JS Kim on Max Keiser Discusses Banker Manipulation of Gold & Silver Futures

smartknowledgeu's picture

Please find below my interview with Max Keiser and our
discussion regarding the Greek crisis and continued banker price suppression
and manipulation schemes executed against gold and silver to prop up the US
dollar and prevent a US dollar collapse. Max raises the issue of the European
Parliament’s move to accept gold from EU nations as collateral as reported on
Zero Hedge here
, which I believe is a step towards making gold acceptable as
money for the purposes of debt repayment. 
However, this step is nothing new as Bankers have long been known to
make loans in weak currencies and demand repayment in much stronger currencies
before, even when dealing with fiat currencies. For example, the World Bank,
which has long dispensed loans in US dollars to struggling nations, started a
program in the early1990s whereby it asked nations to repay their USD loans in
local currencies, fully aware of the fact that the US dollar was falling
against many global currencies very rapidly. The World Bank aggressively
instituted this “we lend you money in junk US dollar fiat currency and repay us
in better currency” program in 15 different currencies in the early 1990s and
aggressively pushed it further in the 2000s. So it is no surprise at all that the
European Parliament has extended and refined this World Bank program for their
own use into a “collateralize your debt with real money (physical gold) but
continue to take out loans in our junk fiat currencies”.

 

I also discuss the shenanigans of the gold/futures silver
market with Max. Here is the link to the evidence and the letter I sent to CFTC
Commissioner Bart Chilton
in late summer of 2008 of Banker fraud in the gold
futures markets and his reply to me. Mr. Chilton replied that the  enormous arbitrage opportunities daily
for several months in the summer of 2008 of $20, $30, $40 and $50 an ounce
higher prices of gold futures in Asia versus the New York COMEX was due to
Chinese banker manipulation of gold prices higher and not  due to Western banker manipulation of
gold prices lower.  You can read, in that same article, my
further line of questioning of Mr. Chilton’s response that went
unanswered by the CFTC.  Furthermore,
I discuss with Max the recent shenanigans in gold and silver futures markets
where nearly 99% of all daily transactions for the month of May, 2011 consisted
of paper for paper swaps in the form of EFP (Exchange of Futures for Physical)
and EFS (Exchange of Futures for Swaps).  While at first the Exchange of Futures for Physical transaction
may sound legitimate in name, all legitimacy disappears when one realizes that
paper may be substituted for the “physical” component of this transaction. 

 

Exchange Rule 104.36 enacted on February 18, 2005, which
allows for the substitution of gold ETFs for physical gold, states that the
“physical” part of the transaction “need only be substantially the economic
equivalent of the futures contract being exchanged”
and that “the purpose of
this Notice is to confirm that the Exchange would accept gold-backed
exchange-traded funds ('ETF') shares as the physical commodity component for an
EFP transaction involving COMEX gold futures contracts, provided that all
elements of a bona fide EFP pursuant to Exchange Rule 104.36 are satisfied. Thus,
acceptable gold-backed and exchange-traded ETF funds include, but are not
limited to, the iSharesCOMEX Gold Trust (ticker: IAU), which began trading on
the American Stock Exchange on January 28, 2005.”

 

GATA’s Adrian Douglas first brought to my attention Exchange
Rule 104.36 in his article, “Commodity Exchanges Can Dump Gold Debts on ETFs”, prompting me to search the CFTC database
even further. My search revealed a further amendment to the

“exchange of future
for physical” transactions enacted on March 11, 2005. This amendment stated that
“for purposes of this Rule 414, the term ‘Related Position’ [Physical] shall
include, but not be limited to, a security [a group or basket of securities],
an option, [or] any commodity as that term is defined by the CEA or a group or
basket of any of the foregoing. The Related Position [Physical] being exchanged
need not be the same as the underlying of the Futures transaction being
exchanged, but the Related Position [Physical] must have a high degree of price
correlation to the underlying of the Futures transaction so that the Futures
transaction would serve as an appropriate hedge for the Related Position
[Physical].”

