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

atlee's picture

NO

Of course not!!            

Do honestly believe someone would drop 100 million ozs of the real deal in an effort to curb price or for any other reason in a rising market when they can use paper contracts?

Do you honestly believe that only silver doctors and bro john would be the only ones promoting it if it were true? 

I don't want to shatter your dreams man. Go ahead and believe in  tooth fairy too. No credible website had a peep to say about it other than bro johnny. Silver doc picked t up becasue they will do anything sensational for attention. 

Monedas's picture

Conservatives are not the Control Freak Police !

Leftists, who are the permanent emperors of the "Freakdom of Control" are terrified we laissez faire, live and let live Capitalists are going to restrict their right to put crucifixes in mayonaise jars of urine ?  Monedas  2012   Got Credibility ?  devil

Terabyte's picture

@Mudsharkbytes

Mudsharkbytes, since you don't usually give compliments and don't really appreciate those that do, perhaps you should make a trip to the upper right corner of the main page and "Feed The Turd" as a way of showing your appreciation.  

Magpie's picture

@redwood

Some on this thread must believe elections matter, or they wouldn't be talking about the merits or disabilities of the R candidates or the person who currently occupies the WH.  I was trying to be polite.  smiley

Turdle GG's picture

Thanks Turd

I've just read your post (busy weekend), but I'd just like to say that I think it's your best work to date!

kingboo's picture

Are we really STILL discussing Left vs Right???

I f anyone here really believes there is a difference between the motives behind these parties....well, then you are still in the audience watching the puppet show. Get back-stage already!......if you want to see through the "production".  Are we really gonna piss all over this thread with this left/right bullshit? Come on....we should know better in Turdville

kingboo's picture

Here's your conservative/liberal president

 George W Obama.....SameMoFo-in-Chief
zilverreiger's picture

@kingboo

no we're addressing insanity vs sanity  ( in no particular order)

Goodgarden's picture

Ranger 7 - In response to ':read for comprehension"

Ranger 7, 

It's a common misconception that the issue is limited to employee healthcare coverage for workers at Catholic hospitals.   The bigger issue is about the refusal of these hospitals to provide patient care that they don't like  -  even though they are federally funded with with US taxpayer money.   The link below will clarify.   http://www.nytimes.com/2012/02/21/health/policy/growth-of-catholic-hospitals-may-limit-access-to-reproductive-care.html?_r=1

The man who stole a leopard's picture

No offense to fellow Turdites, but...

Same shit

Monedas's picture

Silber Reicher !

Your National Socialism is showing ! Monedas  2012   Are you going to join the Konfiscation Korps and be a good little Socialist ?  devil

pourty's picture

Turd writes an epic metals post...

And everyone's talking about birth control and left vs. right?  I'm starting to wonder if this forum is populated by JP Morgan trolls... (not really, but I'm sure you see my point).

Still holding out for $31 here... I have much faith in the EE's ability to tank the metals prior to any serious bullish event for PM's, which is liable to occur this week or next.  Haven't they shown us several times now that they are in near complete control of the futures price?

cpnscarlet's picture

@atlee - Okay, you made your

@atlee - Okay, you made your point. Now about this tooth fairy theory....

@zilver - spoken like a good elitist - for me, you are now "the smartest guy in the room". You and kliguy38  - really birds of a feather. He's gone, please join him.

Patrancus's picture

Establishment Republicans, Democrats what we have here....

Establishment Republicans, Democrats what we have here are 2 sides of the same coins and then we have a guy named Ron Paul. 

zilverreiger's picture

@cpnscarlet

fine mr rocketscientist appeal to authority

henry's picture

Slow night... Silvers up a nickle !

NW VIEW's picture

MY SUNDAY NIGHT POLITICAL THOUGHT

"Nothing more exposes a man to shame, than being born to a nobility that he had not a virtue to support"!  William Penn 1668.  This also applies to elected officials. 

I Run Bartertown's picture

Both sides / Thanks TF

The politicians ARE the same on both sides,

but the VOTERS are vastly different.

Left wingers WANT the exact horseshit they get (healthcare, endless regulations, boondoggles, etc)

Repub voters are generally disgusted by the way they are lied to.

Neither side GETS the right thing from their 'leaders',

but at least one side WANTS it...

