On The Lookout

442
Sat, Jun 23, 2012 - 12:50pm

I have a little time this fine Saturday morning so I thought I would share some observations with you.

First of all, we have to talk about the open interest changes on Thursday. You remember Thursday, don't you? The day of the big beatdown? As an aside, how many times has this now happened in 2012 alone? Anytime The Bernank steps in front of a mic, the metals get crushed. What was last week...about the 7th time this has happened this year alone? At any rate, from the Comex close of Wednesday to the Comex close of Thursday, gold was down $50.30 and silver was down $1.55. As Ruprecht would say: "That's a lot". Let's keep in mind a couple of things here:

  1. Price declines when there are more sellers than buyers.
  2. There are two kinds of selling pressure. Long liquidation and naked short selling.
  3. When longs liquidate, they are closing an open position. This causes total open interest to decline.
  4. When naked shorts are added, this is opening a new position. This causes total open interest to rise.
  5. If you are to believe The Cartel Apologists and Disinformation Agents, then The Bullion Banks are simply benevolent market makers who add liquidity to the metals markets by taking the other side of these trades. They are the willing providers of paper metal when buyers initiate new longs AND they are the buyers on the other side of new, spec naked shorts.
  6. (This is, of course, true and the CoT and Bank Participation Reports bear this out. The problem with The Apologists is that they stop right there and fail to consider/comprehend that The Bullion Banking Cartel may have more nefarious aims as they serve their Fed/ECB/BoE/BoJ/SNB masters.)
  7. Since late February, The Cartels have been rapidly reducing their net short exposure in both gold and silver. For gold, The Cartel net short position has fallen from a ratio of 2.69:1 to a current (a/o last Tuesday) ratio of 2.08:1. That's a drop of 36%. In silver, the reduction is even more dramatic. On 2/24/12, The Cartel net short ratio was 2.32:1. As of last Tuesday, it now stands at 1.36:1. That's a drop of 73%.

So now, with these points in mind, let's assess the open interest changes from Thursday. For gold, while price was falling over $50, the total open interest change from Wednesday to Thursday was just 34 contracts. From this, what can we surmise? Clearly there were equal parts long liquidation and new shorting on Thursday. All of that selling pressure drove price down $50. The overall Cartel position was likely flat and the entire shift was within the "Large Spec" category where spec longs were dumped and spec shorts were added.

The $1.55 decline silver, on the other hand, was an entirely different event. While silver was falling, the total open interest grew by over 6,000 contracts and, at 127983, it stands at the highest level for all of 2012 and it's a level we haven't seen since last May! More on the implications of this in a minute but, first, what does this OI rise indicate?

Again, as pointed out above, a rising OI coupled with a falling price is an indicator of naked short selling. Having price fall 5% and OI rise 5% shows that the entire event was caused by new spec short selling, not long liquidation. How can I assume that it is the specs that are adding shorts and NOT The Silver Cartel? Re-read point #7 above. If this is the case, then Thursday put a significant dent in the remaining Cartel net short position.

As of last Tuesday, The Silver Cartel net short position was 16,954 contracts. They were short 64,401 and long 47,447. The difference is 16,954. (As an aside, per the latest Bank Participation Report, JPM was short 17,000 all by themselves. This means the rest of The Silver Cartel is already net flat.) So...IF Thursday's selloff was almost entirely caused by naked short selling and IF that short selling was coming almost entirely from the specs...the current net short position of The Silver Cartel may be as low as 11,000 contracts. Additionally, the balance MAY be JPM net short 16,000 and everyone else net long 5,000. Think about the implications of that for a moment.

Regardless, today the net short ratio of The Evil Empire in silver is at an historically low level. I have maintained for over a year now that the run-up in April of 2011 and the ensuing beatdown in the 14 months since has been a coordinated effort by The Silver Cartel to extricate themselves from their tenuous and extreme net short position. In late March of 2011, they were net short 55,000 contracts. Today, they are net short as few as 11,000 contracts. That's an 80% reduction and they are almost there, almost flat. The question of the day, and the ultimate subject of this post, becomes: WHAT HAPPENS NEXT?

  • Can silver reverse and rally while JPM battles the rest of The Cartel?
  • Must silver decline further in order for The Cartel to move to net flat?
  • Can silver decline further in the face of tight supply and strong physical demand?
  • I wish I had the answers but, obviously, I don't. I'm left to speculate and guess just like you are. One thing I do know, however, is this: Silver will reverse and it will then head much, much higher. For traders, the timing of this reversal is extremely important. For stackers, not so much. Any further dips in price should be greeted with joy as the opportunity to buy silver at these fiat price levels will not last much longer.

