A Warning Flag For Silver

As you know, I'm very excited about the prospects for the fiat-conversion price of silver this year. It's going to a big year, perhaps even historic. That does not mean, however, that silver will move in a straight line up. I still believe the The Evil Empire intends to dramatically lessen, if not eliminate, their long-time manipulative short position. However, a careful review of the situation at ground level leads me to think that we're not out of the woods yet.

As you know, silver has already had a big 2012. Silver closed on 12/30/11 at $27.92/ounce. It closed yesterday at $33.60. In just six weeks, this means silver is already UP over 20%. Spectacular! At this rate, silver would be $40 by April 1st, $57 by mid-summer, $83 by fall and $120 by year end. Now, of course, the prospect of $120 silver makes you and I very excited. Jamie, Blythe and Ruprecht...not so much.

So, what's The Empire to do? Last spring, it became clear to them that manipulating silver was no longer a game they should be playing. Global quantitative easing and soaring physical demand stacks the deck against them and they want out. Of course, this is much easier said than done. Last year at this time, the total bank short position was around 90,000 contracts. In a market the size of silver, you don't simply flip the switch and cover a position like that in a matter of weeks. To do so would be foolish and incredibly expensive. No, care had to be taken to eliminate the position with as little loss as possible.

At first, The EE went headlong into covering and this sent silver soaring. In the last week of April, as silver was trading up every single day, The Forces of Darkness covered nearly 10% of their total short position while simultaneously adding about 2000 longs. They were panicking and price was skyrocketing. Clearly, this strategy wasn't working and, instead, on April 30th, The EE switched course and forced the first of two, incredible 35% prices smashes. Covering into weakness instead of strength allowed The Empire to reduce their total short position to just 55,000 by year end. They were also able to raise their total long position to 41,000, up from 34,000 in April, thereby bringing their net short ratio all the way down to 1.3:1, down from its high of nearly 3:1 during the panic in April. All the while, price had fallen from $48 to $28. Absolutely spectacular and worthy of a round of applause, a pat on the back and huge year-end bonuses for The Wicked Witch and her Monkeys.

On 1/1/12, everything looked great for The EE but, suddenly, a change took place. Silver, instead of continuing to languish, exploded on two fundamental positives. First, the announcement of a $350M purchase by PSLV. Hot on the heels of that was The Fed pronouncement that QE would, in fact, continue on to infinity and it was this Fed development that spooked the EE the most.

We know via CoT data that, as of 1/24/12, the total bank long position was 35,283, up just 1,000 contracts in 2012. The total bank short position was 60,304, up nearly 10% in 2012, a moved designed to keep things in check a while longer. On the evening of Tuesday 1/24, silver was priced at $31.98, already up 14.5% on the year.

The next day, The Bernank dropped the bomb. Continued ZIRP and 0% Fed Funds ensured negative real rates until at least 2014 and, as we all know, negative real rates are fundamentally positive for the PMs.

http://www.tfmetalsreport.com/blog/3325/case-you-missed-it

Prices jumped. On Wednesday the 25th, gold rallied $36 to $1703 and silver added $1.14 to $33.12. In the 12 trading days since, though, gold has only managed to add $22 and silver has tacked on just $0.48. What's the deal? Conveniently, and certainly not intentionally, the Fed's announcement came on a Wednesday, the first day of a new CoT survey week. What's great about this is that we're able to see a direct cause-and-effect in the numbers. Please bear with me and check out the raw data:

                           Spec Long                          EE Long                            EE Short                     EE Net Ratio:

1/24/11                27,051                                    35,283                                  60,304                                1.7:1

1/31/11                28,465 (+5.23%)                  33,693 (-4.51%)                 62,422 (+3.51%)               1.85:1

2/7/11                 32,239 (+13.3%)                   31,795 (-5.63%)                 66,445 (+6.44%)              2.09:1

So, in the two weeks immediately following Uncle Ben's announcements, the total Spec Long position has risen by 19.18% while the total EE Long position has fallen by 9.88%. The total EE Short position has also risen by 10.18%. Hmmmm. Does this explain for you how silver has been kept under $34?

