futures position. Indeed, a substantial portion of those holding registered metal would have acquired the COMEX warehouse receipts by holding long futures positions for delivery. In other words, these registered stocks are held for investment and not for commercial purposes.

In comparison, the eligible category of COMEX warehouse bullion stocks generally refers to bullion held in the warehouses that meets the specifications of an acceptable COMEX bar (proper weight, size, purity and refiner) but does not have a COMEX warehouse receipt issued against it. For example, an investor might purchase several 1,000 oz. bars of silver from a dealer and then deliver the bars for allocated storage at a COMEX warehouse. This is a private arrangement and has nothing to do with the COMEX. Unless these bars are officially registered (the easiest way to do this is through the aforementioned exchange-for-physicals), they will remain in the eligible category until withdrawn from the warehouse by the investor. Thus, the appropriate way to treat eligible COMEX warehouse bullion stocks is that they represent metal that could potentially be registered at some point in the future but cannot presently be used to make delivery under a short futures contract.

Our Two Cents

What could this all mean:

1. A long is setting up his exit strategy by creating the impression that there is less silver available that actually is. – if this is true, it is irrelevant. Perception is reality and someone is taking the risk.

2. In the past the short-cons were conducted by trading firms like Phibro with the complicity of the Bullion banks, who got out of their way. If someone like Phibro is involved, and we do not think they are, they could be as agent for someone much bigger than Buffet or Soros. Someone like a country.

3. We think the wildfire of this strategy (if it is not a fully genuine delivery issue) is spreading to gold. This would be unprecedented for the following reasons.

a. One can control the Silver market with much less capital than gold.

b. Silver does not have currency status, gut Gold does. Every cental bank has gold in its reserves. We don’t think any have Silver.

c. Silver is consumed while gold is essentially not. Hard to create a squeeze in something that every ounce that has ever been mined still is in existence.

This make Silver the perfect product to buy if you genuinely think it is undervalued, want to de-dollarize your reserves, or just want to screw with the Banks who have become complacent over the years doing metals “carry trades” wherein they lease Silver, short it and take the proceeds to invest in something with a higher yield, betting they can get producers to sell to them when needing to cover. But ZIRP and TBTF have given them the feeling that their VaR issues are not their own, they are the tax payer’s. At what point does a dollar cost averaging strategy just become a Martingale bet? And as we know, 0 and 00 do come up once in a while in Roulette, making Martingale bets a bad long term strategy.

It doesn’t matter if it is an exit strategy or not. We are sure the monster is stronger than the creator now. The grass roots movement into Silver has contributed greatly to this. It is a form of proletariat uprising if you will.

Gold: the new Silver?

But Gold is acting strangely now as well. Spreads have weakened over the last month and option buying has exploded. If the Silver play is successful then could Gold be next? We don’t think so, but a large sympathy move could happen at some point in the least. “ Hey, it worked in Silver, let’s spend a little in Gold and see if we can make spook the market and take profits of it before Uncle Sam taps our bosses on the shoulder.”

In Silver the “Tell” is the spread market, as options are not continuously traded. In Gold, it is the options activity that gives better clues for our own analysis.

Also worth noting to all you JPMorgan haters:

There are a handful of players in Bullion. And historically, when the outside sheep have been sheared (the supply of producers clients selling too cheaply, investors buying too high is exhausted or insatiable) they almost always cannibalize one of their own.

So, with 5 major players sitting at a poker table, one of which has exclusive info in the form of a client order… how is he going to get filled? He is going to take on another bank. And the last bank to figure it out is toast.

1994- silver call exercise: Republic smoked the other banks although it want their order to fill.

1997- not sure anyone did well here as Phibro was ninja like in its execution for Buffet. And then took delivery for him. The producers took the fall on this one

1999-Gold Ashanti default- Goldman and we think MS cleaned up at the expense of all the other dealers (Ashanti was their client and defaulted. Goldman knew first. Their credit department got smoked, but their trading, not so much.

The Banks Will Eat Their Own:

We think cannibalization is starting here, and although the TBTF concept will save any and all who suffer, it also lets any receiver of government largesse live in denial that much longer. There is some suffering now. Our empirical evidence in Gold is that the dealer sell side business has dried up in calls, while at least one dealer is buying everything.

One thing you have to say about the Bullion Banks: if they cannot keep markets managed, they are quick to recognize the grass roots phenomena that is public interest in Silver, and (maybe Gold)and get in front of it.

