In August 2008 economic world history was made, as a major world record was smashed. You probably never heard this news - even if you read the business section of a major newspaper, or work in the finance industry. Instead, what you may have heard was the consequence of this news. Namely: gold and silver prices hitting a major slump.
But behind those price slumps was the biggest and most concentrated naked short position ever held for any commodity. To give you some numbers, world silver production is 680 millon oz annually. The short position of 3 (or fewer) US banks increased 11 fold from July to August, with a naked short position of 169 million oz. That's 25% of all annual silver production! Gold followed a similar pattern and the same 3 banks increased their short position in August to account for 11% of all annual gold prodution. For those that aren't familiar with "short selling", it's the practice of selling something NOW (that you have borrowed), and paying for it in the future. So, if the price goes down you make a profit. If the price goes up you get "squeezed" and have to take a loss.
If you'd like to see the numbers for yourself, they're all available in the official Bank Participation Report for July and August. While it is possible that the banks themselves were not ordering the short-selling (but rather possibly clients), it is very unlikely that all short-sellers just happened to go to the same bank. It should be noted that this short-selling of silver caused the price of silver to halve from $20 down to $10.
So why would these banks be betting so heavily against silver and gold? Only the banks themselves know for sure, and they aren't saying much. Nevertheless, things worked out well for them and as a result of dumping so much bullion on the market at once, in effect they triggered a larger sell-off (in part due to stop loss orders) which created a prophecy that fulfilled itself. These banks more than likely generated huge profits.
Not surprisingly many people (especially "Gold Bugs") cried foul and claimed there was market manipulation. Independent Toronto based investor Harvey Organ submitted a written statement to the CFTC, which he accompanied with oral testimony at their March 25th hearing. You can see the video here (skip to 4:40:00 into the webcast). Silver analyst Ted Butler also wrote a piece on this event referring to it as The Smoking Gun.
Of course this doesn't actually prove there was any manipulation going on. A common retort to the conspiracy theorists was "If there was a conspiracy, surely somebody would spill the beans". Well, as if a Sasquatch were to walk out of the forest and into broad daylight, so arrived Andrew Maguire, a London based metals trader who mainly trades in the silver market. Maguire was privy to a very small network of metals traders (ostensibly with JP Morgan Chase at the helm) who would co-ordinate "takedowns" in the sliver market through the aforementioned "naked short selling" of huge concentrated quantities of silver contracts. Whether this constitutes long term or short term manipulation is certainly up for debate. But what Mr. Maguire's revelations appear to show (if they are true) is that manipulation is happening on a fairly regular basis, and at the great expense of honest investors. It should be pointed out that Maguire himself profited from these manipulations and is said to be a wealthy man.
For several months, Andrew Maguire provided evidence to the Commodities Future Trading Commission (this is the regulatory body [similar to the SEC] that regulates commodities trading, including gold and silver) that demonstrated how the manipulations were orchestrated, and how they played out. I have pasted the entire e-mail trail (which was later leaked to the Gold Anti-trust Action Committee) at the bottom of this blog. However, as you can hear in this audio interview, Maguire himself was prevented from attending the CFTC hearing on bank position limits on March 25th. Nevertheless, Adrian Douglas and Bill Murphy (of GATA) were able to attend, and were able to provide testimony on Maguire's behalf. You can see the footage on YouTube here.
But for me, what's most disturbing is that there has been no media coverage from any major newspaper or television network. And what's even weirder is that if you listen to the interview it's stated that interviews were lined up with Bloomberg and Reuters, but were both cancelled within 24 hours with no explanation. It is this fact alone that has prompted me to write this blog entry.
