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

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There are many other additional issues that came into play during the period of declining prices in question. For one thing, market liquidity dried up as rapidly as silver prices fell. Almost all of those brave traders that had recently started trading gold disappeared. The market showed nothing but selling. Those few banks that stood up and fulfilled their market-making obligations at the time, naturally ended up representing a larger-than-normal percentage of the trades, because the other supposed market-makers fled as soon as someone yelled "Fire!" That does not make for, nor does it sound like a conspiracy.

If the hedge funds are selling their long silver positions, the market-making banks on the other sides of those transactions are concurrently taking long positions, in the OTC markets. They hedge such long silver positions by shorting on the Comex. Thus, they appear (in the regulated and reported futures and exchange traded options markets) as shorts. Hedged market-makers are not shorts. Naked, or otherwise.

One of the important points that the poor conspiracy theorists consistently miss, is that the market-making banks are usually the "passive" agents in these markets. They make the markets, and they take what is coming at them. "Longs and shorts always match" is not only a basic truth in the markets, but it is something that ill-informed people who do not understand the markets appear to be ignorant of.

Yes, longs and shorts always match, but the more important factor to know for accurate price discovery to take place, is which side is initiating the trade. In recent weeks it was obviously the short side: Funds were selling. The longs and shorts matched, but the genesis of the trades was selling. Thus, prices fell. At other times, if the impetus comes from heavy buying, the market-makers will be going long, offsetting the forward short commitments they are making.

Therefore, one would not expect to see a big increase in the market-makers’ long positions on the Comex at a time when they primarily are buying long in the OTC markets. Another point to consider when deciding to ignore accusatory comments about how certain evil ‘banks’ have as much as 35% of the shorts is to say: "So, who else would be shorting gold at these low levels?" The real question to pose here is not why the ‘banks’ position is so high. The question is, why it is so low? Go to ETF Securities’ website, by the way, and see their recent notice about the massive increase in fund buying in recent days in commodities ETFs – more or less, reversing their selling in recent weeks.

Also, by the way, why not NAME the sinister manipulative banks in question? Why not ask them outright as to the motives behind their positions (or better yet, who their clients were) and whether or not they acted in a "willfully nefarious" manner? Conclusion: One can take any database and make it suit their conspiracy argument. That, however, does not make for proof of any kind.

A quick scan of all commodities in the reports that some have brought into question reveals that, in fact, US bank participation numbered -on average- just 2.2 across the board. Or, one could isolate, say, sugar and declare that non-US banks appeared to have "ganged up" on wheat, corn, and sugar in a 'disturbing' way in August.

What we have had here in August were not the footprints of Darth Vader, but those of the hedge funds that were exiting the commodities' markets in a mass stampede. Nothing more than that. Sorry to disappoint.

Such 'smoking weapons reports' are completely in error. Bullion 'analysts' are once again grasping at conspiracy straws and are trying to incite the retail public to buy physical silver in the hopes that they might reverse the growing tide of institutional money exiting the commodities complex. The theories that the gold and/or silver markets are somehow sinisterly manipulated – (especially as they comes at a time when US regulators are keeping a keen eye on everything in the stock and commodities markets for just such behaviors), is simply ludicrous and totally out of touch with market reality. Caveat lector.

While Prof. Antal Fekete (who is seen on this site on occasion) has already and quite lucidly addressed the issues of naked shorts and related topics in some of his previous articles, one of the most compelling rebuttals written in recent memory comes - no, not from the CFTC (although it has also spoken quite unequivocally on the matter) but from Sitka Pacific Capital Management's Mike "Mish" Shedlock.