Reader Asks, “What’s So Hard About Busting COMEX?”

Scott's Soapbox

Here’s a good question from a reader, “Mike“:

Scott,
I have been following your website for some time along with Sinclair and enumerable others. I think you do a great job and I find your musings incredibly infromative. I’ve never traded futures on the comex but this whole comex cracking/failure to deliver thing puzzles me a great deal.

As best I can tell, if someone wanted to bust the comex couldn’t they just go long an unlimited amount of futures and then just ask for delivery?

The total dollar amount of all registered comex inventory is only about $3B which for many wealthy oligarchs, sovereign wealth funds, or potentially hostile countries is but a drop in the bucket. Is there something I’m missing here?

People seem to get excited about the comex potentially failing and it very well could but it seems that it wouldn’t be very difficult if anyone really wanted to. Again, perhaps I’m oversimplifying but I think getting a clear understanding is very important so people aren’t mislead in their understanding of the process and in any investment decisions regarding the precious metals skyrocketing if and when the comex collapses.

By the way, I am incredibly bullish on both monetary metals and am a firm believer in abolishing the fed, a return to sound money, etc., etc. etc. I’d love to hear your thoughts on this issue when you have a moment as it would probably be educational for me and many other of your readers.

Thanks so much and keep up the great work,
Mike

watermelons smashed 120x84Mike, here’s my take on it FWIW:

I agree, theoretically it shouldn’t be all that hard to crack COMEX open like a ripe melon. Like you say, it’s a relatively small market.

How small? As of yesterday, June 3, 2009, COMEX reported a total silver inventory of 120,879,235 oz. So, 121 million ounces at $15.92/oz works out to $1.9 billion.

[/begin conspiracy rant]
Chump change when the “govmint” is throwing around trillions. Geez, remember how the “govmint” gave JPMorgan $30 billion for taking over failing Bear Stearns? Monday, March 17, 2008 was the FIRST business day JPMorgan assumed and expanded Bear Stearns’ COMEX silver manipulation. [link] JP Morgan is almost solely responsible for the COMEX silver manipulation, and they’re funding it with money given to them by your “govmint”.

Oh, BTW, do you remember when silver hit its recent 28+ year high?

Monday, March 17, 2008,  you say, the EXACT SAME DAY JPMorgan took over the COMEX silver manipulation from Bear Stearns? What a coincidence…the price has been beaten down visciously ever since.
[/end conspiracy rant]

So, yes, if you know someone who’s pro-freedom and anti-bankster with a spare $2 billion* they’d have a shot at getting it done.

But normally there’s a problem with doing something like this. You can’t just go out and BUY long futures contracts: there has to be someone else willing to take the other side and SELL short. The COT report (Commitment of Traders) tells us how much JP Morgan’s willing to bet on shorts: right now it sits at 235 million oz.

prince-charming-v2smYes, you read right. JPMorgan is short DOUBLE the entire COMEX silver stockpile. Guess it won’t be hard to find someone to take the other side of your long bet!

BUT WAIT! YES! Now you’re catching on! The very fact that there’s 235 million ounces SHORTED out there right now means SOMEONE(S) ALREADY MADE THE LONG BET as well.

Are you getting this? While you (and any normal, rational human who can fog a mirror) would think all you’d have to do to bust COMEX is make a long bet for the ENTIRE COMEX inventory, you’d be wrong. It’s been tried before AND IT’S BEING TRIED RIGHT NOW. But JPMorgan just keeps making a bigger SHORT bet.

How can they do that?

Ever play poker? Say you’ve got more chips than everyone else at the table. What the hey, let’s make that more than everyone else COMBINED at the table. Let’s also pretend you’re arrogant and cocky ‘cuz your rich uncle is standing behind you, ready to replenish your supply of chips. And, boy oh boy, is he loaded. (We’ll call him your good ol’ Uncle Sam.)

What happens when you’re dealt a crappy hand? Fold?

HAH!

Bluff your way to a winning hand, up the ante, RAISE, RAISE, RAISE. As long as you can outspend ’em all you got a shot at the pot.

bad poker handYou see, Mike, JPMorgan knows silver is going north like Santa on Dec 26th. Their silver hand absolutely sucks. But, our “govmint” gave ’em a $30 billion grubstake to keep a lid on silver. As long as silver is down, the dollar looks solid and the sheeple won’t panic. [See: JPMorgan Is Fed’s Fair-Haired Golden Boy]

And, so far, JPMorgan knows everyone holding a long position is NOT paid up; they’re LEVERAGED. If JPM can knock silver down a buck the longs’ll get whacked with a big margin call. If they can’t cover, they lose. When the whacked longs lose, their emergency exit pushes the silver price down some more. That causes more margin calls for the longs, pushing the price further down, et cetera, et cetera, et cetera, ad nauseum.

