The Silver Bears Are Back For Round Three, Explaining Two Key Recent Developments In The World Of Silver

Tyler Durden's picture

Confused by the recent downdraft in the price of (paper) silver... Even more confused by what is happening with the record open interest in the metal? Have no fear. The bears are here, and explain things in their traditionally simple and sound effect-filled way.

And for those who are confused by the above, here is another explanation of what may be happening courtesy of a "letter" to Blythe (thanks John).


This is what I am hearing from your former traders (who made "very interesting career decisions"). Well it seem that they are on to a new scheme to corner the Comex and drive the price of silver up $10 to $15 dollars in a matter of weeks.

The strategy is as follows. We know that Comex only has 105 million ounces of silver of which only 50 million ounces are availabe for delivery. (I personally don't believe the Comex numbers are anywhere near that high, but that is neither here nor there for now.) Well, all it would take is 10,000 contracts on the Comex to buy up all the "available silver" at the Comex and 20,000 contracts to deplete it completely. The current front month March OI is north of 78,000.

Watch the OI closely. Blythe's former traders are advising major hedgefunds and billioniare investors to buy up as many contracts as possible as March 1 approaches and deposit the cash needed to stand for delivery for the month of March. The purpose is not necessarily to bust the Comex but to force the Comex to pay a premium (some as much as 30 percent) for cash settlement. Think about it. If a group of hedgefund gets together and bankroll $1 billion, they can buy more than 30 million ounces of silver. Of course, the contract sellers like The Morgue cant deliver the silver so a cash settlement is the only recourse. So what's wrong with $200 million in profit on a $1 billion investment that takes less than 4 weeks total?

Guess what Blythe? Your former traders are advising everyone they know to put on this trade come the first week of February. Is this what happened in the Decemeber contracts? Is this why silver went from $22 on September 30 to $29 by December 1? How much do you think silver will spike in February as we approach March 1? The traders think silver will be north of $45. Heck it went over $9 as we approached December and everyone who got a pay off in terms of a premium cash settlement will be back for more. And they are all gonna be bringing friends to partake in the bounty.

Your former traders are telling everyone who would listen that all they need to do is purchase a huge amount of March contracts near the end of February and stand for delivery and they will all make 20 percent in a matter of days. Is this what you are hearing Blythe? If so, shouldnt you let the price of silver move up so that you can get some physical to deliver before March 1?


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Bay of Pigs's picture

The COMEX days are numbered...stand for delivery.

Silver Bitchez!

flacon's picture

Can someone at ZH fix the link to the "letter" to Blythe (thanks John).


Access denied

You are not authorized to access this page.



Joe Sixpack's picture

The letter is to Blythe. Not flacon.



flacon's picture

I am pointing out that the link is broken. Who wrote the letter? How do we know that the content of the letter is accurate? etc. Usually links on ZH lead somewhere, but this link doesn't lead anywhere - unless the point of the "letter" is just an example of what people may be, it is a fictional letter for the purposes of expounding upon a point etc. 

Mentaliusanything's picture

Green mail - Ahh the old days !

Force them to pay or force the cheeks apart over a Barrel.

The Male is IN

4xaddict's picture

What stops the Comex upping their margin requirements into Feb end and squeezing the crown jewels of every weak long in the room (i.e most of them?)

yabyum's picture

Bay, Comex does not have two (silver) dimes to rub together.

famousamos's picture

Off topic, but this topic rarely comes up on ZH, so... Does anyone here think we'll see state owned banks start to catch on, like the one in ND? If no, why not?

blunderdog's picture

Could happen, but I lean towards thinking it won't occur until chaos/collapse are well underway, and by then it may be too late to expect policy changes to have any effect.

Just like the Feds, State government policy is far more heavily dominated by industry interests than the voters--lots of States have laws explicitly prohibiting government from directly competing in any market/industry served by private business. 

Only a tiny percentage of the population has any inkling about the structural issues with banks right now--I'd expect several media-dominating catastrophes before the actual mechanics of our problems become clear to people.  We won't see accurate and descriptive mainstream reporting until the so-called fringe-characters threaten to capture real airtime. 

I'd say it's more likely that we'll reach a serious level of economic breakdown before the problems are broadly understood, and by then many people may be too concerned about where to get gasoline and milk to worry about abstract stuff like bank legislation.

If the people are properly motivated, government-ownership of banks isn't necessary anyway, and would be counterproductive.  The same thing can be accomplished without the involvement of the State at all.

bankonzhongguo's picture

That is wholly dependent on the size of the state and the relative political will and creativity to start said type of bank.  Bank of North Dakota (BND) can get away with their little experiment because the entire state productivity and population mirrors that of single midsized US city - say Memphis. The BND was started in 1919 - what was ND population then?  Fewer good ol' boys to get in line.  Fewer beaks to be wetted.  The BDN is more of a central bank for ND and offers little or no competitive services and is not insured by the FDIC - whatever that is worth.  To my mind its monthly check clearing operations are like a sleepy Sunday night shift in the Kansas City Fed.

