Reply to thread

Re: SILVER

This was a post from GATA re the silver ETF (SLV) in the US. ETFs might seem easy but its NOT the same as physical.

-----------------------------------

Possible SLV Inventory Swap Explanation

Hi Bill -

I think the 20,000,000 oz SLV inventory shell game that transpired on 12/31/07 can be easily explained IF we examine who is involved and what their motivation is.

First of all the "Custodian" of SLV is JP Morgan (I could probably stop here for folks at GATA). JP Morgan provides all the info to the iShares Trustee on the silver stored by themselves and the "Sub-Suctodians" for the "Authorized Participants" (note that no SLV share holders own any silver). This silver can be stored anywhere in the world and has only "limited audit" requirements. The silver can also be swapped, pledged, leased and loaned without violating the prospectus. It is more than likely that most of the SLV silver is held in COMEX warehouses. That would give the perception of much more physical silver than is truly available.

It is obvious that the 20M oz deposit and withdrawal was clear maneuver to "paint the tape" on the Year End physical silver held at SLV...but why? Since SLV is only a derivative of the price of silver there would be no reason to bump the amount held for the SEC or other regulators. The prospectus clearly points out that the amount of silver held and the price of silver have no real relevance to each other in SLV. There are no requirements to increase or decrease the amount held in trust...it is a perception issue that enforces the "value" attributed to the shares of SLV.

So who would want (or need) a quarterly or annual official verification of real Physical Silver being held by a party?

Only one group that I can think of....THE CFTC!

The first "pertinent surveillance question" the CFTC must address in their oversight of the silver market is "Are the positions held by the largest long trader(s) greater in size than deliverable supplies not already owned by such trader(s)?" It's their main concern.

http://www.cftc.gov/opa/backgrounder/opasurveill.htm?from=home&page=mktsurveilcontent

"Physical-delivery commodities. Futures contracts that require the delivery of a physical commodity are most susceptible to manipulation when the deliverable supply on such contracts is small relative to the size of positions held by traders, individually or in related groups, as the contract approaches expiration. The more difficult and costly it is to augment deliverable supplies within the time constraints of the expiring futures contract's delivery terms, the more susceptible to manipulation the contract becomes."

Pertinent surveillance questions for such markets include:

Are the positions held by the largest long trader(s) greater in size than deliverable supplies not already owned by such trader(s)?

Are the long traders likely to demand delivery?

Is taking delivery the least costly means of acquiring the commodity?

To what extent are the largest short traders capable of making delivery?

Is making futures delivery a better alternative than selling the commodity in the cash market?

Is the futures price, as the contract approaches expiration, reflecting the cash market value of the deliverable commodity?

Is the price spread between the expiring future and the next delivery month reflective of underlying supply and demand conditions in the cash market?

By adding 20M oz on Dec. 31st JP Morgan and the other "Sub-Custodians" were proving to the CFTC, by way of the SEC end of year filings from SLV, that they had access to 170M oz of physical silver that could be delivered against their net short position on the COMEX if delivery were required. Once the end of year silver amount for SLV was officially recorded the silver was "withdrawn" and apparently put to use somewhere else (delivery, loan, lease, etc.)

The good news is that the fact that this maneuver was needed by the silver manipulators tells me 2 things:

1) The CFTC is finally examining the large traders for rule violations.

2) The fact that silver manipulators only borrowed the silver for a day means they needed that 20M to patch another hole in the dyke.

Anyway you slice it, the unprecedented, decades long silver manipulation is on it's last legs.

The silver ROCKET will truly be a sight to behold!

Bix