So far the longs (“us” not “U.S.”) have lost each time. But let me ask you this: can a guy win a poker championship with nothin’ but bad hands and solid bluffing?

Would you bet your retirement, your country, your currency, your very physical safety on the guy NEVER having his bluff called and winning EVERY time?

I, for one, want a place at the table when his luck runs out. That’s why I don’t trade my silver, why I have only bought silver since 2005, and why I never sell. I have all the silver I ever bought, except for that which I’ve given away to help people [If You Have No Silver I’ll Give You Some of Mine].

* So, can a guy step in and bust COMEX for $2 billion? Hmmm, sure, futures are leveraged so maybe you could do it for less. In an honest market (#snicker#) 1/10th of $2 billion oughta do it. BUT JPMorgan’s used those nasty margin calls to flush out the longs before. Guess you’d better have the full $2 billion to do it.

But wait! It ain’t enough to bet the entire COMEX stockpile long. Remember, JPMorgan’s betting DOUBLE the entire stockpile. If you wanna call ’em I guess you better pony up about $4 billion.

But wait, again! Who says JPMorgan won’t short even more? How MUCH could they short? $8 billion? $16 billion? Gee, wouldn’t the CFTC step in at some point and declare a manipulative short position and stop the madness?

NO.

[/begin conspiracy rant]
You see, the chairman of the CFTC sits on the president’s Plunge Protection Team [link]. He’s automatically in on the manipulation. If it makes him squeemish heading up a dishonest, deceptive “watchdog” organization he can just quit. Oh wait a minute. It does look like turnover’s been a problem at the CFTC Chairman position:
2005: Sharon Brown-Hruska
2006: Reuben Jeffery III
2007: Walt Lukken
2009: Michael V. Dunn
2009: Gary Gensler

Hmmm, maybe they do have a conscience. At least a small, easy-to-kick-around, Jiminy Cricket one.
[/end conspiracy rant]

So, NO, the crooked CFTC won’t stop JPMorgan’s silver manipulation, you see, because they’re backing it. So, if you’re going to bust COMEX you’d better have enough multi-billions on hand to call JPMorgan’s bluff. And, you’re not just going up against JPMorgan, but the guy who’s bankrolling them: dear ol’ Uncle Sam.

Maybe it’d be easier to replace CFTC leadership with an honest guy. Maybe you’d also have to replace at least 51 Senators. Maybe throw in 222 Congressman (you can keep Ron Paul, maybe Dennis Kucinich.)

Or, maybe you just wait for the US dollar to finally collapse. Once there’s no dollar to protect, there may be no reason to keep a lid on gold and silver. Actually, now that I think about it, since the Shadow Powers want a dollar collapse anyways (to cripple the U.S. and make way for greater global gov’t) maybe they already plan to trigger it by abruptly stopping the manipulation.

USDX 2009-06-04

Hmmm… maybe the dollar dive has already started…

Have you noticed how nervous the Chinese have gotten in the past few weeks? How Brazil no longer uses the dollar for trade. How Russia now prices oil in rubles not dollars? How the Chinese laughed at Treasury Secretary Geithner last week when he said “the dollar’s strong.” [ Read Why The Chinese Laughed At Geithner by former Assistant Secretary of the Treasury Paul Roberts.]

And, finally, the last time COMEX had manipulated the silver price below its cost of production a couple brothers from Texas tried their hand at busting COMEX by going long on silver and preparing to TAKE PHYSICAL DELIVERY of 192 million ounces. What happened? The CFTC crooks villified them.

The Hunts shook the lying bankers to their boots – to the point where intervention by the Fed, Treasury, and the Defense Department were warranted – merely by asking for delivery of the 192 million ounces of silver they’d been promised. This was not a “cornering” of a market; it was the attempt to enforce a contract, same as you’ve got with your landlord or bank.

Read “The Hunts Tried to Corner the Silver Market” Myth.

Please protect yourself and your family. Don’t cash in your (gold and silver) insurance!

Scott

More:
COMEX Crimes: Your Tax $ at Work
JPMorgan Is Fed’s Fair-Haired Golden Boy

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Charts: COMEX Gold & Silver

Here are the latest COMEX gold and silver inventory charts. Inventory levels are expressed in millions of ounces: gold at 2,926,697  oz; silver at 70,068,085 oz.

comexgold_2009-03-20 

comexsilver_2009-03-20

 

See also:
COMEX Crimes: Your Tax $ at Work

Is COMEX Cracking? Finally?

