A Study of Open Interest
I'm in my office tonight. I have several things to discuss with you but this also gives me the opportunity to keep tabs on the LSU/Alabama game as Mrs F and the LTs have monopolized the other monitors in the Ferguson household. As I type, the game is about to kickoff. I'll say: LSU 14 Bama 13.
First of all, there is all kinds of noise out there about a supposed drop in gold lease rates again. As of yet, I don't see it. The easiest way to track lease rates on a daily basis is through kitco. Here is a link:
Please keep in mind that I was one of - -if not the -- first person to point out the correlation of rates and future price and then warn of impending doom back in December. I am watching these rates every day for you and as soon as I see something peculiar, I will, of course, point it out. For now, there is nothing unusual though the charts have not yet updated for today so we'll just have to see what tomorrow brings.
Next, we need to spend a little time discussing the falling OI numbers, at least in gold. After the post-BLSBS raid in gold on Friday, the total OI contracted to just 417,864 contracts. For scale, this is lower than where the OI was during the last week of December, after gold had been run all the way down to $1535. For further scale, this latest OI figure is a full 10% lower than where it was when ole Harvey wrote this back on September 29:
What the heck does all this mean? Beats the shit out of me! But seriously...I want you to go back now and read this:
I wrote that on 12/11/11. That night, the total gold OI on the Comex stood at 424,055 and price was near $1665. So, gold has fallen about $50 and OI has contracted a little more than 6,000 contracts. Looks like pretty normal action to me so it appears...at least so far...that my hopes for a quick Comex death are unfounded. What does this mean? Well, even though MFing Global has proven to me and you and everyone else with a brain that the current system is designed to suppress price and screw everyone that is not associated with a bullion bank, the current system will probably continue for a while longer. Once the technical picture improves and/or overt QE begins anew, brainless algo money will likely come rushing back into the paper metal market and up she'll go. Further proof of the current staying power of the Comex/LBMA system can be found in the silver OI. On 12/11/11, paper silver was priced at about $31 and total OI was a paltry 96,348. Tonight, silver is around $28.75 yet the OI stands at 106,526. Yes, it certainly appears that the Comex isn't going anywhere for a while.
So, our next task is to figure out when the paper market for metal will bottom and turn higher. I am completely convinced that the metals have been maliciously attacked for the single purpose of allowing the banks to extricate themselves from much of their perennial short positions.
- Silver was a runaway train back in April and the Comex was near collapse. Frightened, the criminal C/C/C orchestrated a $6 takedown on the night of Sunday, April 30 and followed it up with four margin calls in 8 days.
- Gold was a runaway train back in August and the banks were reeling. Gold was attacked beginning in the wee hours of the post-Labor Day trade of September 6. Five minutes prior to the announcement that the SNB would devalue their currency by 10% by pegging it to the euro, gold was smashed for $50. That began the downturn that has included two margin hikes by the criminal C/C/C. The downturn continues to this moment.
- After recovering to $44 by Labor Day, silver was actively pushed lower in conjunction with gold and has now fallen nearly 40% from its April highs.
At the price peak in April, the total silver commercial short position was nearly 90,000 contracts while the commercial long position was around 35,000. As of the latest CoT report, the commercial short position is down to 57,000 (a drop of 35%) while to commercial long position is up to 41,000 ( a gain of almost 20%).
At the price peak in early August, before the U.S. downgrade by S&P, the total gold commercial short position was 443,000 contracts versus a commercial long position of 155,000. As of last week, the commercial short position had shrunk to 326,000 contracts (a drop of nearly 20%) while the commercial long position is up to 164,000 ( a gain of 6%).
Again, I ask: What the heck does all this mean? This time I think I do know.
2011 was a very, very scary year for the cartel of bullion banks, lovingly referred to here as The Evil Empire. Faced with collapse and virtually unlimited losses, the banks took the only action they know. Namely, they criminally and selfishly rigged massive declines in gold and silver for the sole purpose of exiting as many of their short positions as possible. And it's worked! In April, the ratio of short:long silver contracts was almost 3:1. Now it's almost at parity. Similarly, the ratio of short:long gold contracts in August was nearly 3:1. It is now back to a much more manageable 2:1 and still falling.
