As an individual investor, you don’t have the power (that is, enough money) to manipulate a market. But there’s no reason for you not to make windfall gains by taking advantage of the way other parties are manipulating the market.
Yes, market manipulation is illegal. But you would be shocked by how many folks attempt to do it in markets that don’t get much action.
A perfect example is the silver market.
I believe there will be a huge run up in silver prices – as a result of one of the largest short squeezes ever seen.
It won’t happen today, tomorrow, or next month. But I believe it will happen within the next 6-8 months.
The silver market is thinly traded. The above-ground supplies are at around 600 million ounces. And silver demand outstrips supplies every year.
Gold, in contrast, has a surplus of over 4 million ounces a year, not to mention that every major government owns tons of gold that could easily be dumped back on the market.
All of this makes silver a prime target for price manipulation. If some big silver dealers decided to sell silver short, silver prices would go down – quickly. And to maximize the effect, these big dealers would do their short selling when the market is the most illiquid, around 1:00-2:00 in the morning.
Once they sold their huge positions short and the price started to tank, it would begin to hit stop-loss positions. Those positions would sell, triggering a further fall in silver. That second fall would hit another group of stop-loss positions. And the price would keep falling until most sell-stops had been hit.
In fact, this is what happened last May, when silver prices reached $15 an ounce. A handful of major silver dealers shorted silver, making the price drop below $10 within a month’s time.
To further aggravate the swing downward, these dealers greased the skids by continuing to sell silver short.
The manipulation has gotten so out of hand that, according to the Commitments of Traders Report (COT) which is published weekly by the New York Commodity Exchange (COMEX), the largest 8 silver traders control 54.4% of the total net short positions.
The largest 4 traders control nearly 37% or 35,626 net short futures contracts.
When you figure that each contract controls 5,000 ounces of silver, you realize that these 4 traders control 178.13 million ounces of silver – more than COMEX has in its vaults.
But this deliberate attempt to lower the price of silver can easily backfire.
Let’s say North Korea begins shooting off missiles at random. The political uncertainty would cause the price of silver to rise, perhaps to about $17-$18 an ounce. The major short holders would be in quite a pickle – and so would COMEX.
As the price of silver rose, these dealers would be required to answer margin calls. This means they would have to find cash to inject into their accounts as they begin losing money on their positions. (They could be trading 20% on margin but, in this scenario, easily be down 50%.)
And when they ran out of money from their available resources, they would need to buy back silver (at a loss) to continue to meet their margin calls.
If they had to buy back 50 million ounces of silver, the price would rise.
If they had to buy back 100 million ounces of silver, the price would sky rocket.
If they attempted to buy back their entire net short positions, they wouldn’t be able to get the silver from COMEX ... because COMEX has only 102 million ounces of it .
With the COMEX vaults empty, the ETF taking more silver every day, and a supply deficit in the physical silver market, that would be the most bullish scenario ever for silver – or any commodity, for that matter.
If you want to make money from this likely occurrence, I suggest you get into the silver market today and hold for the long haul. I don’t expect the short position to begin unwinding for another year or so. But after it happens, silver demand will continue to outstrip supply, making for a long-term bull market
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