And TF:

You have a gift for explaining your reasoning, and the market forces at play.

Thanks for the education.

Be Prepared's picture

Metals Discussion.....

Will Silver truly breakout of its descending Channel?

Turd is right on it..... can the Jan 2012 Up Channel defeat the April 2011 Down Channel?  Even if we do breach the top by 50 cents to $36..... I do think it falls back below and continues to tap the $35.50 to $36 range for at least a couple of times before making a decidedly new upward channel.  The herd effect of news, though, will cause the price to levitate or collapse depending on its slant. The footing of PMs is still on shaky ground.

Will Gold Correct Slightly to form a better inverted shoulder?

Turd's number of $1745 for a push down correction seems to be a possibility, but with enough momentum any downward move puts a $1703 support number under it.  I am always amazed at Turd's ability to look at the Gold channel and decipher a path of travel.  With the Upward Gold Channel having a width of $225, it allows for great movement within a short period of time without really changing the overall trend.

DigMyEarth's picture

GSR

Just wanting to see the GSR under 50 tonight for the first time in a long time. 

DragonFly's picture

Is it all about the spice trade (Oil)

Although the Euro and defaults are making the headlines, will the price of oil start the end of the experiment?

I'm not a TA person so I would appreciate thoughts on this article:

Is Crude Oil About to Crash the Markets?

http://www.marketoracle.co.uk/Article33323.html

ClinkinKY's picture

@ zilverreiger

I'm going to give you a pass because you're Dutch, but what exactly is Santorum "cooking"?

Perhaps we should start a Zilverreiger vs The U.S. thread in forums.

Your "America is the Devil" diatribes are becoming very tiresome.

Desert Fox's picture

Re: Dragon Fly

Is Crude Oil About to Crash the Markets?

I certainly don't see how our "fragile recovering" economy can withstand $5 a gallon fill-ups. Last time around, $5 fill-ups seemed to  be a big hint to brewing trouble.

Something's gonna give.

DigMyEarth's picture

What a load

Thanks, Turd.  Thanks to all who are working to expose the lie that conservatives OR liberals have the upper hand in this cluster f#@* of a situation.  To the rest of you, can't you go in a forum or somewhere else to express your bias?

http://billmoyers.com/episode/how-do-conservatives-and-liberals-see-the-world/

Be Prepared's picture

Oil = EROI = Price of Goods = Economy

In a simple answer, every $10 on the barrel equates to 25 cent increase in gas per gallon..... or about a 7% increase in your Gas bill on an annualized basis.... or about .5% hit to GDP within two (2) years.  Oil going up will add to existing inflationary pressures that all levels of the economy are facing and it will cascade out into the price structure of every product but on a multiplying basis.  This multiplying basis is the cost added by everyone that touches the product before you buy it.  A 7% increase in oil has a 15% surcharge added by each step in the link......  Your box of Cherrios.... it $X now, but you could see the box go up 1.35 to 1.5 or, more probably, the box will shrink and the fake price will stay the same, but inflation, via oil, has just smacked you good.

Oil will be a drag on the markets eventually, but it can have a 6 month to 1 year delayed effect.  However, Oil up and War with Iran.... I don't see the markets holding up to that pressure, but Ben has his hand on the presses... so we'll see...

Planters's picture

no fireworks yet ~

seems tame , next up 11pm est, then looking for  3am LBMA Shufffle. 

Moderator Holliday's picture

Politics...again.

MODERATOR

It's getting older then it was earlier this afternoon when I first suggested it subside.

Someone start a new thread or join an existing one at the link below to continue the debate. I don't want to disrupt the Main thread  flow too much but I see grumbling.  Thank you.

Politics and the 2012 Election

http://www.tfmetalsreport.com/forums/politics-and-2012-elections

Godblessusall's picture

VET, some more q's on negative lease rates...

Vet, this is a repost seeking some more clarifications...(I guess, you missed the last one)...

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 themthe 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...

silver_hunter's picture

CFTC report, large increase of Silver OI

I forced myself to learn how to read and interpret the CFTC report, I found that majority of the short position increase, 1729 out of 2186, is from producer. They try to hedge and lock in the price. Like someone said, most of the mining CEO/CFO do not understand their business and monetary issue.

It does not look like EE added huge amount of short position. 

Hunter 

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