In a letter to the CFTC's Chairman, Gary Gensler, GATA Chairman William Murphy shares the following bombshell:
"GATA has evidence that there are enormous physical short positions in the gold and silver markets that cannot be covered."
The point here is that a trader that shorts (sells) a contract for future delivery must have a call (buyer) contract on the other side. This buyer may or may not take future delivery of silver. He may be happy to just pocket the profit or loss.
“Because of the decades-long interference with the gold market, we estimate that the free -market price of gold is multiples of the current price.
Growing stress caused by burgeoning physical bullion demand is threatening to lead to a price explosion, which will restore to the market the balance that regulation has failed to maintain. In our view, the Comex paper market will become dysfunctional, with "force majeure" having to be declared as the concentrated shorts are unable to deliver on their obligations.”
On the Zerohedge.com website we found a transcript of the CFTC hearings, of note is this exchange:
S. O’MALIA: Both Mr. Organ and Mr. Epstein in the second panel, raised the concerns that short positions exceed the physical supply. The second panel kind of argued that that wasn’t a concern. Are you concerned that the shorts will not be able to deliver if called upon?
J. CHRISTIAN: No. I am not at all concerned. For one thing it has been persistently that way for decades. Another thing is that there are any number of mechanisms allowing for cash settlements and problems and a third thing is as many people who are actually knowledgeable about the silver market and the gold market have testified today that almost all of those short positions are in fact hedges, the short futures positions are hedges, offsetting long positions in the OTC market. So I don’t really see a concern there.
It is interesting that Mr. Christian is not concerned about the ability of the shorts to deliver because they can cash settle! Also, everything is fine because we have been doing it for years. Oh? That’s okay then!
He clearly has no understanding that when someone wants to buy precious metals giving them cash instead is a failure to deliver. It is a default!
But he is not concerned! He says that the short position is actually hedged by a long position on the OTC but as the exchange continued his testimony describes the “OTC Physical Market” and that the long position is not bullion but is in fact an unbacked (or only partially backed) I.O.U. bullion.
