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Wrong Whale

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July 15, 2019 - 12:35pm

Here’s an amended excerpt from the weekly review sent to subscribers on Saturday, July 13 -

The 4 big concentrated silver longs, which I have been writing about for nearly a month, further reduced their net long position by 3882 contracts to 62,707 contracts. The only reporting category to have liquidated enough (or any real) number of contracts in the reporting week were managed money traders, proving conclusively that managed money traders held a significant percentage of the very strange concentrated net long position in COMEX silver. How else could I have expected managed money long liquidation by the 4 concentrated longs on Monday?

This is in direct conflict with the new article by Alasdair Macleod, of which many of you asked my opinion. As I think most of you know, it is not my custom to critique others’ work, as that strikes me as unprofessional. Let everyone present what they wish to present. But there is enough factually incorrect in Macleod’s article that it would be a disservice not to address those very serious errors.

https://www.goldmoney.com/research/goldmoney-insights/a-whale-is-accumulating-silver-futures

Since I’ve been writing about the highly unusual and unprecedented concentrated long position in COMEX silver futures for weeks, I thought at first Alasdair picked it up from me (certainly, I didn’t pick it up from him). Macleod holds, among other things, that the concentrated long position is mostly (or exclusively held) by commercials and not managed money traders. That’s false on its face.

Since May 28 (all COT dates) the concentrated silver long position grew by nearly 18,000 contracts from 49,614 contracts to 67,328 contracts on June 25 (to coincide with Macleod’s article). Over that time the managed money traders bought a total of 59,930 net silver contracts. Over that same period, the commercials SOLD 53,678 net silver contracts. Unless there’s a new math being deployed here, the sharp increase in the concentrated long position was very unlikely to have been caused by commercials.

I have stipulated all along that there might be a commercial trader in the ranks of the concentrated long, but clearly at least two and most likely three of the four big silver longs are managed money traders. Plus this week’s exclusive long liquidation by the managed money traders and the concurrent reduction in the concentrated long position (nearly matching contract for contract) further confirms that Macleod’s basic premise is fundamentally incorrect. In addition, the concentrated long position grew the most when silver penetrated its moving averages to the upside and shrank when the moving averages were penetrated to the downside.

Even after the liquidation by the managed money traders and the big concentrated longs, over the past two reporting week, the managed money category is still slightly more long (on a gross basis) than the combined commercial gross long position (Producer/Merchant and Swap Dealers combined). That’s not evidence that the commercials are holding the majority of the concentrated long position – just the opposite.

And here’s an amended note based upon input from a subscriber after I published Saturday’s review. Alex pointed out that Macleod stated that the big commercial silver long held 50,000 of the 62,000 to 66,000 contracts held by the 4 big longs. That’s preposterous on a mathematical basis for two reasons. One, it would leave too few remaining contracts to be assigned to the three remaining longs. Second, the only commercial category for a big long to exist would be the Swap Dealer category and the total gross long position in that category has barely been above 50,000 contracts over the past few months – making it impossible for one trader to hold that many net contracts.

Since the basic math in the article as to who holds the unusual concentrated long position in silver is so flawed, the speculation that follows is just as flawed. I found that all the speculation about a commercial trader (a user nonetheless) being the big long and further that it was China to be off the rails. Ditto with the convoluted discussion that the commercial sellers on the COMEX were largely mining companies. There are no mining companies hedging on the COMEX, otherwise they would have to publicly report such hedging according to the Financial Accounting Standard Board (FASB).

And I had to laugh at the explanation that mining companies hedged dore and that accounted for big swings in COMEX short positions. First, there is no reporting by public companies of COMEX hedging and even if there was, the same amount of ore is taken out of the ground and converted into metal every single day. Mining is not like growing crops when the harvest comes in at once, it’s a 24/7, 365 day operation, meaning if Dore’ was being hedged the hedges would be lifted when metal was produced, which takes weeks

I’m sick and tired about hearing how JPMorgan is acting on China’s behalf, a favorite of the whack- job tin-foil hat conspiracists.  For one thing, would that make the manipulation run by JPMorgan any less illegal? Even if JPMorgan was manipulating prices in its role as the big silver and gold COMEX short for the benefit of a large client, how would that make the manipulation kosher? All it would add are charges of treason against JPM for benefitting a foreign nation over the US. But the real proof that JPMorgan is in it for its own benefit is because that’s how these boyz roll.  JPMorgan putting the interests of its clients (any client) above its own has to be a joke. When has that ever occurred?

Finally, I would have preferred Macleod use a different term than “whale” because the last time that was used in connection with JPM was in the case of the London Whale, which as I recall didn’t end so peachy for JPMorgan. About the only redeeming feature of the article is that it correctly portrayed JPMorgan as the big silver kingpin (but for all the wrong reasons). You asked, I answered. The purpose here was not to flame anyone, but to set the record straight.

Ted Butler

July 15, 2019


https://www.butlerresearch.com/

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About Theodore Butler / Commentary Author

After publishing unique precious metals commentary on the Internet since 1996, I have decided to offer a subscription service. The main reason for the change is that I felt somewhat restricted by my weekly format.

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