I have spent the last four weeks research this, and so far all signs point to market manipulation. In fact after a while it becomes hard to understand how the market could not be manipulated. To make matters worse, if you read the prospectuses on Gold and Silver ETFs (e.g. here is the GLD prospectus and SLV prospectus) your eyes will pop out at how complex and risky they appear to be. In fact just this week an excellent in depth investigation into these prospectuses was released which showed that there are major undisclosed conflicts of interest for JPMorgan (the custodian for SLV) and HSBC (the custodian for GLD). The report goes on to suggest that the ETF has been architected to effectively avoid any obligations around reporting these conflicts of interest. In some regards you could say if you wanted to design an investment product that avoids all forms of regulation, but which can be sold by trusted investment banks, you couldn't do a better job than SLV and GLD. What's also weird is that in Canada I can't even find the prospectus for IGT (the Canadian equivalent of GLD) on the Canadian iShares web site. And a search conducted just now on the Canadian ishares site for "IGT" returns nothing (but it was there in their web site 2 days ago, and a mention can still be found in the PDF). For a complete analysis of the SLV and GLD ETFs, I highly recommend you read the well researched report by Catherine Austin Fitts and Carolyn Betts.
One of the interesting items brought up in this report is the conflict of interest that the US Government itself has with respect to this manipulation. I quote the following paragraph:
The absence of these disclosures is particularly disturbing given the potential conflicts between the banks' responsibilities serving as custodians and trustee and their responsibilities and liabilities as members and shareholders of the Federal Reserve Bank of New York. The NY Fed serves as the depository for the US government and as agent for the Exchange Stabilization Fund on behalf of the U.S. Secretary of Treasury. The ESF allows the Secretary of the Treasury to deal in gold, foreign exchange, and other instruments of credit and securities. NY Fed member banks typically serve as agents of the NY Fed in providing services. In addition, JPMorgan Chase and HSBC maintain responsibilities as Primary Dealers of U.S. government securities. When called upon to defend the U.S. government’s interests in the bond market, or the U.S. dollar’s interest in the currency market, or to help prevent another financial meltdown, whose interests will be primary? Will it be the central bank and government with pressing national security interests or retail investors?
I was curious to see what if anything the US government has to say about the obvious decline in sliver prices due to that massive short sell in August of 2008. As such I referred to the US Geological Survey Annual Summary on silver for 2008 and 2009 (released in 2009 and 2010 reports, respectively). Given that they comment on changes on the average price of silver, I was curious to see what they would say about the precipitous drop in average price for 2009. Well, it's either complete ignorance or Orwellian (depending on your point of view), but the report states (contradicting its own reported numbers) that the price actually went up in 2009. And by up, they clearly mean down. Cue Seth Myers and Amy Poeler: "Really USGS! Really!!!"
To be fair, I have found the following rebuttal from Jeffrey Christian of The CPM Group (a consultancy which in part serves the bullion banks). While Mr. Christian's points are valid, they don't do much to put my mind at ease. Firstly, he mainly rebuts "red herring" arguments that aren't important, and doesn't bother to comment on the heart of Mr. Maguire's allegations or the activity in August 2008. Secondly, none of his explanations use much real data, instead relying on the abstract providing scant details of any names, numbers, or dates. I am skeptical of his sincerity in getting to the bottom of this problem. I think a truly dedicated consultant would say "Hey, I don't know for sure, but let's figure out how to get these facts". He doesn't go there.
So what's my point? Why am I blogging this?
The reason I am blogging this is that I simply cannot figure out why no serious journalist has investigated Andrew Maguire's story. I mean let's face it: Either this is all one big hoax (which is a story unto itself). Or this is part of a massive fraud involving rigged markets and major international players. This is the kind of story journalists dream of. What's going on here people!
So, before I post a copy of Andrew Maguire's e-mails to the CFTC, I put forth the following challenge to any and all serious journalists out there:
- Obtain a copy of or confirm or deny the existence of conversations between Andrew Maguire and the CFTC
- Obtain a comment from the CFTC on their interactions with Andrew Maguire
- Obtain a comment from the five (5) Bullion banks on the massive short of silver for August 2008 clarifying whether they were behind the short or not, and why
- Record an interview with Andrew Maguire to learn more about his relationship with the bullion banks.
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From: Andrew Maguire
Sent: Tuesday, January 26, 2010 12:51 PM
To: Ramirez, Eliud [CFTC]
Cc: Chilton, Bart [CFTC]
Subject: Silver today
Dear Mr. Ramirez:
I thought you might be interested in looking into the silver trading today. It was a good example of how a single seller, when they hold such a concentrated position in the very small silver market, can instigate a selloff at will.
