Tuesday, October 18, 2011

Implications of Today's CFTC Vote on Position Limits in Commodities (Silver)

The long awaited day is finally here.  Oct 18th.  The day the CFTC is scheduled (for the 3rd time) to vote on position limits in commodities. 

Speculation has been rampant among the silver community regarding whether the CFTC will finally move to curb the gold and silver manipulation or whether it will continue to look the other way while the biggest crime of all time continues unabated.  Here's how we see the situation unfolding.

All the signs point to the fact that the CFTC is in fact preparing to approve position limits in commodities.  Our sources are indicating that the limits will likely be approximately 3,000-5,000 contracts (roughly 2-3x the levels called for by Ted Butler of 1,500 contracts).
Gary Gensler's Congressional hearing for Oct 6th was likely cancelled with the understanding that the CFTC would finally get off their arse and get something done on the 18th.
Bart Chilton has been responding to silver investors' emails this week and stating that he is in support of "strong limits" in commodities. 
It is becoming apparent that The Morgue could read the writing on the wall, and crashed silver by 27% in 2 trading sessions several weeks ago with the intentions of getting out of as many naked short silver contracts as possible.
The problem for The Morgue is that their short position remains at nearly 15,000 contracts- or 75,000,000 ounces of silver.  Even AFTER two separate 30% smash-downs of silver within 6 months, The Morgue's naked short silver position remains nearly equivalent to the US Mint's entire Silver Eagle sales over the past 2 entire years!
While it appears that the CFTC is preparing to implement position limits, DON'T expect the CFTC to require imminent or even timely compliance by the shorts.  Something in the time-frame of 3-5 months is conceivable.  (Unless Bix Weir is right about a planned collapse by the good guys, in which case a hard position limit of 1,500 contracts with immediate compliance required should do the trick)
So if this is what we see by the CFTC the real question obviously is what will The Morgue's response be with their remaining 15,000 contracts.  IF they are forced to reduce their short exposure, obviously these banksters will do so at the lowest price possible.  Currently there is hardly any blood left to squeeze out of the longs.  Any long who might have been forced to dump their positions due to massive losses and margin calls during the last smash-down have already puked all of their positions.  All remaining longs are likely in extremely strong hands. 
SilverDoctors' reader Sierra has suggested that The Morgue will let silver run back up to $38-$40 in an attempt to bring in as many new longs as possible before JP Morgan induces the grand finale of silver takedowns in an attempt to drive silver back towards $20 and cover as many of their remaining 15,000 contracts as possible.  We agree that this seems to be the most likely scenario- should the CFTC approve strict position limits.  Understand that should silver run back up into the upper $30's prior to a final massive cartel raid, many new silver investors (especially those who have began investing in silver after Nov 2010) will be demoralized and throw in the towel.  This will allow JP Morgan and other insiders to go long.

If we are wrong and the CFTC allows the status quo (massive manipulation) to continue unabated, ironically it will likely have bullish implications short term for silver, as The Morgue will not be as desperate to extricate itself from its remaining 15,000 naked shorts, and will likely allow longs and open interest to build for some time before the next massive raid.