Things That Make You Go Hmmmm - Where There's Smoke There's Fire

Tyler Durden's picture

From Grant Williams

Any time you see smoke amidst a whole stack of paper, it’s likely a fire is about to break out and that certainly happened this past week as the paper futures market led a drubbing in prices for the silver contracts that, even by silver’s standards, was pretty spectacular. But as the fall in the COMEX contract price captivated the world and headlines in print media, on TV and across the blogosphere seemed to delight in the pummeling being dished out to the former favourite, a curious thing was happening in the physical market.

Sadly for anyone trying to drive the price of silver lower through the futures market, the temperature at which silver melts down is 961.93oC - and THAT is the kind of heat you aren’t going to get by setting fire to a bunch of paper.

As you can see from the picture (above) the price of physical silver simply traded on huge premiums to the spot price throughout the collapse on the COMEX (this snapshot was taken on Friday AFTER silver’s bounce, but, as you can see from the column marked ‘Yesterday’s Price’, prices at the nadir were still in the mid- to high-$40s).

This dichotomy in silver must come to a head at some point soon. Stocks of physical silver are declining rapidly, bids for physical silver are through the roof and yet the paper price of a futures contract can fall 30% in a matter of days. A look at the backwardation in silver futures only makes the smoke start to billow harder as Atlantic Capital point out in this article:

In January and February 2011, leasing rates jumped as the SIFO curve fell all the way into the negative. These moves were in anticipation of a difficult delivery month of March, where approximately 1,800 contracts actually stood for physical delivery. Although it only represented about 9 million ounces, on an exchange that advertised over 100 million ounces in its vaults and 50 million ready for actual delivery, it took the entire month to service all the contracts. It even went all the way down to the last weekend before all the contracts settled. we approached the first notice date for the May delivery month...[t]he open interest “problem” reappeared with an increased vigor above even March. The COMEX data shows almost 2,200 contracts standing for delivery, about 20% more than March.

Hmmm..... I smell smoke.

Full letter

Hmmm May 08 2011

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Rahm's picture

Physical bitches!

Jim B's picture

I really would not mind it dropping a bit, I would like more at a better price!


Moe Howard's picture

I would like a more better price!

wisefool's picture

precious bitches!

natty light's picture

Sound like something Gollum would say.

Ahmeexnal's picture

Where is MothMan?

Math Man's picture

Where there's smoke, there's fire:

Watch Gold ETFs very closely in the coming weeks.

SLV started puking ounces just before the correction.

GLD has been losing ounces for the last six trading sessions.

tmosley's picture

Those "oz" have yet to make it onto any market that doesn't require an army of lawyers and 1-2 years of free time to take delivery.

Oh me oh my, where on Earth could they have gone?

Hephasteus's picture

They are in an amortized impairment training camp deep within the basement of deloitte touche. They will lift and train and undergo rigorous curing procedures. Like that steven seagall movie where he got the shit beat out of him and he hung out at that farm girls house before ordering chinese herbs and then putting on pajamas and swinging stuff around.

And I think my instincts are right. I've been looking over blackrocks institutional books and they are trying to fake dive silver and gold and then "cure" it with swift jabs up. Look for a super choppy market with each wave being truckloads of 100's from the federal reserve. Those crazy old guys who kept talking about it getting really choppy in the end seem to have ridden this pony before.

The hyper inflation it's going to be horrible.

Stares straight ahead's picture

He said, "Hyperinflation, bitches!"

Hephasteus's picture

Well think about it. They got silver which is an unstoppable unkillable bull. All they have to do is run it back and forth moving institutional investors in and out letting them leave a paper trail of how they "cured" all these underwater 401k and pension plans with good timing in the market. Since there is no real loser they just create a fake loser and nuke it out of existance and then throw counterfeit money into the winners. That's why they have 2 huge etfs to play with. Me thinks university of texas is going to somehow become a big winner in the gold investing business without actually touching or having anything to do with real gold. I'd expect about a 100 buck nuke to happen in gold with a similar rapid retracement pattern. They've even got a fucking flow chart of the fraud for dumbfucks who teach at university of texas.

tmosley's picture

Thanks for the re-explanation.  I had literally no idea what you were talking about last night.

Tail Dogging The Wag's picture

"Institutions, insurance companies, banks, issuers of mortgages, ratings agencies, equities, sovereign debt, Federal Reserve Banks." FUCK 'EM

"Portugal and Iceland. Greece and Spain" NICE PLACES TO GO ON HOLIDAY

"Currencies" SILVER AND GOLD

rocker's picture

+10   Why did you get trashed?  Was Lord Blankfein or Hank Paulson around?  Maybe Robo !?!  Anyway, Right On !!!


Sisyphus's picture


Had posted this on another thread; but, it is more pertinent on this thread.

JEWELRY BUYERS in India stood in line to Buy Gold on May 6, as shops opened early for the festival of Akshaya Tritiya.

