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

Logiwave's picture

Inverse head and shoulder?

Will silver complete an inverse head and shoulder pattern?

silver chart

RumbleGuts's picture

WooT!

Damn fine post Turd. Thx for your efforts. wink

Loud Noises's picture

Good Post

Reading posts like this makes me excited about this battle no matter which way we're headed in the next few weeks!  If you think about it, its a privilege to be able to see higher OR lower prices as welcome... the times we live in are unique indeed. 

modi's picture

Thanks Turd!

Really high quality posts the last couple of weeks, thanks Turd!

Carthaginian's picture

G20 Inches Toward $2 Trillion in Rescue Funds for Europe

Germany is easing its opposition to a bigger European bailout fund, officials said, smoothing the way for the world's leading economies to secure nearly $2 trillion in firepower to prevent further fallout from the euro-zone's sovereign debt crisis. (CNBC)

http://www.cnbc.com/id/46525888

You add to that the wednesday LTRO which will be around 0.5trn....

And I would say today that the Metals today are in the same position as the Tomcat below...

1- Tied to the catapult of a carrier launch ramp

2- With afterbuners full on

Ladies and Gentlemen, please fasten your seatbelts....

f14_tomcat_afterburner_312332_aircraft-w

Strongsidejedi's picture

Thanks for the informative site TF

TF,

Thanks for the informative posting.

The discussion on the silver attack on Friday didn't seem to be totally confirmed by this blog's participants.
But, the attack is timed correctly and consistently with prior sales pressures.

This market action appears to reflect strong volume buying by big players/governments or corporations hedging against fiat currencies.

It looks to me like the fiat v. metal question is moot.

Metal is the only way to go.

grinners's picture

Panic covering at 48... No chance.

DOUBLE posted, see below.

grinners's picture

Panic covering at 48... No chance.

I don't believe that the cartel panicked last year right before the crash and covered shorts...

Right before the margin rates where hiked? Like they didn't know that was coming? Or that they went more long at 48 than they did at 28? No way.

Far more likely that they were allowing that blow off top $2 a day rise to paint the bubble picture and therefore make it look like 1980 all over again.

Thus allowing the great drop that occurred after to play right into their hands...

Thoughts?

Horst's picture

Also remember the 36$ level

Also remember the 36$ level at which silver was previously capped a couple of times.

GoldMania3000's picture

trader Dan

atomic180's picture

EE vs DeBeers

Ultimately their market makers...DeBeers a monopoly that controls and contorts the true value of diamonds...and so too the EE...silvers removal from coin use largely allowed for better manufacturing use margins...the question begs what is the true value of AG...with mining cost  at $7-$10 per ounce and rising due to oil labor taxes reserve depletion debasement inflation...and the inevitable downward price pressure that will evolve from scrap substitution recovery redemption, where do/will we find  market equilibrium... 1 to 1,  10 to 1, 16 to 1,  50 to 1, 150 to 1 that's the question...we all have to ask ourselves what would/will we sell our silver for...and what market metrics will apply in the coming months and years...then again for many its guns and butter...armagedon vs BEN and Jerry's...if there's any question there's two camps please observe that BOTH DSLV and USLV where UP on Fridays session while Silver was mostly flat ... I end with a reminder September 1980 the Hunt brother collapse when Silver retreated from $50 to $11... remember who the other players in this game are as they seldom loose... and can switch from short to long in the blink of an eye... 

opticsguy's picture

Contraception

LOL, the Georga state house will introduce a bill making vasectomies illegal.  It's a joke, but it's taking this to its logical conslusion.

Godblessusall's picture

Thanks The Vet

However, need a few more clarifications...guess , I'm thick.

3. Do low/negative lease rates imply the market is flushed with money or the opposite - that the market is starved of funds?

Negative lease rates may result from movements in LIBOR or movements in the metal markets.  With some of the distrust in currencies and interbank transactions, silver and gold may be viewed as better forms of borrowing than paper fiat by some institutions.

