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Gold/Mining/Energy : Precious and Base Metal Investing
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To: Ken Reidy who wrote (31719)10/23/2004 8:18:23 PM
From: The Vet  Read Replies (3) of 39344
 
A great post Ken, with good points. If I might add my 2 cents worth, I do not believe that the US market has control of both the supply or demand of any common basic commodity, but because of the USD hegemony they do have control of the prices!

The commercials can sell short regardless of the supply/demand fundamentals simply because they are better funded and the rules of the paper markets which require the longs to declare their intention to take delivery AND put up the full amount of the cash to do so BEFORE the shorts have to actually produce the commodity they have sold.

The commercials know full well that they have sold much more than they could possibly deliver, but they also know that the specs have bought much more than they can afford buy and take delivery. Net result, the party who has to show their hand first is forced to fold, and that party is always the one with the long position. COMEX rules make it so, so once the volume of the open interest becomes higher than the players can afford then the deck is always stacked in favour of the shorts.

This cycle can only be broken when shortages become so acute that demand overwhelms the shorts. This is happening in oil right now and to copper to a lesser extent.

Regardless, short raids like the recent one in copper by the shorts can still overwhelm the immediate liquidity of the longs and their ability to absorb "paper" product and allow the shorts to make a killing with a sharp drop in price. Copper is the best recent example where they managed a very profitable short attack despite fundamental supply/demand opposition.
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