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Silver Flashback

Michael Victory's picture




 

from Janet Tavakoli of CommodityOnline:

Regulators haven't been able to keep up with price manipulation in the commodities markets or any other market. Why do games persist? The short answer is because they can, and because they can be very profitable in the short run.

If you've Googled Gold or silver, you've probably come across sites that are breathless about the possibility of manipulation of metals prices. The problem with the internet is that it's new, too new to capture the rich history of the financial markets. Manipulation of metals prices and the prices of many other commodities is an old tradition. Here's one example adapted from An Alchemists Road: My transition from medicine to business, by Dr. Henry Jarecki (Dr. Jarecki is currently Chairman of Gresham Investment Management LLC.), October, 1989. This publication is not available on the internet.

 

The Silver Arbitrageurs

In the 1960's Alan Rosenberg, a coin dealer, sold dollar bills that were silver certificates to a firm called Metals Quality. At the time, the Federal Reserve converted dollar silver certificates to a set amount of silver. Before the Fed finally discontinued the conversion, the converted silver was worth more than a dollar. The difference became great enough that it paid to buy up the certificates for slightly more than a dollar, convert the certificates to silver, and sell the silver for a profit. This is one of the rare instances of a true arbitrage.

Not everyone wanted to go through the trouble of handling the conversion, so people like Rosenberg collected certificates and sold them for more than one dollar each, but for less than the price of the silver represented by the certificate. It was worth it to Rosenberg to have someone else do the work of squeezing out the last bit of value.

That's where Metals Quality came in. It bought certificates from coin dealers and currency exchanges and handled the conversion to silver and sold the silver for a profit. Metals Quality paid Rosenberg for his silver certificates based on the first Comex price of silver for the day (less something for the trouble of the conversion and some profit). It made no difference whether the first price of the day was based on one contract or 100 contracts. Each contract represents 10,000 ounces of silver.

 

The Silver Foxes

Rosenberg figured out a way to make some extra money when he sold his certificates. He instructed his broker to go into the commodities trading pit first thing in the morning and bid up the price of the first silver contract each day.

Rosenberg overpaid and lost money on the contract's 10,000 ounces when he sold the contract later in the day. By then, the price fell back to the actual market manipulation-free price. But as a result of his price manipulation, Rosenberg sold say 100,000 ounces to Metals Quality for an extra 3 or 4 cents per ounce. His profits from the price manipulation on 100,000 far exceeded the loss and trouble on the 10,000 ounces for which he artificially overpaid.

Eager to make an even bigger profit margin, Rosenberg called Henry Jarecki, then owner of Federal Coin & Currency. Like Rosenberg, Jarecki collected bulk quantities of Silver certificates for sale to Metals Quality. Rosenberg hoped that Jarecki would help him manipulate the first
Comex price, the first silver trade on Comex in the spot month. Rosenberg figured Jarecki would help him pump up the price that Metals Quality would pay, and they could split the loss on the 10,000 ounces that had to be sold later at a lower price. Of course, that loss would be absorbed by the profits they made by getting Metals Quality to pay an above market price, and Rosenberg's loss would be only half his previous loss. His net profit would increase by the amount he reduced his initial loss.

The only flaw in Rosenberg's loss-sharing idea is that he didn't know that when he spoke to Henry Jarecki, he was speaking both to Federal Coin & Currency and to Metals Quality.

 

Silver Price War

Rosenberg was costing Jarecki money, because Jarecki sold his silver on the usually lower London fixing price the previous night and was buying the certificates from coin dealers like Rosenberg at the higher manipulated first Comex price.

Without explaining anything to Rosenberg, Jarecki sent a broker into the trading pits to do the opposite of Rosenberg's broker. Jarecki's broker sold the first contract very low, so he bought coin dealers' silver certificates cheaper than where he had sold silver on the London fixing price the night before.

After waging this price war for a while, the two brokers struck a bargain. On one day Rosenberg's broker would buy the silver high, and the next day Jarecki's broker would sell silver very low. After a week or so, they decided it was counterproductive and they gave it up.

