Please Read This Extremely Important Post

I hope you're ready. Everything that has transpired since May in silver and September in gold has led us to this moment. The next five to seven trading days will tell us everything. Either the metals will win their individual Battles Royale or they won't. If they win, price will accelerate to the upside. If they fail, the metals will likely settle into another sideways consolidation that lasts well into spring. I, for one, can't wait to find out!

So, let's get started. First, in case you missed it, here's a re-print of a comment I posted yesterday afternoon about the continuing increase of open interest in the metals:

"For yesterday, gold rose $15 and the April12 contract rose by 6,500 contracts to 264,250. Here's something interesting: The June12 OI fell by 1800 to 62,263. Hmmm. Total OI rose by over 4000 to 470,255.

You'll recall that yesterday was a big day for silver and also the day that the March options expired. First day notice is just 4 days away but March12 OI fell by just 3,600 contracts to 21,393. The May12 picked up a lot of rollovers and new money and grew by nearly 8,000 contracts to 49,471, a 20% increase in one day! Total silver OI is now 115,874 and that level is the highest its been since August of last year."

A short time later, I posted this comment, right after this week's CoT was released:

"Remember that massive OI jump during the rally on Tuesday? It was +17,000 contracts Tuesday alone and for the reporting period, the total OI rose a massive 25,000.

Well, we just found out how. Total spec long grew by 14,000 but the Cartel net short grew by 20,000! They are about to drop the hammer or get their nuts squeezed off.

Considering that OI has expanded by over 14,000 contracts in the two sessions since, you can imagine that the spec net long has continued to increase while The Cartel net short has done the same.

Silver, too. OI rose by 6000 contracts as the EE net short rose by 1900 and spec longs rose by 2100.

At first glance, this all just confirms that the stage for The Battle Royale has been set. We are up against it technically and the CoT shows that The Cartels are getting up against it from a net short perspective. Next week promises to be wild. Get ready."

Before we get to the charts and discuss the technical importance of this upcoming week, let's dive into that CoT a bit and look at some history for perspective. First, gold.

The CoT does indeed show a massive expansion of spec longs. 14,000 contracts! That's a lot of new money. It also shows that The Cartel supplied the new paper to those spec longs as The Cartel added 20,000 new shorts. The question is, as always, why do The Forces of Darkness do this? Are they:

  1. Flooding the market with fresh, unbacked paper gold because they are trying to cap price, suck in weak-handed longs and preparing for a massive raid through which they will profit?   OR
  2. Is the bullion bank cartel simply performing their duty as a market maker? The specs demanded 14,000 contracts this week. Without a brand new, unbacked Cartel short on the other side of the trade, price would have had to have risen to the point where a current long was ready to sell. What would that price have be to in order to pair 14,000 contracts?

Have the bullion banks profited for years by naked shorting the PM "markets" and then initiating waterfall declines into which they can cover and profit. ABSOLUTELY! Is that what they're doing here? I don't think so. As I've repeatedly stated, I believe that The Cartels were completely freaked out and frightened by the events of 2011 and they have spent the last 10 months manipulating PM prices in an attempt to minimize and/or extricate themselves from their perennial short positions. What they didn't expect was $2T in fresh global liquidity in the past 90 days. As I laid out yesterday, everything is going higher, just like during overt QE2. Throw $2T around and it spills everywhere. Crude, gold, beans, cattle, copper...everywhere! The race higher is unfolding so quickly that The Cartels have been left with no other choice but to maintain their roles as market maker. Like the Specialists of old on the NYSE, The Cartels must take the "offer" side of the trade when things get disorderly to the upside, just like they must supply a bid when things are disorderly to the downside. (Though, during coordinated raids, The Cartels have obviously been reluctant to aggressively supply that bid.)

So, here we are. $2T with more to come are flooding the markets with liquidity and The Cartels are getting painted into the same corner they found themselves in last year. What will they do? Attack, of course! That's what they have always done and so you can imagine that an attack will be their first course of action here, too. But can they? Seriously...can they? Take a moment and consider the global investment landscape at this exact moment. Even if you had unlimited funds, would you want to continue building a huge net short position in the metals right now? I don't think so. And you'd have to greatly increase your short position to initiate an attack. No...I don't think they're going to attack, at least not in the massive, coordinated style to which we've grown accustomed.

