Nickel tumbles 4 percent by end of LME trading

Nickel prices took a severe beating in late trade at the London Metal Exchange on Monday, falling over $1,000 from Friday's kerb close.

Three-months futures ended Monday's kerb at $27,600 per tonne, down $1,100, or 3.8 percent. Once selling began, the metal slipped into free-fall, traders said.

"It was around $28,500, then on the next trade -- which was half an hour later -- it had gone down $300, then another $300." Volumes were tiny and support practically non-existent.

"It was trading one lot, then two lots, then one. There was a void underneath it," the trader said.

Sellers may have been anticipating a large rise in stocks when figures are released at 0800 GMT on Tuesday, he said.

Earlier, traders had said that the longer nickel failed to break resistance at $30,000, the likelier it was to fall.

Nickel hit a record high of $29,250 on August 22, supported by low visible stock levels, and stronmg demand from stainless steelmakers

Nickel's backwardation, the premium for cash settlement over three-month delivery, eased to around $2,200 per tonne from $3,400 on Friday.

Copper prices rebounded slightly as demand was expected to pick up after the European summer holidays, but trading was light on Monday with U.S. markets closed for Labor Day, dealers said.

Copper for delivery in three months ended the kerb at $7,650 versus $7,590 on Friday.

The market had been buoyed by the apparent return of Chinese buyers to the physical market, a Macquarie report said.

"The market mood feels more and more bullish as the seasonally-stronger demand period approaches," it said.

Also, funds tended to allocate fresh money at the start of each month and looming supply disruptions supported sentiment.

"These factors will continue to underpin copper prices for the remainder of the year and, as such, we expect a strong fourth quarter for the red metal," a Standard Bank report said.

As a result, it raised its 2006 cash price forecast to $6,725 from an earlier forecast of $6,600.

Director John Meyer at Numis Securities said the mining sector looked set for further gains after the sell-off in May that took at least 15 to 20 percent off values.

"A generally more positive outlook for equity markets, combined with increasing earnings potential across the mining sector should continue to attract interest," he said in a note.

Mining stocks were among the biggest gainers in London, with Rio Tinto (RIO.L: Quote, Profile, Research) up 3.35 percent compared with 0.63 percent for the FTSE 100 (.FTSE: Quote, Profile, Research) share index. Antofagasta (ANTO.L: Quote, Profile, Research) and Xstrata (XTA.L: Quote, Profile, Research) and Anglo American (AAL.L: Quote, Profile, Research) were up around 2 percent.

Three months aluminium ended the day at $2,489, down $1. Zinc was at $3,470, up $30.

Tin was at $9,050, up $150 from its close on August 31, while lead ended the kerb at $1,257, up from $1,225 on Friday.

The epic battle between the naked shorts and the sharks has put the LME into technical default the past few weeks. By allowing paper money premiums to settle for unmet delivery of physical delays, the Exchange in essence has failed its contractual obligations. These quotes almost meaningless now as physical supplies have evaporated.

The situation is similar on the silver contracts at COMEX. At some point the concentrated short positions held by "rogue" Chinese traders will threaten to collapse the entire market as continued price suppression by naked shorts eliminates the price discovery these markets are supposed to reveal. Already there is a disconnect with physical purchases and the COMEX "spot" price. Silver will explode in price between now and the new year with but a single miscalculation by Beijing.

These manipulations endemic of the fraud perpetuated now in all markets. The west on the verge of an historic economic collapse. All paper markets suspect now.

Oh well, you seen one Great Depression -- then you've seen 'em all.

I was going to say part of what you said. The London Metals Exchange is seriously in deep doodoo. Their players have been trying to manipulate the market with naked shorts, and have badly overextended themselves.

Moreover, earlier this year the Bank of England sold a pot lot of gold all of a sudden, not to prop up their currency, but to help out these corrupt traders in the LME. In fact, I heard they were trying to knock down the price of nickle to help their pals in the City.

This is a bad business, because the LME is supposed to be a major exchange. It's supposed to be something the producers and buyers in the market can count on, not a den of gamblers.

Asking an old timer like me to "tell more" is like putting a bottle of absinthe in front of an alcoholic -- no telling what will spill out as the evening progresses. But this year the back is hurting earlier than usual which means a storm is coming. Meteorological or financial I don't know -- but I suspect both.

Nickel is an important strategic commodity in time of war and stocks have never been lower although the coming report may show increased stockpiles. Any country with a growing military likes a low paper price during an accumulation phase because it's one thing to trade paper -- and quite another to take delivery. LME went into technical default last month by letting shorts off the hook for delivery by paying a "paper penalty."

When I was young man they had a saying in the pits, "He who sells what isn't his'n, buys it back or goes to prison." Which meant if you had to cover a short sale you were at the mercy of the price -- you had to buy it back regardless of physical stocks available. Now that is not the case.

On the COMEX the short position in silver is far in excess of what can be delivered by existing stocks and is concentrated in the hands of Chinese elements who may settle -- or may not. They have plenty of American paper money -- what they want is to increase their strategic silver stockpiles (as well as nickel, copper, etc) and they can most efficiently do this by manipulating the "paper" price down while they are in their accumulation phase.

Growing up I can still remember Father saying, "Free markets make free men." If market prices are artificially suppressed by entities that can sell what they don't own and then never have to "buy" it back, then those same ones manipulating the price downward can in essence send a false signal to the commodity holders and buy at a much lower price.

The truest beauty of markets is that they always correct. Always -- for markets are stronger than the manipulators that seek to acquire a temporary advantage and then flee. The problem becomes when the natural correction overcomes the system's capacity to regain a true balance.

This of course does not take into question the basic unit of account -- the US dollar which has many problems now. The Chinese are very clever as having found that their dollar hoards cannot be spent for American companies -- they will instead use the paper sword to acquire the raw materials they need to build their own companies.

Should a meltdown at either LME or COMEX go parabolic it will spark a fuse that will be difficult to extinguish with contemporary western financial tools. Combined with the oil market volatility generated by Middle East events and a serious question arises about the true strength of the dollar.

Should the worst happen and there be an exchange "accident" triggered by excessive naked short selling then the entire structure will sustain a concentrated systemic shock. At that time we will learn which financial bulkheads are watertight -- and alas -- which ones are merely paper.

HG

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