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Guest Post: David Morgan On Silver Price Manipulation, Delivery Default & Supply Shortage Risks

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Submitted by Chris Martenson

David Morgan on Silver Price Manipulation, Delivery Default & Supply Shortage Risks

“I have little doubt that most of the silver that is on the SLV’s web site with a bar number is there somewhere. But what I am really concerned about is if it is hypothecated or not, meaning is there more than one owner on that same bar. And I can almost guarantee that there are multiple owners for almost every bar that they report. It does not mean that that bar does not exist.

It takes ten contracts to be a market maker. So I have got ten contracts, I have got fifty thousand ounces, and I ship it to my buddy who is a hedge fund manager over in Idaho. That is my silver. I have just sent it over to him on a lease. I have leased it to him. Now he has taken that silver and he has swapped it with somebody at the SLV, so they have got bars there. And he swapped for those and now those are on the exchange showing as part of the deal. So you can have a lease and a swap, so you could have two or three claims on those same bars. And that happens over and over again.

So the reason I used “purportedly” is that is the correct word. There are very few bars that are actually one-to-one correspondence that are sitting on the SLV and that is their only purpose. That is not the way banks operate. That is not the way the whole system operates. So I am not against the SLV, but I also state very clearly that if you follow what I teach, you would not want that to be considered a primary silver investment. That is a paper investment. That is not silver. That is paper. It only settles in paper. People ask whether I think there is going to be a default on the SLV. I say, how could there be? I mean, read the prospectus, they settle in cash. Think they have any trouble printing that stuff up? I haven't seen any problem with that lately.”

So cautions David Morgan, publisher of The Morgan Report on precious metals and proprietor of Silver-Investor.com. More so than perhaps any other, the silver market has been loudly and visibly accused of rampant price manipulation. And more recently, suspicion is growing that the exchanges and ETFs dedicated to trading the metal do not hold sufficient volume of it to meet their obligations. Is the silver market free and fair? Chris delves deeply into these important questions with one of the best-known silver experts.

In this interview, David explains why:

  • The silver market is definitely manipulated, though likely not as rampantly as some believe. And despite this manipulation, he believes the overall upward trend in silver (and gold) cannot be suppressed in the long run.
  • Holding physical bullion as a core part of one's precious metal portfolio is absolutely critical. Many of the bars pledged to tradable securities (ETFs, futures, etc) are assigned to multiple owners - meaning there is much less actual bullion underlying these securities than the market thinks. 
  • Why his long-term outlook for silver is so bullish. Annual industrial demand for silver continues to outstrip supply from new mining, while increasing investment demand for silver as a monetary vehicle only takes more tonnage out of the market. At some point, the market will wake up to the fact that silver is in much shorter supply than current appreciated. At that point, the price will go much, much higher.

Click here to listen to Chris' interview with David Morgan (runtime 35m:58s):

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Or start reading the transcript below:

Chris Martenson: I am really pleased to have you here today and very interested in your views on silver, of course, naturally for you. The first thing I would like to start with: there is a lot of talk out on the internet, on my blog and at other blogs where people are wondering what is going on with the silver market. Is it a fair and free market? I guess this could be asked about the larger precious metals markets as well; and maybe the commodities markets, too, which people are concerned about. But with your experience and what you have seen: you have been looking at the silver market for a long time, tell me how you think the market currently is constructed and whether you think it is free and fair.

David Morgan: Okay, well, it is definitely not a free market in the true since of the word, and it is manipulated but probably not at the level that a lot of people consider it to be manipulated. This question comes up fairly often. One of the more recent times it came up was in a very large public forum at the Silver Summit in 2009. The Silver Summit was actually a creation of mine and one of the mining guys in the Silver Valley that is fairly close to where I live in Spokane. The Silver Valley is in the Coeur d'Alene mining district in Idaho, and I am about an hour and a half from there. Anyway, we started Silver Summit several years ago, and it grows every year. And 2009 had a pretty good turnout. I am going to guess probably 800 to 1,000 people. And during one of the intermissions, Al Korelin, who has his own radio show, gathered us as the MC. Us meaning myself, Bill Murphy from GATA, Roger Wiegand, Trader Rog, and Jeff Christian from CPM Group, and I believe that was it, those four. It might have been one more, and if I am leaving someone out, forgive me, but…and I wanted to get the debate going between manipulation and non-manipulation. 

So Murphy went first and gave the GATA position and then Jeff Christian gave the CPM position and then it was my turn. And I said, well I am in the middle, and I didn’t really plan to be in the middle, but you cannot manipulate the overall trend of a market. The free market forces that remain are large enough to take a market higher or lower depending upon what the real market forces are. The forces underlying the silver market are tremendously huge from two aspects, both industrial and monetary, and those forces have been showing from basically 2003 to present day. Where you can really make the case that the manipulation that exist certainly takes place - and I will explain that in a moment - but you can really say that what is left of the free market really has an effect is from the advent of the ETFs in the silver market. If you look at what the silver price has done since April 2006 when the SLV was implemented—actually, before that because there was some anticipation in the market—till present day, you will see a huge increase not only in the amount of physical metal purportedly bought by these ETFs, but the overall trend of the market price-wise, of course.

I think it bears repeating that the overall trend in both gold and silver cannot be manipulated. All right, so what does that mean? Well, that means that what remains of the free market forces have influence, but within that main trend, the market is manipulated quite a bit. How often? I do not know. Daily? I doubt it. But I think there are some extreme cases. And I think it is good to look at the extreme cases because if they can do it in an extreme way, they could probably do it the subtle way as well. So one of the extreme cases was brought out and I think, again, GATA probably did one of the best jobs of this because I think they filmed a lot of this, of one of the traders—I forget his name—but he talked about 25% of the world’s silver markets being sold at one mouse click. Now anyone that knows anything about the market a moves understands what he just said. All markets move based on buying or selling pressure. If there is more buying pressure, the price of whatever the commodity or the stock or the automobile or the Rembrandt painting, it does not matter - whatever is being purchased will force the price higher because there is a lot of buyers that want to buy it. Conversely, if there is a lot of sellers selling something, the price will move down, be it a stock, be it a commodity, be it an abundance of Taurus automobiles. No one wants a Taurus anymore. There are lots of sales signs on them.

