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

Orange's picture

Big L

"Main Street ought to be about the price action in PM's."

I agree with your point. We should also probably agree that this is perhaps one of Turd's most important posts. Turd has remarkable insight, and I believe we should help analyze his thoughts and try to get to the closest truth of what is to happen in PM. I can't say I am qualified to help, however I appreciate those in Trudville that offer educated opinions.

As for contraception, Bill Clinton educated the teenagers how to solve that problem.   

Moderator Holliday's picture

Politics

MODERATOR

I'd like to see the thread move back towards TF's PM related thread.   He put considerable effort and passion into it for this weekend's discussion for everyone. The political tone is getting stale and turning into a right/wrong debate. 

Perhaps one of you can start a thread and  really get into it off the Main thread. Respectfully of course.

Thanks for your anticipated co-operation. 

Any thoughts on how the market might open up tonight or at London's open?

edvardd's picture

re:Great Analysis Turd

22:54 on the video is others volumes

!

zilverreiger's picture

Holliday

I have no idea how we will open, but I'm thinking of getting out of paper entirely at the next intermediate peak.

Quixote2's picture

100 million ounce tax sale

I have been considering the 100+ million ounce sale on Friday.  After two days contemplation I am leaning to the sale being an adjustment to some entities quarterly report or potential taxes.  If an entity had a large loss in another commodity or stock sale that they did not want to report to stock holders or the loss would have to be carried forward to a future tax year, they would look around to sell and buy back a position that they had a large capital gain position in.  A large long position in silver with a billion or so capital gain could be sold and immediately bought back (selling to yourself) generating an off setting capital gain and establishing a new higher basis for the silver position.  Doing this near the close on a Friday would minimize the risk of some other entity interfering with your "wash sale".  The wash sale rules do not apply if you are taking a taxable gain.

I have done similar things in my own accounts to manage my tax liability.

The Vet's picture

Negative rates

Looking at the LBMA site for SIFO   (SIFO (Indicative Silver Forward Mid Rates) ) they quote the historical rates as percentages daily for many years.  

They show the actual SIFO rate and then LIBOR - SIFO as a percentage which seems to correspond to the lease rate.

For example,  on 15th Feb  SIFO  posted on their site was 0.58%

LIBOR - SIFO was -0.334% so LIBOR must have been 0.246%

So it was more expensive on the 15th Feb to borrow silver than it was to borrow US dollars at LIBOR rates.   So the negative rate indicates a high demand for leased silver or lack of availability of silver for lease compared the cost of borrowing US dollars.   Nobody is giving silver away at these negative rates.  I may have had the explanation wrongly expressed in my earlier post on the subject. Sorry for any confusion.

http://www.lbma.org.uk/pages/index.cfm?page_id=56&title=silver_forwards&show=2012

SilverLeaf's picture

Very nice post, Turd

Fantastic, thorough work - one of your best posts in a long time!  It's interesting to see how the perspective you laid out aligns with the expectations of a big move in March from industry giants like James Turk, Jim Sinclair and Egan Von Greyerz.

It's hard to believe the EE is going to successfully mount another waterfall raid at this stage. The last raid in the fall flushed out all of the weak longs, and I don't think there are enough back on board to make it worth the EE's while. If they do aggressively raid, I don't think we'll drop below $29.50 at the most, and if we do, we'll likely be there for less than a day. And IMO, we'll see a rapid and aggressive bounce with a ton more physical silver disappearing from the market. So a pyrrhic victory for the forces of evil at best, and they'll be even more screwed on the other side of the raid than they are now.

dropout's picture

Don't Forget the Flip Side!

Turd ~ What a great post! Thank you for all you do.

The flip side of stacking? The gold miners. For those with dry powder left looking for opportunity.

