In moves that are increasingly disconnected from physical reality, paper metal is under siege again today. Whatever.
You see, here's the deal. Quite literally tonnes of precious metal are leaving London and heading east to China, Russia, India, Turkey, Iran, Saudi...you name it, they're buying and taking delivery. This is metal that won't be coming back! The foolish bullion banks think that they are just playing another round of fun and games with paper metal, leasing and hypothecation. They're not! This time it's for real and they don't seem to get it.
Think of it this way. I am a car dealer with a fleet of vehicles that I own. I lease these vehicles to borrowers who use the vehicles in their business. These borrowers routinely return the vehicles to me, only to release the same or other vehicle out of my inventory at a later time. I, the dealer, continue to recycle leases from one customer to another, moving cars from here to there based upon demand. As long as the cars are returned to me safe and sound, I can continue to run this program.
What happens, then, when a few of my customers take the cars I have leased them and sell them instead of returning them? My customer takes the cash and then, when I expect my car back, there is no car to return. It's been sold to someone else? But wait a minute. That was my car! I want it back. Too bad, says the new owner, I sold it, too. The next owner also sold it and so on and so on. Eventually, the final owner took the car, broke it completely down, refabricated the parts, reforged the body and, eventually built a completely different car. My original cars are gone and they're not coming back! My entire business model collapses and I go broke.
This is where we are now in London and New York. Gold and silver have been leased for decades. This dangerous game has been perpetuated by the ability to rehypothecate, the ability to "raid" the big ETFs and the ability to "manage" the paper markets. The Bullion Banks foolishly and naively believe that nothing has changed. They hope and expect that the precious metal currently being withdrawn from their vaults will return one day soon. Not gonna happen. This time it's for real. The metal, once withdrawn from "the system" isn't coming back. It's gone. For good.
It hardly matters why. Perhaps the "eastern" central banks are switching from dollars to gold for simple protection from dollar debasement. Maybe China in planning to start their own metals exchange to rival London in the 21st century. As mentioned here repeatedly, maybe all the countries listed above are planning a new gold-based, international trade settlement system. Again, it hardly matters. What does matter is that the gold isn't coming back. Ever. And just like the car dealer whose business model collapsed when he no longer owned any cars, the "western" central banks and the bullion banks are about to have a very rude awakening.
In the meantime, as mentioned above, paper price is being melted down yet again today. Though we have clearly bottomed in price for both gold and silver, last week's action certainly put a damper on any immediate bounceback. By driving price back under $29 and $1600, the Cartels were able to dissuade any additional spec buying and momentum has been halted. I'd expect this to continue for a while this week as both charts appear rangebound.
The only other interesting thing to discuss this morning is the latest CoT and Bank Participation Report. Within those reports, Uncle Ted found something rather telling. He now estimates JPMs net short position to be around 16,000 contracts. However, from the CoT, we know that the entire commercial net short position is 16,525. This tells us that JPM alone accounts for the entire net short position in silver. Remove them and the silver market is "balanced"...equal numbers of banks and specs, long and short. Instead, we have one bank with an extraordinarily large and concentrated short position. This is the essence of manipulation. One market participant with a huge, one-sided position. The only solution is to convince or force JPM to exit the silver market. Lord willing, one day soon, this is exactly what will happen. Until then, stay patient and keep stacking.
Have a great day.
TF
