On The Lookout

I have a little time this fine Saturday morning so I thought I would share some observations with you.

First of all, we have to talk about the open interest changes on Thursday. You remember Thursday, don't you? The day of the big beatdown? As an aside, how many times has this now happened in 2012 alone? Anytime The Bernank steps in front of a mic, the metals get crushed. What was last week...about the 7th time this has happened this year alone? At any rate, from the Comex close of Wednesday to the Comex close of Thursday, gold was down $50.30 and silver was down $1.55. As Ruprecht would say: "That's a lot". Let's keep in mind a couple of things here:

  1. Price declines when there are more sellers than buyers.
  2. There are two kinds of selling pressure. Long liquidation and naked short selling.
  3. When longs liquidate, they are closing an open position. This causes total open interest to decline.
  4. When naked shorts are added, this is opening a new position. This causes total open interest to rise.
  5. If you are to believe The Cartel Apologists and Disinformation Agents, then The Bullion Banks are simply benevolent market makers who add liquidity to the metals markets by taking the other side of these trades. They are the willing providers of paper metal when buyers initiate new longs AND they are the buyers on the other side of new, spec naked shorts.
  6. (This is, of course, true and the CoT and Bank Participation Reports bear this out. The problem with The Apologists is that they stop right there and fail to consider/comprehend that The Bullion Banking Cartel may have more nefarious aims as they serve their Fed/ECB/BoE/BoJ/SNB masters.)
  7. Since late February, The Cartels have been rapidly reducing their net short exposure in both gold and silver. For gold, The Cartel net short position has fallen from a ratio of 2.69:1 to a current (a/o last Tuesday) ratio of 2.08:1. That's a drop of 36%. In silver, the reduction is even more dramatic. On 2/24/12, The Cartel net short ratio was 2.32:1. As of last Tuesday, it now stands at 1.36:1. That's a drop of 73%.

So now, with these points in mind, let's assess the open interest changes from Thursday. For gold, while price was falling over $50, the total open interest change from Wednesday to Thursday was just 34 contracts. From this, what can we surmise? Clearly there were equal parts long liquidation and new shorting on Thursday. All of that selling pressure drove price down $50. The overall Cartel position was likely flat and the entire shift was within the "Large Spec" category where spec longs were dumped and spec shorts were added.

The $1.55 decline silver, on the other hand, was an entirely different event. While silver was falling, the total open interest grew by over 6,000 contracts and, at 127983, it stands at the highest level for all of 2012 and it's a level we haven't seen since last May! More on the implications of this in a minute but, first, what does this OI rise indicate?

Again, as pointed out above, a rising OI coupled with a falling price is an indicator of naked short selling. Having price fall 5% and OI rise 5% shows that the entire event was caused by new spec short selling, not long liquidation. How can I assume that it is the specs that are adding shorts and NOT The Silver Cartel? Re-read point #7 above. If this is the case, then Thursday put a significant dent in the remaining Cartel net short position.

As of last Tuesday, The Silver Cartel net short position was 16,954 contracts. They were short 64,401 and long 47,447. The difference is 16,954. (As an aside, per the latest Bank Participation Report, JPM was short 17,000 all by themselves. This means the rest of The Silver Cartel is already net flat.) So...IF Thursday's selloff was almost entirely caused by naked short selling and IF that short selling was coming almost entirely from the specs...the current net short position of The Silver Cartel may be as low as 11,000 contracts. Additionally, the balance MAY be JPM net short 16,000 and everyone else net long 5,000. Think about the implications of that for a moment.

Regardless, today the net short ratio of The Evil Empire in silver is at an historically low level. I have maintained for over a year now that the run-up in April of 2011 and the ensuing beatdown in the 14 months since has been a coordinated effort by The Silver Cartel to extricate themselves from their tenuous and extreme net short position. In late March of 2011, they were net short 55,000 contracts. Today, they are net short as few as 11,000 contracts. That's an 80% reduction and they are almost there, almost flat. The question of the day, and the ultimate subject of this post, becomes: WHAT HAPPENS NEXT?

  • Can silver reverse and rally while JPM battles the rest of The Cartel?
  • Must silver decline further in order for The Cartel to move to net flat?
  • Can silver decline further in the face of tight supply and strong physical demand?

I wish I had the answers but, obviously, I don't. I'm left to speculate and guess just like you are. One thing I do know, however, is this: Silver will reverse and it will then head much, much higher. For traders, the timing of this reversal is extremely important. For stackers, not so much. Any further dips in price should be greeted with joy as the opportunity to buy silver at these fiat price levels will not last much longer.

