"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Thursday, May 5, 2011

Collusion by Fed officials and Commodity Exchange heads has its intended effect

I find it amazing how effectively these people can coordinate their policies with the heads of the commodity exchanges and their pals at the big banks who are perennial shorts in the markets and have now managed to pluck the money out of hundreds of thousands of commodity trading accounts enriching the big banks (government sponsored hedge funds) in the process. Nothing like a freely operating financial system where the playing field is completely level and no one has an advantage over the next guy!

By their continued hiking of silver margins, the exchange effectively removed the liquidity in the silver market that the smaller specs have been providing. That left the market vulnerable to severe drops in price as these specs exited due to financial constraints which then removed a source of potential bids under the market as the CFTC commitments report has shown the small specs to be good buyers in the silver market. Even the bigger hedge funds are impacted by such a sharp hike in margins as their losses in silver then precipitate even more losses across other assorted commodity markets due to the cascading effect of mounting paper losses and margin calls and the need to raise cash.

As the silver market tanked the exchange officials could then warn about Clearinghouse integrity and have more reasons to drive margins even higher as they point to the increased volatility, volatility which I might add, they created themselves by hiking margins to such an extreme degree.

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 guaranteeing less efficient markets and roiling the entire commodity complex in the process. Is this what an efficient market is supposed to look like when crude oil prices collapse nearly 9% in a single day because there are no bids or silver which is again down nearly 9% also in a single day?

The truth is that the exchanges are money hungry bastards that want the fees generated by the HFT crowd and do not want anyone to mess with their golden egg laying goose.

Regardless, this collusion on the part of the players involved has accomplished, for the time being only, what the Fed has been trying to do ever since it instituted its second round of QE, which by any standard of objective measurement, has failed. To wit - keep long term interest rates low to generate borrowing.

Unfortunately for the Fed, the bonds were not cooperating and were actually moving lower for a while  as commodity prices were responding to the breakdown in the Dollar and holders of long term bonds were balking at hanging on to an "asset" that was priced in a collapsing currency while being threatened with a serious outbreak of inflation as a result of all the reckless money creation.

What could be done especially with the US Dollar within a mere point of crashing through a critical support level which would have seen the onset of a currency collapse and a resultant crisis?

Oh by the way, I might note here that the Japanese Yen has moved to within 58 pips of the level that brought about a massive coordinated intervention back in March that was tied to the tragic earthquake and tsunami. All of those billions spent on knocking the currency down have been wasted as the newest plan to derail the commodity markets brought about another unwinding of the Yen carry trade causing the exact same problem for Japan once again. In other words, less than two months later and after spending billions to derail the Yen and prop up the Dollar against it, we are right back to where we started on Dollar/Yen.

Next move guys???


  1. When do the Asian's step in and make a big move on the metals? We all know their plan and this "margin paper takedown" only provides them with the opportunity to secure new metal.

  2. Excellent analysis, Dan. Many thanks.

  3. I am wondering about the 25 USD put guy. He must be pretty happy by now ...

  4. This is surreal. Our system is so corrupt I want to puke.

  5. Appreciate the level-headed yet honest analysis. Refreshing.

  6. It will be interesting to see if there is surge in buying of physical silver by the small guys out there and if the physical market gets even tighter. This collapse in silver price is also ment to scare off the little guy from buy the dip let's see how this all plays out.

  7. I will say straight up...I'm a newbie watching this sharkfeeding frenzie, with only a small lot cast into the sea - So after all of this manipulation and jacking up of volatility, where will, say, something like the HBP Comex Silver etf go? It went from a high of almost $60 to where it's at $26.28? Is it dead in the water, or will it rebound and surpass previous highs (should silver do its anticipated rally)?
    Thx Chi
    Sorry about all the aquatic references, but I feel like I'm drowning!

  8. Speaking of the CFTC....Where's Bart Chilton?

  9. rahbii:


    Bart Chilton?


    what a sold out son of a bitch

  10. Excellent post Dan. It is exactly the thoughts I have had only not nearly as well articulated. It has even hit my target and is threatening to go below that! One good thing that has come out of all this is the amount I am learning concerning this sell off. Good thing I am in practice only at the moment, and my hedge is just kicking ass!

