Silver COT - The Day the Numbers Lied

Silver Cot Report

Prices ended down slightly once again for both silver and goldlast week. There was no great change noted in the COT reports for either precious metal, and the monthly Bank Participation Report was a non-event for silver. This is once again leaving many observers scratching their heads about the suddenly questionable reliability of these numbers.

They seem to provide especially important information because they represent the last window of insight into what the elephants are doing in these commodity markets. It is not exactly rocket science when it comes to interpreting the data in those reports.

Part of the belief that there must be more complexity to these numbers comes from some very loud voices entrenched in the "denial of suppression” camp.

Nevertheless, the greatest absurdity arises when one considers that the CFTC — the very regulatory agency that has spent years supposedly ‘investigating’ silver price manipulation — also happens to be the same agency that produces these very simple reports that demonstrate unquestionably that the trading structure in these markets could not be anything other than manipulative.

As has been noted here before, the concentrated long silver position accumulated by the Hunt Brothers for which they were persecuted was a fraction of what the bullion banks currently hold on the short side today. It also appears that not much has changed in their overall short position since the latest price smash seen last month.

Questions About the COT Emerge

Recent months have seen a resurgence of questions being asked regarding the reliability of the COT data.

Many people have been asking why they should trust these COT numbers when just about every other important economic indicator is tampered with, or distorted, and then trumpeted to the complacent masses via the mainstream media.

The ongoing dichotomy in the historical open interest numbers between gold and silver seems especially notable. Also significant is the apparent resilience of the speculative longs in silver, despite repeated violent washouts.

Another interesting observation is the relative stasis in the positions of the large commercial shorts, which "normally" tend to decline in the wake of these sell-offs.

The Last Bit of Integrity Left?

Observers have long questioned the integrity of the CFTC’s data. Also, Just about anyone who follows these metal markets closely understands the influence of the ‘To Big to Fail’ or TBTF mentality. Whether they admit it or not will mainly depend on their business model.

Admission by the most vocal of stock pickers would undermine much of their premise for buying equity in businesses. Yet, an intelligent minority actually still sees precious metals as more than just a curious historical relic or an annoying tradition. They tend to perceive the often inconvenient truths about the world’s financial and political systems.

Eventually, will these reported numbers disappear in the name of market safety or to protect the identity of the TBTF entities?  Removing the COT data to protect the positions of the bullion banks would seem fruitless and probably contradictory, but perhaps this is not unlike most other regulatory agency activity.

The Risk to Market Confidence

Unfortunately, it seems probable that confidence will have taken a significant hit if this occurs. The markets will have completely split, confidence will be lost in all derivatives, and the physical market will take over again to begin the ‘great revaluation’.

Of course, this scenario would completely backfire on the agencies because the exchanges depend economically on the huge trading volume now provided by the algorithmic trading hedge funds. Most likely, it would simply shed more light on what should now be obvious to every serious precious metals observer and investor.

Basically that the trading structure in the silver futures market gives rise to price discovery, and that this mechanism has long been divorced from the real fundamentals for physical silver. Instead, it is almost entirely driven by the vested interests of the for-profit exchanges and their largest clients.

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