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

    berkshire888 Katie Rose
    Jun 24, 2012 - 2:27am

    Alfalfa

    300% increase. Maybe I need to start farming alfalfa.

    withoutwax
    Jun 24, 2012 - 2:30am

    NatWest Up-Date

    Tried to go to my On-Line NW account this morning : `service temporarily unavailable`. So I jumped into the car and went to the nearest ATM and withdrew £250, no problem. That laves them £50 to play with - should keep the financial world afloat!

    withoutwax
    Jun 24, 2012 - 2:41am

    @Katie Rose

    I hear ya - we`re farmers too, although fruit, nut and veg farmers - making the decision years ago that animals don`t fit in to the EROEI equation, but that`s no consolation to you. :(

    Connecting the dots is very important, as those of use here know, and this interesting conversation about Blythe Maters and JPM will illuminate something else: that JPM are buying up agricultural commodities and putting themselves as middle man into every transaction. So not only do they make money out of the food-stamps for the unemployed, they make money on almost everything you buy, including agricultural products.

    FINANCIAL CRISIS: Is Blythe Masters, JP Morgan responsible for this mess?

    Time for an alternative money system which cuts out the middle man.

    Big Buffalo
    Jun 24, 2012 - 2:50am

    Katie Rose

    You're one of my favorite people on here. You sound like a good, sincere, and genuine person. Very refreshing.

    bronsuchecki TF
    Jun 24, 2012 - 3:01am

    Silver Supply in Size?

    Can you direct that intermediary to us because we'd like some business - very quiet down here in Perth , so much so we have occasionally been shipping silver to London rather than from London, which is the normal direction when we're busy.

    Missiondweller daveyboy
    Jun 24, 2012 - 3:04am

    Cash is a guaranteed loser

    Gold and silver may be speculative short term but keep in mind, when you hold cash in a negative REAL interest rate environment you are GUARANTEED losses. Its an absolute certainty.

    Given that, holding gold an silver can "hedge" your cash.

    justin99975
    Jun 24, 2012 - 3:38am

    excellent post Mr.F

    you are a great guy for the way you put everything out on the table for all to see for themselves. Thank you.

    this afternoon i watched a documentary on cable that came out in 2010, titled INSIDE JOB. the film maker, like Turd, does a superb job of plainly explaining the whole housing bubble crisis and government intervention (or lack thereof) that brought the economy to its knees.

    my jaw was on the floor the whole time... the blatant theft and manipulation of that mess, that still continues today is sickening.

    I believe it is worth everyone's time to see this film, and to share it with every single person you can.

    If you have loved ones that you have a hard time getting through to, this may be their eye opener.

    We are all sailing in uncharted waters, and will see the most incredible economic turmoil in history. To be somewhat prepared will be the only hope many have to make it through to the next phase.

    many of you may have seen this film, but if not, please make some time and watch. Straight forward knowledge of what TPTB have done, is our most important tool in what is to come.

    we may not see eye to eye on every issue, but we the people are all on the same side.

    Thanks for allowing all of us to make our voices heard Mr. F. And thank you all for reading this.

    keep stacking what you can.

    good luck to you all.

    j

    JackPutter
    Jun 24, 2012 - 4:28am

    Heads-up Bad for the Livestock

    Anyone who has livestock needs a heads up. This is an article on the dangers of genetically modified grass. I'm surprised that an MSM outlet published the article;

    GM grass linked to Texas cattle deaths

    https://www.cbsnews.com/8301-201_162-57459357/gm-grass-linked-to-texas-c...

    JackPutter
    Jun 24, 2012 - 4:46am

    As for the precious metals

    Generally I think that the clearing of the silver shorts is a very possible scenario. I have silver that I purchased @ $4 ish, and I silver I purchased @ $40 ish. The major point is that I have no plans to sell for a currency that is not backed by any precious metals. The FRNS are not dependable to my mind.

    There are many discussions about the price, which should be expected as that's what the market currently is. But this market is not a "clean" market. Virtually every aspect to any market you can choose has some sort of "intervention" involved. If not direct intervention, then it's a ripple effect. The dollar is being "managed", and interest rates are also "managed". (The history of "management" in theory of economics is well documented.)

    I don't stack for riches, but for some self preservation.

    Tabberto
    Jun 24, 2012 - 5:48am

    Bron

    I might be able to help with this, am in the loop, what sort of size can you fill immediately for delivery?

    Can you really fill an order for 5m oz, with likelihood of same again quickly? when talking about size, this is the ballpark TF is talking about I think.

    Thanks

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