Gold-Silver Ratio breaks 1:50 level as things get interesting

Back when the US had a gold and silver standard, the dollar was pegged to gold, but silver was also pegged to gold.  This gold-silver ratio was held rather steady at about 1:15, meaning that one ounce of gold would buy the holder about 15 ounces of silver, or vice-versa.  

This gold-silver pegging was reflected in the dollar right up through 1933: before the illegalization of private gold ownership thanks to a conspiracy between the Federal Reserve, Congress, and FDR in 1933, it was a given in US commerce that twenty $1 silver coins were interchangeable for one $20 gold piece, which contained just under 1 oz of gold.  As US dollar coins were minted with 0.7734 oz of silver in each, this maintained the ratio of almost exactly 1:15.5.  Let's check this out visually:  

The Gold Confiscation Act of 1933, of course, threw everything you see above out the window.  Not only were you not going to get gold coins for your silver coins, as it was now magically illegal for the meeeeeasly American citizens to own gold coin, but you certainly were not going to get an ounce for $20: nope, even assuming you'd like to break the law to get your hands on some, you'll have to pay a whooping 75% more than you ever had--a nice $35 for an ounce.  Instantly, with the stroke of FDR's pen authorizing the Gold Reserve Act of 1934 and the revaluation of gold to $35 US dollars per ounce, the 160-year-old American standard of a 1:15 gold-silver ratio that had been a feature of the US dollar since the beginning of the Republic, was gone.  Just that quickly, the ratio had moved to nearly 1:27, or a matching increase of 75%.  Now, assuming you could get the Gaudens (which you could only do on the black market if you could do it at all, and which would have been subject to immediate confiscation if any federale found out that you had it), you couldn't bring home the Gaudens for 20 Peace dollars, but rather, you had better bring 35.  Or, to compare:

Not to mention, you had to deal with gangsters!   Yikes! (Is that one in the middle Obama?)

Of course, as covered in other posts, eventually the dollar was totally detached from silver by 1964, and has become so worthless that 29 years ago in 1981, it was even detached from copper! So, I supposed right now we are on a "nickel and zinc standard," but we have already lost the "nickel standard" part, as the coins we call "nickels" are 75% copper and cost more than 5 cents to make.  Or actually, to express the phenomenon more properly, our dollar is so devalued that it cannot buy a nickel for a nickel.  As for zinc--zinc is currently at $1.10/lb, and is up over 100% on the year, so soon we won't even be able to afford to make pennies, as those coins are 95% zinc.  This is the effect of fiat money--it is designed to made worth less and less!

So, getting back to the gold-silver ratio, where do we stand today?  The average since 1971, when the dollar was divorced from gold, has been around 1:55 to 1:60, with a dip to below 20 (during the Hunt brother's silver scheme) to a peak of 1:100 about twenty years ago in 1991.  What is interesting about the first--the dip below 1:20 that occurred during the Hunt brothers silver spike--is that even at its lowest, the ratio did not reach the pre-1933 standard of 1:15.  Even at its lowest, the ratio was 25% higher than the average for the entire period of American history (and indeed, world history) prior to 1933.  

As for the peak at 1:100, I'm rather quite enjoying this visualization thing, so here is that distortion in Peace dollar terms.  Using Peace dollar terms, this was just under 130 Peace dollars for one Gaudens, which looks like this: 

And it would have been a steal of a deal...in the reverse!  Those who exchanged that Gaudens for 100 ounces of silver in 1990 would have done better than those who didn't.  At the time, gold hit a multi-year peak of just over $420/oz, while silver staggered down to $4.2o/oz.  Assuming that someone had just wanted to trade-and-hold, a silverbug who traded an ounce of gold for 100 oz of silver would be looking at a 566% return on the silver.  Conversely, the other guy who took the gold over the silver would have a still impressive, but much smaller, 238% return, based on last weeks average prices of $1420/oz gold and $28/oz silver.  

It is a strategy of some metals investors to trade gold for silver and silver for gold based on the gold-silver ratio.  The interesting event that has occurred recently with this rally in gold and silver is that silver has convincingly broke through the 1:60 mark and, as of last week, the 1:50 mark.  Not too long ago, in early 2009, major weakness in silver was percieved due to the 1:82 level, but that was obviously short-lived.  But as I write this on Sunday night, with Asian trading now open and gold at $1,372/oz and silver at $26.37, the ratio tonight is back over 1:50, up to 1:52.  Or, 1:67.5 Peace dollars worth of silver...

One last thing to remember the with gold-silver ratio.  When the spread increases, that is, when the number gets bigger (as the gold side is always just "1"), you are seeing a greater move in gold  relative to silver; or in other words, gold strength.  Conversely, when the spread narrows (when the number decreases), you are seeing a stronger move in silver; that is, silver strength.  Many have speculated as gold increases in price, silver will appear "cheaper" simply because it won't have so many zero's behind it.  If this does indeed occur and investors move into silver as a result, the gold-silver ratio will obviously reflect this, and the spread will tighten.  Given the long term history of a centuries-old 1:15 ratio, silver looks cheap right now.  But given the average since 1971, silver actually looks a little overbought right now.  And no, I have not overlooked the massive SLV ETF move last week--the record-breaking silver ETF that added 352 tonnes overnight--as this obviously was a factor in breaking the 1:50 level, and came on the heals of a $2 price dip.  At that time last week, when silver hit a high of over $29 just before the COMEX rule change, the ratio dipped to a nearly unheard-of 1:48 mark, and was followed up by a massive support move that held the $27 level.

