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

    Number 47
    Jun 23, 2012 - 2:23pm

    @turd

    I am affected by this, at the moment we have no access to wages, they are not in our accounts. I can go to the branch but the maximum withdrawal is 500 euros.

    They have no idea of our balance, all transactions are on paper and will be processed later. The latest news is that it will not be fixed by Monday. This means a week of confusion for folks.

    Many are stranded abroad with no access to cash. ATMs are working for some but mainly not. Debit and credit cards not working and access to online services is unreliable. Even when accessible the figures cannot be trusted.

    There will be a mass exodus from these banks when they get sorted.

    I used to be 90% against digital currency. Now 100%.

    The media is not covering this much over here. One thing that has surprised me, reading the comments on the news sites, quite a lot of people talking about gold and silver. Things like this are waking people up. Most think there is more to this than meets the eye, I personally believe RBS got a margin call when downgraded. 12 million people lost their wages for a few days. Coincidence?

    The level of trust was low before, judging from comments and forums the trust is now completely gone. I think this will cause more people to prepare.

    Will try to keep updating what is going on here. When I went to the branch yesterday it was chaos. Will be interesting to see the fallout if this is not resolved by next week. There were reports of queues outside banks in Dublin on Friday. This could have the potential to start a run on RBS and its subsidiaries.

    All in all, an epic feck up.

    Number 47
    Jun 23, 2012 - 2:26pm

    THAT IS UNBELIEVABLE!

    EVERYONE PLEASE READ THE POST FROM NUMBER47

    Number 47
    Jun 23, 2012 - 2:26pm

    @saratogaprepper

    Bacardi spiced was launched years ago but was withdrawn after Morgans took off and Bacardi didn't sell. The Bacardi was a much superior drink IMO. The morgans was too sweet. If it is the same spiced that you have now then you are in luck! I read they had relaunched it, hope they haven't changed the recipe.

    Orange
    Jun 23, 2012 - 2:26pm

    Chinese Gold and Silver Exchange

    to start trading in three currencies.

    Not sure why the link does not work when I click on it. I copied link and searched with google and the article appeared.

    https://cgse.com.hk/editor_upload_image/file/SCMP%202012-06-18%20(B1)%20Gold%20exchange%20to%20launch%20trading%20in%20silver%20futures.jpg

    Jun 23, 2012 - 2:28pm

    And I don't care what anyone thinks of debka

    They are often sourced by The Mossad and lately, they have been spot-on and about 2 days ahead of the MSM re Syria.

    With that in mind, read this and ponder the implications:

    https://www.debka.com/article/22112/Newly-supplied-Russian-Pantsyr-1-anti-air-missile-used-to-down-Turkish-warplane

    The Doc
    Jun 23, 2012 - 2:29pm

    Excellent post Turd, possibly your best work to date!

    The cartel has clearly been drastically reducing their net short position since February- and this seems to be picking up again.
    Wonder if they are more concerned with Euro-zone contagion, or avoiding another PR risk SNAFU like the CIO debacle.
    I just posted an article published on NASDAQ.com stating that if JPM's silver manipulation is true, they will have to unwind their positions to avoid another PR crisis.
    Personally I think it is probably a little of both. They will have much worse than a PR crisis on their hands if they are not successful in extricating themselves from their shorts prior to the coming massive move in the metals- as the last 14 month's actions testify to.

    Really-
    Jun 23, 2012 - 2:33pm

    Good Post Turd

    You presented the possibilities as well as your experienced opinion as what should happen. Laid it out quite well. Thanks.

    Desert Fox
    Jun 23, 2012 - 2:35pm

    Man-Code for Silver Shopping

    Honey, I need to go shopping for some new shoes.

    She can't tell you no.

    Admiral Ag Bar
    Jun 23, 2012 - 2:39pm

    first time caller...

    Turd,

    I FINALLY created an account to join the Turd Nation after lurking for about a year! I wonder how many more are out there? I read and refresh your site about 50 times a day along with ZH. Your analysis and insight are amazing.

    I just wanted to say that I really appreciate all that you do and the community you have created here. Posts like the one you have done today have forced me out of hiding to offer a truly heartfelt thanks for all that you do.

    I don't have much to offer in terms of sage advice (DCA is about 38ish), so WTFDIK!

    The end of the Keynesian Experiment is not near. It's here!

    "The End's Not Near" by Band of Horses

    My first video post is dedicated to DPH/IS7. :)

    Dagney Taggart Desert Fox
    Jun 23, 2012 - 2:39pm

    @Desert Fox

    That's funny. Hope it's not true that you're stuck with a woman that you have to sneak around on.

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