And you thought people stood in line overnight to only buy iMaxiPads and iTrackPhones


Yep, let the price collapse and see how soon Gold disappears. One word - Asia.


Figures from the World Gold Council show India as the world's largest gold market. India accounted for nearly 32% of global demand in 2010, at 963 tonnes of Gold Bullion. The second largest market was China, which bought 579 tonnes.


digalert's picture

Damn silver, takes a beating yet keeps on trucking.

Zing's picture

Deflation = Silver goes to $20 or below.  Anyways, I prefer gold.

Long-John-Silver's picture

Paper Silver is going through $20 on it's way to zero. Try buying and have physical delivered to you for less than $45 an ounce.

Zing's picture

I have my money in gold, and a bit in platinum. Zero silver.

rocker's picture

You'll be O.K.  I own them all. Gold, Silver, Platinum, Palladium, Rhodium, Nickel and Rare Earths. In Physical.

Yes, you can buy many Rare Earths in Physical. Not all, but many. I also have a unique mineral collection from all over the world.  Hence, my handle, not just a rock and roller. My friends call me the Mineral Man.

palmereldritch's picture

Physical Rhodium is tricky isn't it? 

palmereldritch's picture

That stuff is Happy Fun Ball nasty and almost as nasty as Kitco's disclaimer for storage:

Please note that to keep the Kitco Rhodium Chain of Integrity intact and to protect the resale value of your Kitco Rhodium Sponge holding, you must store it at a Kitco Recognized Storage Facility. You may have your purchase delivered to any North American address via a Kitco Recognized Secure Transport Provider, but this will impact the resale value of your holding.

Reminds me of those sealed gems you could buy years ago on the Internet as an investment but not as toxic although it appears Rhodium could have more than one physical hazard...

rocker's picture

Just leave it sealed. Do not break the seal. I've seen how it can act if one opens the bottle. Rhodium is very static.

I have never broke a seal. A few ounces can be a great investment. It likes to move with platinum. It appears to me that it is basing again. I've traded this stuff at twice and triple today's prices. It looks very cheap right now.

Unless you think most commodities are going to drop by 50% from these levels, it could be the buy of a lifetime.

Questions is, do you think the world economy is going bust. If so, buy no commodities.  I take the other side of this long term. Short term the U.S. looks shaky.  But emerging looks like they have lots of growth ahead. 

lawrence1's picture

And you're so stupid that you can't offer reasons for what you do?

dark pools of soros's picture

still around $42 online..  go raid the coin dealers for any bars they have while you can still get it under $40

Long-John-Silver's picture

Hidden commissions push it up to high 40's. All the coin dealers within 50 miles have no Silver for sell. One admitted to me he had some in the safe but is refusing to sell it at a loss. He told me he knows it's headed back up, sooner than later.

tmosley's picture

I'm sure you do, shill.

Zing's picture

Don't hate because I am not smoking from the crack pipe.

tmosley's picture

Member for 2 weeks, 6 days, and does nothing but talk shit about silver.

Yeah, you can get the fuck out of here, sock puppet boy.

Zing's picture

Point me to the gold forum please.

Crab Cake's picture

Brought up to believe? More like indoctrinated. I can't wait for the establishment to fall (aka the aforementioned... DC, Wall St, ratings agencies, the Fed, etc... aka the empire). Let this empire of lies burn down. It will be hard, but at least we'll be free men in a country that's ours.

boricuadigm-shift's picture

Here is our friend Martin Armstrong with a word of caution on silver:

Bastiat's picture

One thing about Armstrong: he's not a shill for anyone.  Not sure I agree with him but I listen.


Bastiat's picture

Armstrong is the master of cycles but no system is perfect.  And my conviction with regard to silver has to do with its pricing in terms of gold, rather than in terms of increasingly inflated fiat.    And the driver of the shift to real price discovery is supply and demand unbuffered by stockpiles that have diminished for 40 years.  Armstrong looks at cycles and capital flows.  Every system has its scope and limits. 

slvrizgold's picture

Armstrong is a douche bag who's main talent is spending large amounts of his adult life in PRISON.   So not someone who's judgement I trust LOL.  His call for $1100 gold was a TOTAL FAIL.  Ooops, off by about $475.   Its nice to not have to read his goobledygook on that AWFUL typewriter anymore lol.   I wonder if the thug that attacked him in prison did some brain damage?  

"Silver made a Pi cycle high (31.4 months)"  ROFLMFAO!!!   God its so rich, I wanted to laugh hard enough to pee myself.   Just cause Jim Sinclair thinks the guy used to be brilliant does not make him anything more than another blabbermouth pundit who gets it wrong a lot.   Glad the fart is out of jail.   Good for him.

DavidPierre's picture

 Useful idiots in the media weigh in

Read some commentary lately that presents the argument that the metals cannot possibly be manipulated since they have been rising every year for a decade. That's it, case closed.

