Guest Post: Today's Silver Scandal

Tyler Durden's picture

From Janet Tavakoli of Tavakoli Structured Finance

Today's Silver Scandal

Under-30 silver traders weren’t alive to see the billionaire Hunt Brothers bankrupted by silver trades, and those under-45 years old probably never read about it.  The Hunts’ silver debacle occurred after the “soybean caper,” but before the CFTC fined them $500,000 in a July 1981 out of court settlement for blatant violation of commodities laws in their attempt to corner beans.  The Hunts had borrowed money to buy silver and leveraged themselves in silver futures in an attempt to corner the market. 

On March 14, 1980, the CFTC staff reported to their commissioners that the Hunt Brothers could handle their short-term losses as silver prices fell, because “they bought at low prices.”  The CFTC was right about the low purchase prices (around $15 on average), but it was wrong when it thought the Hunt brothers could handle the losses. 

Simultaneously, then Treasury Secretary Paul Volcker instituted a new directive to U.S. banks as part of his anti-inflation policy.  It was a “special restraint” on lending to speculators with holdings in commodities or precious metals.  The banks knew better than to mess with Volcker, and they immediately closed the lending spigot to speculators in gold and silver.

Within three days, the Hunt brothers’ cash had nearly run out, and they couldn’t meet a margin call.  Two days later, they had to deliver silver instead of cash in order to meet the margin call.  Other speculators were having trouble raising cash against their silver, and prices dropped like a stone.


Some believe the recent general commodities pullback was triggered by the series of CME margin hikes on silver within the past week, after the recent exponential run-up in silver prices.  Whether or not that is true, holders of leveraged long commodities positions should have warily watched the action in the silver market.  Some silver speculators may not have seen the margin hike as a constraint on lending, but it should have been a red flag for any speculator with a leveraged long position.  Moreover, after silver markets closed, silver prices were getting “banged” lower in what looked like suspicious market manipulation.

Speculators rushed in as prices recently soared and rumors swirled that there will be a delivery default at the CME including one of the TBTF banks with a huge short position that it cannot cover.  Are the rumors true?  I don’t know since those in charge of investigating these matters haven’t put evidence in the public domain, even after a senior member of the CFTC claimed there was blatant silver manipulation. 

The fastest way to collapse a recent run up in prices is to choke off the ability of those with leveraged long paper positions to raise cash.  Another way is to rapidly hike margins; those with insufficient ready cash will be forced to liquidate.  As they liquidate to meet margin calls, prices fall, and it creates a cycle which feeds on itself.  I have no explanation for the recent ramp up in silver prices any more than I have an idea of where spot silver prices eventually hit bottom. 

This isn’t the first time there has been extreme price action and volatility in the silver futures markets, and it will not be the last.  If anyone thinks that the Commodity Futures Trading Commission (CFTC) has the right stuff to regulate the commodities markets, look no further than its failure to check manipulation in the silver market. 

The CFTC has the mandate to “regulate” tens of trillions of dollars in credit derivatives, but it is actually in the business of anti-regulation.

I highly recommend Stephen Fay’s book, BEYOND GREED (1982).  A paperback version was titled THE GREAT SILVER BUBBLE (1982).  It’s out of print but available through Amazon or Abe Books.

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skitux's picture

where do we long the SLV

Texas Gunslinger's picture

Talked to my coin dealer this afternoon, looking for reassurance.

He said "well, it looks like $50 was heavily defended by Blythe, and might be a temporary top on the way to $100. Hell hath no fury like a woman scorned."

This made me feel a little better. If it drops under $20, I'm a buyer again. 






Hephasteus's picture


Up your ritalin dosage and get back in there solider!!


mick_richfield's picture

I'm not sure about the COMEX, but when I don't have any silver, I sell it for about ten bucks.

That's still a nice markup over the 5 bucks it costs me to not dig it out of the ground.

Henry Hub's picture


You've stolen my avatar! I want it back!