So that is how markets move. So if you have a huge supply on paper of silver and you say to the market, “I am selling 25% of the world’s supply now”, there is no way that that cannot do anything but manipulate the price downward in a huge, huge way. Because if you understand commodities and most people that listen to these types of programs do, it is a zero-sum game. For every winner there is loser, and all orders have to match. And so that took the market down substantially, and that was brought out in the CFC hearing. Chris, if you might…well, you might have a question or two, but I also want to give another good example of how the market is manipulated.

Chris Martenson: Yeah. Oh, absolutely.

David Morgan: Let us take the floor trading. Now just to be very clear with everyone, the amount of floor trading that takes place in commodities these days is rather small relative to the amount of what they call “off-floor trading,” which really means electronic trading. I mean, the amount of computer trading that goes on in these markets is huge relative to what is still done on the floor. But nonetheless, this serves as a very good example of how the price of silver actually operates, pretty much from an objective perspective. And I want to emphasize the word “objective” because I have given this rendition, which is factual, many times, and it is always amusing to me the reactions I get. I did this, actually, for a bunch of Casey’s researchers at a mining trip I was in in Mexico. There were about six of them, myself counting as number seven. And - I am going to give this out - but three of them were convinced that proves without a doubt the market is manipulated, and the other three said, no, that is just how the market works.

So here it goes. And this really, really applied earlier on in the silver market. It still applies to some extent now, but the market has many more participants, as I said: the ETFs, more offshore participation, and India has always been there, but China. There is just a lot more interest in the market, so the market is more diverse, which is good for any market. But regardless, here is how it works. So, especially in the earlier days, you have, let us just say, two main parties. And this really is a good breakdown of it. I will give Ted Butler plenty of credit here – he has explained this many, many times. I do not know if he is explaining it the way I am going to. But he talks about the commercials or the banks, they are the synonymous, and the trading funds. So I am a trading fund and I am long silver, meaning I am buying. I am bullish, I think the price is going up. So I am in the silver market, I am buying, buying, buying. Well, there is buying pressure and for every buy there has to be a sell, so the banks are selling, selling, selling, selling. So now, hypothetically, and you can look at a chart, but you can see the price when we broke out a $5.55. The price went up to $8.40. So there is all this buying pressure and the market moves up, up, up, and the price is up roughly $3 from the break out of $5.55. And now what happens is the trading funds have shot all their bullets. In other words, they have no more money available to them at all to put in the silver market. They bet $5.50 and $5.75 and $6 and $6.25 and $6.50, and they are buying all the way up. And the banks are selling to them all the way up. But now there is only—really, there are several ways, but I am just going to focus and keep it really simple. There is only one way for these trading funds—I hope I did not say banks—the trading funds buying all the way up, the banks selling all the way up. The trading funds have a huge profit on paper. The only way for the trading funds to get out of their position with a profit is to do what?

Chris Martenson: Sell the position.

Click here to read the rest of the transcript.

 

Note: listeners interested in the conclusions expressed within this interview will also want to read Chris' recent report on The Screaming Fundamentals For Owning Gold And Silver, which takes a deep dive into the data behind the supply and demand imbalances in the bullion markets.

 

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Thu, 07/21/2011 - 19:30 | 1479059 TheGoodDoctor
TheGoodDoctor's picture

Silver Bitchez!

Thu, 07/21/2011 - 19:59 | 1479146 XenoFrog
XenoFrog's picture

Your authority is not recognized behind the silver walls of Fort Kickass

Thu, 07/21/2011 - 20:34 | 1479253 disabledvet
disabledvet's picture

Is it the surfer or his board that you're into?
http://www.youtube.com/watch?v=Wi6ZG2CmHo8&feature=player_detailpage
if you say "it's the music" that's okay, too.

Thu, 07/21/2011 - 20:42 | 1479282 bankrupt JPM bu...
bankrupt JPM buy silver's picture

Listening to Morgan is like listening to Batman.  Great call on silver going to $20. 

 

www.silvergoldsilver.blogspot.com

Thu, 07/21/2011 - 21:02 | 1479338 Careless Whisper
Careless Whisper's picture

the latest member of the silver liberation army calls for people to CRASH JP MORGAN - BUY SILVER

Music courtesy of Mister Gene Pitney; Lyrics courtesy of Mister Greg Diablo

http://www.youtube.com/watch?v=_gbuJpPknFk

 

 

Thu, 07/21/2011 - 22:09 | 1479469 GotElevenToes
GotElevenToes's picture

He sounds more like Bill Walton...

Thu, 07/21/2011 - 20:37 | 1479265 DoChenRollingBearing
DoChenRollingBearing's picture

I really, really need a silver expert / silver bull to write a "Guest Post" at my blog.  I erally do not know silver well at all, and I have seen some here at ZH who DO know silver (fundamentals, etc.).

Anyone who is interested in writing an article ("The Case For Silver" or whatever) please send me an gmail at my name above.  Same if you want my blog link.

Thu, 07/21/2011 - 20:49 | 1479299 HungrySeagull
HungrySeagull's picture

I am not an expert. I managed to buy some PM at the top and learned from that and bought some at the dip. Now I am sitting waiting for a certain price and that will take a while. I am a patient man.

Probably that is why I love Silver and Gold, the prices move slowly and you can actually see it coming sometimes.

 

Always buy low and sell high.

Now with that said, I think our Nation thanks to Harry Reid in our Senate who wills it to have the cap, cut and balance bill go away tomorrow morning. If that happens we default.

Thu, 07/21/2011 - 23:44 | 1479619 thepsilocircus
thepsilocircus's picture

I like to think of silver as a store of purchasing power that has the possibility (what percentage chance I doubt anyone can predict with too much certainty) of greatly increasing in value- not value in terms of number of dollars but in terms of amount of goods that can be purchased.

 

Basically exactly how I see gold, which is probably not the correct way to be approaching silver.

 

Some insight would be nice =).

Thu, 07/21/2011 - 20:31 | 1479236 DavosSherman
DavosSherman's picture

With 110 trillion of unfunded liabilities hiding -- a la Enron --- in OFF balance sheet debt ---- hearing Comex default and manipulation is a real shocker.

As always, Chris does and excellent job and David Morgan who has been on FSN is a good listen. 

Thu, 07/21/2011 - 19:37 | 1479082 FMOTL
FMOTL's picture

of course ,what else?

Thu, 07/21/2011 - 19:42 | 1479097 caerus
caerus's picture

holy shit a silver price manipulation thread?  maybe i should put down my whiskey...

