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

murphy's picture

come on someone

come on someone

Edit: I even gave you guys a heads up

Big L's picture

Turd.....

Do you have any kind of  time frame for legs #1 and leg #2, are you thinking weeks or months?

I'm wondering what the pressures and uncertainties of the Greek debt deadline would add to the timing.

If they're going to save Greece that will bring another flood of liquidity late in March, yes?

Big L

treefrog's picture

furst (not)

furst (not)

Xeno's picture

First to Hat Tip TF's post

First to Hat Tip TF's post after reading!

single6's picture

Simply the best.....

The Master

Big L's picture

Murph...

The Turdites were hypnotized. And Snoozing....

Now YOU are getting very.... very...... sleepy.....

Big L

¤'s picture

Thanks!

That took considerable time and effort. 

"H'mmm....."  is about the only thing I can think of right now immediately after reading that. There's a lot there to consider up above.

I suppose anything is possible at this point. There could be a sizable element that still believes they can control things like they always have by shorting silver like crazy.

I'm in agreement with you that all of this new liquidity has to leak all over the market place and drive prices up across the spectrum. How could it not? And even if they do keep silver tightened down a bit, how long can they do so? Not forever. 

Something unexpected seems likely and were way overdue for a gold and silver surge imo. The only other thought I have about all of those new shorts is that maybe some of that short crowd anticipates a war to break out very soon  and a reactive drop across the markets and silver along with it.

Ya' got me thinking. Mission accomplished.

Tomorrow night should tell us something. Maybe some of that crowd feels a margin hike is coming very shortly even though they just lowered them. Curveball?

H'mmm........!

SE's picture

Here's what I'm going to

Here's what I'm going to do.

snip

...

snip

I'm cutting out everything you said up there and getting right to the point. Chances are pretty good that we're going to see a take down of some sort in the next few days, based on increased short positions, notably among the big 4 shorts in silver. If this happens, I expect to see silver trade sideways all through to the very end of the year or just before, and finally start to head towards $50 and finally pass that around *** MAY 2013 ***. Sooner is not likely. Have you looked at your own silver closing data of the past 12 years and noticed big peaks occurring about 2-3 years apart? Let's see what happens in the next few days. I would LOVE to be proven wrong and see silver gallop this year, don't get me wrong, but past experience says no.

Big L's picture

SE

History is usually a good yardstick. However I don't the global money supply has increased six fold in the past 12 years.

Correct me if I'm wrong.

I would be terribly surprised if any commodity or PM traded sideways for the rest of the year.

Big L

NW VIEW's picture

THE BEST PLACE FOR MONDAY

Have a large stack of P.M.'s, have a bit of ZSL, zero juniors and a pile of fiat ready for the dip???? 

thesandbox's picture

Quote of the day....

She added that she is sometimes surprised that people around the world pay more attention to what's said in U.S. political campaigns than do most Americans.
SOS H. Clinton

http://www.cnbc.com/id/46523420

translated....thank you for your concern but we have them all watching reality TV and are comfortable with their situation.

punchbowl's picture

phenomenal post T

and well presented.  Your efforts are highly appreciated.

edit:  va-moose.  who you talking too?  is it well after cocktail hour already?

atlee's picture

Nice

Nice job Turd. A lot of work for free.

If we blast off prior to the drop dead date to declare, won't more stand for delivery? 

Is there enough that it matters?

I am starting to think 34.25 now. 

Louie's picture

Does the EE know something we don't?

What are the chances that we will have:

1) Bombing raid on Iran

2) International intervention in Syria

3) The Greek bailout fall apart

4) Headline grabbing terrorism strike somewhere in Europe/US

sometime in the next 10 days?  My logic is this.  Anyone one (or more) of these events would be US Dollar positive, and the metals would move in down as the dollar moves up.  I believe that it is possible that the EE knows what is coming, and therefore has lowered silver lease rates to encourage other people to be holding their silver when the waterfall comes.  

