Don't Be Surprised If Gold Drops
from Ed Steer, Casey Research
In commentary to his subscribers last night, silver analyst Ted Butler had this to say... and I'm paraphrasing a lot. "...over the past 7 weeks, gold has climbed by $140... and silver is up by $6.30. The commercials didn't increase their short positions materially on those rallies... nor did they reduce them. It is important to understand how the futures market operates. Every day, all long and short position holders have their holdings marked to market. If a position moves in one's favor, the mark to market amount is credited to each account. If a position is adversely impacted by the daily mark to market, each account is debited by the appropriate amount. Additional funds covering the adverse move are required to be immediately deposited to make up for the market to market paper loss. This is a margin call. If you don't cover margin calls immediately by depositing additional funds, the brokerage house will close out a sufficient portion of your position to cover the margin deficiency. If you hold long positions, they will sell you out. If you hold short positions, they will buy back your short position."

"As of the end of trading on Friday, the total collective margin call to the silver shorts was $3.78 billion... and to the gold shorts it was $7 billion. Since I believe that many of the gold shorts also hold silver shorts, it is reasonable to look at the silver and gold total margin calls on a combined basis of almost $11 billion. Because the big 8 commercial silver and gold shorts [read bullion banks - Ed] hold a concentrated short position of more than 50% of the true net total open interest, these 8 trading entities have been hit with $6 billion in margin calls. JPMorgan is out almost a billion dollars on silver alone."

Ted feels that these killer margin calls have already claimed many casualties... but it's too soon to know who they are, as "the bodies haven't floated to the surface yet."

Ted also says that this has created a dangerous situation for the market itself... as the '8 or less' traders are more desperate than ever to rig a sell-off. Can they, or will they? As I've said many times in this column, the resolution of these obscene and grotesque short positions will determine the future price of silver and gold... and timing is running out.