Many of us, myself included, thought COMEX silver might go bust last December. It inspired me to start tracking COMEX silver deliveries, thinking shortages may show up there first. [Vaporize COMEX countDOWN]

COMEX fooled me. [Gunther Asks If I’m an Idiot]

Most “deliveries” were not physical deliveries depleting COMEX’s metal reserves. They were really just moving a pile of metal from one bank’s hoard to another. So, I changed to just charting weekly changes in COMEX gold and silver inventory. [Charts: COMEX Gold & Silver] Gold inventory dipped through December, then recovered nicely. Silver, on the other hand, dipped and stayed, mostly, down.

Hmmm.

Now, no less an expert than Ted Butler [hero] is saying today:

tedbutler_sm“What’s somewhat ironic is that there was a tremendous amount of discussion over the past few months about backwardation and potential delivery troubles in the past December contract. None of those threats came to fruition.

“Now, with very little public discussion or warning, delivery tightness and backwardation seem to have arrived.

What’s this “backwardation” Ted’s talking about? 

“The main micro sign that we may be entering into a wholesale silver shortage is the appearance of an inversion or backwardation on the COMEX. For the past week, the nearby current delivery month of March has closed at a premium to the next major delivery month, May.

“What this means is that buyers are willing to pay more to get immediate delivery of wholesale quantities of silver. It means wholesale silver is “tight.”

It sounds like things may be heating up in silver…

See also:
COMEX Crimes: Your Tax $ at Work

Chart: COMEX Silver Inventory

button-vaporize-comex-white-backNOTE: Latest COMEX Silver Inventory chart is to the right, in the sidebar.

For what it’s worth, here’s a chart showing COMEX Silver Inventories since the end on November, 2008. (If you can’t see it click the title of the post above.)

comex-silver-inventory-2009-01-07

Notice the severity of depletion is nothing close to what I thought had been occurring in my earlier “Vaporize COMEX” charts, even though it is significantly better than the chart I published for gold yesterday.

On Nov 28, first notce day for Dec silver deliveries, COMEX reported 80,749,083 “registered” ounces. On Dec 31, the day after final notice day, COMEX reported 66,998,734 “registered” ounces. This is an inventory depletion of 17.0%, not the 46.5% I had shown in my “final” December chart.

All the other frustrating comments I made about the gold chart apply to the silver one as well. (Please read them on Chart: COMEX Gold Inventory before calling me an idiot.)

Please note the reversal of the “Eligible” and “Registered” areas vs the gold chart. Seem silver has a smaller (though growing) pool of “eligible” inventory.

Could this be a sign some of the metal is being set aside for possible delivery outside of COMEX? I honestly don’t know.

Chart: COMEX Gold Inventory

button-vaporize-comex-white-backNOTE: Latest COMEX Gold Inventory chart is to the right, in the sidebar.

Here’s the latest COMEX Gold Inventory chart. (If you can’t see it click the title of the post above.)

comex-gold-inventory-2009-01-06

Please, let me be the first to call myself an idiot.

No, I insist! Really.

In the previous “Vaporize COMEX” charts I plotted the MTD deliveries against the inventory numbers provided by COMEX. I subtracted the delivery ounces from the reported inventory assuming the inventory levels would be adjusted downward after the end of the delivery month. It looked as if 48.1% of COMEX gold had been depleted.

Wrong-o, moose breath!

All my previous charts were wrong. It appears the reported inventory levels have already been reduced by the “net” delivery amounts.

In other words, the major gold and silver speculators are playing a shell game: when they “take delivery” they just move the metal from one “registered” pile in one of the COMEX-approved warehouses to another. There is, so far, rarely any actual physical delivery. The chart above shows almost no metal has left the warehouse.

On Nov 28, first notce day for Dec gold deliveries, COMEX reported 2,855,567 “registered” ounces. On Dec 31, the day after final notice day, COMEX reported 2,826,953 “registered” ounces. This is an inventory depletion of only 1.0%.

Cornholio, I think you may have mentioned something along these lines when you said there was no way COMEX would be busted. Sure looks to me like you’re right.

Assuming COMEX is honestly reporting their inventory levels, and that the gold physically exists, it’s gonna take some seriously deep pockets to bust COMEX.

About COMEX Failing to Deliver on “MiNY” Contracts
I know some of you have been getting excited about this story:
Is Comex Doing Fractional Reserve Delivery of Gold?
But is this really significant? IMO COMEX is just discouraging miNY contract holders from taking delivery by setting the bar a little higher. If you have to have three miNYs to take physical delivery you might as well just pony up for the full contract. It doesn’t seem COMEX has any problems delivering 100 oz bars.

What do YOU think? Comments are opened below…

Vaporize COMEX 2008-12-30

Final numbers for December Gold/Silver:

Gold: 48.1% depleted. Delivery notices today: 11,400 oz. (but 20,000 oz added to inventory)
Silver: 46.5% depleted. Delivery notices today: 155,000 oz.