So, we shall see where we go from here.  Don't forget about the dollar in all of this: USD is knocking again on its all-time lows as per USDX.  Nothing comes for free: your silver and gold are getting more valuable because your US dollars are getting more worthless.  Just like the Chinese curse, we live in exciting times, indeed.  And I haven't even mentioned what Mr Zoellick at the World Bank said last week...

(Note: Please understand that my use of Peace dollars is for historical perspective only, as they really used to be exchangeable for Gaudens.  In today's market, you would want to use bullion for this, as that is what the ratio is based on.  Peace dollars have a slight rarity value that carries their average price higher than spot, and they are also more expensive than regular junk silver.  Likewise, a Gaudens is a limited-production coin, and many are numimastic and thus carry a premium as well.  My calculation with the number of Peace dollars relative to a Gauden are, as I mentioned above, based on the 0.77 oz silver per coin recognized content, and pretending that we still have an exchange system like what we did in 1933.)

LIMIT DOWN! Lofty commodities tumble: Are Chinese bankers giving us a buying oppurtunity?

[These are very exciting times for me to have taken a hiatus, but some things (namely, midterm exams!) have been gobbling up my time.  Perhaps I should stay away, as gold and silver are up a solid 20% since I last wrote one month ago.  I hope I'm not going to regret this, but I'll write anyway...]

Commodities boards around the world are nearly all red today, and some commodities (including sugar, silver, oats, soybeans, corn) have hit limit-down--even multiple times, as the massively speculative realm of margin-bought commodities comes under heat from various sundry news stories.  Oh, it is quite unfortunate that we live in a world in which the prices of commodities are largely controlled by the interpretation of "news stories" by a small collection of individuals running the commodities trading arms of about ten large international banks, individuals and banks which have absolutely no intent of ever using, let alone taking delivery, of the "assets" they purchase and sell on paper only, individuals who have likely never been on a farm or in a mine in their entire lives, but indeed this is exactly the world we have--and you can thank the banksters.  We are witnessing yet more of these whims and interpretations today.

If people didn't think the above condensed explanation of the world commodities markets to be accurate before the fabled summer of 2008--that summer when oil hit $148/barrel despite zero change in supply and a marked drop in demand--then they certainly realized this explanation to be sadly true within a few months of that summer as by December 2008 the very same "rare" commodity slid to under $30/barrel.  The international commodities trading system is perhaps the most socially destructive result of the international fiat banking system, as it manipulates the real price of real stuff, and real people need these real things and really suffer when banksters manipulate the markets with contracts on non-existent "assets" based on debt.   And just in case some goldbugs had recently come to like or even trust these banksters as they watched gold and silver prices climb in price to records--just in case they were thinking, "Well, its only bad to have massive bankster-run market manipulation when they are driving down the prices of metals--but its okay when they are driving up the prices," well then today these confused people are getting a reality check, written with lots of big red numbers indeed.  We kid ourselves if we think that the Fed is going down that easy!  No way!

We are seeing the death-grip these banksters still have on commodities today, as the "market" "responds" to "new stories."  The big story this time, the story apparently so important that these insane markets must immediately price the "news" into commodities, is that perhaps, maybe, sort of, we think, it is possible that China is going to increase interest rates.  

Gasp!

Market response: "Increase interest rates---do you mean that China is going to increase the price of money?  Heaven forbid!  Curse those "currency manipulators"!  How dare they!"

"By all means, we'd better move quick!  This is surely reason enough to drop the price of sugar by 12% in a single day, don't you all agree?!  To the algorithms, quick!"  

"Commodities rout, commodities rout!" 

Is this an exaggeration?  Sorrily, it is not--sugar really dropped almost 12% today "based" on the rumors of possible Chinese central banker moves.  Of course this is not a reasonable response--not in a sane world where sugar prices are controlled by supply and demand--but in this insane world of bankster-run commodities and equities markets, it is apparently a perfectly justified response.  So let us review what else are perfectly legitimate responses to a rumor about what Chinese central bankers might do:

15 Perfectly legitimate responses to rumors about Chinese central bankers:

1.)  Sell oil, down 2.8%

2.)  Sell canola, down 4.8%

3.)  Sell cocoa, down 3%

4.)  Sell corn, down 5.2% (limit down)

5.)  Sell coffee, down 3%

6.)  Sell soybeans, down 5.3% (limit down)

7.)  Sell wheat, down 4.8%

8.)  Sell sugar, down 11.7% (limit down, twice)

9.)  Sell oats, down 5.1% (limit down)

10.)  Sell copper, down 3.6%

11.)  Sell gold, down 2.8%

12.)  Sell silver, down 6.1% (limit down)

13.)  Sell platinum, down 4.5%

14.)  Sell palladium, down 4.8%

15.) Launch a mystery missile off the coast of California (wait a minute...how did that get in there...)