This amendment not only opens up PM ETFs as substitutes for the
“physical” component of a gold/silver futures transaction but even other metal
ETFs or physical metals that have a “high degree of price correlation” to gold
and silver.

 

Furthermore, remember that an EFP transaction can be used to
either initiate or liquidate a futures position. Thus, from this amendment,
though not specifically mentioned, it is obvious that SLV shares could be used
in an EFP transaction to represent the “physical silver” part of a futures
transaction.  If you look at my
below diagram, this may also explain why a huge number of spread positions in
the gold/silver futures markets are initiated from time to time in the COMEX. I
have illustrated how an EFP in silver futures may work below:

 

EFP silver futures transaction

 

In recent months, the number of EFP transactions in silver
AND gold, as opposed to the number of contracts settled in cash or settled in
physical delivery, has exploded. When the majority of gold/silver futures transactions daily consist of EFP and EFS transactions versus cash settlement or
physical settlement, this points to a pronounced manipulation of this market
and an absence of any true price discovery in gold/silver futures markets.  

 

ZeroHedge recently reported that JP Morgan was one of the
largest owners of the likely bogus SLV ETF, holding 3,600,000 shares as of the end
of the 2010 fiscal year calendar
.   ZeroHedge also reported that
bullion banks, in early May, moved 20% of COMEX physical silver out of the
registered category that is available to satisfy requests for physical delivery
and into the eligible category that is not “eligible” for physical delivery
.
Scottia Mocatta followed this significant move by transferring 186,000 of their
physical silver ounces from registered to eligible as well. JP Morgan, as of
the May 27, 2011 CME report, held ZERO ounces of registered silver in the
COMEX vaults.

 

In the meantime, selling of SLV shares reached an all time
high in May. What does this all mean? I’m not quite sure I have the full answer
yet as I keep digging, but I’m quite certain that whatever is going on in these paper for paper
swaps in the gold/silver futures markets on the COMEX is not kosher and an
attempt to hide physical shortages of precious metals that exist versus the open interest
numbers in gold/silver futures. 
The CME makes it very difficult to compile stats regarding EFS and EFP
transactions because while they provide a running total of month-to-date
transactions for gold/silver futures contracts settled in cash and settled
through physical delivery, they do NOT provide a running total of EFS and EFP
transactions month-to-date in their daily metal reports nor do they respond to
any requests for such information. 
When one of my staff members wrote the CME and inquired if running
totals were available each month for EFS and EFP transactions in gold/silver
futures, the CME staff answered no. Thus, one of my staff compiled the daily
totals for EFS and EFP transactions for the month of May by pulling every daily
report for gold/silver futures. This is what the totals looked like from May 2
to May 26, 2011.

 

For gold futures, from May 2, 2011 until May 26,2011, 
0.01% of transactions settled in cash, 0.27% settled in physical, 78.22% consisted of EFP and
21.50% consisted of EFS (for a combined 99.72% of all gold futures transactions in EFP
and EFS). For silver futures, from May 2, 2011 until May 26, 2011,
0.19% settled in cash, 0.93% settled in physical, 85.39% consisted of EFP, and 13.49% consisted of EFS (for
a combined 98.88% of all silver futures transactions in EFP and EFS). Thus these
paper for (possibly) paper swaps, if that is indeed what is happening in the
EFP transactions, are casting huge distortions in the price of gold and silver
to the downside.

 

 

 

 

 

About the author: JS Kim is the Chief Investment Strategist
for SmartKnowledgeU, a fiercely independent investment research, education,
& consulting firm that helps clients position themselves properly to profit
from the ongoing global monetary crisis being executed by the world's Central
Banks. The returns of his Crisis Investment Opportunities newsletter since
its launch in June 15, 2007 are as a follows. 2007: +23.78%;
2008 +3.21%, 2009: +63.32%; 2010: +32.59%; and YTD as of the end of May 2011:
+5.79%. Cumulative returns from launch to May, 2011: +192.66%.

