$34.40 Hard Cap Still Holding in Silver

Wed, Feb 22, 2012 - 7:37pm

Wow, what an afternoon for gold! After toiling all day between 1750 and 1760, someone or something finally got sick of Cartel's cap and blew it right off.

Below are two, 3-minute charts that I posted in the comments section of the previous post. Always nice to see surprise spikes to the UPside:

The jump in gold is particularly painful for yours truly. As you probably recall, I was in trying to buy an April $1750 gold call on Friday. I placed the order as a "limit" at 23 and the price of the option only fell to 24. I never got filled. Tonight, that call is probably worth 60+ so, for the sake of $150, I didn't make $4000. Once again, Turd DumDum.

Anyway, the main object of this post is silver. After the CoT report last Friday, I expected gold to rise this week but thought that silver would remain boxed up, particularly with the increasingly negative 1-month lease rate. This seems to be playing out. While gold rocketed higher today, silver lagged and has since been beaten back. In fact, the EE managed to stop it right on schedule. Check out this updated chart:

I going to step out on a limb here and offer a prediction for the next week or so:

I'm with Uncle Ted, Jim Willie and others who think that physical silver in size is in short supply right now. Combine that with the way the "options delivery February expiration" has gone according to Harvey and I think we are set up for a month-end raid. I hope that I'm dead wrong and silver explodes higher for everyone but, please, hear me out.

As you can see on the chart above and as documented here ad nauseam, after quickly rising from $26 to $34 in a matter of weeks, silver has been aggressively capped below $34.40 for nearly four weeks. The question you must ask yourself is: WHY? I think it's all about March expiration and limiting those standing for delivery.

Even though the MFingGlobal disaster has seriously dwindled the amount of Comex participation, the supply squeeze that Uncle Ted mentions is causing the EE some sleepless nights. Silver continuing its January advance through February would only exacerbate the problem. Thus the cap. And how does the cap get put in place? Through a rapidly increasing, EE net short position? Is that the case, too? Yes, it is.

With March (big delivery month) option expiration tomorrow, expect the capping to continue. In all seriousness, why would they quit now? Maybe $34.40 can be overrun in the same fashion that $1765 was overrun in gold today but I doubt it. The EE has come too far and expended too much energy to quit now...not with option expiration tomorrow and first-notice day next Wednesday.

So, here's my prediction. Expect continued volatility tomorrow but maintenance of the hard cap. Then, with expiry behind them, the EE will mount an attack utilizing the exceptionally low silver lease rates. Their goal will be to drive prices lower and coerce March longs to either roll to May or get out completely. The last thing the entire C/C/C needs right now are 5,000-10,000 strong-handed and deep-pocketed longs standing for delivery in March. Once this danger has passed, the pressure will relent and silver will finally be allowed to rise and rally toward The Battle Royale between $35-36.

Lastly, I need a little help. The arrows I took on ZH this afternoon got me thinking. I give you my up-to-date analysis every day, sometimes two or three times per day. It seems that many folks either don't read it every day or simply skim what I write. For whatever reason, they then take my analysis out of context. So, here are my questions:

  • What do you think my PM price objectives are for 2012?
  • Am I currently bearish or bullish on the PMs?
  • Do I make any money off of running/managing this site? If so, how much per month?
  • Does my TA work and is it useful? If not, why not?

Thank you in advance for your feedback. I'm really quite curious to read the responses.


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