These are just today's numbers.  Most of these commodities were also hit yesterday, precious metals especially.  Silver is an interesting case here, as silver has been a great story over the past 90 days.  The once insurmountable $22/oz price level is now a distant memory.  Even today's $25/oz numbers are very appealing considering the $29/oz of a couple of days ago.  There can be no denying that the recent huge moves in silver are abnormal, despite what silver perma-bulls constantly claim.  I am as big a fan of silver as anyone, but you have to be realistic here: there has not been a fundamental change in the role of silver over the last 90 days that can justify a nearly 60% increase in price; what there has been is a massive devaluation of USD coupled with a corresponding massive move to commodities for value protection.  Lets look at the 6-month chart of USDX, courtesy of StockCharts:

USDX is still knocking on the tombstone of its previous all-time lows of 74 and 71: in case you cannot read it, that lowest dip is below 76.  Now, lets look at silver over the same period:

As you can see, this is not a perfect correspondence: silver was not tracking USD until perhaps September, but since then has.  Now, look at gold:

Gold is a different story, because of gold's currency status, but as of yet, silver simply does not have the same currency clout, or even alternative-currency clout as gold.  (This is not to say it shouldn't or it won't or whatever, it is just a fact that silver remains a commodity play, not a currency play like gold, in my opinion.  Please do not overwhelm me with pro-silver emails--I am already very pro-silver, and the Bankster Report mascot proves it!)  We all know that silver is quite volatile, but what we have seen over the last three months are moves several standard deviations beyond even the "normal abnormal" moves in silver.  Here is an interesting analysis of past silver spikes, and the drops coupled with them.  You'll see that historically the post-spike corrections have been between 22% and 36%.  My own research has confirmed this.

But let's discuss lovely silver a little more.  Since silver broke $20/oz during the first part of September, the metal has moved as high as 47% to the extremely short-lived November 10 high of $29.39/oz, and has since fallen to below $26/oz: in fact, silver fell 9.7% within a matter of hours after hitting that high earlier this week.  One major reason for this price drop was the fact that COMEX that very same day announced an increase of 30% on the required upfront-cash needed to support silver margin contracts: simply put, this gave the paper silver crowd the choice of selling at a profit or fronting more cash to maintain the long contracts.  Given the huge sell-off, we know what their choice was.  Honestly, this could be expected because of the huge advances in silver since this 3 1/2 month-or-so-long rally began, as investments have already been very profitable, especially for the paper crowd and even more so for those buying on margin: paper investors especially who entered the market at the beginning of this rally have already seen a 59% increase, excluding the many-times multiplier of margin contracts.  The COMEX announcement offered an excellent reason to take the chips off the table and cool-out for a little while, and a big part of the market did just that.

So whatever the reasons--China, COMEX, mystery missiles, Venus--silver sits this weekend at a level last seen a couple of weeks ago before the (unreasonable, in my opinion) 15%-per week moves of the last couple weeks.  Still, it seems like a long time ago that silver was at $25/oz, especially for those of us looking for another buying opportunity.  This weekend well may be it: since I starting writing this very post at market close, after-market silver has rebounded about 1.4%.  Gold is also in the mid-$1300's, which seems strangely "cheap," as strange as using the terms "$1300" and "cheap" in the same sentence.  Monday's prices will demonstrate to us whether or not last week's $27 and $28/oz silver levels are indeed the "normal" now, as some people are beginning to speculate.  

Bankster Report's Eagle mascot gains 30.5% in 6 weeks while Bankster Reporter's savings lose 8% of purchasing power

In case you haven't noticed, silver has been on a tear this past month. Check out the graph below, courtesy of StockCharts (to which we are permanently linked on the left of this page under "Silver (chart)"):

Silver up $5.5/oz over the last 35 trading days: f(x) = 5.5/35X ?

If you cannot see the numbers, please click on the link, because StockCharts does a great job with their graphics and you will be able to see everything you need to in good contrast. Even without clearly seeing the numbers, however, you certainly cannot miss the near linear increase on the right of the image. Looks like y = 5.5/35x to me. This covers a roughly six week period from the last week to August through today. The late August price was about $18.00/oz, and silver moved up a massive $5.50 since, or 30.5% (silver hit $23.50/oz, and closed today at $23.22). It is a huge move, no doubt, and is a 13% larger move than the less-huge-but-still-nice spike in gold. See for yourself the gold chart, also from StockCharts:

As you can see, gold is up $200 over the same period, from $1160/oz to over $1360/oz, and closed today at $1347/oz, thus giving gold a gain of over 17% in since the end of August. Of course, silver is quite prone to runs-up, and runs-down. Between mid-March and mid-April of 2006, silver shot up 43%--and then sunk 45% from May to June. Silver also dropped 31% in the month between mid-September and mid-October 2008 during the tumult of the credit crisis, and did this after having dropped from over $21/oz just six months previously. Silver recorded two 30%-plus rallies in the first half of 2009: one, from mid-January to mid-February registered nearly 35%, and the other, from May 2009 to June 2009, registered 33%. The first rally moved silver out of the $11/oz range, and the metal has not returned to that level since. However, the second price rally of 33% from May to June was promptly following by a 28% crash from June to July 2009. Digging back further than 2006 reveals more examples of silver's notorious volatility, especially 2001 and 2004. As for gold, during the above-mentioned 2006 silver rally-top-crash, gold rallied as well, though less aggressively, and also erased it's gains the following month. Likewise, during the fall 2008 credit crisis peak, gold dropped over 25% and traded briefly below $700/oz after having that summer broken $1048/oz. So, all that said, I know that I am not only one who is just a little concerned with this current move. (More on this later.) We've looked at the charts for gold and silver over the last six weeks, so the next obvious question would, of course, be "What about the USDX?" Well, c'mon--what do you think? Here's the US Dollar Index, from StockCharts:
Ouch. That was predictable, unfortunately. While gold-bugs and silver eagles are jazzed at the rallies in precious metals (I know I am, as well as very apprehensive), we also have to look especially closely at that last chart, the USDX. You might have some investments in commodities, gold, and silver, and are therefore pleased with these moves. You might have already figured out that the US economy is in an utter unsustainable path towards disaster, and you've made yourself mentally prepared to shovel dollar bills into the fireplace in Wiemar America, if need be. You might be totally psychologically ready for whatever comes. But are your financially prepared for it? No one is: a dollar collapse would be completely unprecedented and there is no telling what would happen: violence, wars, totalitarianism, or "benevolent" property seizure, illegalization of gold and silver, account confiscation, bank holidays, devaluations. No one knows. For the record, I don't know if any of these things will ever happen, and I hope they do not, but I personally think that the dollar is not built to last and never was. And that dollar connects us all. Look at that USDX chart again: I'm guessing that you are not paid in commodities, and if you are, please don't tell the IRS. You are paid in dollars, and your checking account is in dollars, and your savings account is in dollars, and your retirement plans in dollar-denominated assets (equities or bonds), and your house which you might one day like to sell is in dollars. The only good thing about it is that your debt is in dollars, too. USDX is a measure of value against six other major currencies, and as the dollar falls against these other currencies, import prices increase. Correspondingly, the relative price of US exports falls, which would perhaps be beneficial if the US actually exported anything! To the contrary--the US economy is, quite literally, based on consumer spending, and consumer spending, and consumer spending. You and I spending money is what makes our "economy" work, and is what dominates almost 65% of the national GDP. That in mind,USDX is down nearly 13% since the recent high in June of over 87. Over the last six weeks, USDX is down almost 8%. That means we are out 13% of our spending power in the last four months: are you thinking that all of the sudden, silver and gold continuing up doesn't seem so nice?

In September 22 article, Bob Chapman had this to say on the issue of the USDX: "The dollar, now at 81.32 on the USDX, will fall to 74, then to 71.18, and eventually to 40 to 45...". Since he wrote that, USDX has moved from 81.32 to 77.26 today. Mr Chapman cites two specific levels--74 and 71.18--because these are the two very important support levels: if USDX breaks these levels, then we could be sliding into the long term scenario that Mr Chapman thinks will take USDX "to 40 to 45." Others disagree greatly with him. Here are USDX data going back to 1986, and if you take a few minutes to view them, you'll see what has happened to the relative value of the dollar over, especially over the last year fews of the Fed's loose/cheap-money policy. Mr Chapman specifically cites the 71.18 level on USDX because it was the 14-day relative average of the USDX during the two weeks which bracketed the all time low in USDX, hit in March 2008.

So let's recollect March 2008, shall we? Pretty uneventful, really, expect for the collapse of Bear Stears! Of course, Bear didn't collapse because of the dollar; it collapsed because it was a reckless investment bank that attempted to play $13 TRILLION in games with $11 Billion in chips. Another relevant event which occurred in March 2008 was silver hitting its previous post-1980 high of over $21/oz. The events of the last week include silver eclipsing even that mark, and the metal now sits a 30-year high. Gold, of course, has hit all-time highs several days in a row, and it up week-over-week since the end of August.

It is a bitter pill: as my headline states, one is up and the other is down. Gold and silver strengthen because the dollar deteriorates. But that is the purpose of fiat money--to destroy wealth and annihilate savings and capital. The tables may be set to turn, however. I have no clue--I'd trust Bob Chapman's opinion over my own any day. However, silver and gold look overbought to me, and dollar looks oversold. This is not uniquely my observation, but some say, including myself, that it appears in the very charts I posted on this page. I could be completely wrong, of course, and totally misinterpreting the data.