Their only real option is to attempt to continue "managing" the demand. This means they will continue to create paper when demand is heavy and they will attempt to cover some shorts on every selloff. In an environment like that, you'd expect a steady, increasing, predictable price channel where demand remains constant and forces price higher within a channel of higher highs (demand surges) and higher lows (Cartel covering into selloffs). Hmmm. Do you think the environment I just described would look anything like these charts once you plotted all of the price action graphically?

paper_2-25goldd1.jpgpaper_2-25silvd.jpg

So, how long can these price trends continue? As discussed in yesterday's post, from a fundamental standpoint the firehose of liquidity that is currently flooding the global markets shows no sign of slowing. The question then becomes, how long can The Gold and Silver Bullion Banking Cartels continue to provide the unbacked paper metal necessary to manage the ascent of price? Are they already stretched to the limit like they were last April in silver and last September in gold? If so, we can expect imminent attacks and margin hikes. For answers, let's consult some past CoT reports to see if we can gain some perspective. (For simplicity's sake, I'll start with the gross numbers.)

SPEC LONG                 2/22/11        4/5/11         8/2/11       9/6/11        10/4/11           2/21/12                     

Silver                                50,937          48,890        38,265      37,185        23,859            34,819

Gold                                 246,967       259,792       291,974     248,457     180,635          214,343

As you can plainly see, spec long positions in both gold and silver are still well below their peak levels in April and September, respectively. Additionally, though up considerably from the lows of Q4 2011, these markets are not yet "overbought", at least terms of market participation and liquidity. Now, let's look at The Cartel shorts.

BANK SHORT              2/22/11       4/5/11        8/2/11        9/6/11        10/4/11           2/21/12

Silver                                 89,728         89,827        75,029      77,869         58,807            70,923

Gold                                  389,757        415,992     442,648     401,815       345,040         375,306

Just as plainly, from a gross perspective, Cartel shorts are nowhere near the levels they were when silver and gold were making their respective highs last year. To me, this indicates that The Cartels have plenty of "ammo" still available from a paper supply standpoint. But, we have to look at the net numbers, too:

BANK NET (short-long)   2/22/11       4/5/11       8/2/11        9/6/11        10/4/11            2/21/12

Silver                                       57,793         56,414      44,588       47,216         18,923               39,188

Gold                                        234,804      258,665    287,634     227,714      164,751             229,302

As you probably expected, the net short position also shows that The Cartels have plenty of room to grow here as they are nowhere near the extreme levels attained at the price peaks last year. Other things to note from this data:

  1. From 2/22/11 to 4/5/11, silver rose from roughly $33 to $40 but the large spec long and Cartel net short positions barely budged. Why? The small specs drove the market as their net long position rose from 18,000 to 54,000. That's a triple of the small spec net long in 6 weeks.
  2. But it wasn't the specs that caused the panic, it was the EE. From 4/5/11 to 4/26/11, price rose from $40 to $48 but the large and small spec net position were both declining. However, over those three weeks, the EE net short position contracted by an amazing 14,000 contracts! The EE panicked, pure and simple.
  3. At that point, The CME stepped in and raised margins 5 times in 9 days.
  4. From 8/2/11 to 9/6/11, gold rose from roughly $1650 to $1900. Though the media and the know-nothing paid disinformation agents of The Cartel would have you believe that this was a speculative "bubble", the numbers tell a much different story. Over this time period, the large spec net long position declined by almost 25% from 247,175 to 184,371 and the small spec net long only increased by an insignificant 3,000 contracts, rising from 40,459 to 43,343.
  5. Again, this "panic" was caused by a cartel, The Gold Cartel. From 8/2/11 to 9/6/11, price rose $250 as the net short position of The Gold Cartel declined by a whopping 60,000 contracts, falling from 287,634 to 227,714. What happened to instigate this panic? The S&P downgrade of U.S. debt on 8/5/11.
  6. At that point, central bank intervention drove gold lower in the wee hours of 9/6/11 and the raid was on. The CME also conspired to raise margins in gold, too, thereby increasing the selling pressure.