A good test of potential is how easy is it to start your own bank in said state.  Most states its far easier to buy into an existing bank with its license in place than start from scratch.  Additionally, the FDIC will give you money to take over a failing bank these days and there exists a long line of failed banks across the land and the "healthy" ones are really zombies propped up via TARP and ZIRP.  Commercial banks have been consolidating for decades - ever since lawyers decided to be bankers.  Some the recent financial reform crap will only accelerate the consolidation, crippling credit unions and is otherwise designed to drive the community banks into the regionals who are then driven in the nationals and then into the arms of the chosen few TBTF insulated from the OCC inside the FRB.  If only the balance sheets were real.

Even if a state built a new state bank out of gold bricks, I still don't think they could get a correspondent relationship with the TBTF, or an account with the FRB - for ACH, and certainly not SWIFT coordinates.

The real sedition is not creating a state bank, but rather a new currency - one backed by gold or a basket of commodities.  But that is the plan here and the currency's name is the Bancor. 

Remember the golden rule.  Those that have the gold make the rules.

StychoKiller's picture

Very clever of the Chinese to "help" JPM on the paper side of the whip saw!  Nothing like more strong arms to really get that price saw to moving!

4xaddict's picture

Anyone ever think the Chinese are building shorts because it's a way they see to get exposure to some very poor economic data due to come out in the months ahead?

Feel free to troll or junk me all you like. I am a PM bull but I do not drink koolaid from the Permabear or Permabull pitchers.

I would be interested if anyone has anything else to add besides pearls of wisdom like "Silver Bitchez" or regurgitated arguments that are in the comments of nearly every ZH post?


*StychoKiller that was in no way aimed at you but put up here to get attention from as many informed people as possible.

Raymond K Hassel's picture

Poor timing on the 'shoot' opening. 

Michael's picture

The Federal Reserve is responsible for the tragedy in Arizona because they have debased the currency so much. The Fed gave the shooter the reason to go on his killing spree and wanting a gold standard because a gold standard would help his savings maintain it's value.

Shit happens. Get over it. There is no reason for the country to lose it's collective mind over this and for the control freak government to take more of our freedoms away.

You want to make a new law over this? Abolish the Fed.

The left wing radicals are all over the place blaming the right.

Why hasn't someone written a fucking article blaming the Fed for it already? This could be our chance to unite both parties against the Fed.

hardmedicine's picture

They couldn't even get to audit the Fed last year with 260 something co-sponsors.  In the end it just caved.  So how are we going to end it.  but I do talk to people more every day who are getting it.  Keep pushing on and keep talking about the system and why it has so come down.  We are getting closer. 


Herd Redirection Committee's picture

Yep, back in 2003, 2005, 2007 good luck having these conversations with people.  Awareness has grown extremely rapidly, and if it continues at this pace the Fed should be abolished by 2012, IMO.   The Fed is at the root of the problem, but lets not kid ourselves that the Fed is the ONLY problem.   Deindustrialization has to be reversed, for one, and a return to sound money, for another.  It is not enough to just get rid of the Fed, but it is one HELL of a start.

Check out our latest PsychoNews story: Signs of the Apocalypse

"China has recently announced they have been working on the J20, a prototype of a stealth fighter.  While publicly America's most advanced aircraft is the F22, it seems unlikely that it is the most advanced weapons system actually available.  The American Military-Industrial Complex could well be sending a message to China, "You may have a stealth fighter in development, but we have weapons the world has never even heard about".  Weapons that could drop planes out of the sky, kill livestock, alter weather, and can even be used for mind control! "

FunkyMonkeyBoy's picture

Yeah, but when are we going to see the affects of our efforts? When you're physically fighting an opponent you can see the damage your blows are doing as you slug it out. When are we going to see any actual damage we are doing to COMEX/JPMorgan/HSBC with all the precious metal buying we are doing? So far any damage is just conjecture and it's not as if they ever openly report any losses, so when?

Jace0228's picture

If you feel nervous, sell your holdings, I will buy it.

FunkyMonkeyBoy's picture

Not at all, bought half my physical when silver was $17 an ounce, so quite comfortable with the price action.

Just a bit wary of seeing these 'COMEX can't deliver the physical, they are going to go bust at the next option expiry'. I've read similar articles for the past two silver option expiry dates and COMEX is still here, and so is JPM and so is HSBC, no physical damage to these entities at present.

Jace0228's picture

Im relatively new to trading metals, but all the logic points to a fiat collapse. Im in, big. (for me thats like 3 whole silver dollars!)

FunkyMonkeyBoy's picture

If you're expecting a fiat collapse then why are you 'trading' metals? Surely, you should be buying only for personal survival post-event and a lot more than 3 silver dollars!

And, it's quite clear that the $dollar and other fiat currencies do nothing but collapse overtime by their very design. That's why the $dollar has already lost 90%+ of it's purchasing power since the 30s.

I want to see the damage we are allegedly doing to the manipulators JPM/Comex/HSBC, so when?

