There have been some very good articles describing the over-trading and gaming in paper precious metal futures. A clarification needs to be made about the term “naked shorts”. Although commonplace this term is technically incorrect. I have used it myself incorrectly so am not casting dispersions. A naked short is an illegal transaction (see). The transactions on the Crimex are not illegal as they involve selling against an existing or newly created futures contract with a buyer on the other end.

But let's not get too anal retentive about this. The bottom line is these transactions, especially coming from speculators, in spirit are naked as there is no expectation of transfer of the underlying asset. Producers and processors hedge, but the speculators who now totally dominate paper trading are effectively just gambling. Without a doubt they have destroyed price discovery and the original purpose of a futures market.

Indeed the latest accounting of registered gold in the Crimex warehouse is quite the head-scratcher. It is a mere 376,906 ounces. The paper open interest is about 44 million ounces. This lends new meaning to the words “confidence racket.” The Crimex folks must sleep well at night knowing they have so many friends and people of good will to contend with.

I would add that queue jumping or deliveries after expiration has been very active and much larger than normal in the July silver contract. 575,000 more ounces were picked up yesterday.

Hat tip to SRSrocco for coming up with one of the best “nao combinam”- “isn't that special” charts I've seen yet showing declining diesel use compared to GDP fluff production. Is $3.6 trillion in GDP “growth” literally hot air? Is the emperor wearing any clothes?