Below the main price charts above, you'll see a second, smaller box. These are the MACD charts. MACD stands for "moving average convergence-divergence" data. Here they are again from, from silver, gold and USDX, respectively:

Look at the right-most trend. The MACD is a momentum indicator, and like all technicals, it doesn't matter if you believe if everyone else does--particularly when that "everyone else" includes computers in high-frequency trading (HFT) modules that are programmed to buy/sell when certain statistical or technical events occur. Commodities are less subject to HFT, but gold is not a commodity, and both gold and silver are covered by several ETF's and thus have significant exposure to HFT's. I have no idea how much further the MACD can move in gold, silver, or USDX, but in my very humble opinion, gold looks overbought, silver looks overbought, and USDX looks over sold. And that is NOT investment advice!

Here are someone who happens to agree, as well as someone who doesn't, and Dennis Gartman, who is a long term gold bug who thinks gold is not only currently overbought, but "hyper-overbought," and who says he just doesn't "get" silver at all. If anything, in more of my still humble opinion, a pull-back in silver would be great, as it would give me a chance to move in on a dip! I think it would only be a temporary move, because I think both silver, gold, and all "things" on the planet are set to increase in price as all currencies decrease due to central bank theivery, and I think gold and silver are the long term belt and suspenders. That is not investment advice either, but I'd certainly rather have silver than dollars--no contest. The dollars I do have I ought to convert to Arrowhead jugs full of pre-1982 pennies, as with copper at $3.77/lb, penny arbitrage is the perfect dollar hedge as far as I'm concerned.

And yeah, I'm that crazy: you can imagine me a bunker with Arrowhead jars of pennies all around. I'd rather have copper than paper any time.

Yeah, COT's matter: Visualizing the silver short

Many of us will never forget that crazy, foreboding weekend in March 2008 when the cards began to fall. In a matter of weeks, the mighty Bear Stearns had metamorphosed from a perceived Wall Street giant to a pulsating pile of toxic waste, and the legendary investment bank's share price had fallen from $93 per share to $2. Whatever really happened on that weekend in March, we may never fully know: information from the same source (ah-eh, Mr Paulson) conflicts even with itself. All we can say is that our wonderfully shortsighted Mr Geithner and his utterly corrupt FRBNY, along with the aforementioned Treasury Department head crook Mr Paulson, arranged for the orchestrated insta-bankruptcy and massive firesale of Bear Stearns and its non-toxic assets to JPMorgan Chase. The balance--that is, the remaining fantastically toxic debt--was jammed down the throat of the US taxpayer, first via the Fed's Maiden Lane LLC, and later via the inevitable bailout of zombie bank JPM. It is a long story that has been covered here before, but the reason this move from over two years ago remains important--beside the BILLIONS in debt that the taxpayer will be stuck with and massive payoff to JPM that the taxpayer footed--is because of the silver mystery embedded within it.

Full disclosure: I think the crime against the American taxpayer committed in the bailout of Bear/JPM is something that far surpasses in both gravity and significance the possible side-line manipulation of silver which I am about to mention. Besides the mere scale of this grand larceny (in Billions) being larger than the entire silver market, the utter disgracefulness that the US government and its so-called officials demonstrated in "saving" these fraud-laced institutions is what did cement the path upon which all of the subsequent bailouts and financial bloodletting travelling, the path straight to the pocket of taxpaying, dollar-using Americans. The silver story is important, but I do not personally think that the JPM-Bear bailout happened because of silver manipulation. Unfortunately, I have no confidence in this government or the one before it, and I believe it would have happened with or without any interest in a shiny white metal.

That said, something very, very big in silver happen during those hectic weeks in March 2008, and we cannot be sure just what. Somebody knows (okay, more than one somebody: I would guess Mr Paulson, Mr Geithner, Mr Kohn and Mr Dimond, oh--and can't forget Mr Bernanke and, of course, Mr Cayne, and Mr Schwartz), but no one is saying. That leaves plenty of room for speculation, and given these last two and a half years, plenty of time, too.

The Bankster Report frequently harps on the paper positions in gold and silver and the CFTC's refusal to address them, but here I just want to speculate on the silver short. Remember back to 2008: In January, the Fed and Bank of America absorbed the sub-prime leader Countrywide. By March, Bear Stearns was down, and the real tremors started. By summer, a dozen banks had failed, and Fannie and Freddie were in big trouble. By September, Lehman was under, and every single one of the top five banks were in serious, legitimate risk of insolvency. The rug was out from under the market, LIBOR rates were at records highs, and credit was frozen. By October, financial terrorism and threats of Congressional martial law had the once-defeated TARP bill successfully forced through Congress after the DJIA crashed 777 points in one day. By November, gold was under $750/oz, Treasuries were starting a path to negative yields, and markets of every kind all over the world were nothing but red. Take a minute to remember this (because its going to happen again, but that's another post): do not forgot how fast things fall apart.