    Indeed silverwood it will be interesting too see the effects on the physical market. I for one, with the grace of God, will be one of those little guys buying!

  11. @Josh: The Asians are already stepping in. But the market won't have the sales figures for a few months.


    "Gold and silver traders in India, the world's biggest buyer of bullion, scrambled for supplies as they braced for strong sales for a local festival, pushing premiums higher.

    Traders said interest in silver rose as prices declined 21 percent from their peak of 73,600 rupees per kg."

    Also, don't forget to catch the latest sales numbers from the US Mint:

    "Buyers of physical silver appear to be swooping in as paper traders are scared out of the market. The U.S. Mint reports sales of 701,900 Silver Eagles so far in May -- during a period silver has tumbled more than 20%.
    At this pace, sales could reach 4.2 million by month’s end.
    In the Eagle program’s 25-year history, that figure’s been exceeded only twice -- last November and last January.

    Gold Eagle sales are looking strong too -- 35,500 ounces of coins so far in May, which is well ahead of last month’s pace, when sales totaled 160,500 ounces."

  12. While it may be way too early to call a bottom, I find it interesting that the CCI held the 636 level. The last time it was required to hold that level was March 15th and 16th.

    On March 14th, Gold and Silver looked ready to take out 1420 and 36 respectively, which were major resistance levels.

    On March 15th both Gold and Silver got whacked.

  13. Thanks Dan. I feel your frustration. I hope silver finds support at $34. The last few days have been brutal and so many technical levels were taken out as if they were not even there.
    I'm amazed they brought it down $5 in one day. One freakin day.
    I thought the chart on the way up was wacky, but this move down is 10 times wackier.
    At this point, I have no idea what's going to happen short term.

  14. Many thanks for your calming analysis of this bamboozling silver market. Since I first started buying physical at 30, I am not too frightened by these none-too-subtle price manipulations, but it seems I will have to practice patience in waiting for honest conditions to prevail.

  15. thanks, dan.
    not a lot of people in your position would say it so plainly.
    total and absolute manipulation causing the desired shift of wealth from the small fry to the bigger fish. as long as they can get away with it (which they obviously can) they'd have it no other way.

    and what to do with that alert watchdog called the cftc...

  16. Where there is money to be made, corruption will exist. Fantastic article. Thankful to see somebody saying what needs to be said.

    You and Jesse have just been on the ball in the past couple days.

    "Believe me, the next step is a currency crisis because there will be a rejection of the dollar, the rejection of the dollar is a big, big event, and then your personal liberties are going to be severely threatened." Ron Paul

  17. Scottj88:


    And we should all realize that the gray mare will buck and jump without end.

    What a fun ride!

  18. If you are a pure technical trader, the trading volume in UUP, GLD, SLV, USO, UGA, etc. confirm that a generational top was put in on commodity prices today and a generational low was put in on the USDX. We don't know exactly why, but the reason will be revealed to us in a few days.

  19. I honestly didn't think I'd ever see get a chance to add to physical silver below 35. I cannot believe the dealers are still taking worthless fiat for PM.

    WE ain't seen nothin yet. They can manipulate the exchange and the rules but baby THEY CAN"T PAY 20 TRILLION IN DEBT. They can't erase that shit no matter how much they print, no matter how hard they try. The end game is hyper inflation, the currency of the future is PM! Get some phys.

  20. What to do next??? Wait for it... $25-30/oz - go to every single coin shop in the United States, all 6,000 of them, and buy every single ounce you can get your hands on. You NEED to make it impossible for any silver to even arrive at COMEX direct from the refiners. Make ALL silver go straight from the refiners to the bullion distributors and then onto to their coin shop customers. Make the industrial users compete with the Joes and Janes "redeeming" their depreciating dollars for silver.


  21. I wrote my friends about coincidences and concluded by saying the markets had voted on the status quo.

    I was referring to the habits of government spending. But what I failed to realize is what the status quo IS for the markets.