However, I recognize that even stackers watch the day-to-day price changes with great interest. With that in mind, take a good, long look at these charts of silver:

Look, I can assure you that silver is in very tight supply and it is increasingly difficult for Buyers of Size to get timely, price-efficient delivery. This condition of the physical market will make it very difficult for silver to break down through $26. Difficult, yes, but not impossible. On a very short-term basis, it's certainly possible for silver to be run through $26. There has to be a considerable amount of buy-stops under that level. "Harvesting" them alone could drop price below $25 and, after that, selling momentum could take price all the way to $22. Heck, maybe even $20.

I tell you this not because I expect this to happen. I tell you this so that you are mentally prepared. IF this happens, it will mark the end of silver manipulation, as we've known it. A brief drop into the lower 20s would allow The Cartel to finally move to a net flat or even net long position. From there, silver will rapidly recover and soar to new, all-time highs. Of this, I am 100% certain. Therefore, IF silver suddenly falls another 20%, do not freak out and panic sell your metal. This would be the biggest financial mistake you'll ever make.

Again, silver could and SHOULD hold the $26 floor simply because of the tight, physical marketplace. IF it doesn't, though, be prepared for the opportunity of a lifetime to buy silver at what will be an historic bottom. Price will not stay down for long, though, so you must be prepared to move quickly. Besides The Silver Cartel moving net neutral/long, there are several fundamental changes coming over the horizon for silver. Be strong and do not waver.

In this context, we should discuss gold, too. Any set of conditions that would allow for a raid in silver would likely cause a raid in gold, as well. Do the charts bear this out? Maybe. Take a look. Like $26 silver, you can rightly assume that there is an abundance of stops below $1525 gold. This has to have The Gold Cartel salivating. Can they pull it off in the face of extraordinarily strong, global demand for physical gold? Yes, they can but again, though, they won't be able to keep it down there long.

At it's last peak in August of 2011, note that gold broke out of it's primary channel and moved about $250 higher. Having broken down now and residing outside the channel, the risk remains that gold could fall $250 below the channel. This would take it to roughly $1400. Looking at the weekly chart, this would be a logical spot for support to appear, too. Again, I AM NOT SAYING that gold is going to fall to $1425. I am saying that it's a possibility and, if it does, this type of move would present to you an extraordinary and historic opportunity to BUY not sell. Just be mentally prepared, that's all.

Regardless of all this, it's going to be a great week around here. The new "podcast" site is finally set to open on Monday. Besides daily audio commentary from yours truly, the site will also include:

  • Member interaction with PM "gurus" (webinars, conference calls and chats)
  • In-depth interviews of industry leaders
  • Non-moderated (except in extreme circumstances), "blogspot-style" daily thread comments

And remember, the ultimate purpose of this new, "sister" site is to allow TFMR to stay completely as-is and grow at the same time. No fees. Never so many ads that you can't tell the content from the advertisements. A community where we all freely share and prepare.

I hope you have a great weekend. It's going to be a fun summer regardless of what the next few weeks may hold.

TF

443 Comments

NW VIEW's picture

Thanks T.F.

Have a great weekend with the T.F.'s

agrock's picture

second

sorry had to say it

Sirtitan45's picture

Thurd

Have a good weekend Turdites!

cpnscarlet's picture

Won't say it

Just not my thing - someone else take it...

survivalwstyle's picture

drinking a 5th

my first of the day rock on mrF. peace 

agrock's picture

a good listen if you have about 20 min

Infamous for his prediction of the great recession, Europe's demise, and the collapse of the US financial system (as well as profiting extremely handsomely from said predictions), so well captured in Michael Lewis' book "The Big Short", UCLA's Dr. Michael Burry undertakes UCLA's Economics Department's commencement speech with much aplomb. In this "age of infinite distraction", the astounding truthiness of this 15 minute speech is stunning from single-sentence summation of Europe's convulsions that "when the entitled elect themselves, the party accelerates, and the brutal hangover is inevitable" he reminds us that Californians, and indeed all Americans, should take note. A quarter-of-an-hour well spent from a self-described 'chicken-little' who was "just trying to figure it all out".

Sandiaman's picture

Happy With Nothing

SilverWealth's picture

gold and silver

The last time I mentioned that the Silver chart was vulnerable was about a month ago on this page. I was lambasted for that and derided. So be it. There were all kinds of prognostications then about how Silver just could not go lower and would never this and never that.

This is what I see. Silver and Gold are down trending charts. I think Silver easily takes out is lows soon but then bounces violently and quickly. This is a real possibility. But that said once the low is taken out the longer term chart will say down.18-20  then comes into play which is a 100% retrace of its big breakout move last year.