The discussion then often opens up the possibility that the rise in the metals has been due only to irrational speculation and some people have even gone so far as to claim that a manipulation from the long side is underway, similar to the Hunt Brothers in 1980. This kind of discussion can be very convincing for new entrants to the sector that are facing a big sell off and trying to decide what to do.

Lets start by considering the foreign exchange markets, and the recent emergency meeting of the G7, where the decision was made to intervene to restrain the rise in the Yen after the quake disaster. This was openly acknowledged as a matter of economic policy supported by the member nations. There was an immediate reaction in the market and the Yen fell sharply.

The market has since recovered from the temporary effects of this intervention and the Yen has been rising again.

The lesson here is that manipulation can be a factor in any market (whether it is openly acknowledged or not) and that the consequences of intervention can be short term and only briefly interrupt the dominant trend.

The fact that gold and silver have been subjected to frequent intervals of manipulation for many years will not be sufficient to reverse the uptrend, and those who assume such have been proven clueless by the response from the Yen.

However, also note that it is likely gold and silver would be trading at much higher levels today if not for the continuous intervention.

The collateral damage from this activity, in both the Yen and the PM sector, is that the players on the other side of the trade were thrown under the bus. This is the real ugly side of allowing sanctioned manipulation in any sector even on the assumption that it may create some desired and lasting effect. Someone will have to pay the price and like every other failed policy one must wonder how many billions of dollars were thrown down the drain trying to over ride the normal market function.

Who is subsidizing the losses for millions of ounces of silver shorts held by intermediaries like JPM?

Where is this cost documented if indeed it is funded by the taxpayers?

Recall that Barrick used the defence of sovereign immunity when confronted with allegations of market rigging in gold trading a few years ago. 

If JPM was truly called to account for the short leverage in silver they would employ the same defence tactics. This is the primary reason that the long running investigation into silver manipulation is unlikely to ever come to a satisfactory conclusion. The result is that we have official policy decisions to intervene and restrain the metals markets, while at the same time denying any such activity is underway, and a regulatory agency that ignores all the abuse at the expense of the legitimate specs playing by the rules on the long side.

As for the clueless media coverage on the situation, ... it will be similar to how inflation was dismissed and understated for most of the last 10 years. However as the inflationary pressure rises to the point where it can no longer be ignored it is acknowledged and debated in the mainstream commentary. At some point in the future silver inventory will be drawn down to levels that make it impossible to pretend that the market is not pricing in shortage, and then the commentary will probably swing from discussion of a 'bubble' to attacking silver investors for hoarding all the essential metal and driving up the price.

At least that will represent progress.

Bay of Pigs's picture

Peter Munk and Barrick (along with JPM) were central figures in suppressing the gold price for many, many years. They hedged forward like mad knowing they had cover from the banksters. He is the main reason I would never own stock in that company. Now he tries to play pro gold advocate after pulling all that shit? He is nothing but a fraud and a liar.

DavidPierre's picture

Not to mention Canada's own "I am not a crook" former PM ... Brian Mulroney
And Nathaniel P. Rothschild.

ABX is a virtual sleazebag of criminals!

jeff montanye's picture

and d.p., the decades of price suppression have had a cost to the suppressors and a benefit to the longs:  lowered inventory;  plain as day with silver, less so with gold.  we can only imagine what the real, unencumbered inventory of actual .999 fine gold is in the vaults of the western nations.  i'm guessing less than we have been told.

DavidPierre's picture

I'm guessing far less than nothing is left since the CIA coup d'état happened way back in 1963 with the assassination of JFK.  Less than decade later USD was off the very limited gold standard.

The traitorous Nazi criminals have had an unimpeded run over the last fifty plus years to empty the vaults out the back door.  9-11 was the tell ... the government vaults were empty and records needed to be destroyed as the last gold was looted.

Look at the increasing desperation of the past decade of the Fascist mob bosses.  They will now attempt to cover it all under the fog of WW III.

SLV...GLD... and all that other ETF crap and all the phony deriatives... just more paper and bullshit games to lie and deceive while no public audits will ever happen at West Point, the Fed... or any where else for that matter.

Whatever happened to all that gold found in trucks out of the WTC's basement that was  in the tunnels under the wreckage?

Makes one go ... Hmmmm !!!

Urban Redneck's picture

Price of gold as of last Thursday per the old pricing method (and without the requested $2T raise in debt capacity)-

When the price of gold was floated on December 31, 1974 the US Debt stood at $492.67 billion and the price of gold was $195.50/oz.  As of May 5, 2011 US Debt stood at $14,321.67 billion.  So if the US borrowing limit were still defined by the price of gold, the price of gold would have rise to $5,683.14 today.

Bastiat's picture

IIRC, I think GHW Bush was on that board too.  ABX benefitted nicely from selling forward and helping the bullion banks suppress gold prices, choaking off juniors from capital market access and then gobbling them up.