The Unbearable Lightness Of Being Long Silver

Buying silver or gold may seem easy enough for just about anyone these days, but unless you can completely block out the culture around you, the endeavor to make the monetary metals "fit in" with the rest of the hyper-financialized world seems futile.

It also helps to remember that only a thin line exists between the U.S. government and the Fed, and between the Fed and its member banks.

It is simple and yet very complicated for anyone looking at buying silver for the first time. Also, opening up silver’s Pandora's Box reveals a lot of new terminology for a novice to be distracted by.

Things to Know About Silver

When trading silver futures, it is vitally important to keep track of the Commitment of Traders or COT Report issued weekly by the CFTC that illustrates the market’s structure and the complexities of futures trading.

This report seems crucial for understanding the price discovery mechanism of silver, as well the manipulation of its futures market. Another supply factor to take into account is the current level of COMEX inventories.

Additional relevant concepts to become familiar with include:

The GOFO:  or Gold Forward Offered Rate, which is the rates at which London Bullion Market Association contributing market makers will lend gold versus U.S. Dollars on a swap.

Lease Rates: The annualized interest rate at which physical silver can be lent.

Normal Backwardation: sometimes just called backwardation, refers to the situation when the price of distant delivery futures contracts trade below the prices of nearer month contracts. This phenomenon is subject to a never ending debate.

Paper versus Metal:  The strange situation has arisen when paper silver futures contracts have little to no fundamental bearing on realty, and yet they also currently determine the price of physical silver metal.  Theoretically, surging physical demand and long waits for physical delivery should increase futures prices.

Price Manipulation: A silver market phenomenon that is currently the subject of a 5 year old CFTC investigation. Basically anyone that does not acknowledge manipulation of the silver market at the most basic level probably has a hidden agenda. The loudest voices deny it, celebrate it and scorn those who strive to protest and educate others about it.

The Gold Factor: Of course, silver investors need to be aware of developments that affect silver’s big brother gold, since they can also impact demand for silver.  

Plenty of Examples of Outright Insanity

Time goes by slowly as the story of silver’s market manipulation rarely changes, although neither do the bullish fundamentals for silver. What other market makes so much rational sense to investors, but is then blatantly manipulated and the media flooded with fabricated and apparently rational arguments about the dismal manipulated result?

For instance, silver had an access close last month at a price of $19.99, which was situated just under key psychological support at the $20 level.

This was combined with the Dow's Hail Mary, which closed the index in the green and has to be one of the most egregious examples of the management of perception at work. The last thing the powers that be probably want to see is red going into the weekend. While this may just have been a coincidence, it sure worked out nicely for them.

Silver futures markets have been subject to coordinated price attacks in London and elsewhere, which are typically orchestrated by the large market players known as the Bullion Banks.

Basically, uneconomic dumping in low volume often leads to an artificially suppressed paper silver price, which is then used to set physical metal prices. The seller of a silver futures contract does not need to deliver physical metal, so they can just pay for their futures losses in intrinsically worthless paper money while they scoop up truly valuable physical metal cheaply.

This silver market manipulation mechanism was exposed by Ted Butler and then made famous by GATA whistle blower Andrew Maguire.

Current Market Perception

All in all, last week was not a bad time for silver, especially considering it was an options expiration week. J.P. Mortgage Chase seems to be out for now, but they will very likely pounce on the next rally. Silver open interest has not indicated much of a liquidation taking place.

Anyway, these sell-offs are just part of the way the game of silver manipulation works. The big players aim to shake out as many weak longs as possible while taking another blast at sentiment. No one should put this sort of trickery past them.

Most people like to think of themselves as value investors, and yet trends are too easy to wait too long for and miss. Another test of $18 in silver would probably frighten away new longs or those dipping into the ETF's.

Best Guess Going Forward

The object of the most recent manipulated sell-off seems to have been to trick the hedgies into going short, while bullion banks like JPM covering their own shorts and take delivery of as much physical as possible.

From the perspective of demand and perception, silver is still showing surging retail demand and there is decent money out there eyeballing a 10% recent return in silver after a 60% decline. Silver seems cheap.

While the technical picture is a totally fabricated affair that makes "painting the tape" a work of fine art, various factors currently point to the scenario that silver will more than likely test its recent lows once again before resuming its long term up trend.

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