I don't know about the Cartel or what is going on behind the scenes or the COT. I just look at the price and the trend. JPM and the big guys have huge positions thru out many dozens of commodity markets where they conspire to whipsaw price. Their survival does not depend on a small market like Silver. Max Keiser has peddled that nonsense for years. Imo that is all emotion and drama and helps sell his boutique business and image, nothing more.

Gold is in a downtrend. Pull up a monthly chart. I think its headed for 1500 area due to that last impulse down on Thursday which was strong and telling. Maybe I am wrong. But it is in a downtrend. It is highly UNUSUAL for any commodity to go up 11 years in a row and not correct at some point. Commodities can often correct 50% in a bull. I am trying to keep this in mind. If Gold does take out its lows after so many retests it indicates weakness. The door then opens on the monthly to significantly lower prices in a larger perspective. First 1400, then 1300 where there is some support and then 1200 where there is more support. Hello Martin Armstrong.

I am neither a bull nor a bear. I am just watching the trendlines as best I can. For Silver to begin to be bullish it needs to take out 31. For GLD it needs to get over 159 and then 165. Until then they are down trending markets and no bottom can be accurately predicted imo.

¤'s picture

Silver at $25 or lower...

...would be an incredible opportunity. I agree, a spike down followed by a big reactive spike up seems likely.
Thanks for the update.

Standing in a long line right now to get a seat to see my son graduate :-)

Dyna mo hum's picture

I say

$25 before $35  a stackers dream......buy the fucking dips

muscrat's picture

Open interest -- option B?

What if it's Jim Willie's Asian Sheriff front running the silver cartel? Can't they aim for the sell stops at 26? Other than Bix's suggestion that the "good guys" want the blame on the "bad guys", I have yet to come up with a good reason why not.

Thanks Turd!

Pete's picture

Great review TF

Thanks for the great overview Turd.

Mickey's picture

Great explanation

Thank

Turd Ferguson's picture

This is REALLY strange

MODERATOR
Dagney Taggart's picture

Maybe I Need to Repeat This

Does anyone honestly believe Eric Sprott or Hugo Salinas-Price is going to let silver go to $18?? The comex would be dryer than a $10,000 hooker at 4 AM.

Seriously?

opalboy's picture

we are watching

a historic struggle, and these folks won't give up easy, we have been warned of volatility, but I bet it gets even nuttier before it is over, hold tight you're metals, don't lose them like I did in the boating accident!

tmosley's picture

How will we subscribe for the

How will we subscribe for the new site?  I need to work this into my budget.

European American's picture

"Of this, I am 100% certain."

"Of this, I am 100% certain." 

I don't think even those running the show, manipulating behind the scenes,  the trillionaires, are 100% certain of anything. And they are the ones making the rules as they go!

What is 100% certain is, some "left over crumbs" will fall here and there, and those who understand the minds and movements of today's Psychopathic, Royally Rich, Financial Kleptomaniacs,  along with a little luck and timing for being in the right place, may be so fortunate as to scoop up a few.

murphy's picture

RBS, Nat West, bank issues

Is it to simplistic an idea to think that they needed a short term bridge loan from their depositors?

Just askin'?

SaratogaPrepper's picture

I just know...

that all this is just a trick to get me to answer the phone and go to work. Honestly?!?! $20 silver?!?! All right I'll go and make some more FRN's cause now that the lawn is soaked I can't mow it. Really wanted to try out the Bicardi Spiced rum tonight, but I guess it can wait until another time.

Orange's picture

Chinese Gold and Silver Exchange

to start trading in three currencies.

Not sure why the link does not work when I click on it. I copied link and searched with google and the article appeared.

http://cgse.com.hk/editor_upload_image/file/SCMP%202012-06-18%20(B1)%20Gold%20exchange%20to%20launch%20trading%20in%20silver%20futures.jpg

Number 47's picture

@turd

I am affected by this, at the moment we have no access to wages, they are not in our accounts. I can go to the branch but the maximum withdrawal is 500 euros.

They have no idea of our balance, all transactions are on paper and will be processed later. The latest news is that it will not be fixed by Monday. This means a week of confusion for folks.

Many are stranded abroad with no access to cash. ATMs are working for some but mainly not. Debit and credit cards not working and access to online services is unreliable. Even when accessible the figures cannot be trusted. 

There will be a mass exodus from these banks when they get sorted.

I used to be 90% against digital currency. Now 100%.

The media is not covering this much over here. One thing that has surprised me, reading the comments on the news sites, quite a lot of people talking about gold and silver. Things like this are waking people up. Most think there is more to this than meets the eye, I personally believe RBS got a margin call when downgraded. 12 million people lost their wages for a few days. Coincidence?

