Wrapping An Extraordinary Week

And why do I get the feeling that next week is going to be even more wild??

Before we get started, I thought I'd give away one more hat. I'm sure you've noticed by now that, once again, the financial world seems to be staring into the abyss. Of course, though, with all of da diffewent and scawey tings dat CNBS could tawk about, they instead are all-Facebook, all-the-time. So here's the new contest: On what day will the closing Comex price of an ounce of silver exceed the NASD closing price of Facebook? Please use this thread to log your guesses and I'll close it to new entries on Monday morning. (and can someone please log all of the guesses onto a spreadsheet? please??)

Great follow-through in the metals today. As you know, I was expecting this rally but I was also expecting a brief pullback and double-bottom. We didn't get that and that's a very good sign. Additionally, I was expecting a somewhat flat OI change for yesterday and boy-oh-boy was I wrong there. In the near $40 rally yesterday, total OI expanded by 17,000. WOW!

So, what's the deal? Well, there was certainly the short-covering that we talked about. However, there was obviously a HUGE surge in new longs, too. It's almost as if a spec short not only covered that contract, he/she/it then turned around and went long. This is GREAT NEWS. But 17,000 cannot be written off solely to this idea. Clearly, brand new longs came into the picture and who are they? In my opinion, most likely The Cartel. Adding longs to start the short squeeze but likely adding even more later in the day. As usual, we won't really even be able to make an educated guess until next Friday's CoT but this sure seems plausible right now.

On the other hand, silver OI from yesterday was exactly as predicted. While price was jumping 83c, total OI rose by just 100 contracts. Here's your pure short squeeze. Longs add new, shorts cover old, net effect is no change.

Again, though, the fact that we continued to add to the gains today, moving through expected resistance at 1580 and $28 is very encouraging. We eventually ran out of gas near more serious resistance of 1600 and 29. That's OK. It's perfectly normal for a few folks to ring the register after such a strong move, particularly ahead of a weekend. Let's wait and see what happens Monday. To that end, here are your charts. Note the steady climb higher on both of the hourly charts. Also note the next levels of resistance. In gold, once 1600 gives way, the serious battle will be near the intersection of horizontal resistance around 1625 and the 2008 trendline in the same area. Expect quite a fight. In silver, though 29 may offer resistance again early next week, I think the main battle will be between 29.50 and 30.

It's now 3:35 EDT on Friday and the CoT was just released. As expected, it's fantastically bullish once again. For the week 5/9-5/15, the Gold Cartel reduced their net short position by 12,538 contracts. This gives them a net short ratio of just 1.81:1. That's as low as I've ever seen it. On the flip side, the easily-manipulated large specs reduced their net long situation by 9,161 and the small specs reduced by 3,377. The lambs were led to slaughter. This report undoubtedly marks the bottom in paper price.

The silver CoT saw similar action. The Forces of Darkness reduced their net short position by nearly 2,000 contracts and their net short ratio now stands at 1.35:1, which is almost exactly how low it was at the price bottom of late December. Like gold, both large and small specs were selling longs and adding shorts. Though, I had hoped for a bigger drop in the EE net short ratio, given the tiny change in total OI for the reporting week, the 2,000 contract drop is pretty good news and confirms that, like gold, the silver price likely saw its lows this week.

OK, here's some reading material for your weekend. First, Eric Sprott was on KWN today. You should, of course, give this your consideration. http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/5/18_Eric_Sprott_-_Governments_Frightened_of_Panic_Liquidation_Event.html

And then there's this. Turdite "tabberto" turned me on to this author, Detlev Schlichter. His book and this column discuss what we shall loosely call "the gold standard". I plan to be discussing several "gold standard" ideas in the coming weeks, so this seemed like a logical homework assignment for you. http://papermoneycollapse.com/2012/05/by-abandoning-the-gold-standard-we-embraced-monetary-central-planning-chaos/

We're also going to be spending time discussing backwardation as this has become a near-constant condition on the metals markets, particularly silver in the spot vs futures area. I found this study from 1999 linked on Harvey's site a few nights ago. If you've got the time and the mental energy, give it a look. http://www.fame.org/PDF/Howe_War_Against_Gold.pdf. Of course, the seminal piece on backwardation can be found here: http://fofoa.blogspot.com/2010/07/red-alert-gold-backwardation.html

That's all for now. I hope everyone has a safe and relaxing weekend.