Thu, 07/21/2011 - 19:47 | 1479107 DavidPierre
DavidPierre's picture


For those that still have a shred of confidence in the integrity of our markets, it is worth pointing out that each time a new level of fraud is reported the damage has always been done.
No one ever steps in and catches the crooks in the act before the big losses rattle the market. Think back to the big scandals of the last few years. Enron is one obvious candidate. The Madoff ponzi scheme. The subprime fiasco. One could even go all the way back to the S&L crisis.
In each case the criminals achieved huge profits and there were plenty of red flags but no one had the will to step in and halt the fraud before the billions in dollars in losses were long gone. The regulators always insisted 'nobody could have seen this coming...'
And note how with each new outrage, the amount of money that is stolen just gets bigger, but the number of people thrown in the slammer are fewer. When you have inept enforcement it encourages corrupt people to pull a fast one.
The message here is that crime pays.

This is why the obvious daily manipulation of the metals has become more intense in recent months. It is clear that no one has any intention of putting a stop to it. And it is immensely profitable for the crooks that are throwing the market. On monday someone dumped 50,000 silver contracts in one minute. The silver spot market plunged by over $1 during that session. Whomever was responsible likely covered the position at enormous profits.

Bang your head against the wall arguing with apologists that claim there is no manipulation in the silver pits. Even these pinheads must be squirming a bit today if they review the trading data. There is no room for any other interpretation except a blatant abuse of free market trading that should have immediately drawn a response from the regulators. And yet not a peep has come from this. For anyone that was stopped out of a position during that carpet bombing, do not seek resolution from those entrusted to enforce the rules. You are on your own...

And so when this silver scam eventually breaks down and the losses start piling up, as usual we will hear the lies and nonsense that no one could have seen this coming.
Its all bullshit!
The evidence is right there in the market data exactly what is going on in real time. What is most disgusting about this entire sham is that when the last ounce of silver is long gone from the Comex, the manipulation collapses, and the shortage is driving prices to scary highs for silver, it will all be blamed on the greedy specs that have hoarded silver and caused the crisis.

There is a great scene in the movie Casino, after a big fraud goes down, and the security staff failed to prevent it. The boss states: "Either you were too stupid to stop it, or you were in on the scam." That pretty much sums up the CFTC.

www.LeMetropoleCafe.com

Thu, 07/21/2011 - 19:55 | 1479127 Manzilla
Manzilla's picture

Boy what a genius comment. Care to share something else every one already knows?

Thu, 07/21/2011 - 20:04 | 1479166 Pladizow
Pladizow's picture

Dont know your background but:

1. as you have only been on ZH for 13 weeks and

2. based on your questions below that I offered info on....

Your statement above is unwarrented!

 

Thu, 07/21/2011 - 21:02 | 1479341 MsCreant
MsCreant's picture

You really are a "nice" pair of tits. I'd of told him to FUCK OFF!

Fri, 07/22/2011 - 07:49 | 1479924 chumbawamba
chumbawamba's picture

Ok, that was fucking clever.  I quietly LOLed.

- Chumblez.

Fri, 07/22/2011 - 10:57 | 1480707 Misstrial
Misstrial's picture

Ecclesiastes 8:11 KJV

"Because sentence against an evil work is not executed speedily, therefore the heart of the sons of men is fully set in them to do evil."

~Misstrial

Thu, 07/21/2011 - 21:34 | 1479418 francis_sawyer
francis_sawyer's picture

Ms. Creant is right...

& if your tits hadn't been so nice, I might have challenged you to a spelling contest...

http://www.youtube.com/watch?v=au2YcZPnmMY

Now... a dude who uses 'hypothecated' in a sentence (& spells it correctly)... Now THAT's a daisy!

Thu, 07/21/2011 - 20:33 | 1479247 SilverIsKing
SilverIsKing's picture

Please tell us something that no one else knows.

Thu, 07/21/2011 - 20:05 | 1479169 XenoFrog
XenoFrog's picture

I like you and would like to subscribe to your newsletter.

Thu, 07/21/2011 - 21:06 | 1479354 r101958
r101958's picture

These frauds are ongoing though.

Thu, 07/21/2011 - 19:48 | 1479108 disabledvet
disabledvet's picture

i think i just found two of the bars down on the wharf.
http://www.youtube.com/watch?v=H4BNbHBcnDI&feature=player_detailpage

Thu, 07/21/2011 - 19:50 | 1479112 PulauHantu29
PulauHantu29's picture

So why don't the commodity gurus pass a law that contract holders must take actual delivery? Wouldn't that stop the hanky panky?

Thu, 07/21/2011 - 19:56 | 1479131 HungrySeagull
HungrySeagull's picture

Suppose they did that and became law within the hour.

Contracts by the pile will be closed down because insufficient silver.

Price will fall. And will result in PM Buyers like me demanding EVEN MORE Delivery cash paid right fucking now.

Back up the price goes and going and gone.

Thu, 07/21/2011 - 20:37 | 1479266 SilverIsKing
SilverIsKing's picture

Paper price down, physical price up.

Thu, 07/21/2011 - 22:48 | 1479534 HK
HK's picture

Like a number of commenters here, I hold physical and never plan on selling, the kids and grandkids get it.  However, I do buy the miners occasionally and I thought this might be appropriate as the similarities between 2008 and now are eerie.  Again, it may or may not be different this time around, but with the manipulation, the wash, rinse, repeat mantra comes to mind:

http://profitimes.com/free-articles/silver-today-vs-2008-does-it-look-fa...

 

Fri, 07/22/2011 - 01:32 | 1479702 SilverIsKing
SilverIsKing's picture

I read profitimes too and saw those charts. The similarities are indeed eerie but the circumstances are very different. Regardless, it's worth keeping an eye on.

Thu, 07/21/2011 - 22:03 | 1479456 Raymond Reason
Raymond Reason's picture

Pulau...regulations and laws aren't going to stop the hanky panky.  What will stop it is a default.  Because the market will then recognize that selling futures on margin does not discover price.  I've made this analogy before...

Real estate appraisers do not use deposits as comparables.  (Banks and State Govts do not accept it).   Deposits are not sales.  Margin is a deposit. 

IMO there will come a day when the market will recognize what a sale is, and what it is not.  And it won't make any difference what the rules are.     