In the end, what does this mean? Though I firmly believe that The Forces of Darkness have every intention of effectively exiting the silver market in 2012, they are intent upon not allowing a repeat of spring 2011. To that end, they're keeping prices in check here, hoping to draw in some new longs that they can exploit to the downside. Was the CME margin drop this week one of the tools they intend to use to accomplish this? Maybe, but whatever it is, it's working. A 13% rise in spec longs in just two weeks is significant and you can bet that soon the EE will attempt to force that money back out.

What will be our clue that this next smashdown is near? Perhaps the answer can be found in silver lease rates. As you all know, we correctly "put the pieces together" and foresaw the gold smashdown in December that was preceded by a steep drop in gold lease rates. Could silver lease rates present the same clues? It would seem so. Take a look at these two charts:

paper_2-11leases.jpgpaper_2-11silvd.jpg

As you know, in the last 4 months of 2011, silver was raided twice. Note that in the days before each raid, 1-month silver lease rates declined below -0.40%. Rates reached a bottom on 9/12/11 and silver fell sharply just a week later. Rates bottomed on 12/6/11 and, once again, silver was raided within a few days. After turning positive in early January, silver lease rates have again turned and the 1-month rate this morning is -0.30%.

It is very important to note that -0.30% does not seem to be a low enough rate to give a 100% certain sell signal...but it's close...and we must diligently watch the daily changes to this rate in the days ahead.

A drop of another 10 basis points  would cause me to exit any long positions I have and I would probably even buy some puts. A drop of 10 basis points from here should cause anyone not trading to at least consider establishing some short-term, hedge positions. A move to -0.40% or lower should excite the stackers and give them time to cobble together more fiat to take advantage of the "sale" that would seemingly be near.

How far could silver fall? Take a look at the chart below and decide for yourself. $31 would be likely. $28 is a possibility but, with a little luck, we could even see $26 again.

paper_2-11silvw_0.jpg

Notice that I used the term "with a little luck". IF we were to see sub-$28 silver again, I would consider it to be one of the greatest trading opportunities of all time. I'm not sure it can get there, though. Even if every single new spec long was panicked back out, I don't think that would generate enough selling pressure to jam silver that far down. The EE would definitely need a huge increase in the spec short position and it's hard to see that happening. Maybe...but it would be tough. It's likely that the only way we'd see $26 again would be a panic, one-day spike down like we saw in September and December.

One word here about gold and gold lease rates. The one-month rate in gold, while negative, is not even close to the levels to which it fell in September and December. We'll watch it, of course, but a sustained raid in gold does not appear imminent.

paper_2-11leaseg.jpg

So, let's sum up:

  1. I firmly believe that The EE wants to be net neutral in silver by the end of 2012.
  2. The EE must accomplish this in stages, however, as they do not want a repeat of April 2011.
  3. Silver was moving too far, too fast in January and the EE has decided to corral it.
  4. Spec longs are up over 13% in the past two weeks while the EE has gotten significantly more negative.
  5. Silver is stable here and may still drift higher but a further drop in one-month lease rates may foretell a renewed attempt by The Forces of Darkness to smash prices lower.
  6. Another, coordinated silver raid could temporarily drive prices back under $30.
  7. $30 silver should be bought hand-over-fist.

I, your humble servant, will continue to closely monitor these developments. 

You, the loyal Turdite, must continue to monitor this site and prepare accordingly.

TF

330 Comments

Sandiaman's picture

First

First Turdite

kirbyman1's picture

ZSL LOADED UP AND READY TO GO

I've already got my ZSL ready to go for this one.

¤'s picture

Another Saturday Surprise

I'm really digging these Saturday posts TF.  Thanks.

