gene arensberg also explains how the comex is rigged, and why the market for silver is nothing more than a joke:

COMEX Spec Buyer’s Strike for Silver

We can observe that even while investors are flooding into the big silver ETF there continues to be a lack of speculative buying activity in the COMEX silver market. For evidence look no farther than the pathetically low total open interest this past COT week of less than 87,000 contracts. As recently as August of last year, the COMEX open interest for silver was 140,000 contracts. At the same time we see dramatically higher demand on the Street for physical silver (evidence: historically high premiums) and strongly increasing demand for silver via the ETFs (evidence: overwhelming buying pressure over selling pressure for SLV), the COMEX, which ironically almost unilaterally sets the prevailing spot price, is bereft of buying interest? Why? One reason could very well be that so much of the COMEX commercial net short position is held by just two U.S. banks.

As of December 2 the two big U.S. banks held an unconscionable 98% of all the commercial net short positioning on the COMEX for silver – virtually all of it. Perhaps investors and speculators see that so much of the COMEX net short positioning is in just two very powerful hands they now question the legitimacy of that market as a price setting venue. Investors and speculators are moving to other venues such as allocated physical silver in London and silver ETFs here in the U.S. Who wants to take on two giants that can hurl buckets of big rocks and the referees in the fight are either asleep or betting with the giants? According to respected industry sources the two big banks are JP Morgan Chase and HSBC, both of which reported very large spikes higher in their gold and silver derivatives books in Q3 08.

While it is possible these very large trading entities are using the COMEX to lay off corresponding opposite positions in the larger OTC markets, the fact that the Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC) allow just two large trading bullies to control nearly all the commercial net short positioning in the small silver market undermines confidence in that market for all traders and investors. We’ll have much more about that in future reports, but for now one tangent.

Time for Change

Whether or not the overly large net short positioning by the two U.S. banks is legitimate “hedging” of other offsetting long positions in other OTC markets, the fact that just two entities can literally control the action in what is supposed to be a price discovery mechanism turns the idea of a free market on its head. When just two actors can move the markets with the weight of their own trading that market is prone to distortion of value through manipulation. Please don’t send emails about how the rules allow hedgers and market makers exemptions from position limits and why. The players speaking for both the banks and the regulators will use trendy industry jargon, double speak and lots of circular logic to justify just about anything, but let’s cut to the chase. Until there are strict (and equal) position limits for all participants long and short; that is, until the playing field is level, the COMEX will remain suspect as a true price discovery venue because the rules unfairly favor the short side at the expense of everyone else including the industry that market is supposed to find prices for.

As of the end of 2008, the SEC and the CFTC seem content to allow just two big U.S. banks to amass short positions in silver that are so large relative to the entire market that the banks almost certainly are compelled to defend them. How does one defend a large short position? It is by keeping downward pressure on the market; by selling more and more paper silver futures whenever the price attempts to recover; and by hammering advances in order to discourage adversaries. Yes, even when the shortage of that commodity on the Street is so widespread that people are forced to pay 30% and 40% premiums for it as it was for silver in November and December.

Instead of trying to gauge supply and demand, investors and speculators are rewarded only if they guess right when the gigantic entities decide to go long. It’s perverse, it’s immoral and it is time for that to change. Racked by growing mistrust, scams and gross mismanagement, there is currently a heightened level of scrutiny toward Wall Street and this could be the time when meaningful change can be made to the futures markets. More transparency, better enforcement of existing rules and strictly enforced position limits on both sides of the tape to level the playing field are the issues which investors, speculators and especially the titans of industry ought to champion right now.

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