Thu, 07/21/2011 - 19:52 | 1479121 Rodent Freikorps
Rodent Freikorps's picture

That sounds kinda crooked.

Thu, 07/21/2011 - 19:53 | 1479123 Manzilla
Manzilla's picture

"Holding physical bullion as a core part of one's precious metal portfolio is absolutely critical. Many of the bars pledged to tradable securities (ETFs, futures, etc) are assigned to multiple owners - meaning there is much less actual bullion underlying these securities than the market thinks."

Is there actual physical proof of this? I'm curious to see if this is really the case or just some talking point that people are pushing. I'd like to see it if anyone can provide it. An interesting and possibly deadly situation.

Thu, 07/21/2011 - 19:59 | 1479138 Pladizow
Pladizow's picture

Adrian Douglas of Market Force Analysis has put out some of the best work on this - his papers are available on ZH.

Also research Ted Butler and listen to King World News Interviews.

I'm sure other ZH's can recomend several other sources.

Thu, 07/21/2011 - 20:05 | 1479158 firefighter302
firefighter302's picture

Read the 10 year silver and gold charts and compared to the other asset classes.

Has anything changed to improve the debt and currancy problems? (no, they are worse.)

Investing in metals is increasing around the globe.

Proves it in my mind and for me.

Thu, 07/21/2011 - 23:15 | 1479576 Help Is Not Coming
Help Is Not Coming's picture

Go and get the prospectus for SLV and sit down and read all 48 pages. All of what you are buying and what they can do is buried in there. They're not going to trade it, lease it multiple times unless is says they can in the prospectus.

I also find it curious that the share price which is supposed to reflect the price of silver has a discount to the melt value of silver instead of a premium to the melt value. Accounting, Storage Vaults and guards cost money in addition to the actual metal. The cost of the share should be MORE than the cost of the melt value of silver. That simple fact should tell you that something is wrong with SLV.

Thu, 07/21/2011 - 19:59 | 1479143 caerus
caerus's picture

The word "manipulation" has come to have an ugly sound, It needs an alias.

- Jesse Livermore Reminiscences of a Stock Operator

Thu, 07/21/2011 - 20:03 | 1479161 BrianOFlanagan
BrianOFlanagan's picture

Is there not a single person in the silver bug community that understands a lease arrangement?  Just curious, anyone?

Thu, 07/21/2011 - 20:05 | 1479174 Pladizow
Pladizow's picture

I dont....please explain.

Thu, 07/21/2011 - 20:24 | 1479214 BrianOFlanagan
BrianOFlanagan's picture

If I lease silver to you and you sell it, I have no claim against whoever bought the silver.  My only claim is against you.  In a lease, the title is passed to the borrower (lessee) and if he sells it, it passes to whoever buys it.  The buyer (SLV in this case) does not care whatsoever whether the silver they bought was leased 10x or 100x over.  They own it free and clear.

 

Thu, 07/21/2011 - 20:30 | 1479238 Global Hunter
Global Hunter's picture

in your example if SLV is free and clear what happens to the first 9x or 99x who thought they owned it?

Thu, 07/21/2011 - 20:33 | 1479250 BrianOFlanagan
BrianOFlanagan's picture

if their lessee's are unable to source any silver somewhere else to cover the lease, their only recourse is the cash collateral the lessee put up plus damages.  But as far as getting metal, if the lessee can't deliver, they are out of luck.

Thu, 07/21/2011 - 20:42 | 1479278 Bay of Pigs
Bay of Pigs's picture

LOL. Damages? Yeah, no shit. No problem there with lawsuits or anything like that.

Thanks for making the case of possible massive and pervasive fraud though.

Thu, 07/21/2011 - 20:51 | 1479309 BrianOFlanagan
BrianOFlanagan's picture

if you lease your silver - you are taking risk.  If your lessee fails to deliver, that is a default.  There could be massive and pervasive defaults, but there is no fraud whatsover with those arrangements. 

Thu, 07/21/2011 - 21:53 | 1479443 CD
CD's picture

The entering into a contract with full foreknowledge and intent to default WOULD be fraud, but difficult to prove. However, the massive, concentrated, systematic and coordinated nature of said activity to with intent to manipulate regulated markets is what makes it especially repellant.

Difficult to prove or prosecute in a court or before a regulatory body? Perhaps, especially as the participants own said tribunals. If you don't mind my asking, WTF is your point? That you are indeed fully aware of the the fundamentally immoral, corruptive and unfair nature of these practices, but since the participants are above the law that makes it OK? As a member and practitioner of this wonderfully profitable and multi-purpose group, you are superior to us peons who are convinced that this is NOT THEIR (NOR YOUR) RIGHT?

Bravo, point well made sir. So as long as you wear a ski mask, gloves and a condom, you are perfectly within your rights to taser a passerby in the dark, drag them into an alley, rape, rob and murder them -- because prosecution is all but impossible, right?

Thu, 07/21/2011 - 22:38 | 1479517 Bay of Pigs
Bay of Pigs's picture

+1

Fri, 07/22/2011 - 16:16 | 1482358 MsCreant
MsCreant's picture

CD is as solid as a rock!

Sat, 07/23/2011 - 12:18 | 1484780 optionsoptions
optionsoptions's picture

No that is not what he is saying. 

Thu, 07/21/2011 - 20:44 | 1479289 LoneStarHog
LoneStarHog's picture

Well...let's take the very real scenario where the one leasing the silver to the SLV is the CUSTODIAN of the SLV...and...the leased silver is encumbered 100:1...and...SLV does not actually receive the PHYSICAL silver, but merely a lease agreement...and...the physical leased silver is used to satisfy physical delivery on a CRIMEX contract...and...GET THE PICTURE?

Thu, 07/21/2011 - 20:58 | 1479325 BrianOFlanagan
BrianOFlanagan's picture

SLV does not borrow silver.  If they did, you would see a lease liability on their balance sheet.  This only liability I see on their balance sheet is for sponser fees payable (a very small number).

 

http://us.ishares.com/content/stream.jsp?url=/content/en_us/repository/r...

Thu, 07/21/2011 - 21:40 | 1479384 Bay of Pigs
Bay of Pigs's picture

You take the Banksters at their word, although it's a fact they lie, cheat and misrepresent many things. It pretty much explains why you think everything is on the up and up in the silver market.