Our Advice:

If you are long Silver and feel nervous about it then sell 1/3 of your position. If you are not nervous then you should be. We are headed for a blow-off top with a quick reversal, or a sustained rally for another year or 2. You should be equally miserable if either of those happens. So sell some.. go buy farm land in Argentina with your profits.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Badabing's picture

“COMEX depository Scotia Mocatta (one of five in the world) saw a 25% transfer of silver from "registered" (or deliverable physical) to "eligible"”

Could this be related to University of Texas taking delivery.


last week it was Scotia Mocatta, today it is HSBC and the Delaware Depository.

If it is related to who is next to take delivery the MSM will ignore it,

I wonder how the royal wedding is going?

strannick's picture

The author suspects that these COMEX movements of silver from dealer to registered are just a grandiose headfake so a long can unload. I think its more basic than that, and there's no need to get too circumbobulated or spy-novel about it. THeres @#$%-all silver out there, so folks are grabbing what they can get.

cowdiddly's picture


Just another one of those chartists that come over from the stockmarket and try to apply their ideas to precious metal. Never works. Sorry pal I've got 4 coins that were bought after they passed Bretton Woods, I paid 42 dollars for those coins which was more that my weekly salary then. I think those original 4 have served me well over the years. Ive rebalanced my allocation a little heavier that normal of late simply because I see not one alternative investment I care to invest in this environment. Stocks, Govt Bonds,CDs? Don't make me laugh. Futhermore, I do not see any major world currency without issues with the possible exception of Australia, Switzerland and maybe Singapore and Taiwan. With our Fed policys being what they are without a hint of change until maybe the next election(You actually think the Fed is going to change course this close to elections?) I am comfortable to sit tight for a long while. If anything I would sell a few gold coins here as I think its price is a little high in a fundamental way,but still underpriced in a demand sort of way. As for Silver, it isnt anywhere near its fundamental value yet after 30 years of price suppression. The guys saying that it only takes 5 dollars to dig out of the ground are right. Thats because they have kept the price suppessed for so long Nobody could actually mine a silver only mine for profit. The only silver being mined at 5 buck was a residual metal obtained as a byproduct from the refining/mining other metals like lead and zinc and just assigned a five dollar price or even at a loss in some balance sheets. Will Silver be mined for just silver now? You bet your ass, there is going to be a worldwide scramble to open new siver mines but opening a siver mine is not something that just appears overnight. The paper market may blow off in the mean time and the price suppession game starts all over again, but with demand what it is today, I highly doubt it. What happens to your paper prices is of little concern to me.Sorry the market is a little tight for ya. BITE ME 


Imminent Crucible's picture

No kidding. All he can come up with is "blow-off top and reversal, or else a sustained rally for another year or two"? Pathetic.

I could have forgiven his uselessness until he said "buy farmland in the Kirchner Kleptocracy". Idiotic. Brazil, maybe. Not Argentina.

BTW, India had 87 million ounces of reported silver in their reserves in 2002. It's pretty much gone. Same for China. The cupboard is bare.

FeralSerf's picture

The price of farmland in Argentina may be discounted enough to compensate for the Klepto-Kirchner phenomena.  Foreigner purchases are probably more vulverable to quasi-confiscation, so there probably should be some cover for that.

There's been so much foreigner purchase and development of farmland in Brazil that it's probably about time for some blowback.

Urban Redneck's picture

The author makes some valid points, the most important of which is every day there are a couple of hands of high stakes poker that are played by five players juggling the conflicts their own interests and their clients'.  The stakes of that game go up as the price of silver increases, and they don't care about anyone here. 


The tactics remain the same and the current strategies are only decided and known by those who have a seat at the table.


There are some key differences between today and '94, '97, and '99.  In no particular order they include: the competing paper volume of ETFs,  the supply needs of physical silver required to back the paper ETFs, the downward trend of USDX as opposed to the prior appreciation trend, the tightness of supply in the retail physical market, the emergence of CBGAs and the current tendency of CBs to be acquirers of PM's (technically more applicable to the gold market), the number of possible large buyers greatly exceeds the number of possible large sellers, the uncertainty regarding a possible replacement to the current floating exchange rate mechanisms, the growth in size and influence of emerging and non-G-7 economies and their CBs, the price volatility over the preceding months and the ability of the market to absorb measurable changes in supply.


The tactic of driving the price higher over the short-term is desirable to the exit of a long or entry of a short position. The tactic of driving the price lower over the short-term is desirable to the exit of a short or entry of a long position.  There has been evidence in the last week of large players executing conflicting strategies, and employing the tactic of over-correction of reversals to achieve the desired ends.  Anyone who says that a series of back-to-back 10% moves in either direction is a black-swan event in this market is probably dumb enough to accept a wager that the sun won't rise tomorrow and not serve as bookmaker on the bet.