There are so many variables involved right now that a big news event from almost any place could tip the apple cart one way or another.

silvergoldsilver's picture

I am confused

To me it looks as if they are selling longs, and ADDING more shorts.  They are not trying to eliminate their short position.  They will never try to eliminate it all.  We are in a death paper trap hoping for world global world currency metldown.  If not, they will continuously short paper they grab from thin air.  Endless pit.

Sorry to be johnney rain cloud.

bvwalker1's picture

Margins

Maybe the margins were lowered to help the shorts. I mean, they have to be underwater pretty good and this frees up some money for them.

ClinkinKY's picture

Thank you Turd and let's not forget...

...that the May 1, 2011 "hit" on silver occurred (coincidentally, I'm sure) at the same time that the news of Osama Bin Laden's demise was announced. Kinda' like the "Friday night document dumps" regarding the DOJ emails about "Fast and Furious".

achmachat's picture

I so enjoy reading these...

I so enjoy reading these... it's like having my own private seminar!

any turdites from New Zealand here? Would you recommend anyone to procure a summer home there? Which areas would be best (rural setting); and how high are property taxes?

Ircsum's picture

Great post, Turd!

Many thanks for your analysis and conclusions. I have some spare fiat waiting in the wings & I'll be happy to use it in any slapdown.

SimplyEconomics's picture

According to Brother John and

According to Brother John and his AMAZING silver lease breakdown. SILVER is going to go UP from here to $52.

margaritatime's picture

Setting sail

I want to touch on a few things here before I cast a sail.

To those of you still around that shared immensely your knowledge and points of view in this community, I just want to say thank to you. I consider y’all peers in the truest of forms. To those of you that have set sail, for whatever the reason – and I know somehow you are probably reading this I wish you all the best.

As for the choppy seas that lie ahead. I will dispense a little advice. Tech analysis (TA) and pretty 30, 60 and 90mda charts are only going to get you so far. You will likely find you are going to have to use these as small tools but rely more on your given instincts. Encase you haven’t noticed economics is known as the 'dismal science' by which we can simply sum up to a social science. In facto it is the prediction of what human beings will do next. Macroeconomics by its given word is a much broader paradigm, taking in to account things with greater gravity. In laymen terms, the structure of the entire economy – which I can assure you, from my view, is sending a clear signal.

The tipping point has come to our doorstep, where influential powers will test that resolve. The only standing gun remaining has been individual thought, choice, and freedom. The opposite of which is control, persuasion, and censorship. It does not matter how small or insignificant these ideas are, they all eventually lead to the same place. Always remember that.

Wiki: Censorship is the suppression of speech or other public communication which may be considered objectionable, harmful, sensitive, or inconvenient to the general body of people as determined by a government, media outlet, or other controlling body.

I may post from time to time, but for the most part I am done here. Great informational blog, but I have indifferences to the underlying sheriff. In the shadow of the other great minds, it is best said, “ With canned bacon, we are all better than that”. Bottom line is that perhaps things could have been handled better – nuff said. To ECW, TomL, Shill, Ginger, Eric, HardRain, Tesla, BoP, Atlee, Joe, DPH, Swift Boat, LaMacinna, Murph, GoodDoc, ExhiledB, Stoneeh, et al and the many, many others that I have gotten to know or admired in this community – thanks, I will see you on the high seas.

Often times it is not the action that drives social [economic] behavior, it is the reaction. Watch for those signs, individual thought is the single most powerful tool all of you have.

Good luck everyone!

ReachWest's picture

Catching Up Again ..

Just back from 10 plus days in the sun, surf and sand - have not looked at Turdville since departing at the end of January, so there's a lot to catch up on.

Frankly, I didn't pay too much attention to any of the markets - (checked the stack and it is the same weight as when I left - whew). If Silver were to drop back to the sub $30 level - I would certainly be exchanging lots of fiat for additional quantities of real money. In the meantime, the steady accumulation game in our household continues, unabated.

bernard's picture

I am going to Palm Springs to

I am going to Palm Springs to hear Bill Murphy / John Embry's and a ton of mining execs talk the talk... anyone have any questions I can pose from Turdville? My main one will be: what comes after the end of futures pricing mechanism?

tpbeta's picture

hmmm

certainly hope you're right

peettie01's picture

ready

ready to buy more and more.