TF

374 Comments

OrangeAlert's picture

@AZGunner

I completely agree with your line of questioning as I've had similar thoughts.  My rationale for it though is that all the banks, and those that would take advantage of the trade are probably in on the same direction of the trade.  If you view the Federal Reserve as the head of a type of association or industry, then you could see why nobody would want to go against it.  Plus the Federal Reserve as the complete backing of the US gov't behind it.  If the Fed decided that in the best interest of all the banks and the banking system, we need to manipulate the PM prices to save the collective industry, a bank going against that policy would be going against their own survival.  So in this sense I agree completely with Fred Hayek.  All of the banks would be manipulating it together.  Why would they want to screw each other over to make a quick buck, but then go against the official policy of the association?  They may wind up being the next Lehman Bros.

Could there be other reasons like free market fundamentals as the answer to the action, sure.  But what are they?  Everything I see would be extremely PM positive, and historical trends indicate the PM's should be higher than they are now.  But what do I know?  I just sit here on a cpu and give opinions from my own perspective.

S Roche's picture

@AZGunner

So, my question is this;  is there another possible explanation for the market acting the way it is?

​Yes. There are various levels of "manipulation" or concerted buying or selling at particular levels due to the requirements/time frames of the different participants.

​There is a back-lash against the manipulation meme at the moment with Erik Townsend, Victor, Kid Dynamite, Screw Tape etc making some very valid points about constant cries of "manipulation" whenever the POG (or silver) drops. Some of the manipulation complaints are inconsistent and these have been shown up. Some of the anti-manipulation claims have been inconsistent, and these too have been shown up. What is consistently agreed upon is that there has been manipulation in the past by Central Banks (ie, it was official policy), and yet the attempts to identify ongoing manipulation in real time are derided by some. I think it is just the fog of war. I believe it continues.

I saw concerted selling in the small hours just before the Swiss National Bank announced their peg to the Euro, which should have been hugely POG positive. So, I put that down to Central Bank intervention. Feb 29 I suspect was hedge funds having a go, as the final rises in  POG were during the NY after-market and the POG was held at a technical resistance level for two days, thus signalling to all and sundry to join in the selling to come. At first Bernanke was said to have caused the price fall by deferring QE. Then, when it turned out he didn't say anything about QE the story changed to be that, he caused the price to fall by NOT saying anything about QE. Go figure. There were more sellers than buyers and the sellers made money, which is what hedge funds do. 

​It may turn out to be just like the oil market where you have constant complaints of manipulation (even by the President of the US for crissakes) between government interests, (ie, the Strategic Oil Reserve), speculators and producers arbitraging on different markets, (ie, Nymex & ICE) as well as arbitraging the refineries (retail production) capacity and wholesale supply...which in gold & silver applies to bar & coin production falling behind demand being interpreted as a wholesale shortage, which may not always be the case. As we see with oil, short term manipulation affects the price in the short term. Long term, fundamentals win.

The strongest argument in favor of manipulation to me is why would the gold and silver market be any different to other markets? Bernanke buys 60% of USTs and most people shrug...

​As to the constant price falls during the day, I understand producers sell into the most liquid daily market, which is the London PM Fixing at 3.00pm GMT and 10.00am Eastern. Obviously, traders try to get on board and accentuate the swings. Easier for those with knowledge of the order flows. Quite often before the Fixing you will see stops run both ways. Options expiry as well. 

​One issue I have not seen addressed in the PMs markets is one which plagues the oil traders, and that is wash trades. Buying on one market and selling on another simultaneously to affect price without the burden of price risk. I think with the relatively smaller size of Comex this can be an issue, particularly when some US centric commentators refer always and only to Comex.

Then there is GLD, a huge stockpile of gold to be retrieved by the basket and arbitraged relentlessly against retail buyers. The beauty of GLD to big players who might sell heavily into price weakness is that they can take delivery without the inconvenience of standing in the market for delivery at the very moment of maximum price weakness. Almost irresistible. It happens.