NumberNone's picture

That would make me feel a little bitter...not better. 

longorshort's picture

My god, thats like asking NAR if now is a great time to buy a home.   You should be perma banned for such stupidity.

holdbuysell's picture

Silver's tough to get now...under 20?

RockyRacoon's picture

Talked to my coin dealer...

That would be no person other than the bible-thumping Jason Hommel?

sullymandias's picture

I can't imagine a coin dealer talking like that. Maybe in texas..

Stares straight ahead's picture

Please do not use the word "Hell" in vain...

tmosley's picture


Only physical if you want to keep it.  If you don't hold it, you don't own it.  Hell, you're lucky if it even exists.

dynomutt's picture

It looks like there are some weak hands panicking on eBay.


I have no dry powder, else I'd be buying 100's.

tmosley's picture

Damn, I just looked, and now I feel your pain.

RockyRacoon's picture

Use the chart at the bottom of the page "Let's get Physical" for some nice search links for eBay action.  Fun to watch.   The search algorithm is well done.

Pladizow's picture

We witnessed a concerted effort to gang-bang-bukake silver this week.

1. 5 consecutive margin increases in 8 days. Why not do all at once, perhaps to keep in the press and in the mind.

2. George Soros rumor of selling gold. The PM's tend to move as a wolf pack.

3. Carlos Slim selling 86million ounces of silver futures.

You can smell the desperation!

longorshort's picture

My god does anyone review the profiles here.  This dumpfucks account should be deleted.  This is not appropriate.

RockyRacoon's picture

Well, Mr. longorshort, I'd guess you're getting long right about now...

LudwigVon's picture

Welcome to ZH. That is not the only avatar. Clearly your new.

You may have more success suggesting censorship at another location.

chumbawamba's picture


In case you didn't notice, all commodities plunged similarly.  My beloved copper got raped like a meth whore at a coke party.  There is no fucking conspiracy with silver.

The whole market is a conspiracy.  Why do people still play along?  Just buy your physical, stick it in your safe and shut the fuck up.

Not directed at you, Titties, just everyone in general.

I am Chumbawamba.

The Navigator's picture

Agreed, it's all a rigged casino, every market; and thus my belief in (and holding of only) the physical.

In my estimation, all the rigged and leveraged casinos (stock markets, currencies, futures, etc) will blow up and for a time, the only real money will be Ag/Au.

But WTF do I know. I'll probably be wrong again.

BUT in the meantime, I buy small quantities every week, and over the past 4 years it's averaged out well - and I don't worry if the USD goes Zimbabwe on us.

Hoping to not be gang raped like a meth whore at a coke party, I am The Navigator.

chumbawamba's picture


In case you didn't notice, all commodities plunged similarly.  My beloved copper got raped like a meth whore at a coke party.  There is no fucking conspiracy with silver.

The whole market is a conspiracy.  Why do people still play along?  Just buy your physical, stick it in your safe and shut the fuck up.

Not directed at you, Titties, just everyone in general.

I am Chumbawamba.

RockyRacoon's picture

Chumba, your second paragraph just about sums it up.

Zero Govt's picture


why do you think Silver didn't pull the trigger on the other Commods markets?

One index dropping triggers similar drops in other stock indexes. Take a look, all 3 US Indexes rise and fall in unison. A sell-off in the Nasdaq will cause sell-offs in the NYSE, Dow and S&P

That's because investors act like herds. When panic is triggered in one part of the herd, say Silver, it quickly spreads to other parts of the herd and hence we get an across the board sell-off (panic stampede).

The double-whammy caused by CME margin hikes and Big Hedgys sending out 'Big Sell' signals caused the Silver panic, just as regulatory changes caused the 1980's Silver sell-off. Yes the markets are rigged, we can add CME-2011 to join Volcker/bankers-1980's in the history of Silver on precisely who is rigging them 

NOTW777's picture

never, its not silver

adamas's picture

the technical target for silver now it has breached $35 is $6.80 , it is going below the 2008 low.

traderjoe's picture

For me, the central planners jumped the shark way back at the first EU bank stress tests. The day GE chose to raise its dividend at exactly the same moment - which got all of the press. It was clear at that stage how orchestrated it was and how many players were in on the game. Over time, I closed all of my brokerage and banking accounts, cut up my credit cards, etc. and converted my FRN's to PM's. 