Eric Original's picture

I love it when anybody says

I love it when anybody says "disorderly to the upside"  yes

MetalShawn's picture

What is coming up...

This is what I said on Feb 6th:

A correction makes sense, but I'm thinking that it may not happen yet --- not at this stage of the rally/spike. The rally may continue for another $10-40 and then do a 3-6% correction.

What has transpired has been pretty much according to that script.  What comes next is, indeed, looking like a correction.  Profit taking needs to occur, as well as some "pressure release".

The usual wildcards apply, like Fed action, ongoing Greek epic coming to a head, etc.  Absent wildcards, of which 2012 should have plenty up her sleeve, I'm calling a correction right about now.

atlee's picture

vamoose

Sorry I been off the main thread for a while.  Who is vamoose talking about?

thesandbox's picture

re: knowing something

Does seem like they are continuing to stir the pot.... more UN action talk in Syria and then all of a sudden a simple book burning to stir the caldron resulting in 2 officer deaths inside the Interior Ministry building already?????????

Swift Boat Vet's picture

Atlee --- I'm clueless too!

I'm clueless too, but somebody sure pee-d in our favorite Moose's cornflakes.

Swifty

hawkeye's picture

vamoose...

I had the same question atlee.........I read and re-read his posts above and still cannot figure out who he is bitchin about........but one thing I noticed.........he says he has millions in the bank.....why is that fiat not parked in precious metals??..........another shot of whiskey please   cool

Moderator Washington's picture

I don't know what vamoose1 is

MODERATOR

I don't know what vamoose1 is talking about either, but I won't have it on this thread.  Period.

Moderator Washington's picture

vamoose1

MODERATOR

You just earned yourself a timeout.  Have a nice weekend.

Louie's picture

Nice knowing you

now vamoose. 

Friends don't let friends post drunk. 

Thanks Mods! yes

punchbowl's picture

damn

I wanted to hear more about this parrot.

Mudsharkbytes's picture

Vamoose & his "millions"?

I'm not ordinarily a member of the grammar or punctuation police, but my experience has been that highly successful people, regardless of their area of expertise, are predominately highly articulate and have a decent grasp of the basics of spelling, grammar and punctuation.

Vamoose's comments today display none of that, and they are highly disrespectful to boot. If nobody can figure out the topic or purpose of your rant, you've got a problem.

Conclusion: Vamoose is likely full of hot air.

I Run Bartertown's picture

Parrot?

Vamoose walks into a bar with a parrot on his shoulder.

Bartender says "Cool, can he talk?"

Parrot says "Just gibberish, but I'm still teaching him."

El Gordo's picture

Great, but...

I'm just a simple stacker - not a trader, not a seller, just an acquirer.  Thus, my interest simply is served by timing the buy as best I can for the most oz for the buck.  How can you lose money if you never sell?  Anyway, as the fiat accumulates at a fairly steady (slow but steady) rate, I have to hope I have enough dry powder to shoot when the dips happen.  I also have to have the patience to not buy just because the fiat is getting too large, or at least to buy in moderate amounts at the higher prices.  So, as this relates to me, I use this information to plan to sit tight for a few more days.  Should we have a nice dip, I'll jump in for the swim; if we just take off to the moon, I'll probably just get in knee deep; then if we have a later dip, I'll go deeper.  The objective is to see how big the stack can get before they take me away to the reeducation camp or the cracker factory.   FYI.

Moderator Washington's picture

Let's get back on topic, please

MODERATOR

Turd put up an epic post today.  Let's talk about that, not the sideshow.

Personally, I'm long and strong.  Whatever beatdown comes, it comes.   I can outlast it, plus I've got dry powder to boot.

Turd Ferguson's picture

Always a good indicator

MODERATOR

When trolls suddenly decide to attack me personally rather than dispute the substance of my post, it's clear that I've struck a nerve. My confidence increases that I'm analyzing things correctly.

Thanks, vamoose1. We all appreciate it.

henry's picture

(No subject)

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