​I hope this helps.

printmemoney's picture

Facebook

Drops like a rock........June 8, 2012

murphy's picture

@AZGunner

Here's one regarding manipulation

The obvious question one must ask oneself is if US Treasuries and the US dollar are stronger assets today than they were 11 years ago? If you conclude that the answer to this question is a resounding “no” as I have, then you can only conclude that gold and silver assets today, are in an even stronger position to continue higher in their respective bull markets than they were 11 years ago, despite the temporary widespread negative sentiment.

http://www.theundergroundinvestor.com/2012/05/fear-panic-are-the-banking-cartels-weapons-v-the-gold-silver-bull-patience-and-logic-are-the-best-defense/

SoccerDad's picture

AG greater than FB

March 5, 2013

Logiwave's picture

Facebook vs Silver

June 21, 2012

ivars's picture

Fridays GSR chart that

Fridays GSR chart that further confirms that last Wednesday GSR was at its top. Of course, need more days for clear confirmation.

WakoMako's picture

18-09-2015

Yep

S Roche's picture

@AZGunner

This is worth reading if you haven't already...Alasdair MacCleod gives a good run-down, including why the commercials are net short: 

http://financeandeconomics.org/Articles%20archive/The%20gold%20bullion%20market.pdf

Edit: Dated May 15, this is Part 2 of his presentation at the Hard Assets Conference, lots of good stuff for all.

Lumpy's picture

Some John Boehner/Jamie Dimon history.

th?id=I4811441979458128&pid=1.1Saw a clip of Boehner "defending" JP Morgan on CNBS.  

http://observer.com/2010/02/04/boehner-woos-dimon/

AgAuthaChristie's picture

July 13 2012

July 13th.

ClinkinKY's picture

Morning Toons

111979_600.jpg

RaRaRasputin's picture

Good article in today's Guardian

Heist of the century: Wall Street's role in the financial crisis

Wall Street bankers could have averted the global financial crisis, so why didn't they? In this exclusive extract from his book Inside Job, Charles Ferguson argues that they should be prosecuted

http://www.guardian.co.uk/business/2012/may/20/wall-street-role-financial-crisis?commentpage=1#start-of-comments

But what really struck me were the first few comments to the piece:

Comment 1:

Charles Ferguson, many people would like to shake your hand for producing the award-winning documentary Inside Job exposing Wall Street's role in the collapse of the global economic system.

Millions of good men and women throughout the world lost their jobs, their homes and their dignity as a result. Those who protest against it are arrested and the police response to protests is becoming increasingly militaristic, while those who caused the meltdown have got off scot free.

The system is broken and our response to this crisis will be a test of how intelligent we are as a species.

I am not holding my breath ... Europe is in economic free-fall, and ... meanwhile ... the Jubilee celebrations go on day after day and 80% of Britons are reported as supporting the monarchy.

If people are this dim, cheering on the 1% for all they are worth, what hope is there for humanity?

Comment 2:

And still the inside jobs continue to this day, nothing has changed. There are several excellent blogs where ex investment bankers and financial experts continue to report upon the crimes being commited such as the recent MF Global collapse which cleared out client accounts yet no prosecutions.

It appears that most of these crimes have been routed through London because the rules are laxer here than even the US. The ConDems are perpetuating what NuLabour aided and abetted.

For a good and regular overview on what is happening, with a great choice of highly knowledgeable guests, I highly recommend the excellent if somewhat occasionally whacky Max Keiser and his "Keiser Report".

Comment 3:

On October 1, 2008, I setup a web domain called www.debtrecoveryinitiative.org, and for the better part of a year attempted to consolidate evidence supporting the premise that the sub-prime mortgage debacle was quite simply, an ad-hoc case of racketeering at the highest levels of government and on Wall Street. Of course, it was a futile effort. Eventually I packed it in, although the remnants of the site are still available on-line here:

dri.postmarks.com

Ironically, at the time I started that website, I was a Republican supporter of Obama, who believed this once-in-a-lifetime "honest politician" might well get elected and hold these criminals accountable. Now I realize that Obama himself is arguably the most malignant, criminally dishonest person ever to occupy the White House, and we'll be lucky to survive his first term in office. (And if you don't believe that, read Ron Suskind's book: "Confidence Men").

I look forward to reading Mr. Ferguson's book, and, "Thank you Mr. Ferguson for saying with authority what I said almost 4 years ago (albeit as a rank amateur, with a little bit of intuition)".

OK so this is a broadsheet and read by the more intelligent of the UK population but reflects a growing awakening nonetheless

RaRa

ClinkinKY's picture

Paleface

ClinkinKY's picture

No Gold Or Silver Medals Available

ClinkinKY's picture

And finally...

ivars's picture

I like this step by step

I like this step by step explanation of money creation :

http://www.freerepublic.com/focus/f-news/888963/posts

I assume its not only the USA that operates that way, but all fiat currencies with fractional banking and central bank.