No Bust, No Joy: but we got almost half-way there! We’ll try again starting Feb 2009.

Link to all Vaporize COMEX posts:
button-vaporize-comex-white-back

comex-countdown-gold-2008-12-30

 

 

gold-data-2008-12-30

comex-countdown-silver-2008-12-30

silver-data-2008-12-30

COMEX trades hundreds of times more gold & silver than they actually possess. If enough investors demand delivery of PHYSICAL gold & silver COMEX stockpiles will be depleted. If COMEX runs out, the ensuing rush to grab physical metal to settle contract obligations *could* be the spark that ignites the long-awaited precious metals wildfire.

Explanation:
COMEX warehouses contain both “registered” and “eligible” metals. The “registered” metals are available for physical delivery. The “eligible” metals are not ready for delivery until they become “registered.” Although this pool of “eligible” metals is stored at COMEX warehouses there is no obligation to “register” these metals for subsequent physical deliveries.

The graph shows:
1) the cumulative ounces of metal delivery notices this month,
2) the ounces of “registered” metal available for delivery,
The percentage shown is based on the cumulative physical metal delivery notices for the month against the “registered” amount of metal in COMEX.
“Eligible” metal inventories are not shown as they do not have a direct bearing on the inventory depletion ratio.

Sources:
[1] COMEX precious metals warehouse stocks:
gold: http://cmegroup.com/trading/energy-metals/files/Gold_Stocks.xls
silver: http://cmegroup.com/trading/energy-metals/files/Silver_Stocks.xls
[2] COMEX precious metals daily delivery notices: http://cmegroup.com/trading/energy-metals/files/delivery.pdf
Link to master list of reports: http://www.cmegroup.com/trading/energy-metals/nymex-daily-reports.html 
Link to most recent clearing info (first & last notice dates): http://www.cmegroup.com/tools-information/most-recent-clearing.html or try this direct link
Link to delivery dates through 2015: http://www.nymex.com/gol_fut_termin.aspx

More info:
Gold: Is This It, NOW?
Attack of COMEX Gold & Silver
How 2 Track COMEX Deliveries
Sinclair Sez “Help Me Bust Comex”
This Guy Plans 2 Kill “Paper” Silver
COMEX: Taking Delizery Is EZ

Vaporize COMEX 2008-12-29

Gold: 48.1% depleted. Delivery notices today: 5,200 oz.
Silver: 46.3% depleted. Delivery notices today: 5,000 oz.

 

Link to all Vaporize COMEX posts:
button-vaporize-comex-white-back

comex-countdown-gold-2008-12-29

gold-data-2008-12-29

comex-countdown-silver-2008-12-29

silver-data-2008-12-29

COMEX trades hundreds of times more gold & silver than they actually possess. If enough investors demand delivery of PHYSICAL gold & silver COMEX stockpiles will be depleted. If COMEX runs out, the ensuing rush to grab physical metal to settle contract obligations *could* be the spark that ignites the long-awaited precious metals wildfire.

Explanation:
COMEX warehouses contain both “registered” and “eligible” metals. The “registered” metals are available for physical delivery. The “eligible” metals are not ready for delivery until they become “registered.” Although this pool of “eligible” metals is stored at COMEX warehouses there is no obligation to “register” these metals for subsequent physical deliveries.

The graph shows:
1) the cumulative ounces of metal delivery notices this month,
2) the ounces of “registered” metal available for delivery,
The percentage shown is based on the cumulative physical metal delivery notices for the month against the “registered” amount of metal in COMEX.
“Eligible” metal inventories are not shown as they do not have a direct bearing on the inventory depletion ratio.

Sources:
[1] COMEX precious metals warehouse stocks:
gold: http://cmegroup.com/trading/energy-metals/files/Gold_Stocks.xls
silver: http://cmegroup.com/trading/energy-metals/files/Silver_Stocks.xls
[2] COMEX precious metals daily delivery notices: http://cmegroup.com/trading/energy-metals/files/delivery.pdf
Link to master list of reports: http://www.cmegroup.com/trading/energy-metals/nymex-daily-reports.html 
Link to most recent clearing info (first & last notice dates): http://www.cmegroup.com/tools-information/most-recent-clearing.html or try this direct link
Link to delivery dates through 2015: http://www.nymex.com/gol_fut_termin.aspx

More info:
Gold: Is This It, NOW?
Attack of COMEX Gold & Silver
How 2 Track COMEX Deliveries
Sinclair Sez “Help Me Bust Comex”
This Guy Plans 2 Kill “Paper” Silver
COMEX: Taking Delizery Is EZ