All that history notwithstanding, it's clear to me that we are still in the early stages of this rally. With this history as our guide, PM prices will continue to ascend in two legs. This first leg is the ongoing expansion of large and small spec net long positions. These numbers will probably continue to grow until they begin to reach the levels attained in April and September of last year. The second leg will be another Cartel panic leg where prices rapidly surge to the upside. Since I think we are still in the middle stages of Leg #1 and, since global liquidity should only continue to surge, I just don't see a huge risk of a coordinated C/C/C smashdown at the current time.

That said, we can't be complacent, either. The charts are at a very significant juncture and silver lease rates are scary-low so a raid, particularly in silver, cannot be ruled out. Ignore the silver lease rate chart below at your peril. I don't think it's a direct indicator of an impending raid but even Stevie Wonder can see the obvious correlation between the last two forays into deeply negative territory and steep price selloffs.

paper_2-25lease.jpg

And now here are your charts. As you can see, we are now at the Battle Royale...the points at which gold and silver will either be forced to reverse or they will overcome this last line of resistance and charge higher. My point in dissecting all of the CoT data was to help you see why I feel that the Battles Royale are going to be won not lost and that, after a likely period of serious volatility over the next 5-7 trading days, gold and silver will begin accelerating higher. First, here are your gold charts showing the same view but from different angles.

paper_2-25goldd1_0.jpgpaper_2-25goldd2.jpg

paper_2-25goldw.jpg

And here are your silver charts. Note that silver is fighting two technical battles. There is the horizontal resistance from the recovery highs of late October (35.50) and there is also diagonal resistance from the down-sloping trendline connecting the highs of April and September (about $36). When silver is able to move through and close above both of these two lines, it will be off to the races for a while as there won't be much resistance until price reaches $40.

paper_2-25silvd_0.jpgpaper_2-25silvdw1.jpg

paper_2-25silvdw2.jpgpaper_2-25silvd2.jpg

In closing, let me just say that I sincerely hope you enjoyed reading this as much as I did writing it. It's not exactly how I intended to blow my Saturday but I felt it was imperative to get this information to you today so that you could study it before Monday. The next 5-7 trading days are very, very important and if you don't approach them with a plan, you will instead be prone to acting on your emotions and, as we all should know by now, letting your emotions get the best of you is about the only way you will lose fiat money trading gold and silver in this remarkable, continuing bull market.

Keep the faith. Be patient. Have courage. Believe in yourself. Prepare accordingly.

TF

403 Comments

atomic180's picture

Price discovery

Turd I agree mostly with you assessment I believe as I first blogged Wed. 2/22 were in a period of controlled assent. The EE is as much long now as they are short  and at this point and has their short bases covered. This phase is price discovery and "market value" . I think we'll still some price suppression until market equilibration is achieved.

silver_hunter's picture

Waterfall does not come

Since so many peoples are on alert of another waterfall of EE raid, the raid I believe will not come until majority got very excited about the profits they earn and start counting the potential paper profits. 

my two cents.

I have not used margin since 2007. no worry for me, just hold and trade a little once in a while.

Dr G's picture

Posting from an iPad in a

Posting from an iPad in a hospital room, so not much to say other than this:

In the next 3 weeks we will see an impressive move in silver. More impressive than anything we've seen this year. I have no charts or data to back it up. Just a very good feeling.

Turd, great post. One of your best ever!

beach_bum's picture

@cpnscarlet

Thanks for the detailed info. Guess I should have checked in this morning but you know, lazy Saturday mornings are required of beach bums. What's this world coming to anyway... :-)

edit:   that's a curious anomaly that has corresponding volume data...

¤'s picture

gearhead

Welcome to the Fold!

Dr Jerome's picture

Our Potus, the hypnotist?

That is an interesting article about the president's hypnotic tactics... I wish the author(s) had put their name(s) on it. But the power of speech, from the right lips, has been well understood for years. No need to get all scientific with hypnosis techniques.

