SHFE paves the way for silver futures

http://www.globaltimes.cn/NEWS/tabid/99/ID/705561/SHFE-paves-the-way-for-silver-futures.aspx

China Buying Silver Overnight

I'm glad I bought some silver equities last night and at the open this morning.  The paper futures prices have been plummeting, allowing the Chinese to buy physical bullion at discounted prices.  This will exacerbate the physical shortage, and will backfire on the shorts who are manipulating futures prices down.

http://www.zerohedge.com/article/china-buying-silver-overnight

Three's company: silver margin change

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2010/11/9_Jim_Rickards_-_Threes_Company,_Silver_Margin_Change.html

This is a pointed reminder to the readers and listeners of King World News and something we have discussed before. Most markets consist of two parties, the buyer and the seller. But in futures markets there's a third party in every trade which is the exchange and more specifically the rule making bodies and margin setting panels on each exchange. They act not in the best interests of buyers or sellers but in the best interests of the exchange itself and its statutory duty to maintain orderly markets.

Invariably the parties disadvantaged by these moves complain that the exchange is "changing the rules in the middle of the game". That's a naive and pointless perspective. The fact is that the ability to change the rule is itself a rule. The exchange is not changing the rules, they are just utilizing an alternate set of rules that are already in place. Traders should stop complaining and read the rule book. It's all there.

What is more intriguing is what motivates the exchange officials to use these rules? Is it truly a disorderly market (the usual reason) or is it part of a larger coordinated effort involving Federal regulators and policymakers to do whatever it takes to push up prices of risky assets such as housing, stocks and junk bonds and push down prices of safe-harbor assets such as gold and silver?

The point is, when buyers and sellers transact in futures markets, they're never alone. Exchange monitors are always looking over your shoulder. Never ignore the power of the exchanges and regulators and always remember they will use this power when it suits them, not you.

Increase in margin requirements cause silver prices to tank

http://www.zerohedge.com/article/when-banks-dont-results-cme-just-changes-rules-full-revised-silver-margin-schedule

Of course, only margin requirements for non-member speculators were raised, while member firms' margin requirements were not. Gee, while some members are accused of rigging the game, the CME decides to punish the non-members. How's that for justice?

Commodities, basic metals, and precious metals

Here is a bullish case for basic metals and the increasing urbanization of the world's population, especially in emerging countries like China, India, and Brazil.

http://www.mineweb.com/mineweb/view/mineweb/en/page36?oid=96498&sn=Detail&pid=1

Here is an article on a shortage of physical silver coins.

http://www.coinnews.net/2010/01/24/us-mint-silver-eagle-sales-top-3-million-best-ever-january/

The shortage of physical silver due to investor demand is openly acknowledged, as coin dealers are buying at prices ABOVE the spot price, and selling at even higher premiums. The spot price and prices on the COMEX futures do not reflect this physical shortage--yet. That's because the bullion banks are artificially suppressing the price of silver by shorting paper certificates via the SLV ETF, and shorting COMEX futures contracts. This fundamental disconnect between the prices of silver in the futures contracts and available physical inventory of silver will eventually be resolved, resulting in a soaring price. Price manipulation can only work so long before basic economic laws of supply and demand eventually materialize.

Disclosure: long silver mining shares.

Silver futures

Ed Steer's comments on manipulation of silver futures at the COMEX, as shown in September's Bank Participation Report:

In silver, as of Tuesday, two U.S. bullion banks were long 13 contracts and short a whopping 29,888 contracts... 28.0% of the entire silver open interest of 106,761 contracts! This sort of concentration is a prima facie case of manipulation. Any judge could see it... but obviously not anyone at the CFTC.

COMEX gold contracts are equally lopsided: three US bullion banks were long 509 contracts and short 75,550 contracts.

http://www.cftc.gov/dea/bank/deasep09f.htm

Despite the huge number of short contracts relative to long contracts, this represents a net decrease of 30,350 short contracts from August's 105,900 contracts. This explains gold's huge run up in price this past week. It may also be an attempt by the bullion banks to balance out their positions for the following week's Commitment of Traders (COT) report, which has a 10-day lag.

Or it could simply mean these bullion banks can no longer support these increasingly losing short positions. If this scenario is the case, expect another run up in gold prices in the near-term future. On the other hand, if JP Morgan and HSBC are able to slap on more naked short positions, they will again be successful in temporarily knocking back down gold and silver prices. But they may be running out of dry powder.

Things are getting interesting: foreign sovereign funds--including China's central bank--are accumulating gold and silver to shield themselves from a deteriorating dollar, as they hold vast sums of dollar-denominated US securities, including long-term US Treasury bonds. This puts upward buying pressure on gold and silver prices. With a handful of commercial bullion banks taking the opposite side of that trade, something has to give. With declining supplies of physical gold and silver above ground, it will be very apparent who the winners will be.