Here is the full explanation of how the biggest exploit in the history of precious metals likely unfolded 👇🏻
Comex futures price settlement at the Comex is based on a VWAP between 13:24 to 13:25EST
LBMA price settlement instead happens at 12:00 UK time
Most of Silver OTC contracts settle using the LBMA reference and many OTC contracts expire into month end.
On the 30th Jan LBMA silver price benchmark settled at 103.19$ while the Comex Benchmark a few hours later settled at 78.29$.
The following chart (credit @KingKong9888 ) is a great representation of how bullion banks hedge and transact in the silver market (both paper and physical).
It is an open secret now how many banks and brokers were under water on their silver positions, gold and other precious metals especially after the rally in January. Beware this flow chart roughly applies to all these metals that all crashed on Friday (not silver alone).
What’s even more remarkable is how precocious metals crashed on Friday in isolation, stocks, bonds and other commodities were totally unaffected. Anyone that understands any basic of macro and markets knows how this is logically wrong.
Let’s add one more piece to the puzzle now: on Friday the OI at the Comex decreased by 8k contracts at the end of the day. Assuming for simplicity the price differential between the LBMA and the Comex as a reference. That means banks were able to extract ~1bn$ gain from their shorts pushing the Comex price through the floor after the LBMA settlement.
Furthermore the $SLV continued trading after the LBMA benchmark settlement creating almost a 20% discount to NAV because of that. Here is the other trick the banks pulled. If you have to settle a lot of physical contracts at the LBMA but you don’t have the metal, because of such a discount to NAV, AP banks could buy $SLV shares in the open market from panic selling investors, tender the shares to claim bars at 103.19$ and make a killing in the process.
Not surprisingly, $SLV shares count increased by ~51m shared from Thursday to Friday according to iShares. Because of the NAV discount banks extracted up to 1.5bn$ of profits exploiting this ETF assuming they bought up all that shares differential and then turned around to claim silver bars at a much higher price for contract settlement purposes (keep an eye on the data on the metals redemption from the ETF).
The last piece of the puzzle is the exploit against Leveraged silver ETFs like $AGQ that have been forced into liquidating a vast number of derivative contracts during the crash. Here brokers made a killing too, but other people here on X already covered this matter well so no need for me to say more.
All in all, it’s fair to estimate how banks and brokers made up to 5bn$ of profits (or lowered their pre existing losses depending on how you look at it) orchestrating one of the biggest price manipulation in the history to abnormally crash the price of silver in a single day. Surely they made more if you consider the same dynamics happened on gold platinum and palladium.
However this left the precious metals market in a massive price dislocation not only between physical and paper, but also across financial products and exchanges.
Trading resumes in less than 24 hours and there is a chance that what’s about to happen is going to be even more historic than Friday’s events because China and India won’t stop buying silver because of the severe industrial shortage they are dealing with.
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