Re: the widely reported silver shorting by JPMorgan and crew: Can someone explain to me how shorting silver in such a massive quantity depresses the price of silver?
Re: gold price and its alleged suppression: Most of the articles I read that suggest the G-men, Fed, IMF and company are and have been suppressing the price of gold through secret swaps and sales. This I sort of understand...if one of them secretly transfers a few hundred tons to another who then floods the market with supply, the price of gold will fall. Two questions though: in these alleged secret swap & sells, how are they preventing massive amounts of gold from getting siphoned off by honest individuals in the market buying the gold? And two, why should the IMF or government care what the price of gold is anyways? I've read in a lot of articles that a higher gold price undermines the fiat system, but how? Why would 99% of brain-dead America care if gold were $2k/oz or $10k/oz or heck $100k/oz? How many would even know?
Re: the delivery crunch of silver shorts: I haven't seen anything about this in the last few months...What happened to all of the hullabaloo about JPM and other BBs' shorts on silver outweighing the actual amount of silver several fold? Will this delivery crunch happen and if it does, will it be soon? I'd imagine it would shoot the price of silver to the moon, just on the fact that silver would be all over the news coupled with the words "shortage" and "crisis".
Thanks for taking a stab at any of these questions!
bump
Shorting depresses prices by opening up the sellers side of the market to those that don't currently own the product. If demand went up and supply stayed the same, the price would increase. If demand went up and apparent supply also goes up because there's suddenly more sellers, then the price would increase less (or decrease, depending on specific the supply and demand changes). Someone shorting can sell the product for a price that existing owners wouldn't sell it for, sating the demand of buyers in the margin between the current sell price by existing owners and the future expected sell price speculated on by short sellers. This is in no way permanent. If demand continues to rise or real supply dries up the shorts have to buy at the now-higher prices to cover, "unwinding" the original effect they had on prices, causing a later spike.
On the delivery crunch: COMEX has far more open positions (ie futures delivery contracts) than it has actual silver. Most of the time only a tiny fraction (<1%) of futures contracts actually take physical delivery instead of rolling over into a new contract so this isn't a problem. In this case, however, the ratios of real silver to open positions is sky high. Right now, if a smallish percentage (4%-5%) of the buyers demand physical delivery they will dry up the COMEX supply entirely. This would cause the price of silver to catastrophically rise while the sellers of short contracts try to buy physical to cover their positions. You don't want to be the guy left holding nothing when the shorters go bankrupt, so, like a bank run, futures contract owners are currently incentivised to take physical delivery.
On top of that, when MF Global went belly up the bankruptcy trustee confiscated the allocated silver and gold held by MF Global customers. Essentially, MF Global was just a storage pod for their metal and the bankruptcy trustuee stole it to help pay off MF Global's creditors (read: Wall Street). Normally, stored, easily identified products are returned to the owner before continuing bankrupcty proceedings, but not in this case. This showed metals owners that the only truly safe method of storing their belongings is to take physical delivery and store it anywhere but a bank.
Just now checking up on this thread. First of all, thanks that really filled in some gaps for me.
If contract holders for silver are incentivized to take physical delivery, and such a delivery call would spike the price, then why aren't they? Are they building positions in preparation to do so?