The ancient sophist Gorgias, one of the earliest teachers of the art of rhetoric, wrote this:

By means of words, inspired incantations serve as bringers-on of pleasure and takers-off of pain. For the incantation's power, communicating with the soul's opinion, enchants and persuades and changes it, by trickery.
 
A more modern writer describes the same phenomena. JRR Tolkien explains the psychological mechanics of  power of the voice of Saruman:
Suddenly another voice spoke, low and melodious, its very sound an enchantment.  Those who listened unwarily to that voice could seldom report the words that they heard; and if they did, they wondered, for little power remained in them.  Mostly they remembered only that it was a delight to hear the voice speaking, all that it said seemed wise and reasonable, and desire awoke in them by swift agreement to seem wise themselves.   When others spoke they seemed harsh and uncouth by contrast; and if they gainsaid the voice, anger was kindled in the hearts of those under the spell.
 
Does that not describe our Chief's listeners? "...desire awoke in them by swift agreement to seem wise themselves." People want to agree with someone who sounds like they know what is going on so others will think they are smart also. Oh! what pitiful human nature,. Psychopaths have been taking advantage of this weakness for millennia. Call it hypnosis, call it the power of rhetoric, it doesn't matter. But we should fear that power and do all we can to call it out and hold it up for inspection. 
 
When I listen to his speeches, I get angry. I hear every rhetorical trick, every figure of speech, every nuance of vocal inflection. He has a beautiful voice. He is an excellent singer also. I knew the first time I heard his voice at that he would be president one day. I did not vote for him, but I did hope that he could get us out of the wars and actually change some things. "Hmmmph. How'd that work out for ya, Jerome?"
 
He has some excellent young speech-writers. I hope none were my students. Their use of structure and figuration is predictable, right out of the textbook. But his speeches are filled with lies and trickery --just like Gorgias warned. He gives pleasure and takes away pain. But he is just an actor, a performer with a golden voice. Smart? Sure, but not that smart, not that good. And he has a team of statisticians and government offices who will help him lie, and the MSM who will make sure everyone hears it.
 
Our incumbent Potus is going to be hard to beat.  Our economy is recovering! Didn't you know? And those damned oil speculators... unemployment rate decreasing... new jobs...
 
Excuse me, I have to go barf.
Magpie's picture

For Dr. Jerome

From the last thread.  Arkansas v. Colorado v. Texas.

Precipitation.  Population.  Politics.  And everything in between.

http://www.city-data.com/

Stratajema's picture

The cartel

The Cartel is driving up oil and gasoline prices by speculating on the long side but with silver, the cartel is always trying to block the price from rising.  Riiiight.

And if the price of silver and gold prices do not rise next week past the up channel resistence then prices will fall?  Wow.

I sure am glad I'm a stacker and not a trader of 'make pretend' paper on the Crimex.

ClinkinKY's picture

I Bet He Doesn't Recognize The Irony Of This Statement

Obama: The “Toughest Three Years This Country Has Gone Through” Over Last 50 Years Just Happen To Be The Same Three Years I’ve Been President…

Coincidence? — I think not.

(CNS News) — President Barack Obama told a group of contributors at a campaign fundraiser in Florida on Thursday that his term so far has been “three of the toughest years this country has gone through in my lifetime.”

“We’ve gone through three of the toughest years this country has gone through in my lifetime,” Obama said, according to the White House transcript of his remarks.

“And there are a lot of people who are still hurting all across the country–a lot of people here in Florida, a lot of people everywhere,” said Obama. “There are still folks whose homes are underwater because the housing market collapsed.  There are people who are still struggling because they can’t find a job. There are folks who are just barely able to make ends meet.  And obviously those of us who are here, we’ve been incredibly blessed. But one of the great things about America and one of the great things about those who are in professional sports is we’ve all got cousins, uncles, family members who are still struggling and are a reminder that we have a lot more work to do.”