Leasing isn't the problem. Fraud and manipulation is. But you are correct that many, many people will be SOL on their silver holdings.

 

Fri, 07/22/2011 - 04:51 | 1479826 Urban Redneck
Urban Redneck's picture

Look at the process of how "silver" enters and leaves SLV, it doesn't prevent leased silver from being used by authorized participants(?) to create baskets.  The issue is on whose balance sheet the liability lies.  If anyone has a competing claim on bars of silver "belonging" to SLV and things go south and SLV winds up in court- then will be NO silver in SLV- as it will ALL be encumbered by the courts and arbitrators in London while they try to sort out who owns what, and whose claims are superior and inferior.  Several years later, owners of SLV shares would receive a fractional fiat payment based on the value of the determined actual and unencumbered SLV assets at the time the shit hit the fan.  Shareholders of SLV have no claim on the underlying assets "silver bars" of the investment vehicle.  Unless a shareholder has a TBTF membership card to Dr. Berankenstein Bailout Club, or a gun to the head of certain executives of the TBTF club involved with the operation of SLV, then the shareholder goes to the back of the line, and receives the scraps.  The prospectus is too long, has too many loopholes, too many conflicts of interest among the parties, and a painfully contorted definition of "silver" itself.  A prospectus is a legal document, and a shareholder is responsible for reading and understanding the consequences of that document, regardless of whether they actually do.  The last time I read it was probably three years ago, and based on what I read- I wouldn't use SLV as even a proxy for silver for leveraged day-trading purposes with monopoly money, because that shit hitting the fan would not be a black swan event.     

Thu, 07/21/2011 - 21:00 | 1479326 BrianOFlanagan
BrianOFlanagan's picture

*duplicate*

Thu, 07/21/2011 - 20:47 | 1479296 Global Hunter
Global Hunter's picture

yes they'd be out of luck, a lot of people that think they own silver or any other commodity may be out of luck. In my example below eventually a financing closes and stock is delivered and everything goes back to normal.  In the silver/commodity market there isn't necessarily the supply to meet the expectations of all those who'd be out of luck.

Thu, 07/21/2011 - 20:51 | 1479307 HungrySeagull
HungrySeagull's picture

Sort of like buying a House. Your note sits at the bank who loaned you your mortgage. Now that bank sells your mortgage to someone else and so on...

 

That is my theory anyway.

 

Physical Possession is all you need, everything else is BULL.

Thu, 07/21/2011 - 21:06 | 1479352 BrianOFlanagan
BrianOFlanagan's picture

@Global Hunter - but that's the owner's choice.  If he wants to take the risk of lending out his silver, that's his problem.  Same goes for unallocated accounts - if you want to take that risk, it's on you.  But if you don't and have the physical in your hand or in your vault - it's yours.  Nobody's being fooled - those that lease or trade unallocated know the risks.

Thu, 07/21/2011 - 21:25 | 1479408 Global Hunter
Global Hunter's picture

 I think we're in general agreement but I think the risks are being ignored, but I agree with you in regards to the rest of your post.    

Thu, 07/21/2011 - 21:46 | 1479436 francis_sawyer
francis_sawyer's picture

Permit me the luxury of borrowing &/or fractional leasing someone else's IMMEASURABLE brain power here & parse this out to conclusion by saying...

"if you don't own PHYSICAL anything then you're a fucking dolt"...

- the end

Fri, 07/22/2011 - 04:28 | 1479820 Al Gorerhythm
Al Gorerhythm's picture

Are you suggesting that the multiple claims on the same silver, would have no impact if a default event occurred when a lessee was asked to return the silver?

Thu, 07/21/2011 - 20:27 | 1479198 Global Hunter
Global Hunter's picture

please explain it 

edit: When the hedgies and punters short a small cap stock without borrow into a financing and the back office folks are going crazy and stocks aren't being delivered at T+8...a big shit show.  I reckoned the silver market was a bit like that only with the potential to be 10,000 bigger than the above example.

Thu, 07/21/2011 - 20:03 | 1479165 Cheesy Bastard
Cheesy Bastard's picture

*Yawn*.  Fractional reserve silver.  Hold physical not paper, blah blah blah, etc. and so on and so forth.  Carry on.

Thu, 07/21/2011 - 20:08 | 1479180 user2011
user2011's picture

With Hong Kong starts trading silver contracts, shouldn't that help the price in US ?

The only question I have is how the HK future prices affects the ETF prices in US.   I expect there will always be a price differences between the HK and CME contracts.  

 

 

 

 

 

Thu, 07/21/2011 - 20:19 | 1479204 Master Chef
Master Chef's picture

Is Hong Kong immune from manipulation of markets ?

Thu, 07/21/2011 - 20:47 | 1479295 SovietCong
SovietCong's picture

Hint: The President of the HKMEx is the former chairman and acting board member of NYMEX.

Thu, 07/21/2011 - 20:50 | 1479303 SilverDosed
SilverDosed's picture

Same shit, different continent.

Thu, 07/21/2011 - 20:52 | 1479311 HungrySeagull
HungrySeagull's picture

True enough if that is true of the Boss.

Thu, 07/21/2011 - 21:48 | 1479437 francis_sawyer
francis_sawyer's picture

different shit... same shit...

There... fixed it...

 

Thu, 07/21/2011 - 20:25 | 1479226 Zing
Zing's picture

Buy Gold, better store of wealth, less volatile and more rare.  Stockpiled by central banks to a greater degree than silver.

Thu, 07/21/2011 - 21:03 | 1479343 markar
markar's picture

Actually, silver is more rare than gold, and much more useful

Thu, 07/21/2011 - 22:20 | 1479484 DosZap
DosZap's picture

markar,

silver is more rare than gold, and much more useful

 

Agree on the more useful, but where do you get the silver is more rare?.

 

If you mean above ground supply, agreed.

If in the ratio of glod v.s. silver in the earths crust then not true.

 

Silver occurs 17 times the volume of gold in the crust.In the mantle no one has a clue.

That is how the original valuations came about.(15-1, then 16-1, then........you know the rest.

 

If it indeed was more   rare,(less of it worldwide /available then the value would reflect it.

Thu, 07/21/2011 - 23:25 | 1479588 XenoFrog
XenoFrog's picture

A wise man once said, "Until it's out of the ground and melted down, you don't have it."