    However, I recognize that even stackers watch the day-to-day price changes with great interest. With that in mind, take a good, long look at these charts of silver:

    Look, I can assure you that silver is in very tight supply and it is increasingly difficult for Buyers of Size to get timely, price-efficient delivery. This condition of the physical market will make it very difficult for silver to break down through $26. Difficult, yes, but not impossible. On a very short-term basis, it's certainly possible for silver to be run through $26. There has to be a considerable amount of buy-stops under that level. "Harvesting" them alone could drop price below $25 and, after that, selling momentum could take price all the way to $22. Heck, maybe even $20.

    I tell you this not because I expect this to happen. I tell you this so that you are mentally prepared. IF this happens, it will mark the end of silver manipulation, as we've known it. A brief drop into the lower 20s would allow The Cartel to finally move to a net flat or even net long position. From there, silver will rapidly recover and soar to new, all-time highs. Of this, I am 100% certain. Therefore, IF silver suddenly falls another 20%, do not freak out and panic sell your metal. This would be the biggest financial mistake you'll ever make.

    Again, silver could and SHOULD hold the $26 floor simply because of the tight, physical marketplace. IF it doesn't, though, be prepared for the opportunity of a lifetime to buy silver at what will be an historic bottom. Price will not stay down for long, though, so you must be prepared to move quickly. Besides The Silver Cartel moving net neutral/long, there are several fundamental changes coming over the horizon for silver. Be strong and do not waver.

    In this context, we should discuss gold, too. Any set of conditions that would allow for a raid in silver would likely cause a raid in gold, as well. Do the charts bear this out? Maybe. Take a look. Like $26 silver, you can rightly assume that there is an abundance of stops below $1525 gold. This has to have The Gold Cartel salivating. Can they pull it off in the face of extraordinarily strong, global demand for physical gold? Yes, they can but again, though, they won't be able to keep it down there long.

    At it's last peak in August of 2011, note that gold broke out of it's primary channel and moved about $250 higher. Having broken down now and residing outside the channel, the risk remains that gold could fall $250 below the channel. This would take it to roughly $1400. Looking at the weekly chart, this would be a logical spot for support to appear, too. Again, I AM NOT SAYING that gold is going to fall to $1425. I am saying that it's a possibility and, if it does, this type of move would present to you an extraordinary and historic opportunity to BUY not sell. Just be mentally prepared, that's all.

    Regardless of all this, it's going to be a great week around here. The new "podcast" site is finally set to open on Monday. Besides daily audio commentary from yours truly, the site will also include:

    • Member interaction with PM "gurus" (webinars, conference calls and chats)
    • In-depth interviews of industry leaders
    • Non-moderated (except in extreme circumstances), "blogspot-style" daily thread comments

    And remember, the ultimate purpose of this new, "sister" site is to allow TFMR to stay completely as-is and grow at the same time. No fees. Never so many ads that you can't tell the content from the advertisements. A community where we all freely share and prepare.

    I hope you have a great weekend. It's going to be a fun summer regardless of what the next few weeks may hold.

    TF

    About the Author

    Founder
    turd [at] tfmetalsreport [dot] com ()

      442 Comments

    muscrat
    Jun 23, 2012 - 1:44pm

    Open interest -- option B?

    What if it's Jim Willie's Asian Sheriff front running the silver cartel? Can't they aim for the sell stops at 26? Other than Bix's suggestion that the "good guys" want the blame on the "bad guys", I have yet to come up with a good reason why not.

    Thanks Turd!

    Pete
    Jun 23, 2012 - 1:45pm

    Great review TF

    Thanks for the great overview Turd.

    Mickey
    Jun 23, 2012 - 1:46pm
    Jun 23, 2012 - 1:52pm
    Dagney Taggart
    Jun 23, 2012 - 1:52pm

    Maybe I Need to Repeat This

    Does anyone honestly believe Eric Sprott or Hugo Salinas-Price is going to let silver go to $18?? The comex would be dryer than a $10,000 hooker at 4 AM.

    Seriously?

    opalboy
    Jun 23, 2012 - 1:55pm

    we are watching

    a historic struggle, and these folks won't give up easy, we have been warned of volatility, but I bet it gets even nuttier before it is over, hold tight you're metals, don't lose them like I did in the boating accident!

    tmosley
    Jun 23, 2012 - 1:56pm

    How will we subscribe for the

    How will we subscribe for the new site? I need to work this into my budget.

    European American
    Jun 23, 2012 - 2:01pm

    "Of this, I am 100% certain."

    "Of this, I am 100% certain."

    I don't think even those running the show, manipulating behind the scenes, the trillionaires, are 100% certain of anything. And they are the ones making the rules as they go!

    What is 100% certain is, some "left over crumbs" will fall here and there, and those who understand the minds and movements of today's Psychopathic, Royally Rich, Financial Kleptomaniacs, along with a little luck and timing for being in the right place, may be so fortunate as to scoop up a few.

    murphy
    Jun 23, 2012 - 2:12pm

    RBS, Nat West, bank issues

    Is it to simplistic an idea to think that they needed a short term bridge loan from their depositors?