The last few days, culminating in the 5-margin hike for silver but a virtual elimination of the downside circuit breaker on crude (intra-day) means the planners have declared war. We are now in a financial war. Will a viable alternative to fiat FRN's emerge? Will austerity tighten the noose on the serfs? 

Today was the day when the TPTB flexed their muscles and sent a missile off the California coast. How will we sovereigns-to-be respond?

It sounds trite, but it has only strengthened my resolve that we do not have 'fair' markets or an reasonable economy. And that the war for the soul of the country will be protracted with ups and downs along the way. Battles won and battles lost. Math, the laws of thermodynamics, and the righteousness of liberty are on our side. 

All this banter about a 2-week move in silver is just a blip in the history of time. Grab a beer and some popcorn and plan accordingly...

optimator's picture

"GE chose to raise their dividend" should have read, Jeff Immelt, GE CEO, Obama finance advisor and a Director of the New York Federal Reserve Bank, chose to....

Tuco Benedicto Pacifico Juan Maria Ramirez's picture

You are a smart boy my patriotic friend.  Death to the New World Order!


--Tuco Benedicto Pacifico Juan Maria Ramrez

Cui Bono's picture

Potatoes? You have to be pretty poor to eat potatoes....

HungrySeagull's picture

I am raising some right now out back so that I may avoid questionable supplies at high prices down the road. I only do Russets out of Idaho and Snowdens from the Dutch Country.

That along with other food crops as well that will assist in keeping our food bills low and position us to help others with the excess we cannot consume.

donpaulo's picture

$35 and still in the money is a good feeling.

time to buy some more I reckon

longorshort's picture

Wow read up on stop loss orders even if the equivelent is hauling it to your coin dealer. 

longorshort's picture

Heres my new slogan.

Dont love your investment.  Love your profits by taking them before greed and doubt destroy them.

RockyRacoon's picture

It's not about "profit" -- in case you've missed the entire point.

Zero Govt's picture

The Third Man

Good link to Dan Norichis take on the Silver stink. He writes,

I find it hypocritical, if not downright wicked, that this is occuring against a backdrop of a senior executive at the CME Group, one Mr. Bryan Durkin to be exact, warning regulators against reining in High Frequency Traders. He parroted the usual BS about their presence providing much needed liquidity warning that any attempts to bring them under more intense scrutiny or curtail their activity would result in markets becoming less efficient.  Does anyone besides me marvel at the temerity of these people who spout such idiocy and then go about deliberately instituting a series of devastating margin hikes which are deliberately designed to KILL LIQUIDITY

molecool's picture

Thank you for making my point - for which I was junked virgorously on 5/2. Well, at least I had the last laugh (all the way to the bank) ;-)


homersimpson's picture

What are you talking about? Silver is still way up if you bought a while ago and didn't follow the HFT fads..

You're not the only one having a laugh, let alone the last one.. but it shows that you're pretty ignorant if you really think everyone on ZH bought in at 49.

molecool's picture

No, what I find ignorant is sitting through a 30% drop like an idiot. But heck - if you like that kind of punishment - welcome to the other side of my trades.

RockyRacoon's picture

A Silver Eagle still weighs one ounce Troy.  A dollar on the other hand...

Never mind.  I get tired explaining this all the time.

Pissing up wind is a waste of time.

akak's picture

Molecool, I strongly suspect that the only thing you really trade is your right hand for your left while compulsively spanking the monkey.

ViewfromUndertheBridge's picture

and Kickaha replied to you with one of the best comments seen on ZH. Re-read it, learn it and profit from every sense.