Opening or maintaining any leveraged position is a potentially suicidal proposition without adequate reserves in the current market environment.  A low risk appetite and a high portfolio concentration in Silver is a potential recipe for slightly more fatal suicide.  Farmland in Argentina maybe attractive, but the current kleptocrat-in-chief may screw you worse than the five kleptocrats with LBMA poker seats.  If you have excess farm land in Brazil owned long-term, the significant appreciation in both land and currency prices actually make a desirable exit point for non-core positions, and increase the market entry opportunities for those seeking to enter the market.

Urban Redneck's picture

Someone at FMX really could have mentioned that SEVERAL METRIC FUCKLOADS of paper are being moved from the Comex to the NYSE so Blackrock probably wants to back up the paper with at least some Ag, and might want to move that Ag from one side of the LBMA vaults to the other, especially after their recent press release, where they implied there was no leasing going on in SLV.

smartknowledgeu's picture

"b. Silver does not have currency status, gut Gold does. Every cental bank has gold in its reserves. We don’t think any have Silver."(spellcheck??)

Silver has returned to monetary status already. As far as countries not owning any silver, I'd bet you a big bag of silver coins that many Sovereign Wealth Funds have snapped up silver recently, specifically China, Russia, Iran, and Korea just to name a few.

Creed's picture

 We are headed for a blow-off top with a quick reversal, or a sustained rally for another year or 2.


This guy wrote an article based upon a coin flip? WTF.


DosZap's picture

Any idiot could come up with those potential scenarios.

Hell,I may even start writing articles.

To sell, or not to sell, dat is de quessstion.

What a moron.

dark pools of soros's picture

..he uses Martingale Bets so of course he likes coin flips

CD's picture

"We are headed for a blow-off top with a quick reversal, or a sustained rally for another year or 2. You should be equally miserable if either of those happens. So sell some.. go buy farm land in Argentina with your profits."

While I take it that a sustained rally for the next year or two might be partly due to an otherwise collapsing global economy/dollar, but how is selling silver going to help in that regard? Also, define your understanding of blow-off top: 20% 50% 80%?

6 String's picture

Yeah, the closing was totallly moronic. It might go up; it might go down. So go buy something else like farmland in Argentina?

It's amazing. Lately I would rather read the ZH "readers," the content has been far better.

Pants McPants's picture

At first blush the closing sounded strange to me too.  Now I think the message is to trust your gut, roll paper profit into physical, and reduce position so as to not get caught flat footed.

The next few months should be interesting, but not in a double/triple your paper profit sort of way.

Disclosure: I've made some $$$ on paper silver; not trying to project my position onto you.  Agree re: ZH "readers" too.

GetZeeGold's picture


The closing was absolute HS.....just ANOTHER that missed the boat.



fmxconnect's picture

Our understanding isnt quantified ino % movement, it is quantified in market intel, open interest changes and velocity.


The selling silver comment is basically saying if you feel you are saying things like  "Wow" and this is "awesome"... OR im worried about my positon here. Then lighten your position to mitigate the emotionality attached to it. And reasses more objectively. We have found that both emotions, euphoria and worry cloud objective investment decisons.


Sorry to say, if you don't think that helps, you may just be the guy long who is telling his grandchildren " I was longsilver at 25, and it went to 49. I sold none. Then it went to 69 adn i was right, so i sold none.... then it went to 19.00 here is your inheritance kid.

6 String's picture

Too funny, and while I know you weren't replying to me, you should probably give up writing for one. Two, if your going to dole out investment advice you A) should hold yourself out as an advisor and B) at least have the dececency to post your credentials--via you long term CAGR--so at least we know what kind of smuck we're dealing with.

unum mountaineer's picture

it's okay to dole out the advice so long you define the angle of the investments. I think it is time to really start discerning the paper from the physical market because it really gets to the core reasoning why the investor is making the decision(s) they are making. I mean if somebody has a stash of physical for insurance for a just in case moment are they really a tin foil hatter? To that effect somebody that keeps a first aid kit....? Bottom line: There are varying means and reasons behind including silver in your portfolio. Educate the people in complete fashion and fmx commentary will go far for sure.

Trifecta Man's picture

You forget one thing.  The government will never stop the growth in debt, and it's now too big to service.  Ergo, they will monetize it.  Gold and silver are two of the best ways for the intelligent person to protect themselves against this government/Fed counterfeiting fraud.

Smu the Wonderhorse's picture

Precisely.  Fundamentals are fundamentals.  The US and most major nations are broke and ultimately can only try to print their way out of the hole.  It's happened about a hundred times before in history. 