Jarecki was lucky, because the costly silver price manipulation came to his attention through a serendipitous tip-off from the manipulator. When people slugged it out in the commodities pits, they often made their own justice. By the time regulators caught up with a price manipulator (if ever), it was too late to protect an aggrieved party.

Moreover, it isn't easy to prove someone is manipulating prices by taking a small loss for a potentially much bigger gain. Many feel this is just being sharp.

 

Absent Regulation

Anomalous price moves are a red flag, and it seems regulators aren't even looking at them. If regulators ever did decide to launch a genuine investigation, the place to start is with those who gained the most in the short run, or those who avoided the most short run loss--from the price moves.

The idea that the Commodity Futures Trading Commission (CFTC) can regulate credit derivatives when they aren't up to the task of regulating commodities is among the more ludicrous results of our financial crisis "regulation." The MF Global debacle and the price action in precious metals, especially around options expiration dates show how lost our regulators are and how mistaken their overseers in Washington remain.

 

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Sun, 01/22/2012 - 22:00 | 2087368 arg
arg's picture

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Fri, 01/20/2012 - 15:19 | 2081920 MarcusLCrassus
MarcusLCrassus's picture

The Feds need to start tapping the phones of people in the finance industry suspected of crimes, the same way they tap the phones of drvg dealers and other dangerous criminals. 

 

Unleash the RICO Laws and the PATRIOT Act on Wall Street. 

Fri, 01/20/2012 - 14:49 | 2081790 905ozs
905ozs's picture

2 Mrdrink&chips....

We all remember the valiant Hunt's...does anyone know if they still are around? ...it would be a LOL to their take is.... ?....I guess:)

The critical, overriding thing to think on is the long, long geosociopolitical game at play.

The Rothschild want nothing less than 1 currency, 1 govt.
The Rothschild are on record as defining Us as "useless eaters" & there are 4billion to many of Us...duck!!

this econdeath, WW, is global, premeditated & Unstoppable now.

I say again to the good folks at ZH....DUCK!
Hope I am wrong, but u know I ain't ?

Fri, 01/20/2012 - 14:32 | 2081709 GottaBKiddn
GottaBKiddn's picture

Great story, Janet, however the conclusion that the regulators are somehow oblivious or lax  in their duties is absurd. They are completely complicit in every criminal act being carried out routinely. That is precisely why they were hired, not to enforce the law to protect the naive suckers. That's why it is called a "Market".

Fri, 01/20/2012 - 14:25 | 2081671 tony bonn
tony bonn's picture

our regulators aren't lost - they are bought and paid for whores of the rockefeller-mic-yale-cia cabal who control the price of precious metals....

one day they shall lose control and the cftc will not be able to claim credit....

Fri, 01/20/2012 - 14:22 | 2081661 orangedrinkandchips
orangedrinkandchips's picture

NOBODY mentions the Hunt Bros.

 

ring a silver bell anyone? 1980? I was but 9 years old then but I love history.....

Fri, 01/20/2012 - 13:37 | 2081505 pitterrier
pitterrier's picture

Great writing by Tavakoli.

Fri, 01/20/2012 - 12:55 | 2081362 905ozs
905ozs's picture

It's simple.

Rothschild control the price, period.
Rothschild have done so for at least 100yrs.
The BIG war coming is part of the preplanned ww1,2,3 & god knows what.
PM's are utterly controlled by Rothschild.
They don't care about us knowledgeable, but so very few, with a bit of silver.
PM's they have been collecting for 60+yrs to setup the Standard.
But only after the end game plays out, 1 currency, 1 govt...they control.

Hold fast my friends, silver's going stratospheric, us few who ride the hurricane? They don't give a shit, the big game is well & truly on.

....Evelyn Rothschild, recently estimated to hold $500 trillion personally, $500T!!! what more can I say? ?