 

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Tito Gobbilicious C's picture

KDynamite,

Correct me if I'm wrong, but if I have bought a contract that is not registered metal, then I sell it and demand physical delivery, I may or may not get it - and it is the exchange's choice to deliver or deny and pay my contract in frn's. It is only if I have registered ounces that I can demand physical delivery.

The other thing at play here is that COMEX et al have created Virtual Ounces which do not exist in reality. The VO's are used for the convenience of settling and/or hedging transactions which do not require physical - no argument there. However, what is happening is that the VO's outnumber, in an ever-increasing proportion, the genuine metal available for delivery. Used in an oppressive manner, this allows the unscrupulous to use the non-existent to determine the price of the real thing - a folly I would have thought Wall St. had gotten over since 2008. The net of this is, as Mr. Kim points out, is that there is no true price discovery in the market. The paper is quite obviously being used as a means of manipulating the market (since we've bought all the metal, its all they have left). The interesting thing to me is to see whether Congress has the balls to force COMEX, LME and the rest to run all these paper transactions through a clearing house. Sunshine is the only way we're going to keep the criminal element from gaining control of the market. 

KidDynamite's picture

I think that you are mixing up a lot of different terms.  If you buy a contract, it's paper with a contract attached to it, essentially. If you don't close it out, it settles into physical metal. If you sell it, you sell it for cash.  If you hold the contract until expiration (again, you don't sell it) then the short side of the contract is obligated to deliver bullion (to you: the long side). The option the short has is when to deliver during the delivery month - that's their choice - not yours.

second - with respect to virtual ounces - the COMEX is a place where people go to bet on the price of metal.  It IS the clearinghouse. There is no limit to how many people can bet on the price of metal.  The good news is that the contracts that are used to bet on the price of metal also settle into physical metal IF TRADERS WANT THEM TO. The vast majority of traders do NOT want to take delivery of actual physical metal, however.  

 

 

 

 

Troublehoff's picture

I guess the price can be surpressed/manipulated to any price they like as long as physical inventories do not reach zero. Only a fraction of buyers will ever take delivery and the rest participate in the ETF's/derivatives shit.

 

This is what really troubles me: If China, Russia or even Iran wanted to expose these suppression schemes, they have the financial firepower to do so. They could buy up 30million oz on the comex no problem.

 

I can only surmise that despite their frequent anti-US posturing they do not have a reason to do so.

What could this reason be?

a) Silver price explosion would be a catalyst for a dollar collapse and they hold dollars as well as opperate their export model on dollars. 

b) Their anti US sentiment is just another facet of the dog and pony matrix show, and in reality, our elite overlords are a global cabal and don't want to rock the boat.

c) A silver price explosion will happen, but they're allowing it to happen slowly so as to load up on physical, and possibly because any large scale buying as dicussed above would be considered by the US as an act of financial terrorism.

d) all of the above

 

Any clue?

 

CustomersMan's picture

 

Referencing my previous post:

 

                          Wake Up Germany

          German people take a kosher one up the butt, but don't realize it.

     Why on earth would the proud, noble, industrious, strong and extremely talanted German people, ever allow the Jewish run Fereral Reserve Bank of NY to hold their gold and control their media and education.

 

   If there was ever an aggrement that needed to be broken,...this is the one.

 

  WOW, this may help to explain why the Jews have such power in and over Germany and its people.

 

Tito Gobbilicious C's picture

Ah great - a fucked -up Nazi puppy with no knowledge of history. Just in case you haven't noticed, asshole: we live on one rock. We are all the same species - other than some who bear remarkable resemblance to fnords. The Jews control the money supply, genius, because making jewelry and handling money were historically the only jobs that the noble, proud, industrious, blah blah blah Europeans would allow them to have. Jews control the money because your idiot ancestors couldn't be bothered ( far too inbred, those Hapsburg wannabees). And, as they say, nothing teaches like experience. And if the Jews don't want to empower genocidal maniacs like the Nazis, well-who could blame them?