Thu, 07/21/2011 - 20:34 | 1479254 caerus
caerus's picture

imo, in the short term, we had a relatively flat market until mid august 2010...then we had an orderly run up, nothing too scary, until maybe the first week of november...after that we had a rounding top that found a base in february...what followed was another orderly run up that should have paused in March at 34 maybe, but as everyone knows we had instead a price aberration that took Ag to 50 (near the Hunt Brothers nominal top)...prices crashed in may but resumed the same round pattern afterwards...on 7/5 we finally broke out and, i think,  the pattern should be repeated...until its not

Thu, 07/21/2011 - 20:39 | 1479271 B-rock
B-rock's picture

"hypothecated"?

Huh, new word!

Thu, 07/21/2011 - 20:42 | 1479277 SovietCong
SovietCong's picture

Sounds suspiciously European. Possibly even French. Or Greek.

Fri, 07/22/2011 - 04:56 | 1479827 Urban Redneck
Urban Redneck's picture

no - just banker jargon

Fri, 07/22/2011 - 02:38 | 1479741 alexdg
Thu, 07/21/2011 - 20:40 | 1479273 SovietCong
SovietCong's picture

Nothing new here, really. The multiple-beneficial-owners-of-physical-under-warrant(s) issue as well as the BBs manipulation of the silver market is public knowledge. The only unknown is when this crap finally hits the fan.

Thu, 07/21/2011 - 20:43 | 1479288 caerus
caerus's picture

who the fuck said hypothecated

Thu, 07/21/2011 - 21:15 | 1479378 mick_richfield
mick_richfield's picture

I heard that it was someone who was French, or Greek. 

But that may have just been hypotheticalized.

Fri, 07/22/2011 - 11:11 | 1480782 Diogenes
Diogenes's picture

I didnt know David Morgan was Greek.

Fri, 07/22/2011 - 04:44 | 1479822 Al Gorerhythm
Al Gorerhythm's picture

I think the price formula for Hypothicated is:- The square root (price) of the Hypothicated is equal to the sum of the price squared of the other two (or 98) sides.

Fri, 07/22/2011 - 06:45 | 1479857 Dugald
Dugald's picture

Nah, Nah, Its the sum of the Squaw on the Hippopotamus hide is equal to the sum of the Squaw's on the other two hides.......got it?

Thu, 07/21/2011 - 20:51 | 1479306 ruffian
ruffian's picture

Did anyone even notice in the 1st para. David Morgan's "concern" whether the long holder of the SLV shares "hypothecated" his shares? This is the key to the whole multiple claim situation. I suggest readers focus their attension on this before assuming there are any multiple claims on SLV shares

 

Thu, 07/21/2011 - 20:56 | 1479318 HungrySeagull
HungrySeagull's picture

Let's say ACME Mfg company quit selling Wile E coyote the gadgets because they are constantly being destroyed while in use.

ACME Mfg cranks out a silver coin to sell. A big exchange buys the coin and tosses it into a vault. Now... Exchange needs a buyer for that coin and has a endless thirst for MANY MORE COINS.

Ergo! Paper shares. Sit down write in crayon "Silver" on paper and sell it.

Suddenly 10 buyers bought crayon silver paper and now Exchange can go to ACME and buy 10 coins or more.

The exchange only consider PM Buyers a mere annoyance as long there is a constant flow of sales by paper to people who don't know enough to demand delivery.

Now... When the sheep collectively recognize the paper is worthless and all demand coin... heh.... fun times.

Thu, 07/21/2011 - 21:03 | 1479345 SwingForce
SwingForce's picture

Nobody gets coin, its an easy answer, why do you think there will be any drama? 

Thu, 07/21/2011 - 21:08 | 1479359 SwingForce
SwingForce's picture

Here's another analogy- you believe that your government has thousands of TONNES of gold stuffed in a vault somewhere, ha ha ha ha . Does the Coyote have a nice beard?

Thu, 07/21/2011 - 21:01 | 1479334 GymStud
GymStud's picture

if you wanna see some manipulation explained, watch Caught in The Act!
JPM sold 250 million paper ounces of silver in 1 minute the other day!
Un-F'ing-Believable!

http://silverdoctors.blogspot.com/2011/07/cartel-caught-in-act-25-millio...

Thu, 07/21/2011 - 21:04 | 1479346 SwingForce
SwingForce's picture

Why? Because they needed the money, ha ha, they got money for nothing....

Fri, 07/22/2011 - 04:48 | 1479824 Al Gorerhythm
Al Gorerhythm's picture

I wonder, did the Fed buy them?

Thu, 07/21/2011 - 21:02 | 1479337 MiningJunkie
MiningJunkie's picture

Unlike Au, Ag has distinctly unique demand/supply metric in that it carries far less reliance on "investment" demand and that is why when (not if) the velocity of all of this printed fiat kicks in (and it will) ECON101 will drive silver prices through the fucking roof, forcing the Comex to offer $6 trillion for the newly-created Shanghai Futures Exchange so that they can nip the arb-trade in the fucking bud.

Translation? Sell Federal Reserve Notes SHORT and go long any fucking thing that is a non-financial asset created by an investment banker.

No brainer when 534 Central Bankers have a corner on the INK market.

Thu, 07/21/2011 - 21:02 | 1479340 SwingForce
SwingForce's picture

Who cares? Can all the longs of RUT or ES take delivery? Talk about paper, the underlying asset of those are paper... ha ha Nobody gets Nuthin' , the banksterz win EVERYTHING in the end.

Thu, 07/21/2011 - 21:25 | 1479409 Tunga
Tunga's picture

slinkys thats where its at. not mini slinkys no. they can climb stairs. Tunga has seen it happen. u will 2.

Thu, 07/21/2011 - 22:04 | 1479461 Mongrel
Mongrel's picture

Black is the color, none is the number . . . Bullshit artists reign in the markets.

Thu, 07/21/2011 - 22:28 | 1479505 Arch Duke Ferdinand
Arch Duke Ferdinand's picture

Abolish Congress, Replace it with Internet Voting...

http://seenoevilspeaknoevilhearnoevil.blogspot.com/2011/07/time-to-aboli...

OT: Hilarious 2 Min Vid...

http://www.youtube.com/watch?v=W0Uju3tYS2s

Thu, 07/21/2011 - 22:40 | 1479520 Zero Govt
Zero Govt's picture

Where's Kid Dyno-Shite today, consumer champion, best bud of the private investor, protector of truth and integrity and intrepid reporter extraordinaire???