    Just askin'?

    SaratogaPrepper
    Jun 23, 2012 - 2:15pm

    I just know...

    that all this is just a trick to get me to answer the phone and go to work. Honestly?!?! $20 silver?!?! All right I'll go and make some more FRN's cause now that the lawn is soaked I can't mow it. Really wanted to try out the Bicardi Spiced rum tonight, but I guess it can wait until another time.

    Subscribe or login to read all comments.

    Contribute

    Donate Shop

    Get Your Subscriber Benefits

    Exclusive discount for silver purchases, and a private iTunes feed for TF Metals Report podcasts!

    Key Economic Events Week of 7/15

    7/15 8:30 ET Empire State Fed Index
    7/16 8:30 ET Retail Sales and Import Price Index
    7/16 9:15 ET Cap Ute and Ind Prod
    7/16 10:00 ET Business Inventories
    7/17 8:30 ET Housing Starts and Building Permits
    7/18 8:30 ET Philly Fed
    7/19 10:00 ET Consumer Sentiment

    Key Economic Events Week of 7/8

    7/9 8:45 ET Fed Stress Conference, three Goon speeches
    7/10 8:30 ET CGP Hump-Hawk prepared remarks
    7/10 10:00 ET CGP Hump-Hawk House
    7/10 10:00 ET Wholesale Inventories
    7/10 2:00 ET June FOMC minutes
    7/11 8:30 ET CPI
    7/11 10:00 ET CGP Hump-Hawk Senate
    7/11 12:30 ET Goon Williams
    7/12 8:30 ET PPI

    Key Economic Events Week of 7/1

    7/1 9:45 ET Markit Manu PMI
    7/1 10:00 ET ISM Manu PMI
    7/1 10:00 ET Construction Spending
    7/2 6:35 ET Goon Williams
    7/3 8:15 ET ADP June employment
    7/3 8:30 ET Trade Deficit
    7/3 9:45 ET Markit Services PMI
    7/3 10:00 ET ISM Services PMI
    7/3 10:00 ET Factory Orders
    7/4 US Market Holiday
    7/5 8:30 ET BLSBS

    Key Economic Events Week of 6/24

    6/25 10:00 ET New Home Sales
    6/25 1:00 pm ET Chief Goon Powell
    6/25 5:30 pm ET Goon Bullard
    6/26 8:30 ET Durable Goods
    6/27 8:30 ET Q1 GDP final guess
    6/28 8:30 ET Personal Income and Consumer Spending
    6/28 8:30 ET Core Inflation
    6/28 9:45 ET Chicago PMI

    Key Economic Events Week of 6/17

    6/18 8:30 ET Housing Starts and Building Permits
    6/19 2:00 ET FOMC Fedlines
    6/19 2:30 ET CGP presser
    6/20 8:30 ET Philly Fed
    6/21 9:45 ET Markit flash June PMIs

    Key Economic Events Week of 6/10

    6/11 8:30 ET Producer Price Index
    6/12 8:30 ET Consumer Price Index
    6/13 8:30 ET Import Price Index
    6/14 8:30 ET Retail Sales
    6/14 9:15 ET Cap Ute and Ind Prod
    6/14 10:00 ET Business Inventories

    Key Economic Events Week of 6/3

    6/4 All day Fed conference in Chicago
    6/4 10:00 ET Factory Order
    6/5 9:45 ET Markit Services PMI
    6/5 10:00 ET ISM Services PMI
    6/6 8:30 ET US Trace Deficit
    6/7 8:30 ET BLSBS
    6/7 10:00 ET Wholesale Inventories

    Key Economic Events Week of 5/28

    5/28 10:00 ET Consumer Confidence
    5/30 8:30 ET Q1 GDP 2nd guess
    5/31 8:30 ET Personal Income and Consumer Spending
    5/31 8:30 ET Core Inflation
    5/31 9:45 ET Chicago PMI

    Key Economic Events Week of 5/20

    5/20 7:00 pm ET CGP speech
    5/21 10:00 ET Existing Home Sales
    5/22 2:00 ET FOMC minutes
    5/23 9:45 ET Markit PMIs
    5/24 8:30 ET Durable Goods

    Key Economic Events Week of 5/13

    TWELVE Goon speeches through the week
    5/14 8:30 ET Import Price Index
    5/15 8:30 ET Retail Sales and Empire State Manu. Idx.
    5/15 9:15 ET Cap. Ute. and Ind. Prod.
    5/15 10:00 ET Business Inventories
    5/16 10:00 ET Housing Starts and Philly Fed
    5/17 10:00 ET Consumer Sentiment

    Recent Comments

    Forum Discussion