Now, so far as why we hold Germany's gold...we ARE talking about a country that started not one, but two world wars, which collectively resulted in the deaths of more than 200 million people, rendered vast tracts of land poisonous, and destroyed many of the most magnificent legacies of global civilization. And we are also talking about a country that has NEVER repaid any of its wartime debt. I say we give Germany another two hundred years. If they don't start any more global conflicts, they can have back their stupid metal, and people like you can all go live there (you'll be beaten pretty quickly - by true Germans.)

CustomersMan's picture

 

           Important Material Information?

 

     Here is an excerpt from an article in todays, Veterans Today, which may shed some additional light upon the world "gold fixing" schemes, especially since I just read where the FED denied that it was holding gold. Do the words need to be parsed a certain way to get an honest answer out of the FED, or what gives? This deserves some further investigation.

 

********************************

Two days prior to the enactment of the German constitution on 23 May 1949, a Secret Treaty (Geheimer Staatsvertrag) was signed, which gave complete Allied control over electronic and print media, film, culture and education until the year 2099. As a result thereof, there are still 100,000 occupation troops in Germany; after 66 years there still has been no peace treaty concluded between Germany and the Victorious Allied Powers; and all of Germany’s gold reserves are held in the U.S. Federal Reserve Bank of New York, in which the Rothschilds have a 57% shareholding. This treaty has been
confirmed by Major-General Gerd-Helmut Komossa, former head of German Military Intelligence in his book “Die Deutsche Karte” (The German Card).

 

Fiat Money's picture

whenever discussing the dreaded "r" word, several things need to be kept in mind: 

#1. to begin with, the R's were originally a GERMAN banking house,  and were CLOSE ALLIES of GERMAN banking firms like Oppenheimer, Schiff, Kuhn, Loeb and many others.

#2. House of R's founder in Britain, Nathanial, FINANCED just about ALL of the British war effort(s) during the entire Napoleonic wars, including buying the entire East India Tea Co. gold hoard that had been extorted out of India over previous years; specifically to finance the entire Wellington "Penninsula Campaign" which tied down, bled white by guerrilla war, and defeated the French troops in Iberian peninnsula (Spain); http://en.wikipedia.org/wiki/Peninsular_War

and including financing Wellington AND Britain's Prussian, Austrian, & other allies leading to the critical battle of Waterloo.  From that time to at least WW1, the House of R's DOMINATED British finance - which is to say, "DOMINATED the entire British empire." 

#3.  Because in the 1800s & early 1900s "anti-semitism" was much more virulent than today, the R's learned to hide their (often despised) policies behind Christian front-men.  This would be especially the case in America, where the R's operated behind first Peabody & then JP Morgan, Rockefeller, Harriman, & Carnegie (etc.), and only later, more assertively behind allied Jewish bankers like Lehman, Salomon, Goldman, Sachs, Kuhn, Loeb, etc. 

  What's important here is that, even though the R's name was never at the forefront, their hands were in EVERY major investment, industrial development, and financial consolidation of the era.  The were experts at running TWO SETS OF BOOKS to confuse the governments under which they were operating (eg Napoleon's France); they were EXPERTS at INVESTING in big industrial opportunities, and they PROFITED from the HUGE industrial investments in WWI, WWII, and the (nuclear arms race) Cold War. 

  Thus it is hard to overstate the wealth & power this FOREIGN based banking cartel has AMASSED OVER the American economy during the 20th Century,  so estimating that the R's control, today in the early 21st century,  a 57% voting bloc at the very privately owned 'Federal' Reserve "U.S." central banking cabal,   is probably no exaggeration.

DavidPierre's picture

An excellent post in PDF format off of LeMet... with a link that just does not want to work on ZH.

I tried... but just cannot get it to translate here.

No patience to puzzle through the problem... so went out in the sunshine to plant in the garden instead.