He should be onto this story about JP Morgans SLV inventory like a rat up a drainpipe! 

Afterall Kid-n-Dipers has been wetting his nappies for days focusing on Sprotts PSLV Silver holdings. Yep it was the same last month as it is this month and it'll be the same next month too, but the Kidder is in a complete tizzy about it! Can't see why he's fretting about nothing, the Kids spitting his dummy out the pram watching paint dry!  ...i'm worried for his sanity!

Kid Dyno-Retard, consumer champion, was asleep on the Comex inventory story with the usual big cartel crooks making off with Crimex, sorry Comex, Silver. More metals gone than a Vampire raid on a blood bank but the Kid hasn't raised a squeek, not even a whimper! Like the Metals Regulators the Kid is looking the other way whistling Dixie. Strange for a bloke so concerned with inventory levels and protecting his buddy investors out here in Silver Cartel Rigged Land!

More raids yesterday and today, where's the Kid? 

Somone now questioning JP Morgans SLV inventory. Where's the Kid?

Where are you Kid Dyno-Troll ?

Thu, 07/21/2011 - 22:47 | 1479535 oblonsky
oblonsky's picture

this guy must know what he's talking about. after all, the morgan dollar is named after him!

but is there any surprise that's there's a fractional reserve system in the precious metal market just as there is in the FRN market? same thing, if there was a run on the banks for dollars, people would realize there weren't enough dollars to go around and the value would skyrocket. 

Thu, 07/21/2011 - 23:12 | 1479571 user2011
user2011's picture

Well, I have just check the HK merc exchange, about their silver future contracts.   They pose a position limits on all traders.   In that case, won't that stop JPM type of silver manipulations ?   Won't this set silver price free from now ?    If there is a big price delta between HK and NY, won't miners just sell their physical in HK instead of NY ?

 

http://www.hkmerc.com/en/products/HKS/index.html#A2

Thu, 07/21/2011 - 23:30 | 1479593 Spaceman Spiff
Spaceman Spiff's picture

The purpose of the asset purchase program was to help the Federal Reserve achieve the economic objectives of full employment and stable prices that it was given by Congress. I believe that the program delivered what could have been expected from it. 

 

-Brian Sack from the last Soma report.   

 

Stable prices one way or the other.

Thu, 07/21/2011 - 23:32 | 1479596 Yen Cross
Yen Cross's picture

 Alright all you (XAG) gurus out there...  I have CFD offshore contracts... What would you recommend if I were to trade XAG in the states?  I realize CME raises margin requirements on a whim... The over the counter market is 1:1 now... I guess I could buy the direct miners or ETF's... Any thoughts?

Fri, 07/22/2011 - 00:38 | 1479662 agNau
agNau's picture

Is that a bond bell I hear ringing? Funny, I thought I left them on simmer? Beads of sweat forming on the Bernanks forehead. Fear not Bennie, as congress swings into action. Raise that ceiling! Just like Greece, this will become quite regular and rhythmic. Stroke, stroke, stroke,.......Like coxswains. Regularity can be nice!

Fri, 07/22/2011 - 08:37 | 1480024 KidDynamite
KidDynamite's picture

maybe this will help the understanding:

 

http://www.metalaugmentor.com/eforum/?p=7342

 

"Everybody should know by now that SLV holds silver in LBMA allocated accounts. But even those who don’t know it should have sufficient common sense to realize that SALES OF BULLION ARE NOT SUBJECT TO PRIOR CLAIMS AND IT DOESN’T MATTER IF A BAR OF SILVER WAS LEASED OR “HYPOTHICATED” IN ANY MANNER SINCE THE OBLIGATION IS ON THE LESSOR/HYPOTHECATOR AND NEVER ON THE BAR ITSELF. I challenge you or anybody to show any leasing or other document involving the borrowing, lending or any other arrangement for silver that places an obligation on a particular bar of bullion (in effect, requiring the contract to be satisfied by return of that very same exact bar). If this weren’t the case, not only SLV but anybody who buys silver (or gold, or any other asset for that matter) would have to worry about “multiple” owners due to “hypothecation”. This argument is so prima facie silly that it really deserves no further ridicule. Simply put, SLV has no more exposure to the issue of “multiple” owners or claims than does any private owner of bullion including Crazy Uncle Ernie who buried all his silver Eagles by the Oak tree behind the outhouse."

Fri, 07/22/2011 - 09:40 | 1480210 Urban Redneck
Urban Redneck's picture

No, Crazy Uncle Ernie who buried all his silver Eagles by the Oak tree behind the outhouse can go dig his silver and do with it as he sees fit when he sees fit.

Owners of SLV are not entitled to the actual physical silver bars supposedly backing SLV in any way or in any circumstance. 

In addition, there is no issue of courts getting involved and delaying Crazy Uncle Ernie from digging up and monetizing his silver coins for fiat currency. 

However, the Comex, LBMA and SLV are distinct organic entities comprised of many of the same underlying Bullion Bank entities.  So any significant legal or regulatory action could impair SLV's access to the very silver bars it claims as unencumbered assets of the fund.

SLV only has any fiat currency value because traders believe there is a correlation between the price of physical silver and the NAV of the fund.  Therefore, if the price of physical silver rises, the fiat currency price of fund shares will rise, and an SLV owner can sell his SLV shares for more fiat currency than was required to purchase the shares.   

Silly and worthy of ridicule would be implying that owning shares of SLV is in any way the same thing as owning and possesing physical silver.    

Fri, 07/22/2011 - 11:53 | 1480998 KidDynamite
KidDynamite's picture

"Owners of SLV are not entitled to the actual physical silver bars supposedly backing SLV in any way or in any circumstance"

well that's false:  owners of 50k shares can have an AP redeem the shares for bullion. but that's not the main point here.  You wrote:

""Silly and worthy of ridicule would be implying that owning shares of SLV is in any way the same thing as owning and possesing physical silver"

Tom from MetalAugmentor positively agrees with you, I think.  He never said that owning shares in SLV is the same as owning and posessing physical silver. He simply pointed out that  there is no more risk in someone having a claim on SLV's silver than there is on someone having a claim on YOUR silver.