Both metals are about to turn higher and are poised for extremely exciting years. Silver, in particular, is almost ready to blast off to heretofore unseen levels. Notice, though, that I used the terms "about" and "almost". We're not there yet and I don't think the banks are quite ready to let things roll. Heck, the commercial short position in silver actually rose last week by 1,800 contracts, so let's not get ahead of ourselves.
And look at these charts. First, here's silver. I feel that it has been purposefully held below $30 because the EE isn't net neutral or long yet. By the looks of the chart, it appears that silver may be about to drop a bit lower later this week. Whether or not it does is of little consequence. I'm confident that paper and physical silver are going to explode price this year. Whether or not they blast higher from a low of $26 or $28 matters little.
Gold also looks like it wants to explore a little more downside in the days ahead. The Cartel capped it last week at $1630 because they aren't yet ready to let it run, either. Like silver, a decline from here and a retest of the late December lows is possible but of little, long-term meaning. Gold will bottom soon and, when it's finally allowed to retake $1630, you'll know the bottom is in. From there, it will break through the down-sloping trendline from the August highs (currently near $1700) and from there it will be off to the races.
So, in conclusion:
- The Comex does not appear to be in imminent danger of collapse and/or insignificance.
- Movements in OI and net positions tell us that The Cartel is planning for breakouts in the prices of both paper and physical metal.
Lastly, just a copy&paste of a comment I posted earlier today regarding TFMR Rule#1 and the future direction and management of the site. Please take a moment to read it:
"Everyone needs to keep mind Rule #1 of Turdland:
Treat others the way you want to be treated.
In building this site, I tried everything possible to construct an atmosphere of respect and civility. Apparently believing that this site is just like every other on the internet, some folks come here and blast away at their fellow turdites, without regard for responsibility and decorum. Of course, we all disagree from time to time but that does not give anyone license to persecute and belittle those with differing opinions. We are here to help each other and all newcomers prepare for the end of The Great Keynesian Experiment. With a potentially apocalyptic economic and financial crisis now immediately on the horizon, why anyone would get upset over subjects such as politics or the Q1 direction of the PMs is beyond my comprehension. Please always try to keep the bigger picture in mind.
Soon, the format of the site will be changing a bit. Simply stated, the site is going to be divided into a "End of The Great Keynesian Experiment" side (basically all of the current site structure) and a "Daily Gold and Silver Technical Analysis" side (my TA, updated daily and as warranted). This structure will accomplish a number of things, chief among them:
- Provide additional revenue to expand and improve site content and reach.
- Allow me to devote more time and manpower to the maintenance and growth of the site.
- Streamline the experience by separating those looking for PM info only from those of us looking for a broader conversation of economics, politics, preparation, etc.
I hope to have these changes in place by 2/1/12. In the meantime, the entire world seems on edge these days. Let's try to make this place a sanctuary of civility and cooperation in these troubled times."
OK, that's all for tonight. I look up to se that now it's almost halftime and Bama leads 6-0. My pick isn't looking too hot. Maybe I should just stick to the PMs.
11:00 am EST UPDATE:
Very, very nice action today and a great reversal of the downtrends shown on the charts in the main post above. This is great. However, keep in mind that this is Tuesday and we know that The Cartel likes to cover shorts on Tuesdays to "paint" the CoT. We'll need to look at the OI numbers for today, when they are released tomorrow, to decipher whether this is "organic" buying or primarily short-covering. In the end, however, from where the buying is coming does not matter as much as having the charts break out and, for that to happen, the metals need to rise a bit farther from here.
Remember, too, that the days following big UP days are typically down as The Cartel attempts to re-assert control. Tomorrow is also a Wednesday which, again, is a day when they usually add back on some of the same shorts they covered on Tuesday.
What I'm saying is this: Be glad for today's action but don't get carried away yet. We'll likely give some of these gains back tonight and tomorrow. From there, if we can get gold to close above 1650 and silver to close above 30.50, we can get very bullish. Until then, I'm sitting tight and watching from the sidelines.