Magpie's picture

Obama's keynote speech 2004 DNC

I watched live.  I knew the minute he started speaking he was using NLP, AND that he was being trotted out to see if he would play in Peoria in 2008.  It's probably one of the best NLP speeches he's ever given. 

http://www.americanrhetoric.com/speeches/convention2004/barackobama2004dnc.htm

Denver's picture

@ Dr Jerome

Check your inbox if you please

berkshire888's picture

Bullion Dealers in Canada

Which bullion dealers can any of you recommend in Canada? 

Many thanks.

BagOfGold's picture

Turd...what a stellar post!!!...

The only thing "Eye" have to offer...is my humble opinion on what may transpire from next week...until around the 3rd week of March!...This is from what I have posted on a few threads...

A comment on Eric O's Gold Miner thread...on the news of financing for one of my penny miners after the close...

It looks like the news came out after the close...that's why I didn't see it either!...I notice the PP closes on March 20th...perhaps that's the date when Geeece "finally defaults"...& is recognized on all of the sheeple media networks...& gold punches through $1900+...Shit happens for a reason...& the timing is usually correlated to a specific event!...If your miner is going to go sideways for awhile because there won't be anymore drill results until March 20th...then why waste the time going sideways?...Might as well do a financing!...Hmmm...I wonder how many other miners are going to be doing a PP?...Hmmm...there sure are a lot of drill results scheduled for my pennies around that same date...March 20th...I will be watching with an eye wide open...as"the Emperor looses his clothes"!!!...

A comment at "The Speak Easy"...

If gold drops...it may go down to $1680...& if silver drops...it may go down to $32!...However...if this occurs...then the drop will be picked up by so many buyers waiting in these ranges...by which there will be such a fast parabolic rise to $1900+ gold  & $45+ silver...it will make your...

http://i48.tinypic.com/24zksxj.gif

Bag Of Gold

SteveW's picture

Beware the Ides of March

Great post with cogent reasoning and stats for your thesis that PMs will break out in the near term. I don't share your optimism but feel more neutral and am waiting before I take any action.

I've got this gut feeling though that we may see a huge attack around the Ides of March (13th) to put a placeholder on it. March 17th is expiry on stock options and March 20th is when I expect Greek default. Counterintuitively events like default are used to attack PMs.

Anyway interesting times ahead.

Raphio's picture

enthusiasm

Thanks so much, Turd.... I definitely enjoyed reading this as much as you did writing it. It's great to love your "job" isn't it? I can hear the enthusiasm in your words and your passion for the subject matter. It looks like you hit it right on, this lifetime - do what you love and love what you do! Most excellent!

Best of luck Turd and all you Turdites out there

¤'s picture

Dr J

Obama is quite possibly a shoe-in. Despite anything that has happened or will happen, the sea's of the MSM are parting again by virtue of drowning out all the Repub candidates with each other.

And I completely agree with you on Obama's gift for "hynoptic" qualities.

He's a chameleon of a person and is extremely disarming due to his charm/ likability (Bill Clinton/Ronald Reagan) and is always playing the  crowd  in front of him at any given moment because he can sense what the crowd needs at the moment. He's a master at it.

He's quick on his feet with his tongue and more importantly, his mind.  The power of persuasion using empathy and vulnerabilities, his and others. Total wolf in sheep's clothing. The most dangerous kind. 

johnboatcat's picture

It's the

man-ipplators.  It's the man-ipplators I tell you!

Wizard's picture

From the Rookies Point of View

Thank You Very Much Turd for taking your Saturday and sharing it with us.

Just some thoughts that come to mind when thinking about the EE and how far they are will to go with manipulation. Who could have even imagined the MF Global situation at this time last year? Let alone seen it coming. The thought of MF Global openly stealing customers segregated money and confiscating their precious metals was absolutely un-thinkable. Let alone those responsible getting away with it. I have no doubt if the situation was perceived to be critical enough for those in power above the CME. They would implode the CME and let it burn to the ground to maintain their status quo.

Do we Really KNOW who has their fingers in the coming Pan Asia Gold Exchange ?

Just a question from a Rookie

A Buck,Up A Buck Down, No Matter, Just Keep Stacking Physical

Save_America1st's picture

Warren Buffet quietly buys precious metals company...