GoinFawr's picture

Well, in that case: can't say I blame ya.

kumquatsunite's picture

These gold and silver guys are just nasty guys. The very idea and support of a "collapse" of the US dollar is an unbelievable and disgraceful idea. These guys are no better than slop pigs hoping that in a "collapse" they can line their own purses. There are now 7 Billion people on the planet. On a planet with 7 Billion people the "gold and silver" are: wheat, rice, corn and soybean, although this little kumquat would also place clean air and clean water at the top of this pyramid. Gold and silver are irrelevant except for being shiny and the-next-attempt-to-bubble-bubble-toil-and-trouble. Are they an asset? Sure, but only one amongst many and one of the least important in any situation. In a "collapse", it might be nice to have one of them little shotguns and one of them little pantries with lots of vittles and some medicines....Gold and silver are these sons a beeches disregarding the true pain of a "collapse" while chortling about their "value". There is no "value" in a "collapse, which by the way, will not happen.

Way to ensure that? Stop all immigration. How much of that borrowed money from China is to create our giant welfare complex so that Our People don't raise the hue and cry over the government enlargement to create jobs for the immigrats? This is done to hide the immigrats inside of Our Government thus preventing the true nature of the immigrats in the United States: And their true nature is unherlalded immigration to deconstruct and destroy our traditional "white" American culture; any of youse think that is just so racist then insert the word "mexican" or "black" or whatever, funny how white peoples the only ones supposed to agree to destroy their own culture and way of life because somehow (although you can't find any documentation of any kind in any history book anywhere) diversity is just supposed to be some kinda castor oil that makes white people better: hmm...better than what? Better than the white peoples that saved the world from Hitler and the Nazis? Better than the white peoples that send aid all over the world (ain't no aid from China, Mexico, or Africa for nobody)...and just how does that work again, those third world slum peoples (failed people from failured cultures) are supposed to make us better?

No what we've done is create one giant barrio/slum out of California, Texas, and Arizona, ruined our schools (130 languages in California schools), and gutted all that we were. Now just how is that working out? See: Chinese debt...used to pay the foreign rats their free free free once they hit our shores. Ah yes, white people so duuuummmbbb...

Fiat Money's picture

"These gold and silver guys are just nasty guys. The very idea and support of a "collapse" of the US dollar is an unbelievable and disgraceful idea."

 what a twit (you are). George Soros (& his allied hedge-funders/raiders) made his "first BILLION dollars" SHORTING (betting against) the British pound - sucking all that money OUT of British paychecks, jobs, pensions, etc.  

   So, whadda ya have to say about Mr. Soros, the  DARLING of the so-called "liberal" (but actually radical right-wing corporate) 'major media?? 

  Also, Soros and his partners in crime almost certainly used NAKED SHORTS to push down the value of the Brit pound - "NAKED SHORTS" in the quantitities required to push down the ENTIRE  British pound, are almost CERTAINLY COUNTERFEIT - the traders DO NOT POSSESS that number of pounds, but the options market is deregulated, unregulated, to give large financial sharks like the Soros cabal the opportunity to CREATE massive pump & dump situations. 

  PMs traders & investors  are OUTRAGED at the DEBASEMENT of our currency, savings, and U.S. dollar by the VERY PRIVATELY OWNED so-called 'Federal' Reserve banking cabal.. the government is in the POCKET of the money-printers, who are STEALING from our savings (and pensions) as we speak.   Buying PMs is merely a HEDGE against inflation - you are BLAMING THE VICTIMS, and GIVING the Soros, R's, Fed cabal a FREE PASS.

 

Quinvarius's picture

The collapse of the dollar is a mathematical certainty.  Gold and silver are the only real money.

terryfuckwit's picture

could be a very long game and me thinks the keisers and the rest should make that clear.. but pm in the hand is the way to go.. Max to be fair, states he has no business affiliations with the coin sellers and ecourages purchases from any bullion dealer.. i have no reason to doubt him.. an i believe it takes courage to put your head above the parapet..... 

onlooker's picture

Got a couple of nice buys in silver last week. Happy this morning.

PaperBear's picture

"China was manipulating" ?

HaHaHaHaHa

Weimar-eddie's picture

Ah. So the Chinese and other foreign govts/central banks seem to easily manipulate the PM markets with impunity. We don't do that. Just like we don't use "torture." We engage in "enhanced alternative price discovery mechanisms." It's not "manipulation."

PaperBear's picture

EFP/EFS ?

Yet more fraud.

