JPM's Blythe Masters vs Ted Butler on silver (and gold)

"That's wrong and we don't do it" is what Blythe Masters told CNBC when she was asked about the bank's massive short position in the silver futures market and whether it was manipulative. Her argument was that all the short positions are part of a hedging mechanism for metal held by their clients.

The veteran silver analyst Ted Butler  - the main force behind four investigations into silver manipulation allegations by the US regulator (CFTC) -disagrees. He questions the need for the bank to hedge in the futures market when it is a big player in the OTC market.

Confusion over futures markets for Monday: good or bad for gold?

The CME - Chicago Mercantile Exchange - runs the US commodities futures markets including gold and silver. It said on friday that it was changing the margin requirements - this means that traders have to put up more of their own cash to participate in the market.

In the past increased margin requirements have been associated with large drops in the price of precious metals and therefore any gold ETFs.

In some quarters CME margin calls are seen as part of a concerted effort to undermine precious metals (see Bart Chilton below!) when investors are looking for safe havens for their cash.

Some of the potential impact of the CME's changes were discussed on Eric De Groot's blog here.

It quotes another story saying the changes imply "that options and futures holders will be forced to deposit addition capital to the CME in the form of maintenance margin, simply to hold their positions. This will put markets under pressure on Monday."

But a further announcement and correction from CME attempted to neutralise this fear: "We apologize for any confusion our initial advisory may have created." Instead it said that it had made it cheaper for people to buy and sell futures to make life easy for MF Global clients transferring their holdings after the firm went bust.

But Tyler Durden at Zero Hedge says the move - making it cheaper for people to buy commodities futures contracts - could make matters worse: "Because while the lower Initial margin may apply to MF accounts, it will also apply to any Tom, Dick and Harry beginning Monday, who will suddenly see a 30% reduced gating threshold to put on a position. Any position, no matter how risky.

"Naturally, if enough people suddenly jump to put on risk, and the market flips and all new positions end up underwater, who will bail out CME accounts if, like MF, there is just not enough capital on the balance sheet? MF Global?"

I hadn't spotted this from last week either: CFTC Commissioner Bart Chilton on King World News saying that criminal things have been going on in silver market.

When big banks like gold more than silver?

(Click on the chart to enlarge, the vertical axis is percentage of gold and silver futures markets) Sad hours plugging numbers into excel that probably don't mean anything. This chart takes data from the US futures market regulator's weekly report on the positions held by the largest traders in the gold and silver futures market. (Commitment of Traders report)

In the red it's the net short postions of the 8 largest traders in the gold (dotted red line) and silver (solid red line) futures markets. This measures how much of these metals banks/commodity traders are selling. This is measured as a percentage of the market (CFTC explanation) from the part of the report that measures trader concentration. Both the dotted lines represent gold, both the solid lines represent silver.

When the solid lines are above the dotted lines the banks are selling larger portions of the gold market than the silver market. The latest data shows that the biggest traders/banks on the markets have dropped their gold shorts and built up their silver shorts to such an extent that the relative market shares in the silver and gold futures markets have changed. This probably means nothing as the two markets are separate. If it does mean something I don't know what it is.

The big black arrow points to July 2009. That was the last time that the biggest 8 traders swapped their relative market shares in gold and silver. So, in July 2009 the eight biggest banks/traders were selling about 55% of futures contracts in the gold and silver markets but with the gold short positions falling and the silver shorts rising.