Just curious, how would it be possible to prove either your position or Leon's on this issue? The COT reports I see don't say a whole lot. Is there other info out there that does list such things? It would seem to me like the answer to this is easy peasy. It's not like we are talking about metaphysics here. But you wouldn't know that when there is so much disinfo out there, like for example, the mislead or liars who say gold contracts always settle in cash on the comex and physical delivery cannot be achieved, or that longs are being forced to settle in cash and made to sign non-disclosure agreements (and are paid a premium to keep quiet), etc. Just my opinion. Jim
Yep, it's easy peasy. Swap dealers don't take outright positions - they are merely counterparties to swap trades and use the market to hedge their risk. Hedgers - by definition a hedge can't be squeezed. See here: http://forums.silverstackers.com/message-893973.html#p893973 +100
Imagine a silver buyer named Joe. Joe buys silver to make jewels for his store Joe's Jewels. Some day, Joe gets an order for 1000 Mr-T style heavy silver chains at the price listed on Joe's Jewels' website. Joe can only start their production over 1 month. Joe could buy the silver already now and store it until then. But Joe decides to avoid that cost for the moment, and places a silver order, to deliver and pay over 1 month. But there is a risk here, the silver price may have been driven UP by then, and he cannot increase the price on the order of the 1000 Mr-T style chains. So, Joe takes 1 long position (5000 ounces) on the futures market. Joe uses a swap dealer as an intermediary for the order (ok not realistic of just 1 position haha but just to get the point). So, the swap dealer receives, just like Joe received for his chains, an order, and wants to be sure of the price he's gonna get from Joe. Because, if the silver price would have been driven DOWN by then, he'd receive less. So, the swap dealer takes 1 short position on the futures market. IF the silver price indeed changed the next month, BOTH futures market sides will receive compensating dollars on their futures accounts. In reality, these 2 futures market entities are not eachothers counterparties. Instead, they both share a same counterparty: the one that caused that price change. And, since their price change risk is only the one during that 1 month, and their shared counterparty that buys or sells has to do it during that 1 month to alter the price during that 1 month, that shared counterparty pays those compensating dollars on the futures market accounts of Joe and his swap dealer, along a silver price driven up at a second/doubled rate, due to the 1 month - existence of the futures contract (the long position of Joe and the short position of the swap dealer), that drives the price already up upon their taking, alike the silver order gets delivered and paid for already now. Instead, it gets cancelled (expired, or Joe that adds 1 short position to his 1 long position, resulting in a net neutrality) of course. Joe wants to buy 5000 ounces, not 10000 haha. So that's why futures contracts mostly end in delivery of dollars instead of delivery of commodity. It just wasn't the goal. The goal was to change the price in the favorable (compensation, the hedge) direction already before those that MAY change it. A nice lil' frontrun "in case". Worth to add: at the same time, both Joe and his swap dealer give up any eventual windfall benefits (a lower silver price for Joe, a higher one for the swap dealer) that may occur during that month. Though, these hedgers CAN fail and get inflicted an extra cost, of course not when they have their hedges in place, but outside that: due to bad timing when taking the futures positions. When their shared enemy, speculators, manage to "sneak in" their orders ahead of the period that the hedge exists. Of course, globally seen, this isn't easy, since the hedgers tend to sit much closer to the markets producers, and intermediaries see alot orders pass, unlike Fred the speculator from his lil house on the prairie.
Thanks Pirocco for the explanation. My understanding of the futures market, is that, Producer/Merchant/Processor/User hedge their inventory or future orders, everybody else is just playing paper game. And Pirocco is exactly right that's why futures contracts mostly end in delivery of dollars instead of delivery of commodity. Since for each trade, there will be a buyer, as well as a seller; swap dealer usually serves as market-maker to make up the differences in case of the imbalance. In the long run, market-makers must be profitable to stay in the business.
On a futures market, all trader classes play that "paper game". That's what it is for: to hedge positions / orders on the cash / real market. Producers as well as so called "small traders". Also, that "paper game" is just a part of the market of the commodity. When the total net position on a futures market sits around zero, meaning neutrality, meaning no forward component in the cash price, then the "paper game" has a zero influence on the price. At the moment, for silver, it sits at a decades max. The trend of the recent bear years is a steadily higher position at a given lower price. Without that "paper game", the price would be around $10 now. But dealers etc decided to keep it at $15, and as long as they don't get confronted with lotsa speculators selling back, they can keep it there, and reap the extra on their cash market sales.
This is a great video explaining Future markets. You can see how it starts off as a simple and useful tool for producers and manufacturers/ consumers, but around 13min in you see how it start to turn into a big mess of gambling with it just being Traders to traders. [youtube]http://www.youtube.com/watch?v=nwR5b6E0Xo4[/youtube]
Just because some simpleton numpty calls this a 'big mess and gambling', doesn't make it so. It is far from gambling, and if 3 traders is considered a mess, then this guy must be OCD. I have seen messier trades here on the SS trading threads. I mean FFS, he had to refer back to the wild west colonial days of America for an example of someone forgetting to close out? WTF? This video was futures for dummies..... don't be a dummie.
Wrcmad you need to relax And for the record he doesn't imply having 3 people doing a trade is messy, so not sure why you say that. When millions of people trade something they don't want to buy or sell, things can get dysfunctional. Which is what the future markets have become. Oh and it is gambling for the most part today, as it's mainly used by traders that have no interest in the commodity.
