Eric Sprott and David Baker: Who would dump all that metal so fast?

Section:

10:22p ET Wednesday, March 28, 2012

Dear Friend of GATA and Gold (and Silver):

In their new market commentary, Eric Sprott and David Baker of Sprott Asset Management in Toronto remark at length on the manipulation of the gold and silver markets through paper trading grossly disproportionate to the amount of real metal likely to be available. Sprott and Baker write:

"Looking back at the trading data on February 29, the selloff in gold and silver appears to have been an exclusively paper-market affair. We were surprised, for example, to note that between the hours of 10:30 and 11:30 a.m., the volume of the Comex front-month silver futures contracts equaled the paper equivalent of 173 million ounces of physical silver. Keep in mind that the world produces only 730 million ounces of physical silver per year. The problem from a pricing standpoint is the simple fact that the parties who were on the selling side of those 173 million paper ounces couldn't possibly have had the physical silver to back up their sell orders. And the way the futures markets are designed, they don't have to. But if that's the case, how can the silver price be smashed by sell orders that don't involve any real physical?



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"Looking at this issue from a broader perspective, we've discovered that silver is indeed in a unique situation from a paper-market standpoint. We compared the daily paper-market futures volume of various commodities against their estimated daily physical production. We discovered that silver is disproportionately traded 143 times higher in the paper markets versus what is produced by mine supply. The next highest paper market commodity is copper, which is traded at roughly half that of silver on a paper market volume basis.

"We don't know why the paper market for silver is so huge, but we have our suspicions. Silver is obviously a much, much smaller market than that for copper, gold, or oil. It could very well be that paper market participants like silver because they don't need as much capital to push it around. The prevalence of paper trading in the silver market is what makes the drastic price declines possible by allowing non-physical holders to sell massive size into a relatively small market. It's not as if real owners of 160 million ounces of physical silver dumped it on the market on February 29, and yet the futures market allows the silver spot price to respond as if they had.

"Same goes for gold. Although gold paper-trading isn't as lopsided as silver's, it too suffers from the same paper-selling issue. Indeed, as we discovered for February 29, it appears to be one large seller of gold that single handedly downticked the spot price by $40 per ounce in roughly 10 minutes. The transaction represented approximately 1.8 million ounces, representing roughly $3 billion dollars' worth of the metal. Who in their right mind would even contemplate dumping $3 billion of physical gold in so short a time span?"

Oh, come on, guys -- we all know who!

The Sprott-Baker commentary is titled "The [Recovery] Has No Clothes" and it's posted at the Sprott Internet site here:

http://sprott.com/markets-at-a-glance/the-[recovery]-has-no-clothes/

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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