The metals price-suppression regime is breaking down, or being allowed to break down partially, hence the dramatic moves, which are a bit frightening.  STOP THINKING ABOUT PRECIOUS METALS AS INVESTMENTS AND START THINKING ABOUT THEM AS INSURANCE.  They are POLITICAL HEDGES: they are the only monetary instruments that do not rely on "the full faith and credit" of XYZ government.  When that "full faith and credit" is tapped out, you still have your metals (and farmland in Argentina, too -- not the worst idea).

knowless's picture

land is like gold or silver, meaningless if you can't hold it in your hand. if shtf the borders will be closed, and all foreign holdings nationalised, everywhere, either by decree or just as a function of people taking what they can literally get their hands on.


I don't disagree with you.

glenlloyd's picture

Thanks for providing some insight, even if others don't appreciate it.

I'm sure it was dissed for not having BTFD or "Silver Bitchez" somewhere in the text.

strannick's picture

This entire article is just a rationale for another TA monkey's technical view that silver is 'over-bought'. Yeah we will be equally miserable no matter how the economy collapses, thats why we buy silver, eejit.

Careless Whisper's picture

And as we know, 0 and 00 do come up once in a while in Roulette,

bwahahahahaha. same odds as any other number on the wheel. 1 in 38, unless you're playing in a wall street casino.

Dangertime's picture

Silver can only go uuuuupppppp!!!!!!  This guy is a banksta shill!  Burn him at the stake!

tmosley's picture

You are an embittered fool.  Time to leave.

UninterestedObserver's picture

No he is getting rich shorting silver - in fact he is up HUGE on his SLV puts even though they are all trading at their lows 

Dangertime's picture

They are red now....but I doubt that will be the case for long.

UninterestedObserver's picture

They have been red everyday except you might have had a part of your position that was up for a day. Silver over $49 and at $60 you will be toast.

Creed's picture

wow...look at the concerted metal bashing


thanks for keeping your agenda clear


topcallingtroll has a little more subtilty, you guys are obvious

writingsonthewall's picture

You are a irresponsible free market 'believer' - I think it's time you left.


When do you meet? - Sundays in the local hall? Do you sing carols to the 'second coming of the free market'?


It's a shame so many people 'play' but never bother to 'read the rules' before they start.



tmosley's picture

You refuse to accept basic definitions, so anything you say is faulty.  Sorry :(

writingsonthewall's picture

You have no definitions for me to accept.

It's a shame that you don't even know the defintion of the system you spend so much time defending.

Still I suppose you defend your local football / hockey / baseball team too - even though you were the patsy of the football / hockey / baseball team at school and have no idea how to play.


Loyalty does not always have it's bonus...


tmosley's picture

In our last tangle I explicitly defined every type of system.

You keep saying that the current system is capitalist.  It isn't.  I am not affiliated with it save to extent that I exist and earn their fake money (and quickly trade it for silver).

Bicycle Repairman's picture

"You are an embittered fool."

Well put.  Now everyone should ignore the troll.

glenlloyd's picture

WTF are you still doing here? Last time I saw a "collection" of your posts and it was nothing but infantile giberish about how the silver longs were wasting their time, now you come limping back in here talking about how 'silver can only go uuuuupppppp!!!!!"?


Badabing's picture

Meth man

Did you know that slv etf is one of the only places in the PM market that a registered participant can take delivery of a basket and drive the price down. Actually it’s very bullish.

Do your homework

Math Man's picture

Do you even know how the creation/redemption arb works?  It's the reason SLV tracks the NAV so closely throughout the day.  And it's not bullish at all when it starts going the other way.   All the silver that is arbed out is sold on the spot market.


Everything is bullish to the silver longs.  Inflows, outflows, it doesn't matter.  Too the moon bitches!

You're all going to get slaughtered.

Badabing's picture

Are you sure? How can you be so  sure?

Dick do your homework!

Math Man's picture

I have done my homework....   you're the one who has NO IDEA how the mechanism works. 

When the arb runs positive, physical silver is bought at spot and deposited in the trust.

When it runs negative, silver is sold...  

Watch out.  It comes out faster than it goes in.


Badabing's picture

OK know you pissed me off!

No more computer until

Do your homework

Math Man's picture

FOFOA is wrong and does not understand the arb.

Badabing's picture

 A closed mind with an open asshole.

Read it

Math Man's picture

I did.  Months ago.

FOFOA are fools.

Badabing's picture

Your talking out of the side of your ass.

SLV /GLD are scams that collect physical with sheep money and give it to the RP.

akak's picture

MethMan, PLEASE tell me that you have never fathered any children, or never plan to!

Those genes of yours do not just have holes in them, but have been acid-washed into tatters.

StychoKiller's picture

Sorry, but until the Fed stops throwing Napalm on the pile of Govt-supplied TNT, I'm gonna hang onto fire insurance!

tmosley's picture

You keep saying that, but it never happens.  I think you need to check your premises.