I didn't say it was messy.... you did. I was disagreeing :| I also disagree that the futures markets are dysfunctional - they seem to be functioning quite well. And trading a commodity you have no interest in does not equal gambling (unless you treat it as such), so that is my disagreement hat-trick.
This guy says we are dropping soon. Let's wait and see. I think so too (although I am not saying to SELL anything). http://www.clivemaund.com/article.php?art_id=3745
Today's COT numbers. Heavy commercial shorting continues in gold and silver. I am still betting we see another drop before we see a lasting pop. Just my opinion. http://news.goldseek.com/COT/1457728364.php Jim
Today's COT is out. Tons of shorts added by commercials in both gold and silver. I opine another drop before we pop. Based in part on the massive commercial position AND the facts: 1. Much instability in the world, wars, terrorism and PMs stay low. 2. Low interest rates of zero and negative interest rates, yet PMs stay low. 3. Charts for gold and silver show positive looking recent action, yet can't break thru resistance worth a damn for silver. 4. ? http://news.goldseek.com/COT/1458934309.php Just my opinion. Jim
It's just the result of what people do, for ex I didn't add any ounce since 2014. I'm probably not alone, and the stockpiles are big. Look at 1979 with its $21 and 1980 with its $16. Later on, the price hung around $5 for 20 years. Why: sales of those stocks. Instability in the world doesn't make silver stocks disappear into the void. Low interest rates on bankfiat neither. Even in a case of negative interest rates, there is such thing as "least negative". If every choice inflicts a loss, then there is still a best choice. Silvers price has been $5 during the last 2 19xx decades. It's now $15, and without the futures markets hedge, probably $10. And it could stay that $10 till 2030. The only real $changer is higher general price rising. But the opposite happened, and there is little outlook for it, as central planners became smarter than just printing whatever amount needed. Instead they tax more. And that real $changer may well be in terms of purchasing power little to nothing. Look at Belarus, high fiat inflation, big PM price risings, but the PM prices trend is just a copycat. Look at the futures markets hedges on http://finviz.com/futures_charts.ashx?p=m1 The green trendlines below the price charts. Note the big deviations from the zero / neutral post 2000. Alot hedging. Well, that's all artificially propping up prices, that's what hedging does and is: inflicting temporary buyers (speculators) a higher cost so that when they sell back later on and drive the price back down, the hedgers already grabbed the dollars the speculators were after. The difference between 2000 and now is an exhausting stockpile versus a new stockpile. Long term sideways (annual average) to expect, and maybe some short term (month) further drops. That heavy commercial shorting implies heavy noncommercial longing. I think that the dealers desperately try to stay in business, by propping up the silver price using the futures market-tool for it. If speculators refuse to pay this bloated price then they're probably gonna need to return to cab driving or so. Maybe the silver price bottom will be indicated by most dealers existing since 2008 having another job, or just abandoned their second post working hours PM related one. Also, just my opinion hehe!
That's certainly the original intended purpose, but now people hold and even roll futures contacts for all sorts of reasons including hedging and straight investment. [youtube]http://www.youtube.com/watch?v=lgNVNTvlpFY[/youtube] Note: the 4% comment (this is an old video) implies about 25 to 1 possible claims to actual bullion on hand at the NYMEX. With the hundreds to one claims seen on exchanges now 25 to 1 seems almost reasonable. I know there's arguments want how important those numbers are, but if the exchange's opinion is that price solves everything then at 4% claims you might get a bidding war that takes gold muvh higher and physical settles at some big number, but what's the number when you have a theoretical room with three or five hundred bidders for every physical ounce. Those with gold in the other categories knowing that withholding what they have increases it's value and can be sold somewhere else that won't impact or stop the bid for physical on the exchange and they get the same cash benefit assuming they want fiat. I'd really like an in depth study of the force majeur rules and how the bid for physical works on the eligible short claims where more exist than the number of ounce on hand. For all the probably hundreds or maybe thousands of pages written on stacker forums and chat rooms I'm not sure if I've ever seen something with the actual lethal realities if something actually happened that had many potential claimants on the physical in the exchange. Maybe I'll write them an email and ask for them to clear it up. Could be interesting grist for an article.
I call bullshit for gold and silver contracts. Source? Suggest you have a squiz at this, especially the part about EFP. http://forums.silverstackers.com/message-849064.html#p849064
Maybe lets ask the opposite question: why / when do people actively neutralize (along creation of an equal opposite position) / or passively allow their futures position to be closed? I think the answer is quite simple obvious: because they aren't confronted with lotsa sell back orders from their customers. As long as speculators don't sell back to dealers they can just hold their futures position and continue reaping profits due a precious metal price that was driven up by its forward/futures component. That's what happened during the decade bullmarket we've seen: Just notice how the green (or red+blue) trendline showed, and kept, a big surface relative to the neutral/zero X axis. There was plenty buying / scarce selling and thus no need to abandon futures position. That changed alot 2011+, where the sweeps min-max started and the average crippled. There is another element: inter-market hedging. Meaning that entities hedge positions in typical opposite moving markets with gold/silver market positions. For ex USD and gold typically are inverse related, so one could hedge a dollar position along a gold position. Big guys like institutionals often hedge crossmarket. And it's also the very reason for price trend correlations in the first place. The gold or dollar or whatever price doesn't rise or drop without cash and/or futures market positions on it. Of course, the hedging needs suckers to follow the trend part that the hedging brought or was interleaved with. Without "liquidity" (other peoples - preferrably suckers, money) in it, it would become a zero sum and useless.
Profit nor loss (ie neutral) over a net total (cash+futures market) position of a single trader isn't Zero sum over the net positions of all traders