    But they are so living on the edge with this Debt Bomb. It will crash and it will be because of the information revolution playing out before our eyes.

    When, no body really knows because markets live on the edge by definition. But more and more people do know this: they have staked the entire deck against itself.

  22. I am glad I am not on margin! This shakeout does nothing to change the longer term trend in gold/silver. You know our weasel politicians have no backbone, so the defict goes higher, dollar goes lower and PM's go higher. Irregardless of you buy more and it is not the bottom, I will bet all will have a smile on their faces in a year.

  23. Being able to say things as they are is a virtue too. You just demonstrated that virtue, Dan.

  24. I love technical analysis, and practice it all day long. That said, I think it is VERY important to realize that, in a crooked market, relying on TA indicators to make decisions levels can be like playing Russian Roulette.

    Obviously, it's extremely frustrating but I think we have to put away the rulebook, and just listen attentively to what the market shows us.

    Since I can guess as well as the next guy, FWIW I'm betting on a little bounce around tonight/AM, then some heinous dirty tricks on Sunday evening, and a serious overall market jolt starting next week.

    Don't be a hero here! Console yourself with a Saturday visit to your favorite coinshop--that's what I'll be doing

  25. Sure would be nice if they would raise the requirements for UNLEADED GASOLINE the same way they did for silver, wouldn't it?

  26. I just bought 11 gallons of gas at spot today.

  27. Something happened to my post here.

    All I want to say is that the market feels like its more communist than capitalist, rigged by criminals for the elite to profit.

    A lot of good people lost money who had the fundamentals on their side. That saddens me.

  28. Great post. I guess the trouble for these jokers however is that they are creating a shortage of physical metal in the process, and in the case of silver that has economic implications (used in everything from solar cells to antibiotics to ecg pads). I, myself, am watching the 50 week moving average as a point to add to my core physical position. And once done, that stuff moves into a vault in London or Hong Kong not to be seen until >$100/oz. My initial position I took at $17, so this little price drop doesn't bother me at all. Not holding margin, just engelhard and johnson mathey bars. They can shake "the little guy" who's stupid out of the paper market, but when that "little guy" gets smart, he licks his wounds, says "a pox on your house" and just turns to physical. These jokers are sowing the seeds of their own destruction, and ours.

  29. Dan - as an independent trader (ie I manage my own net worth for a living) of some years - I offer: youda man! Jim and yourself have provided some sanity against this insane background for longer than I care to remember. Heartfelt thaks.

    The corruption of the markets we are now watching has reached its azimutrh, and these markets will shrink as better placements for our bets appear. All markets are corrupt always - the only real choice is between slightly corrupt and extremely corrupt.

    The excuses given by the c*nts such as the criminally minded CME and their vassals the pre-owned CFTC are not worth the effort of trying to find value in them. The ask is as futile as trying to make money on TBT.

    Their "pips" are squeaking, and if you believe them wrong as I do all that remains is to buy them wrong. millions of physical gold and silver metal owners cannot be wrong.

  30. Been long since $12.88. You get used to the pops and drops. It's best for any newbies to look at the price in % terms...it's all relative. Buy physical on the dips, take possession and hold...and most of all have patience!

  31. Read here for more commentary on the CFTC/bankster collusion:


  32. Let's get physical by Olivia Newton John gets the mood just right. Looks like there is something for everyone in the video and hopefully the PM markets too! http://www.youtube.com/watch?v=O0e1Y5FXNWs

  33. Its time people took things into their own hands .If the government will not act then , we the people will. Its time , lets march

  34. The CME COULD AND SHOULD rightfully have given silver traders cautionaries, PRIOR TO dropping such huge margin bombs 3xs in one week which caught all traders by surprise. Obviously some traders were INSIDERS given warnings by CME officials ahead of time and took cream off the tops of silver prior to these announcements.

  35. robert, man u must be 20 years old....obviously have not seen how much trouble a group of people can get it...wayyy more than we are already in.

    just play the game on whatever level you can....forget about changing the rules.

    where's all that CHANGE you were promised last election?

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