McGuire claims he correctly forecast a rise followed by a decline on February 5, 2010 before the fact based on his analysis of the futures market. In my view, he had a 50/50 chance of getting it right. If he correctly predicted the pattern of silver trades three or four times in a row, then I’d start to believe that he may be on to something, but this one instance, even if it were independently verified, does not prove McGuire’s ability to forecast silver price is better than random chance.
As a gold and silver investor not a trader, that’s about as far as I can go based on my knowledge of and impressions of the market.
One of our members xPat
is a professional global commodities trader believes that in fact evidence of illegal trading activity in the silver market abounds. Unfortunately, according to him, GATA has the case completely wrong, and McGuire’s argument is full of holes. Here’s his take (edited for style):
1. "Illegal naked short selling" is a phenomenon of the stock market, not the futures market. Most contracts sold in the futures market are "naked," that is, the seller doesn't own the underlying, and this is perfectly normal. It is the intended functioning of the market. There is nothing illegal going on. No conspiracy. No fraud.
2. Contrary to GATA's allegations, Jeff Christian's testimony to CFTC was not an admission of anything. He merely stated several obvious, well-known facts about the futures market. There is no fraud, no cover up, and no conspiracy revealed by his 100:1 comment.
3. GATA's assertions about selling contracts without owning the underlying as amounting to fraud or default are ludicrous and exhibit an extraordinary ignorance on the part of GATA principals of how the market operates. Contracts held past first notice date and then not delivered are a form of default, but that's not what's in question here. GATA is working for an entirely legitimate cause—to end the very real downward manipulation of silver and gold markets by JP Morgan—but their leadership has demonstrated categorical incompetence beyond any doubt. GATA leadership should step down now and make room for competent people who actually understand commodities markets to take over and fight this very important cause.
4. Andrew Maguire's motives should be scrutinized closely. The GATA people may just be ignorant, but someone with Maguire's experience in futures trading couldn't possibly be so incompetent as to have supported the statements made in the King World News interview. He says rich Asians are bugging him, waiting for the green light to squeeze the shorts in silver. I have to wonder whether he's actually trying to meet those rich Asians for the first time to attract them as clients. His boy scout whistle blower story is extremely compelling at first glance, but to anyone who actually trades futures for a living they just don't hold up to close scrutiny.
5. The attempted assassination story is also highly suspect. JPM would only be adding credibility to his futures manipulation story by trying something so stupid. I have to wonder if he himself staged it as a way to generate media attention.
6. Ron Kirby is the "analyst" who broke the tungsten-salted gold story with what I consider to be some very sensationalist and factually inaccurate writing. He is the man who wrote about "naked short selling, an illegal act where a someone sells a commodity contract in the futures market even though they don't own the underlying commodity." (Disclaimer: quoted statement is from memory - I'm sure it's substantially accurate but really don't have time to go check Kirby's article for exact wording).Anyone who understands the futures market would immediately recognize this nonsense for what it is. "Illegal Naked Short Selling" is a real issue, but the phrase relates to the stock market, not the futures market. Futures are a derivative market, and the seller isn't expected to own the underlying. There is nothing illegal about that whatsoever, and it is most often the case in most commodities. So Kirby either has no clue what the futures market actually is or how it operates, or else he's engaged in an intentional disinformation campaign designed to put fear, uncertainty and doubt into the metals markets. I can't decide which, but either way I have zero respect for this character.In his original piece breaking the "tungsten story," he claimed to have personally seen shipping receipts proving that tungsten slugs manufactured in the Midwest USA were shipped to Fort Knox as part of a clandestine secret military operation aimed at defrauding the world by replacing all the gold in Ft. Knox with Tungsten-filled bars. Or somesuch hogwash. Go read his story if you want to know the exact plot line... But now in the latest version of this spy novel (posted by Kirby on ZeroHedge just the other day), he claims the 400-oz tungsten blanks were manufactured in eastern Europe and shipped to Ft. Knox. In the first article he claimed he had seen shipping receipts proving the tungsten blanks were made in the US. Minor inconsistency there...
Of course Kirby never bothers to mention that although gold and tungsten have nearly identical density, they have completely different ultrasonic response frequencies, and that a tungsten fake would be spotted instantly if assayed by any sophisticated buyer using ultrasonic verification. That's a rather odd detail to leave out. Unless you're writing conspiracy drivel for the intentional purpose of scaring people.
His recent piece on Zerohedge was an embarrassment to ZH, and is full of factual inaccuracies. This guy just plain doesn't understand how futures markets function and prefers to flaunt his ignorance publicly rather than educate himself. It's shameful that he's getting so much coverage.
7. There is a strong body of evidence assembled by Ted Butler alleging that Bear Sterns was engaged in a massive concentrated short position that was taken over by JP Morgan and was still being used to manipulate the market right up to just before the CFTC hearing. I find Butler's analysis of the COT reports revealing this highly concentrated short to be highly credible. Whether that very large short is truly being used to manipulate the market to the downside is something I can neither prove nor disprove, but I think the evidence Butler has assembled certainly warrants a closer look by regulators. GATA has very real evidence of a large concentrated short and a plausible allegation that it exists purely for downside market manipulation. Those claims certainly warrant thorough investigation. This evidence contrasts with this business of a JPM short and the utter nonsense being thrown around by GATA relative to the 100:1 "leverage" (sic) business.
I predict their numerous inaccurate statements in the KWN interview will be used to discredit them in a future public hearing.
I'm not an expert in the commodities futures market so I cannot evaluate xPat's counter arguments to McGuire's, but I know that many of our members are as a group exceedingly sharp and well versed on the subject, and I have no reason to doubt xPat. He offers further clarifications of his opinions here.
I will leave it to the iTulip community to decide.
The remaining assertion that banks are manipulating gold and silver to manipulate the dollar makes no sense. The exchange rate value of the dollar can be manipulated by setting gold prices and was back when the dollar was backed by gold. This was the primary mechanism of dollar devaluation by FDR in 1933. But the US is not on a gold standard. If it's on any commodity-based standard, the dollar is on an oil standard. Oil prices have a profound impact on the US economy because the US imports hundreds of billions of dollars of oil. The impact of rising prices in dollars is inflationary. Deflating the dollar against oil was the primary mechanism of reflation in early 2009. Gold and silver prices reflect the dollar exchange rate, not the other way around.
Gold price manipulation is the GATA's raison d'ętre. No gold trust, no GATA. Take GATA stories about gold and silver price manipulation with a grain of salt.
You can also expect stories about gold and silver price manipulation to appear frequently during periods when prices are either stagnant or falling.
Here’s my forecast. When gold and silver prices resume the long rise that began in 2001, the latest gold cabal price suppression story will fade away again as they have each time these temporary slow periods ended.
Lessons of the American Lost Decade – Part 1: The gold bugs were right - Eric Janszen
iTulip Select: The Investment Thesis for the Next Cycle™
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