Since the COMEX only has 30MN oz of registered silver we can expect it to be empty by the end of July.
 
But why doesn't Mr Sprott take all 30MN oz of it into his physical silver trust fund tomorrow.
 
This rigged market must be brought to an end so we can have proper price discovery.

JW n FL's picture

smartknowledgeu,

 

I pushed your info into Tweeter Land and Facebook! and added it to my front page on YouTube! God Bless You! Kim!! The info is great and you are great and I Thank You! I wish you well in all that You do!

 

Please! Keep up the GREAT / FANTASTIC INFO SHARING!

 

Like Comex is settling in ETF's 99.7%? verse the 2-3% that was forecast?! DUHHH!

 

Loved it!

American Dissident's picture

I think its funny that the majority of respondents here disparage "PM" which puts you folks on "WHOSE" side?  Long the Dollar aspartame eaters.

oogs66's picture

i miss the silver bear videos

DoChenRollingBearing's picture

Me too.  Silver's price decline must have scared them off.

Of course it is also possible that there really is no significant scamming going on in PM trading...

JW n FL's picture

the controls that are in place are not to keep scams from happening.. unless the scam is going to cause upward price movement.

 

the scam is always running, keep prices low.. so that fiat does not lose face!

nathan1234's picture

Quote

Mr. Chilton replied that the  enormous arbitrage opportunities daily for several months in the summer of 2008 of $20, $30, $40 and $50 an ounce higher prices of gold futures in Asia versus the New York COMEX was due to Chinese banker manipulation of gold prices higher and not  due to Western banker manipulation of gold prices lower."

Unquote

So Chilton just confirmed that the CFTC did not take any action at all on the Chinese manipulations. Failure to do the job means all the Members of the CFTC should resign

Weimar-eddie's picture

Exactly. And I suppose the increased premiums for physical silver, and downright unwilling to sell in relation to spot price, whenever the spot has been violently shoved to the downside was because of the vast-physical-seller conspiracy to manipulate prices higher. Or, "No, mommy, I didn't eat that cupcake. The icing on my lips was from when that cupcake jumped up at my face."

BeerGoggles's picture

Max Keiser is attempting to corner the market and get everyone to buy the silver he is selling. DO NOT TRUST HIM.

Weimar-eddie's picture

Oh how times have changed. In the past anyone trying to corner the market would have to BUY a shit-ton of the commodity. Nowadays they SELL the physical item. The kids these days. What will they think of next?

Raymond Reason's picture

PM equivelents is a simple way to increase supply.  But i've got to think that at some point the mints will not be able to source the metals.  At which point they'll pull some other rabbit out of their hat.  They don't practice such extreme manipulations on food commodities, because the consequences are shortage / hunger / revolutions. 

BigJim's picture

Interesting. Thanks.

Ted K's picture

Kid Dynamite,

I think Mr. Kim already knows this.  He is engaging in something known as Chinese lie arbitrage.  Ask John Paulson about this.

eddiebe's picture

Here is what I think the playbook is: At some point a major reserve bank will link to gold. That won't happen as long as the banks can maintain credibility in the currency localy and internationally so they can keep controling the supply. When that credibility reaches the tipping point they will link to gold and maybe silver also. I assume it will be at price multiples of where prices are today. Til then they will try to shake out as many PM. investors as possible through wild gyrations in the markets and the media and stealthyly accumulate physical for paper. The above article points to exactly that.

From the capitulation of the PM bugs at the slightest whiff of fear in the markets, especially in the PM stocks I see the bankers game is still working very well.

In my opinion it will be the U.S. that will link first, as they know that if another major currency links first $ games will come to an end.

alexdg's picture

Seems like italian banks by law are share holders of the italian central bank. The central bank is holding about 2400 tons of gold, as share holder the banks want to qualify this assest as parte of their reserves.

PaperBear's picture

What will happen when COMEX has less than 5,000 oz of silver and a futures contract holder says no to the offer of a cash equivalent and demands direct delivery of the physical silver to a non-COMEX location ?

DEFAULT.

What if COMEX says that a futures contract holder must accept a cash equivalent ?