These events trade to a regular pattern and we see orchestrated selling occur 100% of the time at options expiry, contract rollover, non-farm payrolls (no matter if the news is bullish or bearish), and in a lesser way at the daily silver fix. I have attached a small presentation to illustrate some of these events. I have included gold, as the same traders to a lesser extent hold a controlling position there too.
Please ignore the last few slides as they were part of a training session I was holding for new traders.
I brought to your attention during our meeting how we traders look for the "signals" they (JPMorgan) send just prior to a big move. I saw the first signals early in Asia in thin volume. As traders we profited from this information but that is not the point as I do not like to operate in a rigged market and what is in reality a crime in progress.
As an example, if you look at the trades just before the pit open today you will see around 1,500 contracts sell all at once where the bids were tiny by comparison in the fives and tens. This has the immediate effect of gaining $2,500 per contract on the short positions against the long holders, who lost that in moments and likely were stopped out. Perhaps look for yourselves into who was behind the trades at that time and note that within that 10-minute period 2,800 contracts hit all the bids to overcome them. This is hardly how a normal trader gets the best price when selling a commodity. Note silver instigated a rapid move lower in both precious metals.
This kind of trading can occur only when a market is being controlled by a single trading entity.
I have a lot of captured data illustrating just about every price takedown since JPMorgan took over the Bear Stearns short silver position.
I am sure you are in a better position to look into the exact details.
It is my wish just to bring more information to your attention to assist you in putting a stop to this criminal activity.
Kind regards,
Andrew Maguire
* * *
From: Ramirez, Eliud [CFTC]
To: Andrew Maguire
Sent: Wednesday, January 27, 2010 4:04 PM
Subject: RE: Silver today
Mr. Maguire,
Thank you for this communication, and for taking the time to furnish the slides.
* * *
From: Andrew Maguire
To: Ramirez, Eliud [CFTC]
Cc: BChilton [CFTC]
Sent: Wednesday, February 03, 2010 3:18 PM
Subject: Re: Silver today
Dear Mr. Ramirez,
Thanks for your response.
Thought it may be helpful to your investigation if I gave you the heads up for a manipulative event signaled for Friday, 5th Feb. The non-farm payrolls number will be announced at 8.30 ET. There will be one of two scenarios occurring, and both will result in silver (and gold) being taken down with a wave of short selling designed to take out obvious support levels and trip stops below. While I will no doubt be able to profit from this upcoming trade, it is an example of just how easy it is to manipulate a market if a concentrated position is allowed by a very small group of traders.
I sent you a slide of a couple of past examples of just how this will play out.
Scenario 1. The news is bad (employment is worse). This will have a bullish effect on gold and silver as the U.S. dollar weakens and the precious metals draw bids, spiking them higher. This will be sold into within a very short time (1-5 mins) with thousands of new short contracts being added, overcoming any new bids and spiking the precious metals down hard, targeting key technical support levels.
Scenario 2. The news is good (employment is better than expected). This will result in a massive short position being instigated almost immediately with no move up. This will not initially be liquidation of long positions but will result in stops being triggered, again targeting key support levels.
Both scenarios will spell an attempt by the two main short holders to illegally drive the market down and reap very large profits. Locals such as myself will be "invited" on board, which will further add downward pressure.
The question I would expect you might ask is: Who is behind the sudden selling and is it the entity/entities holding a concentrated position? How is it possible for me to know what will occur days before it will happen?
Only if a market is manipulated could this possibly occur.
I would ask you watch the "market depth" live as this event occurs and tag who instigates the move. This would surly help you to pose questions to the parties involved.
This kind of "not-for-profit selling" will end badly and risks the integrity of the COMEX and OTC markets.
I am aware that physical buyers in large size are awaiting this event to scoop up as much "discounted" gold and silver as possible. These are sophisticated entities, mainly foreign, who know how to play the short sellers and turn this paper gold into real delivered physical.
Given that the OTC market (where a lot of the selling occurs) runs on a fractional reserve basis and is not backed up by 1-1 physical gold, this leveraged short selling, where ownership of each ounce of gold has multi claims, poses a very large risk.
I leave this with you, but if you need anything from me that might help you in your investigation I would be pleased to help.