Fri, 01/20/2012 - 13:48 | 2081546 Stax Edwards
Stax Edwards's picture

One question:

If this is all the case why does Sprott have to call the producers to tell them to limit supply (aka corner the market) to demand higher prices?  And the lemmings refuse to see the light of day.  Yep TD, same as it ever was, lol.

Fri, 01/20/2012 - 14:24 | 2081668 Temporalist
Temporalist's picture

He was making an investment recommendation to them.  He sees the writing on the wall.  He didn't "tell" them he suggested that if they truly believed in their product then why not ALSO invest in it as it is a perfectly legitimate asset class and investment vehicle. 

Fri, 01/20/2012 - 14:04 | 2081597 HungrySeagull
HungrySeagull's picture

The Hunt Brothers tried that.

Ain't happening again.

 

If Sprottie did buy all the silver, he will have to pay the paper holders as well.

There is not enough money in the Free World to do that.

Fri, 01/20/2012 - 15:28 | 2081958 lasvegaspersona
lasvegaspersona's picture

well there's: Evelyn Rothschild, recently estimated to hold $500 trillion

so much for 'not enough money in the world'

Fri, 01/20/2012 - 13:12 | 2081414 Jolly.Roger
Jolly.Roger's picture

....Evelyn Rothschild, recently estimated to hold $500 trillion personally, $500T!!! 

 

Estimated by who?

This story that silver is about to explode X times is very seductive, but aren't Maloney et al just big schills and phoney's preaching to the choir?

There is such a thing as grouop think you know. 


Fri, 01/20/2012 - 14:21 | 2081657 Temporalist
Temporalist's picture

Yes there is such a thing as group think but when one group breaks away from the masses, that all think alike, and choose to think differently they are NOT the group thinkers.

That is like claiming that a bunch of crazy people that think the sky is green are group thinkers because they make up .000000001% of the population.

Fri, 01/20/2012 - 15:06 | 2081855 Jolly.Roger
Jolly.Roger's picture

Groupthink isn't defined by numbers/percentages, it's defined by dynamics within the group, so yes, if your "green skyers" are in a group and generate a dynamic of confirmation bias, they are victims of groupthink. 

Doesn't matter what the rest of the world thinks. 

A groupthink is starting to emerge on ZH re PMs, although it is one I beleive to be largely correct.  

Fri, 01/20/2012 - 12:37 | 2081301 Lets Hang Parliament
Lets Hang Parliament's picture

Looks like silver is being "manipulated" up today...WARNING take out imminent!!

Fri, 01/20/2012 - 13:28 | 2081475 HungrySeagull
HungrySeagull's picture

Yea I am watching it too. Carefully.

 

Somebody is buying. But not too many are selling. That leaves a theory that someone BIG is forcing the silver up.

The previous weeks chart does not support this little pop.

Fri, 01/20/2012 - 14:19 | 2081650 Money 4 Nothing
Money 4 Nothing's picture

It will come back down on Monday no doubt. 29.9X all over again, PM's are moving in a set trading pattern, sux. I am leaving for my dealer now to cash out 3 - 10oz bars in a few minuits. weekend cash for groceries, kids clothes and gas in all the vehicles. I am locked in at 31.53 before I evn get there.

According to the "professionals" we are supposed to be at 60.00 troy oz right now... NOT!

Fri, 01/20/2012 - 14:10 | 2081617 Alea Iactaest
Alea Iactaest's picture

Paper silver (SLV) regained the 50-day. Back into a channel that was broken last August. Been steady since year-end liquidations, violent up today decoupled from gold. Big money flow in at the 12:00 - 12:15 melt up. Hmmm...

 

Edit: Or out? Candles were green so someone was bidding it up.

Fri, 01/20/2012 - 14:21 | 2081658 Alea Iactaest
Alea Iactaest's picture

Open conjecture: maybe someone shorted SLV for expiry today? It seems stupid to use SLV instead of futures, but there was decent money flow at the close yesterday and then again midday today. Keep in mind SLV's been rising with everything else during this stupid January melt-up. Guess we'll know next week.