Moderator Jane's picture

Community Turnover

MODERATOR

"Bottom line is that perhaps things could have been handled better – nuff said."

I'm not saying the moderators have not made some mistakes, but I think it's fair to say that most of the moderators would agree with me that the BURDEN of handling things better falls on the people who regularly insulted other users, flamed the moderators, and generally acted like they owned the place. The community guidelines are there for all to see, and they were violated many, many times. When the moderators try to do their job, we have been made wrong, and the perpetrators have made themselves into victims.

We are well aware that some of these same angry folks have then spread vicious, unfounded rumors to others on this site in an effort to get people to "defect" out of their own bitterness. I hope that others who might be on the receiving end of this poison will take it with a grain of salt and realize that these guys just like to make trouble for whatever the reason. 

The fact that we've had a terrific influx of new users and lurkers who have finally felt safe enough to share their thoughts on main street in 2012 is proof to all that the moderators' efforts have been successful in creating a better environment in Turdland. I have gotten many messages from folks who have been extremely grateful that the gang atmosphere has no longer dominated. People were actually withholding donations from Turd because of these guys.

In particular, I'd like to thank DPH and Eric O for going WAY out of their way to welcome new members and make them feel at home. It's those two that more people on this site should emulate, not the disgruntled meanies who bullied anyone they didn't feel were fit to play on "their" playground.

I hope we can finally move on from the drama and get on with building a more positive community.  

Beentheredonethat's picture

Thanks turd this is a great site to learn

I was at the YMCA this week,run across a member that is a real Doctor he was a Dentist he's retired now and probably in his seventys. Told me that he's been buying Gold sence it was at 160 dollars I told him that was really good you should have a lot by now. He said that he did. I asked him where he kept it he told me not at home he pays to have it stored and that he's got Gold certificates. I told him he needs to cash in about 5 of those certificates and see if he gets back 5 ounces of Gold or just money he said he would do that. I bet he doesn't get Gold back. Just wonder what others think. I am a newbie here I agree with most everything I read. Don't have much to add read and learn.

¤'s picture

Margaritaville

Bon voyage' sounds appropriate but also probably not enough. Smooth sailing ahead sounds better and that's what I hope lies ahead for you.smiley  

Everything has an evolution, including our own awareness of where we are at the moment in our own evolution as a person and within a community such as this. 

Thanks for everything you've shared with us. yes

Hope to see you back one day in the future.  

¤'s picture

@Beentheredonethat

Welcome aboard!

knavechild's picture

New Zealand Turdite

Achamachat,

New Zealand Turdite right here.  Moved my family out here from Southern California on February 1st.  Summers are beautiful out here...we've spent the past week on a 7 acre resort/homestead with a river, ponds, ducks, chickens, etc.  We spend each morning eating breakfast outside on the veranda while the cicadas buzz in the banana trees and read TFMetalsReport and other precious metals news on the iPad.  Property taxes are generally pretty low...about $1000-2000 per year on average.

-Knavechild

 

I Love Beer's picture

I will ensure to take more

I will ensure to take more and more Phys off the market.

The Green Manalishi's picture

Weekly Silver Chart

Anyone else notice the double doji's on the Weekly Silver Chart.

boatman's picture

geez if you can piss the moderaters off here

then u need to go.

this is TF's house......its not yours.

the personal insulters, anarchists, and the 'EVERYTHING thats wrong with the world is the US's fault'

can hike it,far as i'm concerned.

this is not directed at anyone in particular. 

Big L's picture

Ba Bye!

"Don't go away MAD, just go away". Motley Crue

It is SO tempting to make a big exit.

Nuff said! smiley

Big L

Bay of Pigs's picture

margaritatime

Good to see you again. Thanks for the shout out...and for your valuable contributions to this board.