DEFAULT.

Then the holders of physical silver win.

KidDynamite's picture

J.S. Kim -  I think you're reading the COMEX report wrong.  you wrote:

"nearly 99% of all daily transactions for the month of May, 2011 consisted of paper for paper swaps in the form of EFP (Exchange of Futures for Physical) and EFS (Exchange of Futures for Swaps)."

that's not even close to true.  I think that what you did was look at the last section of the COMEX report that shows 1) daily settlement information (deliveries) and 2) ex-pit (EFP/EFS) transactions.  Then you took EFP/EFS volume divided by EFP/EFS volume + settlements. 

But EFP/EFS volumes is just another stat in addition to the daily volume that occurs in the pit.  It's not "Settlements"  - it's more trades.  When you do an EFP, the exchange clears it for you - you call down to the exchange and report the details, which they then post. i know because I've done it.

It is a small portion of pit volume, still, not that it matters.

More importantly, an EFP is a negotiated transaction that both parties agree to.  In other words, it's important to understand that what is NOT happening is that shorts are giving longs paper (GLD) - unless of course the longs WANT it - that's what a privately negotiated trade is - both parties must agree.

So, an EFP isn't "dumping" anything on anyone - it's just another type of trade that the exchange settles, and they've broadened the allowable criteria that both parties must agree to.

Additionally, you have no way of knowing if EFPs were done with futures vs bullion or vs ETF.

And there's something even more important here - the EFP market in both silver and gold trades right around fair value - which means that traders view futures and physical as one and the same.

smartknowledgeu's picture

@KidDynamite, Yes I was a little careless with my sentence structure which may have confused some people, but I didn't misread the reports nor do I not know how to read them as you claimed. For example when I stated, "from May 2, 2011 until May 26,2011,  0.01% of transactions settled in cash, 0.27% in physical, 78.22% in EFP and 21.50% in EFS (for a combined 99.72% of all gold futures transactions in EFP and EFS)", I should have been more careful by stating "from May 2, 2011 until May 26,2011,  0.01% of transactions settled in cash, 0.27% settled in physical, 78.22% consisted of EFP and 21.50% consisted of EFS (for a combined 99.72% of all gold futures transactions in EFP and EFS)", so I have corrected this. Thank you for pointing that the neglectful insertion of a few words may lead to misinterpretation of that sentence. That said, as a percent of daily transactions, and my statement of  "a combined 99.72% of all gold futures transactions in EFP and EFS" was still accurate, and the percentages quoted in each category were still correct. And truly, we are nitpicking on semantics here because EFPs are a way to settle long or short futures positions in the sense that the existing position is cancelled out with a new offsetting short or long futures position.

 

The fact that most daily transactions are not settling in cash or physical but consist of EFP and EFS transactions robs the gold and silver futures market of any type of true price discovery when the majority of transactions consist of perhaps paper to paper swaps of some form. In addressing this point, you further stated, "Additionally, you have no way of knowing if EFPs were done with futures vs bullion or vs ETF." Please show me where in my article I stated that I knew this. This is why I wrote, "Thus these paper for (possibly) paper swaps, if that is indeed what is happening in the EFP transactions..." Possibly means exactly that. It possibly could be happening but I can't tell if it is. So hopefully this clarifies everything.

BigJim's picture

More importantly, an EFP is a negotiated transaction that both parties agree to.  In other words, it's important to understand that what is NOT happening is that shorts are giving longs paper (GLD) - unless of course the longs WANT it - that's what a privately negotiated trade is - both parties must agree.

So what? If both sides of the trade are trying to keep the price of PMs down, then by agreeing to swap EFPs at a lower price than spot, they've just put downwards pressure on the price of spot - without actually exchanging any physical. Or, possibly, even owning any in the first place.

KidDynamite's picture

no, BigJim, that's completely false.  and EFP puts no pressure on anything - it's an EX-PIT transaction - THAT"S THE ENTIRE POINT!  Look, I know that you want to believe that someone is manipulating prices lower, but just because JS Kim erred in his understanding of the EFP markets and concluded that it's being used to manipulate prices doen't mean it's true.