Most people will probably confuse (as you did) "Uncle Ernie" with "SLV shareholders".. that's wrong: Uncle Ernie is the SLV Trust:  Uncle Ernie owns his silver and owes it to no one, no one has claims on it.  SLV Trust is the same - they own their silver.  They owe it to no one, no one has a claim on it. That's the point, which Tom laid out clearly.

Fri, 07/22/2011 - 12:35 | 1481220 Urban Redneck
Urban Redneck's picture

Well then Tom from MetalAugmentor doesn't know shit about international law or business.

Legal action brought Uncle Ernie would be under-financed and hence irrelevant.  However, if an institution capitalized such as Paulson & Co or Sprott Asset Management brings a lawsuit because an authorized participant in SLV can't deliver physical good delivery bars on Comex contract, then their first chairs in the courtroom will be filled with first order vampire scheisters, and the second chairs will be filled with the inbred offspring or in-laws of all the correct politicians.  Since SLV is a product of Blackrock (which basically operates worldwide), claims can be more easily brought and restraints placed upon SLV assets in either common law or civil law jurisdictions.  If action is brought within the EU, the English Courts would no option but to respect the order of another jurisdiction which subscribes even less to the practice of caveat emptor than the English Courts. 

Caveat venditor.

SLV not in the same legal position as Uncle Ernie.  SLV is creating and selling pieces of paper within a global regulated legal and investment framework, that SLV claims are backed by certain assets that no one else has claims on. 

Fri, 07/22/2011 - 13:43 | 1481519 KidDynamite
KidDynamite's picture

hold on a sec...

COMEX <> SLV.  Two totally different things.

If APs tried to redeem SLV and couldn't get silver bars for their shares there would be huge problems - for sure - so now let's get back to the question:  why do you think that could happen?  David Morgan seems to think it could happen because he has fantasized multiple claims on SLV's bars.  The reason I am commenting is because that claim is blatantly false.  I think Tom explained it well.

Are you disagreeing with the premise(Tom's, and mine) that there are NOT multiple claims on SLV's bars (just like there are not multiple claims on Uncle Ernie's bars)?  Because if you are, then I don't think I have anything else to add here - I can't convince you otherwise.

Fri, 07/22/2011 - 15:40 | 1482105 Urban Redneck
Urban Redneck's picture

I don't think you or Tom recognize the many different circumstances which can lead to a legal claim under different legal systems under which the myriad parties engaged in sizable silver transactions could seek remedy. 

But to keep it simple - i.e. under domestic US law - if SLV knowingly allows Authorized Participants to create SLV units out of silver bars on which there is an existing competing claim before the bar transferred to SLV, then SLV may engaged in a conspiracy to defraud the competing claimant to said bar (regardless of whether the competing claim is a client of an LBMA firm using unallocated storage, or a counter party to the AP in a Comex contract on which the AP is unable to finally make delivery).  All it takes is a single Attorney General in the US to believe that one of his constituents has been defrauded to bring criminal RICO charges against the AP, SLV, and Blackrock.  1 bar is enough to constitute a felony and put Larry Fink's worthless ass in a real prison, multiple bars and it could easily be for the rest of his life.  In the meantime, the US government could sieze all of the silver bars "owned" by SLV until resolution of all claims, in proper US Treasury fashion (over 100 years of precedent here) the PMs go to government vaults and the government prints offsetting fiat currency to do divide among those claims which itfinally deems valid.  If the majority of SLV units were created by APs engaging in a practice to defraud counter parties, then the majority of SLV assets could be stripped by the courts, which then leaves SLV investors with pennies on the dollar based on a years-old and probably much lower fiat price for silver.  None of these risks exist with Uncle Ernie's backyard silver.

Big boys don't play "nice" and justice is a process not an outcome- SLV, Blackrock, and the APs might think they can hide behind an the wording of the prospectus (and it may work against an under-capitalized and poorly represented counter party in a legal proceeding), but the fact is that if everything isn't completely above board (and the wording of their prospectus leaves that open to SERIOUS questioning) and the shit hits the fan, and there isn't enough silver to go around- SLV's "silver" can be taken if certain interests choose to do so, which is a risk that inteligent market participants need to weigh against their goals and tolerances.   

So until Blackrock and SLV clean up the SLV prospectus there are certainly legal and political risks involved with investment SLV that do not exist when compared to Uncle Ernie burying silver bars in his backyard.

    

Fri, 07/22/2011 - 16:18 | 1482361 KidDynamite
KidDynamite's picture

Ok. the whole point is that there's no such thing as

"if SLV knowingly allows Authorized Participants to create SLV units out of silver bars on which there is an existing competing claim before the bar transferred to SLV"

when allocated silver is delivered to the trust, it's allocated silver. there's no "history" on a bar - there's no such thing as competing claims on specific bars.  Lease agreements simply do not work like that.  It's a false construct. 

good luck.

Fri, 07/22/2011 - 18:25 | 1482865 Urban Redneck
Urban Redneck's picture

An Authorized Participant's net silver position on its balance sheet is evidence, financial services is a highly regulated industry.  It is not a false construct.  A false construct would be any significant legal protection that SLV thinks it has achieved by wording its prospectus the way did, if there are illegal or illegitimate actions committed by related entities (Authorized Participants) of the Trust in the course of their relationship to the Trust.

 

Are you trying to imply that if Authorized Participants of the iShares Silver Trust (SLV) engage in an illegal or illegitimate activity with a product, and then transfer the title of that product to the iShares Silver Trust (SLV) that the product then cannot be seized by any court?  

 

Ironically, it was JP Morgan who said, “I don't know as I want a lawyer to tell me what I cannot do. I hire him to tell how to do what I want to do.”  JP Morgan Chase’s counterparties are more than well enough financed to afford the right lawyers to tell how to do what they want to do, if that becomes necessary. 

Fri, 07/22/2011 - 10:05 | 1480368 Lazane
Lazane's picture

careful now pilgrims if you are not one of the elite slv (authorized participants), can banksters ever be trusted? you could someday end up with stacks of paper certificates vs stacks of 100 oz bars.

Fri, 07/22/2011 - 11:37 | 1480916 DavidC
DavidC's picture

The new Chinese precious metals contracts started trading today, didn't they?

DavidC

Fri, 07/22/2011 - 22:26 | 1483930 Silverwillrocket
Silverwillrocket's picture

Smoke and mirrors until the flames of real pain start to engulf the paper.

Do NOT follow this link or you will be banned from the site!