Yesterday those involved in the silver futures markets were witness to one of the greatest market manipulations of recent years. There have been so many different market manipulations that it takes some doing to claim this accolade.
At just before 10am US Est some participants started dumping paper silver on to the US futures market. Accoding to reports, within 30 minutes, they had dumped 225 million ounces of silver into the comex trading pits. Those involved in real time could witness the consequences of this dramatic dumping action. The order books collapsed downward with multiple gaps appearing due to the weight of selling pressure. The selling was not price sensative. It was a dump where any price was taken where ever the first buyer on the order book appeared. It mattered not what price was achieved. This is very rare in market participants and suggested something radically had changed in those trading silver.
Silver lost 11% within an hour of the start of the selling. The volume being sold was simply immense. To put the volume into some sort of perspective, 225m ounces represents 40% of world wide annual production. Its a good question to ask how this volume compares to other commodity volumes traded. Looking for some perspective in this respect if we compare, say, the most heavily traded commodity in the world, namely, WTI and Brent oil commodity to silver we see that silver paper dumped yesterday dwarfed oil volumes. Yesterday provided a tsunami of paper silver dumping volume.
Looking back at the history books, in April 2010 volume also surged in the world wide oil markets as oil approached her cyclical high of $114. Volume in the major world wide oil markets of London and the US combined hit a new all time record high of 2.5bn barrels of oil traded in one single day. This represented a massive 8.1% of total world wide oil production traded in one single day. Paper markets often display this event of a disproportionate size in relation to the physical underlying size of production or supply but for 40% of annual production to be dumped in the US markets in 30 minutes is something very unusual indeed. Some may say this is blatent manipulation. We await to see if regulators comment. Either participants en mass sold silver at precicely the same 30minute window to crush the order book. I dont know what the probability of this event would be but i would suggest it would be very very low at a 0.01 sort of event level. The alternative is that some particpants colluded to collapse the order book and overwhelm the electronic systems and market.
We await to see what regulators make of yesterday’s action.
Its also worth picking up on a few of the arguements i have heard given to explain why silver volumes can be larger than some othere commodities, as a ratio to the annual production. Some arguements are offered that oil (and many other commodities) is a consumable commodity as opposed to silver which is only partially consumed. We must recall that over half of physical silver is indeed consumed and 99% of all silver mined has been consumed for industrial uses before we take this arguement too seriously.
All the best
Rich
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