Worth Looking At;

Williams Creek Gold LTD. TSX Canadian Venture Exchange symbol WCX last @ $0.345 CAD

Bralorne Exploration - Bralorne Gold Mines LTD. TSX Canadian Venture Exchange symbol BPM last @ $1.04 CAD

As with all investing DUE DILIGENCE is your first priority. I list these two gold mining companies as promising prospects ONLY, worth taking a look at. They are both located in the gold bearing Cariboo Country of British Columbia, Canada. Williams Creek is mainly an open pit placer operation, while Bralorne is a hard rock mining operation.

Both of these stocks are now making a move to the upside. Good luck and keep stacking.     

silverstax's picture

Predictions for next week....

As we have both the Bernank speaking and LTRO on Wed (also the last day of February), I'll predict that price drifts lower Mon-Tue and then all bets are off on Wed. Translation - I'm looking to get another order in before Wed wink

Silverstax

Orange's picture

Contrarian

A few days ago I asked Turdville to consider contrarian views to Turd's point that it looks like the PM's are about to be attacked. Not to say that Turd's logic is wrong, I am just wondering if we are entering the stage where EE loses control.

Somebody pointed out that the Chinese might not want the prices to go down as it would mean their advice to their citizens to buy, and the setting up of Page may be put in question. Interesting point.

I would add that there is more talk now of alternative reserve currencies, (China, Russia, Iran, Japan, India etc.) than when Soros's goons had a meeting 2 years ago. (could be less)

With Greece's default coming, some predict March 23. Capital restrictions in place for the UK and talk of bank holidays galore. Money sniffing dogs at the Swiss boarder with Italy. 

The point being that Turd has been right so many times, looking at what EE does and how to read the tea leaves from the charts. When the s.it hits the fan, the charts will look different. Hence, I would be scared to be out of PM's even if we see EE takes us down.

Be Prepared's picture

Oil Analysis

I like this guy's quick hit analysis of Oil for tomorrow....

atlee's picture

Moderators Holliday and Washington

For all you do

sorry could not resist

rckymtn's picture

WOW.  The problem is the

WOW.  The problem is the govt SHOULDN'T HAVE THE RIGHT TO FORCE ME TO PAY FOR YOUR BIRTH CONTROL!  OR THE INSURANCE COMPANIES TO PROVIDE IT FOR FREE!  OR FORCE RELIGIOUS INSTITUTIONS TO VIOLENT THEIR BELIEFS.

WAKE UP!

Be Prepared's picture

U.S. Map of Gas Prices by County

As I have said in earlier analyzes, the $4.00 mark will be breached for most of the country by early May.......  Don't forget State Gas Taxes also play a big factor into the price you pay at the pump.

Here's a nice Map of Gas Prices as of today, February 26th..

Monedas's picture

Long silver....short Goodgarden and Quaker Wild Oats !

Stephanopolous and the Dems are creating a "Wild Oat Straw Dog" on contraception to keep the spotlight off Obama ! "Stephanie" needs a condom over her microphone !  Monedas  2012   Quaker Oats Lost ? Billions On Snapple Stratagem  devil

Desert Fox's picture

Best Laid Plans

One day the enemy {EE} will raid, counter-attack, run out of fuel and {attempt to} hike back home.

Think Battle of The Bulge.

It's not endless firepower, endless strength, endless desire. One day, one Battle will be a decider.

Attacks and raids ARE being planned and will commence. They don't always succeed. Stay strong!

Louie's picture

@ nathan1234

If you ask me. This is not dollar positive. This is PM positive. As also Crude positive.

I agree that it should not be dollar positive, no news of late should be dollar positive.  The dollar, however, for the time being is still viewed as the worlds safe haven in times of crisis.  When bad things happen, people still rush to the dollar.  Dollar up, G&S down (in dollar terms). 

Crude positive- If I was a commodities trader, I don't see how you could lose with crude or gasoline futures over the next 7 months. 

ZILVERMAN's picture

listen to this guy

Moderator Note:  I was hesitant to approve this new poster's post, without any indication of what might be in the link.  So I checked it out.  If the F-word offends you, I suggest you scroll on by.  Otherwise, I think the sentiments are well placed.  Mod Wash.

¤'s picture

Another $2 trillion in liquidity on tap?