I can understand distrust in currencies by a lender...but why would a borrower distrust currencies and interbank transactions? I mean any debasement of currencies, as is going on now, would benefit the borrower to the detriment of the lender...

Perhaps, the borrower's 'trust' in pm's and his keenness to borrow when lease rates are low implies the borrower expects lower prices. But, in an environment of easy and plentiful liquidity why would anyone expect lower prices for pm's? Moreover, if low lease rates means lower prices why shouldn't the lender short his pm's and buy back at lower prices himself? He would stand to gain much more...plus, his 'risk' would be lower since there is no counter-party involved. I mean, he has his physical pm's and shorts paper pm's...so, his counter-party risk is lower...

4. In the current scenario the money market seems awash with extra money from operation twist, LTRO, Britain's and Japan's QE's...

Being awash with money and having confidence in that money are not necessarily the same thing.  Gold is often held on CBs books at historical prices out of touch with current prices.  Leasing can therefore provide a high percentage return on what is an undervalued asset.  Also leased gold is not usually segregated in the banks accounts so it still shows up as an current asset even though it isn't really.

​It makes sense that CB's get a good return on their pm's so they lend...but what gives them the confidence to do so...I mean borrowers don't trust monies printed and lent by CB's but then why should CB's trust borrowers to return their pm's without 'damage'? 

5. With the markets floating on liquidity do negative lease rates still imply a smackdown, as noticed in previous such episodes?

Certainly cheap leased gold puts extra supply on the market and can aid anyone trying to push the market down.  However at some time it will have to be returned and like all short positions that potentially can be very damaging for underfunded shorts.

Where does the extra supply come from? I would imagine there would be extra supply when rates were attractive...but extra supplies and low/negative rates? I don't get it!

I'm sorry but I'm still a little confounded with the mechanics of negative lease rates...

zilverreiger's picture

site idea:metals bull/bear meter

a little ajax poll to gauge sentiment of readership, people can vote continuously every 12 hours per user.

sell - hold - buy

Alex's picture

Netdania Chart for Turd

Here's what you were looking for with the Gold overlay. Nothing out of the ordinary.  It is somewhat interesting or coincidental that silver recovered off it's lows thereafter while gold did not given the close relationship earlier in the day.

And just for fun... what actually happened with my fantastic photo editing abilities:

GoldMania3000's picture

rickards. is smart

 
 
Groaner's picture

We need more input about the negative lease rates

You have to wonder if it was true that when rates drop to -.040 and it predicts a coming raid in the metals I just can't imagine that the crooks could make it that easy to see? Nothing on the street is easy. 

When we had that huge run up in silver last March/April what happened then that the cartel could not contain the price? Could the same thing be occurring? However they made a lot of people eat it when they pulled that major raid on the opening Sunday night.. and dropped the price $8 in minutes. Of course their buddies in the scam, the CME really helped smack the price down when after it dropped had 5 margin increases on the way down.. You would think they would increase the margins on the way up?? NO>>> more effect to manipulate the price to their liking.

It does prove that they have the fire power when ever they need it.

So whats it going to be??

Big L's picture

States rights contraception

I agree states have the right - as opposed to the Federal Government - to set policy on contraception according to our Constitution.

It is only a political issue because the cost and therefore the responsibility of using or NOT using said contraception, is unfairly distributed to every man, woman and child in the US in the form of taxes. Whether or not you directly pay taxes, you cannot escape the costs inherit in the system those taxes support.

OUR government refuses to charge it's citizens the actual cost of provided services, and they refuse to reduce services, so citizens are expensive.

If, again, on average citizens enriched the system, providing money for politicians to spend on votes, contraception would probably be illegal.

In OUR government's quest to reduce the number of citizens it tramples on the Constitution of the United States, destroys our individual rights and liberties, and squashes religious freedom.