Example:  I have futures.  I want to swap into cash. Now, I know that YOU think there's a different price for "paper" futures and for physical, but the silver market does not.  The EFP level to swap futures for physical trades right around zero.  That means that I can sell my futures to you and buy physical from you for the same price. 

Now, you want to get creative and "manipulate" prices?  good luck - all you wil do is ensure that one side of the transaction takes a loss.  Ie, I could sell futures and buy physical at a $5 discount, but then I just make $5, which you lose. Nothing gets manipulated.

BigJim's picture

So... say the current silver spot price is $36. You're saying that (for example) if JP Morgan agrees to sell a large tranch of futures to (say) HSBC for $30 an ounce, that's not going to put downward pressure on the spot price? Why?

And before you say, JP Morgan wouldn't do that, because it would lose $6 an ounce, how about if it had come to an agreement with HSBC to do the reverse trade the following day? They've both 'lost' the same amount to each other over the course of two trades, so, neither have made an acual loss, but they've managed to put downward pressure on the spot price.

Or am I missing something here?

cbaba's picture

+1 Big Jim ;

 

your point is correct, and  they don't have to sell $6 lower than the spot price.

Just selling at the spot price is also downward pressure.price will fall.

Both JPM and HSBC are the same entity, same cartel.

They can play this game officially all the time in-front of everybody.

continuous selling at the spot price will push downward pressure and the price will fall .

 

They can always find thousand other ways to balance the loss of silver transaction, doesn't necessarily be on the Comex.

 

KidDynamite's picture

yes, BigJim, you are missing something.

so, if JPM agreed to do an EFP vs HSBC at $6 under spot, you'd see volumes print in the EFP numbers at the bottom of the daily COMEX report.  Just number of contracts. that's all you see. You don't see the price, and these trades do not hit the pit - they don't have any impact on the market. that's what ex-pit means.

 

 

BigJim's picture

OK, forgive my scepticism, but I'd like some more clarification.

You're saying no-one in the pit knows that a few tens of millions of dollars worth of 'silver' has just traded at 20% less than the spot price? If Kim is correct, and > 90% of the trading volume of silver is in the form of these EFPs, you're saying it doesn't matter because the pit has no idea what the price is that they've been traded at?

KidDynamite's picture

1) forget "if Kim is correct"  - he's not. the data is public, Kim just doesn't know how to read it.  I'll give you an example.  today's data is here:

http://www.cmegroup.com/daily_bulletin/Section62_Metals_Futures_Products...

a) AUG Gold pit volume: 95,037

b) AUG Gold EFP+EFS volume: 5055

we have no idea if those 5055 contracts worth of EFPs were futures vs bullion or futures vs ETFs, but it doesn't matter - both parties agreed to them - the longs weren't plugged with something they didn't want by the shorts

c) on page 3 - gold settlements: 154.  So what Kim did was take 5055 / (5055+154) and say "OMG!  97% is settled in paper!"  - which is nonsense on multiple levels, as I have explained.

2) yes - only volume is reported for EFPs, not price.  There is ZERO reason to trade them away from the inside market (Which is currently right around 0 - meaning physical and futures are equivalent in the eyes of The Market) in an attempt to manipulate.  All they are is an exchange of positions between two parties.

if you have further questions, email me on my blog's contact page. I'm going on vacation and won't be checking this thread.

r101958's picture

Couldn't have said it better myself BigJim! +1.

Texas Gunslinger's picture

that's because you're a lemming, too. 

-1

GoinFawr's picture

So, "Nothing to see here, folks. Buy SLV!" then?

KidDynamite's picture

this has little to do with SLV.

Aside: I personally think that it would be much more bullish for the long term price of silver if we got another wash out, freeing it up to go higher. In my opinion, if we rally back to $50 in short order, it will end in tears (again)

Arnolds Love Child's picture

Yes, and adding much needed "liquidity" to the market. More convoluted bullshit from another banker shill. They've created a synthetic market to make up for physical scarcity.