No Time For Victory Laps
Yes, it feels good to finally get the short squeeze I've been calling for. No, it's not time for dancing in the streets. At least, not yet.
It's been a frightfully long day and it's going to be a long evening, as well, so I have to keep this somewhat brief. Yes, today, we finally had our short squeeze. Note that, once again, the move was "contained" at the 2% level. No matter. It's just good to be off the floor. The hints for today were actually placed yesterday. If you've been following my almost-daily analysis of the open interest, you'll recall that this recent, 3-week down move has been primarily driven by new spec shorts being added to the market on nearly every down move in both gold and silver. Yesterday, we had a near washout in terms of price as both metals bottomed near (hoped for) long-term support of 1525ish and 26.50ish. The "tell" for today may have been in the OI numbers from yesterday as, instead of a continuance of the trend of new shorting (adding OI) driving down price, we saw OI decline yesterday. What does this mean? It means that yesterday was a washout. It was a day when some wary gold and silver longs finally waved the white flag and simply gave up. Capitulation. Not a massive, blood-in-the-streets, obvious capitulation but a capitulation, nonetheless.
When we get today's numbers tomorrow, let's look for a flat to down OI change. Yes, a few new longs were probably added today but they were likely more than countered by the closing out of short positions (the squeeze). I'll continue to monitor the total OI very closely for clues in the days ahead.
On that subject, we'll get another very interesting CoT on Friday, too. For the reporting week of 5-9/5-15, gold price fell about $48 while total OI rose by about 4300 contracts. For silver, price fell by $1.38 and total OI rose by about 650. Again, I am quite certain that the new shorts that were driving down price and raising OI were algo spec and managed money chasing downward momentum. Why? Because The Cartels are losing so much metal at these prices it would be utterly foolish for them to help drive prices even lower by adding shorts. Nope, these new shorts were almost all spec and this is why you are seeing them squeezed. Remember what we discussed earlier this week and last week...The Cartel needs to manipulate price higher in order to lighten demand for physical (they hope) and, as the "long" on the other side of all the new spec shorts, they can profit by squeezing them, as well. (http://www.tfmetalsreport.com/blog/3780/looking-squeeze )
So, the big question is: WHAT HAPPENS NEXT?
First, let's look at some history. Recall that prices made similar and almost identical bottoms in late December of last year. What did the charts look like then? Here's a 1/3/12 gold and a 1/5/12 silver. Look closely and take a mental picture of the trading pattern off of the lows made about a week earlier. Let's hope we see similar action in the days ahead.
You might go back and review this post from 1/3/12, too:
And here are your current charts. First an hourly, a daily and a weekly gold.
And here are hourly, daily and weekly silver charts.
Lastly, there's something that I need to reiterate. Unless you are of the belief that this is it, the final and complete deflationary collapse of global liquidation and panic (which I'm not), there is absolutely no way that gold and silver are going to trade much lower than where they bottomed yesterday. The demands through London for physical supply are too great and the bullion banks are being looted for metal at these prices. As an example, just yesterday I know of a massive order of an equivalence of 2,000 Comex contracts being filled for physical silver when price tripped below $27. This type of physical demand is sucking the life blood from the current LBMA/Comex system. As price rallies back, demand may not abate but that is the chance that the banks are going to have to take. For now, they simply cannot allow paper price to continue lower. As such, today was the first day of the rebound.
Members of this site are very wise and learned but I can assure you that no one here has the contacts and information that I have when I make these assertions. And let me assure you of this: Silver, in particular, is going higher. Much higher. There are things going on behind the scenes that are not readily apparent to the average investor. Besides the ongoing backwardation (http://www.zerohedge.com/news/guest-post-backwardation-gold-and-silver ) and tight supplies, do not forget the ongoing CFTC investigation and potential for positions limits, the class-action lawsuits and the new, physical exchange set to open next month in China. I will continue to use any and all weakness to add to my physical stack. Will you?
Have a great overnight and I'll be back with you again tomorrow. TF