As was astutely covered by GATA during the thrashing rolls of the market in November 2008, besides all this very visible financial deterioration, something else was up. At the time of the GATA article, silver was sitting under $10/oz (back up the truck!) after having lost over 50% of its value from the March 2008 prices of $21/oz. In March, before its collapse, Bear Stearns was sitting on up to 25% of all COMEX silver contracts in a short position when silver was a near 25-year highs. This entire position was acquired by JPM, because if the Fed would not have transferred these positions, then attempting to close this huge short of the metal while it was at record highs would have only unleashed it further. Silver is not the only commodity position JPM accepted. Yet, within 8 months, silver had last over half this price, and JPM was reaping the profits of this massive short position and the massive 50%-plus crash. The November GATA article presented evidence from once-skeptic turned long-time mega silver-bug, Ted Butler (and I do mean mega silver bug, which is appropriate to consider in viewing his analysis). From Mr Butler's November 2008 article:

"This week, I received a copy of a letter, dated October 8, sent from the CFTC to a California Congressman, Gary G. Miller. It discussed allegations of a silver market manipulation because of the data in the monthly Bank Participation Report. The data in that report for August showed that one or two U.S. banks held a massive short position in COMEX silver futures of 33,805 contracts, or more than 169 million ounces. This is equal to 25% of annual world mine production, and was up more than five-fold from the prior month’s report. After this position was established, silver prices fell more than 50%, in spite of a widespread shortage in retail forms of investment silver. Never before had there been a such a large concentrated position in any market, including every manipulation case in the CFTC’s history. Concentration and manipulation go hand in hand. You can’t have one without the other."

Here, Mr Butler is referring to the JPM-held post-Bear short. Check out this detailed post for more information on this bank participation (BPR) than you would like to know, and for plenty of information on the documented short positions of JPM. This is all very important, but for now, let's just fast-forward all the way to last week, and last week's COT report. The COT's, or Commitment of Trader reports, are commodities market participant disclosure reports released by the CFTC. COT reports are notoriously difficult to interpret. They are somewhat like looking at a chess board from above, so theoretically they allow a view of each side (long and short) and side interest (speculative, commercial, hedgers/producers), but they don't necessarily reveal moves or direction. Click on this COT example, and see if you can extrapolate any of this data. Can you read the moves on this chess board?

Well? It is possible, but its not simple. So this is why I'm so pleased to share this very nice visual version of the CFTC's COT reports release, courtesy of Libanman Futures. Thank you, Libanman! Yes, even if the information contained within it is frustrating, perplexing, and perhaps even evidence of massive commodities market manipulation, this is sure a pretty chart! It is quite different from the example above--the COT as issued, as a bunch of numbers which is not easily discernible. However, pump this data in Excel, and you'll receive a visual version that is quite easily understood. Or, just check out Libanman's great work.

So let's visually compare the COT's of different commodities to determine if we can spot a trend.
Here's an example of the cocoa COT:





The light blue is net commercials (banks), darker blues are swap dealers and small speculators, and the pink is net managed money. Positions below the axis are short, positions above are long. The line with red dots is open interest. What we're really looking at here is how the net shorts (which happen to be commercials) respond to the net longs: you'll see that it is very close to a mirror-image. This is what you would except if the net commercials were engaged in the kind of normal activity banks do in future markets to make money, activity such as smartly hedging against the bets they've taken either to insure long positions they've guaranteed for, say, a producer, or to hedge their own proprietary long bets. There are other smart reasons to do this, as a successful bank can figure out how to turn a profit no matter how the commodities markets move (to a point), they just play the markets to move.

Now, let's compare this cocoa COT to the same week's silver COT:




Can you see any differences? Let me rephrase that: is there something wrong with this picture? Where is that mirror-image we saw before? What's with the large changes in long positions and virtually no reflection of these changes in the shorts? What kind of investor can run this gambit without getting burned? Are these some kind of rolling short positions? Don't look at me--your guess is as good as mine!

For one last comparison, let us look at the gold COT. You'll see that despite the constant claims of overspeculation in gold (claims that may or may not be accurate), it looks a whole lot more like cocoa than it does a fellow precious metal, silver. Click here to see the whole Libanman COT collection, and judge for yourself the uniqueness of silver's COT.

Here's the gold COT:



You tell me? Are we looking at JPM's continued massive short when we look at that silver COT? Perhaps: we should have more information with today's COT, considering the huge move in silver that has occurred since last week (about +8%). I might attempt to read it, but I'll most likely just wait for Libanman to make a nice pretty picture of it, and post the link for anyone interested.

That's waaaaay easier. Enjoy.

Dealer claims $500,000 in silver bars stolen from U-Haul van safely parked on secure, desolate unlit gravel road

The Gold and Silver Crash Course post covers the importance of steering clear of paper bullion, and stresses the importance of taking delivery. However, though not expressly mentioned in that post, storing bullion in a moving van parked along a desolate unlit gravel road would not qualify as safe storage.

Also, hopefully after reading this post, you already know one place where not to buy gold, despite the advice of talking head Glenn Beck. Well, here's another place where not to buy gold, silver, or even soda pops, and certainly not a place to trust to "store" even the empty soda cans: Global Bullion Exchange.

Global Bullion Exchange is running out of states in which to do "business," business which, according to documents obtained by various investigators, apparently includes losing their clients $29.5 million in Florida alone. Yet what is bizarre about this company is that despite having "closed overnight" in December of last year and filing for bankruptcy in Florida court, the operation continues to take investments through to this month, in at least one other state. From a May 12, 2010 article in the Sun Sentinel:

"Hundreds of customers from North Pole, Alaska, to Miami — many seeking a safe investment harbor in uncertain economic times — sent the company money so an advertised "team of experts" could guide them through the gold and silver markets. But when the Lake Worth-based company closed overnight, its books showed that at least 1,400 clients were out about $29.5 million. Some people saw their retirement nest eggs wiped out.