Peace and Aloha...

harlan07's picture

Greetings

Just discovered this site a week or two ago, and I must say - wow!  What a great resource to learn about the PM markets. I am brand new to precious metals accumulation, so I am grateful for the information available here.When the crisis unfolded in 2008,  I heard people talk about hyperinflation and how PMs would be safe havens as the world lost confidence in currencies, but I was in denial because none of the collapse scenarios had happened (yet).

After many years of denial, I recently woke up to the truth about what is going on with fiat currencies.  I started to read about QE 1 and 2 and how we are being robbed by devalued currency and inflation and I wonder why didn't see the house of cards before now!!

I guess I'm about 10 years late to PMs, but better late than never I guess.  Right now I am just trying to accumulate alittle at a time whenever the price really tanks.  Thanks to this site, I have some idea as to when a bottom might be in.

This site has helped open my eyes to the manipulation that occurs, it makes me angry but atleast it's an opportunity to accumulate while prices are still "cheap".

Titus Andronicus's picture

Still don't see anything unusual in the gold or silver COT

Over the period of the last COT, both gold and silver rose a bit.  Like Turd says, the usual thing is for the commercial net position to drop -- which it did.  (Selling into strength.)

Having said that, the drop in the commercial net position in silver seems pretty heavy, considering the rather mild increase in price.

This is not necessarily bearish.  It can mean that a lot of ammo is being used to cap the price.

Although in theory there is an infinite amount of money and silver shorts which can be used to cap the price, in practice this is not what happens.  In practice, the commercials allow their net position to only get so low before short covering (buying into strength) like they did in August-September 2010 and April of 2011.  (These periods are where the silver longs make a killing.)  A huge effort was undertaken to bring the net position way up and reload the gun, so to speak.  This effort seems to have been completed in December.

Since December the commercials started using the ammo.  In a sense, it is good to see it "spent" so quickly.

(This is a comment about the "big picture", not a prediction of next week's silver price action!  I don't have a firm conviction about what is going to happen next week.)

achmachat's picture

knavechild

that is exactly what we'd be looking for. what "region" are you at?

We're in western Europe and winters are just depressing over here, just grey and wet and cold. That would make it summer over there in New Zealand, and a good time to get away a few months per year. And when/if things get too dicey in the northern hemisphere, there'd always be a safe-house...

those property taxes are "ok" compared to the US... but still, over here the property taxes are almost just a symbolic figure compared to those numbers.

Nick Elway's picture

Trade at Coin Club, Coin show, Gun show

There is another way to trade between silver/gold/and FRN's  Please visit your local coin clubs, coin shows ,  and gun shows.  You may find like-minded people willing to trade.

Your mileage may vary, but I've found the transaction costs greatly reduced as compared to Local Coin Store or online stores. 

Find a local coin club:

http://www.money.org/ana_custom/club_search/club_search.cfm

Finding a coin show or gun show is easy through google.  In my limited experience the coin club is mostly silver (and some clubs are not worth a second visit), the coin show is pretty well mixed.  I haven't tried the gun show but I hear more gold is traded there.

¤'s picture

Fed Playing Favorites With Wall Street in Secretive Bond Deals

Fed Playing Favorites With Wall Street in Secretive Bond Deals: Mortgages

http://www.tfmetalsreport.com/comment/127888#comment-127888

Zoltan's picture

Silver: Commercial Signal Failure

I say the paper silver charade (SLV, futures, options, etc.) will fall apart before the gold scam does.  Many have stated that there is NO physical silver of any size available.  The morgue was given a reprieve until May of this year from requirements that should have taken effect from over a year ago.

At some point in time the real consumers of silver will panic and buy up whatever physical they can get their hands on.  The CME will claim Force Majuer (sp?) and settle in fiat any "claims" on real silver and the price of the real thing will go ballistic.  Kitco has until April under the terms of their bankruptcy agreement and then who knows.

When extend and pretend fails the truth will be laid bare. He who panics first will snap up any real physical that exists.

JMHO.

Z

Syndicate contentComments for "A Warning Flag For Silver"