The level of trust was low before, judging from comments and forums the trust is now completely gone. I think this will cause more people to prepare.

Will try to keep updating what is going on here. When I went to the branch yesterday it was chaos. Will be interesting to see the fallout if this is not resolved by next week. There were reports of queues outside banks in Dublin on Friday. This could have the potential to start a run on RBS and its subsidiaries.

All in all, an epic feck up.

Turd Ferguson's picture

THAT IS UNBELIEVABLE!

MODERATOR

EVERYONE PLEASE READ THE POST FROM NUMBER47

Response to: @turd
Number 47's picture

@saratogaprepper

Bacardi spiced was launched years ago but was withdrawn after Morgans took off and Bacardi didn't sell. The Bacardi was a much superior drink IMO. The morgans was too sweet. If it is the same spiced that you have now then you are in luck! I read they had relaunched it, hope they haven't changed the recipe.

Turd Ferguson's picture

And I don't care what anyone thinks of debka

MODERATOR

They are often sourced by The Mossad and lately, they have been spot-on and about 2 days ahead of the MSM re Syria.

With that in mind, read this and ponder the implications:

http://www.debka.com/article/22112/Newly-supplied-Russian-Pantsyr-1-anti-air-missile-used-to-down-Turkish-warplane

The Doc's picture

Excellent post Turd, possibly your best work to date!

The cartel has clearly been drastically reducing their net short position since February- and this seems to be picking up again.
Wonder if they are more concerned with Euro-zone contagion, or avoiding another PR risk SNAFU like the CIO debacle.
I just posted an article published on NASDAQ.com stating that if JPM's silver manipulation is true, they will have to unwind their positions to avoid another PR crisis. 
Personally I think it is probably a little of both.   They will have much worse than a PR crisis on their hands if they are not successful in extricating themselves from their shorts prior to the coming massive move in the metals- as the last 14 month's actions testify to.

Dagney Taggart's picture

@Turd

By way of deception, thou shall do war. How noble. Candy-ass khazar frauds....

Edit: With a motto like that, are you going to believe that you're immune to or a target of the deception?

Really-'s picture

Good Post Turd

You presented the possibilities as well as your experienced opinion as what should happen.  Laid it out quite well.  Thanks.

Desert Fox's picture

Man-Code for Silver Shopping

Honey, I need to go shopping for some new shoes.

She can't tell you no. cool

Hrunner's picture

Logical scenario

Turd,

Based on my understanding of the history and the following working assumptions (possibly erroneous), does this make sense:

1)  JPM manipulates the PM market, regardless of fundamentals or what the specs believe,  basically the price is what JPM (and the Fed) want the price to be- for now.

2)  JPM inherited/ owned a huge, unbalanced short position, which you pointed out above is diminishing toward net even with the recent whipsaw events.

3)  I originally thought simplistically that all JPM was doing was "forcing" the silver price lower to relieve their shorts (that didn't sound right...).  Ted Butler opened my eyes earlier this year when he said in a podcast (can't find link immediately) actually JPM dumps a bunch of sell orders (which are pulled back at the last minute- that seems illegal, but oh well) in a very brief and thin period to drive price low, but actually buys a lot of longs essentially at firesale manipulated price.   

Q1:  Is there evidence in the cartel OI that there is a buildup of longs to support this (is the net short dropping the same thing)?

4)  One variable not discussed a lot here is not just number of OI shorts v. longs, which are directional numbers, but also at what price?  The JPM outstanding inherited shorts are probably over a range of price, but a scenario occurred to me reading your post.  Perhaps some short contracts are just too low for JPM to "get at"- see Dagney's comment above re Comex $18 silver.  Maybe they want to gun the price to do the 'dump and grab' Ted B. was outlining, and at some point, do a calculation that they have so much in firesale shares, that they can afford to close out the remaining 'toxic shorts', absorb the loss and more than make up the difference by letting the price rise to a nice high.   I still like the idea that the Fed has merely given them marching orders of a target PM price range (subject to modification if global picture warrants).  I could see a JPM - Fed negotiated range that makes both happy and makes JPM money.  I.e. let PM price rise slowly, just not exponentially, which seems to be the recent track.  May be even normalized /correlated to other indices.  Win-win.

This says to me perhaps a few more gyrations around 20-26 then up to 36-37 by Dec which is a quiet 20-25% increase for the year.  This seems to be approximately what you're saying, no?   All this assumes no black swans or forces beyond TPTB control (yes, I do believe those exist).

Off to sucker my tomatoes  

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