"It was 40 years of investment I lost," said social worker David Gruber, 72, who lost about $400,000 he put into precious metals. "It was 40 years of scrimping and saving. … Nothing has been the same since."

Amid the company's rubble, attorneys are scrambling to figure out what happened to customers' money and if there may literally be a pile of gold somewhere. A former company accountant has said in a sworn statement that the company's owner, Jamie Campany, once had more than $1 million in gold bars stashed in the trunk of his Mercedes."

(Trunks of Mercedes are also heretofore added to the list of places where not to store bullion.)

Yet, somehow Global Bullion Exchange continued operating in other states. The company's owner, Jamie Campany, is now facing lawsuits to recover the money. In addition to the $1 million in gold bars in his Mercedes, Mr Campany apparently found rental trucks, preferably parked on unlit gravel roads, to be proper bullion storage facilities. From a June 2010 Sun Sentinel article:

"Campany has told deputies from the Palm Beach County Sheriff's Office that the day after Global Bullion Exchange closed, up to $500,000 in silver bars were stolen from a moving truck he had parked along an unlit gravel road off South Military Trail in Delray Beach."

Well, Mr Campany would have put them in the Benz, put they just wouldn't fit! For visualization purposes, $500,000 in silver bars (at December 2009 prices, when the bars were said to have been "stolen") would weigh about a ton. But I can't be so hard on Mr Campany, because believe it or not, I can sympathize with him: I, for one, routinely leave that extra $1 million in gold bars that I have laying around in the truck of my Toyota--I mean, where else am I gonna put it? It doesn't fit in my purse? I also confess that have even forgetfully left the garage door open, exposing my 18 tons of shining silver bars to the whole neighborhood!

Oops!

Oh, and I'll never forgot the time I accidentally put my 1907 High Relief Saint Gaudens into the vending machine at the stadium, thinking it was a quarter! You should have seen me--I kept trying to jam it in there, wondering why the brilliant and incredibly rare, super-fat, one-ounce gold coin wouldn't fit in the slot! I eventually got frustrated and threw it into a nearby koi pond. Oh, silly me . . . Mr Campany is quite right--this kind of thing happens all the time!

According to another article, a local business man from Sodfather Sod discovered the U-Haul, and as the back door was open, peeked inside only to see silver bars strewn about the floor. He called the police, and that's apparently when Mr Campany explained that he'd parked the U-Haul filled with over half a million dollars in silver there for safe-keeping, and that--oh my!--most of the bars were missing.

And now, 8 months later, Missouri Secretary of State Robin Carnahan is intervening with her authority in an attempt to stop this still-slithering "investment" scheme, which is continuing in Missouri. Last week, Mrs Carnahan ordered Global Bullion Exchange to "cease and desist", claiming that the scheme had defrauded Missourians of $100,000. According to Carnahan, Global Bullion Exchange was misrepresenting investment oppurtunities in silver as safe, while they were actually highly risky levered margin accounts.*** It is not the first time Mr Campany has been subjected to cease and desist orders or other censures. As the Saint Louis Business Journal reports:

"Global Bullion Exchange has been subject to cease and desist orders in other states, including California and Maryland. Jamie Campany, who ran several of the companies associated with Global Bullion, was the subject of a 1999 complaint by the National Futures Association for “deceptive and misleading sales solicitations,” and filed Chapter 7 bankruptcy in 2001."

According to this pdf from the FTC's "Operation Short Change," the State of California has issued this cease and desist order against Global Bullion Exchange and Mr Campany in January 2009, and yet here is a Rip-off report from January 2010, apparently from an Alabama resident who claims that the company is refusing to return $7,818. This poster also mentions that in his phone conversations with Global Bullion Exchange, he has detected that the company it "trying to change its name" to Metals Trading Group, LLC. Thanks to that tip, we can confirm it is true!

Metals Trading Group LLC is the new front for Global Bullion Exchange.

Check out the flashy new website, complete with lots of smiling, attractive professionals. Click on "Our Company" and you won't get much information, and you won't see any mention of Mr Campany's name or Global Bullion Exchange (indeed, this ridiculously incomplete "Our Company" page should be an immediate tip-off for any company with which you're even thinking about doing business: this page is a joke!). Pretty much all you'll learn about the company from their site is that Metals Trading Group LLC alo goes by the shorted name MGT.

So, how can we see that MGT is, indeed, the new front for Mr Campany and his Global Bullion Exchange? Astounishingly, the very Metals Trading Group account application (proving, perhaps, again that people never read these things) clearly states that the "principal" of Metals Trading Group LLC is no other than the above-mentioned Jamie Campany, and even describes his previous illegal behavior and failures!