Are there any exceptions today?

achmachat's picture

@ ivars

exceptions? yes!

gold and silver are created during the final moments of dying stars; just before going supernova.

Groaner's picture

Is it my imagination or are Modays 90% down

days for the metals.. 

Silver is looking very weak, even though the markets futures are up.. usd flat..

Who can figure it.. It used to be much easier to see what the metals were trading against, USD down, metals up but since operation Slam in September the Cartel has been working overtime so who knows what true markets forces are at work.

Tabberto's picture

S Roche

Those who claim there is no or limited manipulation never deal with the evidence put forwards, just make derogatory high-handed statements about paranoia or delusion.  Until someone breaks down the updated JPM lawsuit and comes up with a sensible explanation/rebuttal of how a veritable boatload of fake trades marking the exact low of the following 24hrs on the scotiabank restricted platform can be 'BS' or whatever, then those who claim that manipulation is overdone should pipe down.  Either deal with the facts as presented or trot on.

Groaner's picture

Triple bottom?

koan's picture

JPM

Main thing that's bugging me about JPM is that I doubt their profit/existence is of little concern to TPTB in their grand scheme (given my current belief that TPTB are way older than the US and the rise and fall of the US just another chapter in their quest for control) so means JPM is merely the tool used to suppress silver and they won't ever unwind their short, just add to infinity - then just cut JPM loose when the time comes taking all those shorts with it (i.e. a lot of longs left with zilch)?

While they are paper shorting via the comex another tentacle is hoovering the physical while there is some left (this brings me to the conclusion asia has little to do with the LBMA buying - probably just a case of feeding at the same trough).

This leads me to wonder whether the minions like Blythe Masters are even aware of this, probably just the patsy.

Groaner's picture

Just a note about where to buy metals

I would be careful of Merit financial.. I was on the phone trying to buy some, and the "expert" kept putting my off, not locking in a price, and started telling me all kinds of stories..  In the start he was going, Wow, Wow,, Wow,, then he said we have a client want to buy 1.5 million in gold..,, blah blah ... do you hear what i am saying.. BS artists! He gave misinformation about which coins to buy based on taxes.. He was not really trying to fulfill my order at all, but was trying to push me into Mint state coins.  That's why they have low prices.. they are come ons..to sell you on junk..

KEEP AWAY

ivars's picture

Negative US treasury yields

Happened last not so long ago:

T.Geithner:

"No Tools to Wind Down Large Financial Firms.   Lehman's bankruptcy in September 2008 helped to turn an intensifying global financial crisis into a classic financial panic.   Fearing further defaults, investors declined to renew funding to all types of financial institutions.   Money fund investors redeemed their shares and redeployed funds from the private sector to Treasury securities, driving yields into negative territory.   Credit markets froze, and corporate America found itself unable to access short-term credit through the commercial paper markets.   Without forceful government intervention, the financial system would have collapsed. "

Those were short term ,and negative yields  happened around September 17th, 2008.

Date 1 mo 3 mo 6 mo 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 20 yr 30 yr
09/17/08 0.07 0.03 1.03 1.50 1.64 1.91 2.52 2.93 3.41 4.12

4.08

05/18/12 0.06 0.08 0.15 0.20 0.32 0.42 0.75 1.16 1.71 2.40 2.80

By now, the possibility to go into negative territory seems to have  expanded into longer term securities.

Groaner's picture

What was the reason for that hit in the metals just now?

trading fine and then bamm.. typical.. 

Dr Jerome's picture

hit in metals

I am hoping that somebody just wants it down a bit further before the morning opening. we will see in a few minutes. I thought 28.25 was a bit of support, but that did not last long.

Groaner's picture

We need to invest in a real growth industry..

Smith and Wesson,, GUNS!   a triple in 6 months.

http://www.marketwatch.com/investing/stock/swhc?link=MW_home_latest_news

ivars's picture

This could be a down day, but

This could be a down day, but should it not move >29 sometime today? May be FB price direction will help?

Groaner's picture

Conditions are setting up for more QE.

http://www.financialsense.com/contributors/chris-puplava/panic-like-its-march-2009

They are saying one thing,   but will do another for sure.

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