...(While dissing gold)....hmmmm

2012-02-25 — londonstockexchange.com

``Cookson Group plc ("Cookson"), a leading materials science company, announces that on 22 February 2012 it entered into an agreement to sell its US Precious Metals business, an operation that forms part of its Precious Metals division, to Richline Group, Inc. ("Richline"), a subsidiary of Berkshire Hathaway Inc.'' -- Do as I say, not as I do?

SALE OF COOKSON'S US PRECIOUS METALS BUSINESS TO RICHLINE GROUP, INC.

Silver is money's picture

So 100 million ounces of paper silver was dumped on the market

And some entity or entities ate it all up without the price dropping very much at all.  I have a few questions to ask about this:

Who stepped up to the plate and committed BILLIONS of dollars in (leveraged) capital to take the buy side of that deal?

Do you think, for one moment, that any big player would do this and with what appears to have been such conviction if they didn't have a very good idea of its return on their money?

What happens if they threaten to take delivery? 

So many people are expecting a correction here, that I wonder if we won't see a melt-up instead.  Maybe I have lost my mind?   

Bozzz's picture

I don't post too often, but I

I don't post too often, but I do throw my two cents in from time-to-time. So, here are two cents

Turd, it had to take many hours to put this information together, and I, for one, with the upmost sincerity REALLY appreciate this ABSOLUTELY valuable information you’ve given us...you are an altruistic person in every sense of the word!

Keep up the good great work!   

TomMack's picture

where are the miners hedges?

Wouldn't some percentage of the miners future production be sold in the futures market to 'lock in' profit margin?  And wouldn't they be getting news, analysis and advice from the gurus who are managing their accounts?  As the price runs up perhaps a larger percentage of forward profit margin will be 'locked in' (more future shorts).  

¤'s picture

Bozzz

Nice to see a lurker chime in cool

Fred Hayek's picture

Um, he's not quick on his feet, Dr J

Don't you remember what a tongue tied dolt Obama came off as in debates with the hardly Socratic Hillary Clinton in 2008?  If Obama was actually a fast thinker on his feet, he might occasionally speak in public without a teleprompter.  The man felt the need to use a teleprompter when speaking to grade schoolers fer chrissakes.  He's a nice speaker but evidence of his being anything more than somewhat above average intelligence or particularly nimble of thought on his feet is lacking.  There have been any number of instances, "57 states, "Marine corpseman", "clinging to guns and god" etc that testify otherwise. 

Bugzy's picture

some questions about this 1 min Silver chart

I have only recently capitulated: Turd, I blame you entirely, and have started taking an interest in charts and TI

This alleged attempted smack down, late Friday:

1) I noticed that you (Turd) have not commented on it. Yet it does look significant. I wonder why?

2) How does one know which came first - the chicken or the egg? Was it a raid down which was repelled (as touted) or was it a rally up that was very strongly repelled? How does one know?

3) There appears to be some controversy as to: Was it a chart anomaly by this outfit, as some previous poster is convinced that a ghost of this action would have appeared on the futures chart. Which it didn't, apparently.

Some clarification would be beneficial.

Bugzy.

Jimbio's picture

Did the mega dump of 100M oz

Did the mega dump of 100M oz get represented in this weeks COT, or will we have to wait until next friday on who sold all those contracts?

Sure, consensus seem to be that it was commercial traders that took the short side of the deal. But is this confirmed?

Island Guy's picture

Thoughts on Silver Lease Rates

Orange Alert raises some good questions regarding the validity of silver lease rates as a predictor of impending cartel actions.  I've noticed the same thing.  Sometimes there is a correlation, and sometimes there isn't. 

However, I've also noticed one other factor to consider.  Every time a drop in silver lease rates has accurately predicted a take-down in silver prices, there is also a drop in gold lease rates.  When there is no confirming drop in gold lease rates, the silver lease rates do not seem to predict anything. 

Frankly, it seems like the real driver is the gold lease rates.  Silver just comes along for the ride.