G20 works on huge rescue deal for April

http://www.tfmetalsreport.com/comment/134131#comment-134131

Larry's picture

U.S. Growth at 21-Month Low

ECRI's Lakshman Achuthan joined Squawk Box recently to discuss what has transpired since our (ECRI’s) recession call five months ago.

Do I even need to mention that CNBC does not have one single clue about the markets or the economy other than “but we feel good” comments or regurgitating talking points given to them at “certain” times? No? Good. Didn’t think so. Just try not to scream at the, um, “television personalities” for their, uh, uninformed interruptions. OK? You may now proceed…

http://www.businesscycle.com/news_events/news_details/5047

Louie's picture

Hamas now wants regime change in Syria

OK, so the coalition to over throw Assad now includes the US, Al qaeda and Hamas. 

http://www.haaretz.com/news/middle-east/hamas-ditches-assad-backs-syria-revolt-1.414701

Does Hamas count as "outside intervention"?

redwood's picture

BP

Tried fxempire.com.  Seems audio is not available.  Are you having the same trouble?

johnboatcat's picture

Has everyone forgotten what year this is?

It is an "incumbent presidential election" year.  Go look at the historical charts and you will see that the normal pattern is for the markets to tank (annual lows) and the essentials (food/fuel) to spike in mid-spring.  Then along comes the government (party in power in the White House) to save the day and things improve considerably up and into the election.  Bada Bing, back in office. There is no guess work here. It's history don't ignore it. That is unless you believe it is different this time, and the PTB have some how lost the ability to print all the dollars they want, when they want.

Take all your other (short term) analysis and plug it into the above historically proven pattern and you will have it.   The historical charts are easy to find to prove the above with Google.  This new paper below will tell you why it happens and that it is true.

January 17, 2012
Abstract:
We analyze all U.S. presidential re-election bids and find a positive, significant relationship between the incumbent’s vote margin and the prior net percentage change in the stock market. This relationship does not extend to the incumbent’s party when the incumbent does not run for re-election. We find no significant relationships between the incumbent’s vote margin and inflation or unemployment. GDP is a significant predictor of incumbents’ popular vote margin in simple regression but is rendered insignificant when combined with the stock market in multiple regression. Egotropic and sociotropic voting hypotheses fail to account for the findings. The results are consistent with socionomic voting theory, which includes the hypotheses that (1) social mood as reflected by the stock market is a more powerful regulator of re-election outcomes than economic variables such as GDP, inflation and unemployment and (2) voters unconsciously credit or blame the leader for their mood.

To download the free pdf go here:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1987160

Pete's picture

good chart link re metals, gold shares, oil

The Vet's picture

Another $2 trillion in liquidity on tap?

Last week the G20 countries were all crying poor and now suddenly there is $2 trillion in spare change available?

What happened?  Did they turn over the sofa cushions in Mexico and find $2 trillion in quarters underneath?  

No mention of where the cash is to come from in this announcement, but it seems that several countries mentioned may need turbo boosters on their printing presses to get from here to there.

Monedas's picture

$2 trillion is just a leaky, liquidity faucet !

Wait until they open the hot and cold spigots full blast !  Monedas  2012  I overturned my sofa cushion and all I found was popcorn, peanuts, a hairpin and a used condom ?  I must have got lucky one night but don't remember it well ?  devil

¤'s picture

Vet

This type of news coupled with the next LTRO and every other 4 lettered bailout or swap should be very bullish for the PM's.

It makes me wonder when they'll try to tamp down the PM's before they go disorderly to the upside. cool

Can anyone say MELT UP?

lone's picture

sunday read

one of the best that i have read ever on this site.a lot of people don't realize the time and effort that is required to post such an article.instead all they can do is say something that is critical.perhaps some of you should try and analyze the situation and give us your perception.thanks for your time TF.

zilverreiger's picture

the article is over my head +

the article is over my head + too many wild cards

LaMachinna's picture

DR. G's Daughter

Amen!

Syndicate contentComments for "Please Read This Extremely Important Post"