"Metals Trading Group, LLC’s Chief Officer has settled a proceeding with the National Futures Association in May, 2000. There additionally have been State Cease and Desist or Injunctive Orders entered under state laws. On January 19, 2010 an assignment for the benefit of creditors was filed in Dade County, Florida under Florida law bearing Case No. 10-3077 CA 40 by Global Bullion Exchange, LLC, and Case No. 10-03076 CA 40 by Diversified Investment Group, Inc., companys which were wholly owed by the current principle of Metals Trading Group, LLC, Mr. Jamie Campany because they could not meet their financial obligations to customers."

I feel very sorry and sympathetic for those people who have lost so much to these "investment opportunities," mostly because they are usually old people with no means through which to recover what they lose. That said, the very fact that this above paragraph is included in the application for a new account--that fact that people are literally signing a document that clearly states that the owner of the company to whom they about to send thousands of dollar has had cease and desist orders and injunctions against him, and even lost two companies " because they could not meet their financial obligations to customers", this fact is a statement also on those who do sign. You should not have to sign any contract to buy bullion with any dealer, period. Nevermind a dealer like this one!

So, we can therefore add another bad bullion dealer to the list:

Metals Trading Group, LLC
Metals Trading Group LLC
333 Arthur Godfrey Rd.
Miami Beach FL 33140

I cannot confirm whether this front is currently operating, because when I attempted to call the phone number listed on the contact page (1-877-361-1110), the call "could not be completed as dialed." Imagine the feeling you would have if you heard that message when trying to collect your money.

You have been warned.

***(Bankster Report opinion: NO ONE should engage in margin investment of ANY kind unless he is utterly familiar with the very high risks and has the capital to lose and the funds to cover changes in prices. Margin investment in commodities is much more levered than in stocks, where leverage is restricted to 50%. Margin investment in commodities futures can be seeded with as little as 5%, hence both the upside and downside are extremely large. Also, commodities contracts held by margin are bought and sold on the futures market, like all other commodities contracts. Buying commodities on margin is not a game.)

Market Observations: Where's my helmet?

Market Trouble
Today we saw the DJIA returning to four digits and touching 9,937 before staging, perhaps with the aid of the Working Group, an afternoon recovery to 10,060. We also saw the S&P well below 1050 for most of the day, and as low as 1042. Please note, that these numbers are coming off 1122 on August 10 for the S&P and from 10,719 on August 9 for the DJIA. In other words, these twelve trading days have shaved off over 7% in either market.

The worst news today is that July new homes sales absolutely plummeted to a new record low:

"New home purchases fell 12 percent from June to an annual pace of 276,000, the weakest since data began in 1963," reports Bloomberg.

The Commerce Department also reported that the average sales price has plunged 13.2% since July 2009. Median home price of $204,000 is the lowest since 2003.

New homes sales are down over 32% compared to a year ago. Considering that we are experiencing record-low mortgage rates, this is very, very, very bad news. Seriously, think about it: homes are the cheapest they've been in seven years and rates are practically the lowest ever, and yet new home sales are off 32% year-over-year. Either banks aren't lending or people aren't asking, or both.

Other news:
Gold is up nearly $90 in the last 30 days, and the dollar is strengthening too. That's a pop to the face of those who still call gold a "commodity." As for the real commodities, the usual mysteriousness is summarized nicely here, where you'll also see mention of the over 6% move in silver in the past two sessions, including a solid 3% silver rally today that pushed prices to $19.07/oz. Both metals are at two-month highs today. I say "mysterious silver" because you never know what to expect with that one, even more so than gold, which is mysterious enough on its own.

The Bankster Report offers no investment advice other than the obvious observation that when it comes to fiat money, history has spoken only in repetition and never in contradiction: fiat fails. But, for those interested in some technicals and opinions on these precious metals, here are some links:

There's gonna be a big metals rally starting in the fall!
There's gonna be a big metals crash starting in the fall!

Silver technicals look good.
Silver technicals look bad.

Silver is a mystery.

Gold technicals look good.
Gold technicals look bad.

Gold is going through the roof!
Gold is going to crash and burn!

And, of course, here's an article found by our like-fellows over at Zero Hedge, to whom this Bankster Report is permanently linked on the left hand side: Gold Bubble? What Bubble? Also, from la contra costa, we have this: "Investors warn about gold bubble burst."

Some analysts are calling for a short-term upside in silver to $21.50. This is would a rather big move, as silver over $20 is the psychological equivalent of gold over $1000. That's also a very hefty 13% from the current price. Not everyone shares this opinion.

This is what a market is made of, lot of opinions. Excluding, of course, the gold market, which happens to have lots of opinions and then about 33 central banks, too. But never mind that! New short-term (6 month) calls on gold range from $1300 to $1365 from the so-called serious market makers such as Goldman Sachs and others. In my opinion, short term should not be one's concern.

However, probably in the shorter-rather-than-later term, the commerical and residential real estate bubble in China will be coming to some moment of truth. As legendary investor Jim Chanos has called since last year, this one's gonna be bloody. If you don't know anything about what's happening in China, check out these videos:

Empty Skyscrapers
The World's Biggest Mall
Empty Cities

Wow.