Let ME be perfectly clear, as I'm capable and not afraid to do so,  the only interest our government has in contraception is self interest.

All contraception should be available to anyone and everyone who wants it, as long as they pay for it and associated costs of using it or not using it themselves.

As long as both contraception and citizens are a distributed cost, we'll be having the debate over whom, other than the responsible parties, will get the bill. And who, other than OUR government, will benefit.

Big L

Groaner's picture

Do you practice SAFE

Do you practice SAFE government?  haha

Forget about those fools

Big L's picture

Sunday Morning Prayer

Seeing as it's Sunday morning, I would like to lead TurdLand in offering a heartfelt prayer for Dr. G's precious little daughter and her continued recovery.

Dear Lord, please help us create the circumstances, the energy and the love necessary to heal our friends daughter.

As we envision her future, we see her with the sun shining on her uplifted face, she is happy and healthy and energetic, the very picture of your grace and our prayers.

Please help us help our friend and his daughter, by creating for her a healthy heart and soul and body.

Thank you very much.

Amen.

Big L's picture

Groaner

Yes, I do have a liner I use for protection.

So far, it's just Tin Foil and it's only a hat, but I'm working on the rest of the suit.smiley

Big L

Turd Ferguson's picture

Great stuff overnight

MODERATOR

I really enjoyed all of the comments. Just great stuff!

Special thanks to The Vet for the lease rate explanation, to Alex for the chart overlay and to all, particularly SilverWealth, for the kind words.

I've been reading a lot about DrG's daughter but I have no idea what happened. Can someone please fill me in?

Have a great day everyone. I'm going to go AWOL until this evening as I mentally prepare for the upcoming week.

Maximillion's picture

Breaking news

Iran has refused to deliver a 500,000-barrel shipment of oil to Greece in response to EU oil sanctions imposed against the country.
According to a report by Fars News Agency on Sunday, oil tankers that had come to transfer 500,000 barrels of Iranian crude oil to Hellenic refining complex in Greece were forced to return empty-handed after the Islamic Republic refused to deliver the shipment.
Plus
Obama now seems to have pis*ed off the Saudi's as well, who seem to be pushing for a war.
 
So now we've got less oil going to Greece, just at the time they need more bad news, with the growing threat of Ob now falling out with the House of Saud (and remember it's the single fact, that oil has to be traded in $'s, that maintains the demand for $'s). 
 
Any ideas lads/ladies on the likely price movement of Silver if war is declared?
 
 
 
Dr G's picture

Sorry if it has been posted.

Sorry if it has been posted. I don't have time to read all of the previous comments, although I didn't see it in the ones I did read.

$5 gas in LA (Olympic Boulevard & Fairfax Avenue)

Prices rise above $5 for a gallon of premium gas at a Shell station at Olympic Boulevard and Fairfax Avenue in Los Angeles, California

Dr G's picture

@Turd, as you might remember,

@Turd, as you might remember, our little one was born on the night that the hurricane hit NYC last summer. She is almost 6 months old. Was ill last week and then admitted to the hospital last weekend for serious illness. She was close to death (no hyperbole in that statment--without prompt treatment she would not be here).

We spent all last week in the hospital, and have another week or so to go. She is improving though, for which we are grateful. The Lord works in mysterious ways and has allowed my wife and I to learn some wonderful things through this trial.

boricuadigm-shift's picture

A Global force... For Good! -

Brainwashing for good!

Be Prepared's picture

The Liar in Chief

¤'s picture

DrG

We're all glad that she's doing better. I know it's been hard on you and the wife. Well wishes from all for your precious one and your family.

Big L's picture

Bori.....

Yup,

Three passes and a linking statement, I believe.

Big L

Perfidious Albion's picture

Create a problem sell the solution

I posted this earlier over at TPC but looking at the picture above it still makes sense.

Create a problem
 
ie: Let oil prices rise creating high pump prices
 
Sell the solution.
 
ie: Steal Irans
 
 
 
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