Kind regards,
Andrew T. Maguire
* * *
From: Andrew Maguire
To: Ramirez, Eliud [CFTC]
Sent: Friday, February 05, 2010 2:11 PM
Subject: Fw: Silver today
If you get this in a timely manner, with silver at 15.330 post data, I would suggest you look at who is adding short contracts in the silver contract while gold still rises after NFP data. It is undoubtedly the concentrated short who has "walked silver down" since Wednesday, putting large blocks in the way of bids. This is clear manipulation as the long holders who have been liquidated are matched by new short selling as open interest is rising during the decline.
There should be no reason for this to be occurring other than controlling silver's rise. There is an intent to drive silver through the 15 level stops before buying them back after flushing out the long holders.
Regards,
Andrew
* * *
From: Andrew Maguire
To: Ramirez, Eliud [CFTC]
Cc: BChilton [CFTC]; GGensler [CFTC]
Sent: Friday, February 05, 2010 3:37 PM
Subject: Fw: Silver today
A final e-mail to confirm that the silver manipulation was a great success and played out EXACTLY to plan as predicted yesterday. How would this be possible if the silver market was not in the full control of the parties we discussed in our phone interview? I have honored my commitment not to publicize our discussions.
I hope you took note of how and who added the short sales (I certainly have a copy) and I am certain you will find it is the same concentrated shorts who have been in full control since JPM took over the Bear Stearns position.
It is common knowledge here in London among the metals traders that it is JPM's intent to flush out and cover as many shorts as possible prior to any discussion in March about position limits. I feel sorry for all those not in this loop. A serious amount of money was made and lost today and in my opinion as a result of the CFTC's allowing by your own definition an illegal concentrated and manipulative position to continue.
Bart, you made reference to it at the energy meeting. Even if the level is in dispute, what is not disputed is that it exists. Surely some discussions should have taken place between the parties by now. Obviously they feel they can act with impunity.
If I can compile the data, then the CFTC should be able to too.
I would think this is an embarrassment to you as regulators.
Hoping to get your acknowledgement.
Kind regards,
Andrew T. Maguire
* * *
From: Andrew Maguire
To: Ramirez, Eliud [CFTC]
Sent: Friday, February 05, 2010 7:47 PM
Subject: Fw: Silver today
Just logging off here in London. Final note.
Now that gold is undergoing short covering, please look at market depth right now in silver and evidence the large selling blocks in a thin market being put in the way of silver regaining the technical 15 level, which would cause a short covering rally and new longs being instigated. This is resulting in the gold-silver ratio being stretched to ridiculous levels.
I hope this day has given you an example of how silver is "managed" and gives you something more to work with.
If this was long manipulation in, say, the energy market, the shoe would be on the other foot, I suspect.
Have a good weekend.
Andrew
* * *
From: Andrew Maguire
Sent: Tuesday, February 09, 2010 8:24 AM
To: Ramirez, Eliud [CFTC]
Cc: Gensler, Gary; Chilton, Bart [CFTC]
Subject: Fw: Silver today
Dear Mr. Ramirez,
I hadn't received any acknowledgement from you regarding the series of e-mails sent by me last week warning you of the planned market manipulation that would occur in silver and gold a full two days prior to the non-farm payrolls data release.
My objective was to give you something in advance to watch, log, and follow up in your market manipulation investigation.
You will note that the huge footprints left by the two concentrated large shorts were obvious and easily identifiable. You have the data.
The signals I identified ahead of the intended short selling event were clear.
The "live" action I sent you 41 minutes after the trigger event predicting the next imminent move also played out within minutes and exactly as I outlined.
Surely you must at least be somewhat mystified that a market move could be forecast with such accuracy if it was free trading.
All you have to do is identify the large seller and if it is the concentrated short shown in the bank participation report, bring them to task for market manipulation.
I have honored my commitment to assist you and keep any information we discuss private,however if you are going to ignore my information I will deem that commitment to have expired.
All I ask is that you acknowledge receipt of my information. The rest I leave in your good hands.
Respectfully yours,
Andrew T. Maguire
* * *
From: Ramirez, Eliud
To: Andrew Maguire
Sent: Tuesday, February 09, 2010 1:29 PM
Subject: RE: Silver today
Good afternoon, Mr. Maguire,
I have received and reviewed your email communications. Thank you so very much for your observations.
