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

    S Roche
    Jun 23, 2012 - 6:36pm

    My direct source is a bullion

    My direct source is a bullion intermediary in London.

    Is that good enough for you?

    tpbeta
    Jun 23, 2012 - 6:45pm

    Thanks Turd

    I blew all my powder at $26, so I hope it doesn't go to $20, just for the sake of my sanity. But I greatly appreciate the timely post and the analysis of the OI. That was your best post for some time IMHO

    Personally hoping JPM will see that this is the moment to go long silver and benefit from the parabolic result of their own actions, rather than try and pushed a coiled spring down further for questionable gains..

    question
    Jun 23, 2012 - 6:46pm

    Food Storage

    efoodsdirect.com has good tasting dehydrated foods for storage and they usually have specials going on.

    Meals already prepared and bulk kits for a years worth that you prepare.

    Good prices and 15 to 25 year life.

    tpbeta
    Jun 23, 2012 - 6:54pm

    One thing worries me...

    ...previous $26 handles have been very short-lived. On Friday it lasted all the way through Hong Kong, London, Comex and Globex. Makes you ask where the buyers will come from. After you, Claude.

    Physical_only
    Jun 23, 2012 - 6:56pm

    @Turd

    Just trying to understand, after 30+yrs investing & 25+yrs as a small business owner.

    Your site is FREE?

    Your simply trying to help/are concerned for people's well being?

    You post awesome info, along with many others here & leave investment decisions up to the individual while trying to educate ?

    You DON'T have a crystal ball. I got to get me one of those......LOL

    You mean I have to make my own investment decisions without any guarantee from another source. " Sarc"

    Sounds like the real world to me & I thank-you/appreciate all your efforts.

    Hope you have a nice weekend

    S Roche
    Jun 23, 2012 - 7:08pm
    cpnscarlet
    Jun 23, 2012 - 7:14pm

    The Good, the Bad, and the Davies

    Score one for Stratajema - Davies thinks that $14XX os possible (though not a given). Remeber this is the guy who called the dive from $47 to the day, so everything he says has gravitas for me.

    On the up side, he thinks gold reaching $6K is reasonable.

    So take the good with the bad. But, still, WHEN???

    https://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/6/23_Ben_Davies_-_Eurozone,_Deleveraging_%26_Gold_to_Break_$6,000.html

    dropout
    Jun 23, 2012 - 7:15pm

    NOT Feeding Trolls

    The commenter's who come onto the site, only to spout negative, destructive opinions about what THEY "think" is how our world "appears" to THEM, backed by absolutely zip counter-intuitive facts or arguments, are to be just plainly ignored. Since they personally don't know, if their asshole has been bored, reamed, or punched! GO AWAY.

    Fr. Billmurphy
    Jun 23, 2012 - 7:24pm

    The Cause of RBS, Nat West, bank issues

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

    I'm sure someone inside the banks had thought of this; but, the financial damage from cleaning up the PR mess would more than cancel out any short-term gains that a "bridge loan" from their depositors would get them.

    Here's a possibility I've not seen floated yet -- terrorists, hackers, anarchists, or whatever you wanna call 'em. If someone "Stuxnetted" their digital accounting systems, it's guaran-damn-teed that those who know this would clamp a lid on that fact as tight as Dick's hatband.

    Evidence for this? None reported, other than a couple of circumstantial things that are distinctly odd:

    1. Anecdotal reports that the failure to update accounts began occurring in isolated accounts here and there some days before it began to happen on a catastrophic level: If some viruses "lay eggs" all over a system which are supposed to hatch more or less together, the "trigger" for the hatching to commence might be such as to cause a few eggs to hatch before the whole slobbering horde of them hatched at once.

    2. The apparent inability of the banks' IT people to "roll back" what some have supposed was a glitch in a systems upgrade: Has anyone seen a credible report that an upgrade-gone-awry was the cause? I've heard speculation on that as a cause. But, I also know that upgrades are typically tested in a sandbox environment before being applied to something so vast and momentous as the accounting of millions of depositors' banking transactions!

    Zoltan
    Jun 23, 2012 - 7:41pm

    Silver test for withoutwax

    Balance them on you finger. Hit them with a wooden spoon from the kitchen.

    You will learn the ring of true silver. Seems unlikely they are drilled/filled at this point in the game.

    Z

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