Fri, 01/20/2012 - 12:32 | 2081281 Silberadler
Silberadler's picture

And...

it is not only silver.

Have a look at the kitco 3 gold chart of today. Option expiries. It's happening right now - in front of your nose.

Also check out long term charts (gold, silver) for 2011.

What you see is typical: option expiry, specially around quartely expiries these dips are just so regular.

Amazing.

So : if you're into stacking and really want to buy dips: get your popcorn ready and check the CME expiry calendar. Paper or physical - no matter.

http://www.cmegroup.com/trading/metals/precious/silver_product_calendar_...

Ooh, and ...

check this: how about LBMA short thrugh the day and APAC markets long overnight ?

God chance to make a dime (in paper).

So why not make good some pennies on TPTB's manipulations rather than complain ?

I stick with my double eagles and Krügers. Thats enough for me as an amateur.

 

Fri, 01/20/2012 - 12:28 | 2081267 William113
William113's picture

Mr. Rosenberg seems to have the same common denominator as all the other munipulators.

Fri, 01/20/2012 - 12:10 | 2081205 HungrySeagull
HungrySeagull's picture

The old Silver Certificates....

The memories. And the secrets like this one....

Fri, 01/20/2012 - 13:26 | 2081465 Sudden Debt
Sudden Debt's picture

Yeah, the old government info movies about them speak volumes about why our system is going doWn:

http://www.youtube.com/watch?v=PDVDoXUQRHo&sns=em

Fri, 01/20/2012 - 12:23 | 2081199 cowdiddly
cowdiddly's picture

only 800,000 people worldwide can buy 2 monster boxes(1000) ounces a year. WE ARE THE ONE PERCENT. We HAVE THE REAL DEAL- the other one percent has funny money created by debt and backed by insolvent governments(kinda like air shares).

Fri, 01/20/2012 - 13:26 | 2081467 HungrySeagull
HungrySeagull's picture

At some point the little bottom feeder like me is going to have 500 ounces.

By the time I get it together and sell 500... the price will be lower than a retail crate.

Yet higher than what I paid for it.

Buy low, sell high. Always. 1 ounce or 1000. And never pay more than your basis.

As far as I am concerned the Shipping Company's truck had a rollover and all the contents have been sent to the landfill.

Fri, 01/20/2012 - 11:45 | 2081094 rosiescenario
rosiescenario's picture

Very nice article.

 

What my take away is, the mind set is to use any trick in the book to make money whether it is ethical or legal.

 

In the 1970's things were far more simple....today we would have Rosenberg and Jarecki working at either GS or JPM and armed with computer programmers, enormous amounts of capital, world markets, and even dumber regulators. What these 2 did in 1970 was fairly harmless, though obviously some harm was done. Today this same thinking using HFT's is destroying any sort of market credibility.

Fri, 01/20/2012 - 11:24 | 2081021 balz
balz's picture

Interesting. But difficult to compare to the level of manipulation today in each and every market.

Fri, 01/20/2012 - 13:24 | 2081461 Sudden Debt
Sudden Debt's picture

Indeed, i was thinking the same.

Today all governments are on a patch to total meltdown and hyperinflation. You didn't have that in the 70's,80's,90's... It did start to show in 2000 but than we started the wae on terrorisme and deregulated the financial markets in such a way that they could create money as they pleased.
And now it's payday.

Fri, 01/20/2012 - 12:15 | 2081201 Pladizow
Pladizow's picture

JPM & US Banks, US Gov, CFTC, CME and all other regulators are all on the same team and their goal is supression!

To think anything will ever be officially done to end this is naive!

 

Fri, 01/20/2012 - 14:10 | 2081620 pirea
pirea's picture

Supression based on paper contracts is not working when you have an army of physical buyers (china, india, some from europe now) 

Expect some ugly events soon, because the big bankers they are not going to lose their physical for sure.

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