Bay of Pigs's picture

"no physical damage to these entities at present".

Say what? The COMEX is being drained of physical and is under enormous pressure. Smoke is literally billowing out of it. What it "does" to the crime syndicate institutions of JPM and HSBC remains to be seen.

FunkyMonkeyBoy's picture

I've seen the figures that suggest COMEX is under enormous pressure, but where is the residual evidence it actually is? Every option expiry date goes by (dec 2010 being the last one) and Comex is still running and i don't see any complains from option holders not getting their requested physical in December?

JLee2027's picture

I don't know what you want. Whatever it is, it's not here on ZeroHedge.

AUD's picture

The figures I've seen suggest the COMEX is under no pressure at all.

I remain unconvinced of this 'price suppression'. As I see it physical is still being happily arbitraged for paper. It may well continue until it doesn't.

JonNadler's picture

Funky, you're right the Comex will never default. Who will you believe a cartoon bear or an experienced anal-yst like me who's been consistently getting it wrong for 50 years? Your call, but if i were you i sell all my silver before it goes to 45, ...errr, I mean before it goes to 4.50 an ounce....just a typo there, he he

Al Gorerhythm's picture

Isn't it ironic that two cartoon bears, carry more creedence than a "respected" silver and gold analyist in the real world?


Oh regional Indian's picture

Al, it's ironic all right. Just like Jon Stewart being the most respectable news source in the MSM. Such is where we are as a people. Keep it simple.

But to the point though, I think we'll see some wild moves in the markets as the ides of march approach. Beware them eh? 

Went prospecting for farmland this weekend. Realized I'd happily trade silver for soil. It was a liberating realization.



Fred Hayek's picture

It's not proof but Harvey Organ, who watches the COMEX as closely as anyone is convinced they did exactly what this piece suggests already and paid some holders of contracts premiums to agree not to take silver.  He deduced this from significant numbers of open contracts not being paid off in silver and being dropped off the list of december open contracts as the month went on.  There was no other logical explanation.

AUD's picture

It's not proof alright. All futures contracts are 'settled' in cash.

To take delivery you do it off the exchange, the COMEX itself does not make the delivery of physical.

tmosley's picture

Then why do they have warehouses, smart guy?  Why report the movement in and out of them?

AUD's picture

Do these warehouses belong to the COMEX?

Maybe they are just warehouses where COMEX registered gold is stored.

If a long stands for delivery, the COMEX finds a short who will deliver. As I said the delivery of physical is done off exchange, the COMEX itself assumes no risk since as far as the exchange is concerned all contracts are 'settled' in cash.

AUD's picture

No legal risk I should say. There is always a risk that nobody will want to trade COMEX any more should there be a default.

JLee2027's picture

Every day I nominate somebody for the "Moran Award". I was leaning toward that funkymonkey guy, but I've got good news. You've convinced me, you are a moran.

Moran, moron, potato, potatoe.



AUD's picture

It sure looks like you know all about futures trading. I admit I'm no expert, so why not educate us some more? Your post was chock full useful facts regarding the trading of gold & silver futures.

I look forward to your next installment.

JLee2027's picture

I have nothing to prove to you son. And I won't be replying to you again. See ya.

AUD's picture

I have nothing

I can't argue with that.

Theos's picture

COMEX has default risk of the seller, and the sole obligation to pay "reasonable damages" from delivery failure to the buyer. They are not obligated to deliver, however.

You're guess is as good as mine as to WTF that actually means.


AUD's picture

I'd say it means the legal obligation to deliver physical is with the 'short' rather than the exchange itself.

I'd also say that the "reasonable damages" is probably taken care of in the margin which all buyers & sellers are required to post. Which by the way the exchange is free to change as it sees fit, when price volatility increases. It is not 'changing the rules' mid stream in asking for increased margin since the rules say the exchange can change them.

mark mchugh's picture

A couple questions:

Have you seen anyone saying they already got physical delivery from a December contract?

What were people saying about Enron, Countrywide, Bear Stearns and Lehman a couple months before they collapsed?

Would the US Government prosecute this fraud, or would they try to hide it (can't have people losing faith in our big banks, can you?)?

Be able to buy silver at $30 is like being able to buy a brand new car for 3 grand.  If new car prices dropped to $2,500 would you tell people not to buy because the price is falling?

Sorry, but I have no sympathy for anyone who loses trading paper silver.  They're  chumps.  They help JPM.  Fortunately they help drive down prices for the rest of us.

hardmedicine's picture

I think someone famous said "everything is always alright until it isn't"

Do you think TPTB would allow any kind of tell with their hand?


If someone has an inside source don't you think they would be protecting it and buying more for themselves? 

unfortunately the answer is No, and Yes, respectively.

Freddie's picture

Dope smoking kid takes out a bunch of innocent people and almost a Congresswoman.  Out of the blue this happens and the left immediately demonozes Tea Party, Palin and conservatives who are screaming the debt is out of control.

We may be closer to collapse than you think.