Which makes sense.  Someone (I don't remember who) in Turdville once asked the question "how do the lower silver lease rates work when the central banks have no physical silver to lease out"?  I don't recall ever seeing an answer to his question.  

Now, I am just a novice at silver investing, and a new resident of Turdville, and I do not have the level of expertise that many of the other residents have.  However, I would like to propose an answer to both the unanswered question and the predictive value of silver lease rates.

As I see it, the central banks (and the Fed in particular) have a very big interest in keeping down the value of gold and silver.  At the moment the only thing the dollar has going for it is its status as the world's reserve currency.  Without that, the Ponzi game is up.  There is no other official currency in the world that can step up to the plate and take the place of the dollar.  Certainly not the Euro.  Only gold and silver have the potential to become de-facto reserve currencies.

In order to prevent the dollar from losing its reserve currency status to gold and silver, the central banks do what they need to do to manipulate the PM prices lower, and to undermine the investment value of these metals.  Most of the time they can rely upon the big commercial banks to do the dirty work for them.  Everyone keeps asking why the government doesn't step in and stop the manipulation in the PM markets, when it is obvious that the government wants the manipulation.   And so it continues.

However, every now and then the upward pressure on the PM gets too much for the commercial banks to contain.  When the prices of the PM get too high, and there is a danger of the public thinking that they are good investments and a better trading vehicle than the dollar, the central banks step in and drop the gold lease rates. 

The central banks can affect the gold lease rates because they all have large stockpiles of gold.  They do not have silver, but usually silver tags along behind gold, so manipulating gold serves to manipulate both.  So, the central banks lease out their gold at -0.5% interest.  The commercial banks jump at the chance to be paid for borrowing gold.  They, of course, have no intrinsic need for the gold they just borrowed, and so they sell it on the open market.  The huge influx of supply drives down prices.  The commercial banks then buy back the gold at the lower prices, and they make money on both ends of the deal.

No similar vehicle exists for supporting a drop in silver lease rates.  The central banks do not hold silver.  That is why a change in silver lease rates by itself is not always a good indicator.  Who has enough physical silver reserves to be leasing out the metal in the same kinds of volume that the central banks can do with gold?  Maybe SLV, but maybe not.

So, what are gold lease rates doing now?  Nothing.  They haven't moved since they dropped right before the December beat-down.  To me, this means that the commercial banks are still on their own, with no central bank help in manipulating the market. 

The commercial banks are not doing too well on their own, however.  They dumped 102.5 million ounces of paper silver on the market on Friday, and it had no effect.  This is a huge amount of paper silver - supposedly 3 times the entire annual US production of the metal.  Dropped it on the market in 7 minutes, and it had no effect.

Unless the commercial banks can do something this week, the central banks (and especially the Fed) will be forced to intervene again to protect the dollar's status as the world's reserve currency.  I agree with everyone's bullish sentiments, but I am still monitoring the gold lease rate carefully.  If I see it drop to -0.5% suddenly, I'm immediately going short.

Any thoughts on this analysis?  Anyone?

wannabe's picture

Turd the great

Kinda sounds funny when you type it out....or maybe to the nonturdite.

I don't post often but have been following your remarks since the days of ZH and followed you on your blog from day one. I still have much to learn and lurk everyday but don't feel I could have much more to add than what has already been said.

I must however say that you have had some amazing posts and insight as of late. I have a hard time spending 5 min to post this and know it takes some serious time out of your day to type and put together your post, so I must say great work and keep it up, It does not go unnoticed or unappreciated.

slavador's picture

thought on Friday end of day blip

Is it not possible that some speculator had a big long position and wanted to take end of week profits? $33/Oz -> $35.50Oz for a leveraged long is an awesome win.

Turd Ferguson's picture

I'm sorry

MODERATOR

I had commented on this earlier today in the previous post.
Many have stated that none of the other charting services show this "event".
Therefore, I am inclned to believe that the chart in question contains some sort of "data input anomoly".
The only thing that remains to be seen is if the timing of the netdania "anomoly" lines up with the $7 takedown on the gold globex. Can someone check this?

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