If There's Something Weird and it Don't Look Good, Who ya gonna Call? GHOSTBUSTERS!

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One last favor, please. Please post this one under the regular daily commentary in bold. I need to have it run until Tuesday morning. I will send the closing commentary in a couple of hours. Thanks.

Preface: Many of you have recently read various articles on various websites, and in various forums, written in the wake of the spectacular plunge in gold and silver prices over the last month. As is usually the case, some of the explanations tendered for this large (but not overly so) drop in values have invariably drifted into the realm of imagination and conjecture.

Let's look at what is going on out there, and attempt to lend a degree of sanity to a topic that has some folks going off into 'interesting' directions once again. However, as they say on TV, "The Truth is Out There..."

A major industry research firm was recently commissioned by none other than a silver producer (!) to find the alleged "smoking gun" of a price suppression scheme that is alleged to exist in the silver market. To date, all that the research has revealed is that the people promulgating such conspiracy/suppression/manipulation fairytales were the only ones likely to be the ones smoking (something). The results of this study will soon see the light of day, but it has already become rather clear to everyone but the propagandists that the ghostbusting writers of these manifestos as well as their misguided supporters are simply chasing…silvery ghosts.

The accusation that manipulation is plainly visible in the silver market is not only an unwarranted claim, it is in fact, a totally ill-informed and ignorant one. There are many levels on which such a claim is not only wrong, but demonstrates an almost total lack of knowledge as to exactly how the commodities markets, including the futures markets, actually work.

Consider, for starters, just the simplest and most straightforward facts.

1. Banks/Bullion Banks are market-makers. They must stand ready to buy or sell the commodities in which they make markets, and take the "other side" of a trade from other people or institutions entering a market. When prices fell sharply a few weeks ago, it was because investors, particularly short-term, technically oriented index and hedge funds, were selling the metals. It was not the only commodity they were heavily selling, by-the-way. These funds often use over-the-counter forwards and options to execute their buy or sell transactions.

2. The funds came to market to sell their silver. Commodities were on the decline, the dollar was looking attractive, they had profits to lock in, etc. The reasons were varied, but logical. They had to find someone (a counterparty) who was willing to buy what they were selling. Guess who bought the silver? It was the market-making banks.

3. Therefore, it is clear that the market-makers (the banks) were heavy BUYERS, not SELLERS, during the time when prices declined. Now, because market-makers do NOT take naked, one-sided positions, as they were BUYING the metal in a sharply declining price environment, they were immediately seeking to HEDGE their large (and growing) LONG positions. How do you think they did that? Yes, they SOLD in the futures market, thereby hedging their LONG positions.

If anyone knows anything about commodities markets, one clearly understands that scenario. The question is, why the people who write the pie-in-the-sky theories you so frequently have to read when prices fall apart, do not understand even such an elementary concept as the basic flow of market trades. Anyone learns this fact in a basic first year economics course in college. One would think that 'experts' who purport to know about these markets would know what a freshman in college needs to know, yes? Evidently, they do not.