Market Harmony wrote:InfleXion wrote:Agreed, but the volatility is telling us something else too. The market is conflicted. The more volatile it gets the more easily it will break to new highs. If it breaks to new lows the physical inventory will get that much tighter anyway. With the HKMEx being shutdown completely yesterday and the CME halting trading 4 times also yesterday it is apparent that the electronic markets have their hands full and I would bet they are experiencing major delivery issues at $20 silver. The HKMEx had to cash out all its customers, no delivery. Essentially they pulled an MF Global, but it's not hitting the wire as that big of a deal since there wasn't any (known) scandal involved.
My (limited) understanding of the volatility is that it is representative of a product trading in too small of a market. A trade of tons of silver theoretically should be absorbed by an open bid/ask system with little change of price. But, what we are seeing is that a large block of trades (buys or sells) can move the PM markets with relative ease. That, to me, is an indication that there is too little open interest, and therefore leads to opportunistic exploitation of a paper market where bids/asks at price points is open for attack. This works in bull markets and bear markets... just as long as there is a way to offload the trade, whether directly or indirectly. A speculator has incentive to seek a trade that will profit from a larger trade that quickly eats away at the open bids or asks.
With the leverage of 15:1, the extra availability of COMEX paper is supposed to help to alleviate the wide swings in price by bringing more participants to the market. If there was a 1:1 (zero leverage) market, then any large trade would not be absorbed quickly enough, and volatility would swing wildly in one direction or the other. The open bid/ask system would have to fill those orders at the limit up or down price of the entity making the trade until that block of contracts is moved. The addition of leverage should increase the number or scope of market participants; the bid/ask system will grow in size; The larger market should then greatly influence price stability because it would take larger and larger trade sizes to wipe out a bid/ask book and create the wild price swing.
But this stability is not what we see, so that makes me think that the volatility simply represents too small of a market. If the market was full of eager participants with access to highly leverage product, then I suspect that a trade of tons of silver wouldn't even show up on a chart.
HKMEx closed because it was unprofitable because there were too few trades
Too many suppositions and incorrect assertions here. This isn't personal but you speak as if your assertions are facts and many are categorically false. For one, CME Group's (COMEX) silver open interest as of Fridays settlement was about 147,000 contracts. that is a very healthy level compared to the past averages- see
http://www.cmegroup.com/trading/metals/ ... ptions.pdfHKMEx has nothing to do with it (nor MF Global, nor silver plated clads, nor tungsten filled bars) so let's not mix the closing of one exchange to be anecdotal evidence for another. It's not even close to apples and oranges with that parallel. Some small time coin shop can close because of lack of revenue and that doesn't mean APMEX and Tulving are somehow in the same circumstance.
You bet delivery issues. I bet not...not at these liquidation levels where supply is flooding in.
New lows doesn't mean tighter supply. That's just pure speculation.
" A speculator has incentive to seek a trade that will profit from a larger trade that quickly eats away at the open bids or asks."- Where did you hear that random BS?
"With the leverage of 15:1, the extra availability of COMEX paper is supposed to help to alleviate the wide swings in price by bringing more participants to the market. If there was a 1:1 (zero leverage) market, then any large trade would not be absorbed quickly enough, and volatility would swing wildly in one direction or the other. "- this is rubbish and pure opinion. For one, margin requirements do not mean portfolios are leveraged 15:1. In fact many are less than 1:1 for conservative profiles or hedge books. "extra availability"? Huh, Availability only comes when participants enter the market. Unlike equities, there are no market makers in CME silver futures. Liquidity is from market participants. Market participants trade for a whole host of reasons. The open bid/ask system that you speak of, what is that? You said it has to fill orders a certain way. No idea what that is. Bids and offers (ask) are from voluntary buyers and sellers who come and go as they chose. It is an auction. At times when a majority trade the same way there is an imbalance and swift price movements i.e. when few if any want to buy because they think the price will decline they don't bid until the price is where they prefer to buy. Just like folks here who may not buy because they think they might get a better chance to step in and buy. They (any market participants) can be wrong too and miss out on what they were looking for..
"But this stability is not what we see, so that makes me think that the volatility simply represents too small of a market. " It is no secret that when you compare silver to gold or crude oil etc, it is small and has always been relatively more volatile than most. It's the nature of the commodity.
" I suspect that a trade of tons of silver wouldn't even show up on a chart." I'm surprised to hear that from a dealer. Primary dealers on the LBME trade in lots of $100 million minimum and deal in tons. The price shows up every day in the fix. The large deals, not the small trades, set the WAP.
It's apparent that your efforts as a physical dealer is to attack the financial markets with loose anecdotal assertions and some completely and fully incorrect summary statements.
When you see bid ask spreads for silver financial products at 1 penny per ounce or less without disparity in a central pool of liquidity and compare that to a dealer who offers an ASE at spot + $3 and another simultaneously sells the same fungible ASE at spot +$8 along with a story about global silver supply shortages only to resupply a few weeks later at a much lower price with much lower premiums, one can conclude what they want about price fragmentation, liquidity and price transparency.
For me I don't see physical as better or worse than financial or vice versa. Neither is inherently "good" or "bad". They each have their advantages and disadvantages. They both offer opportunities to buy or sell profitably. It does bother me however to see people pump and push raw utter nonsense to support one and discredit the other when they have an inherent conflict of interest to do so.
Cheers!