Storm Flags Flying

252
Wed, Sep 5, 2012 - 5:08pm

Here in the U.S., we have a government agency that creates the official weather forecast. When severe weather threatens, the National Weather Service issues two types of alerts: A "watch" or a "warning". In this theme, I hereby issue a Cartel Raid Watch, effective through next Friday, September 14.

Astute weather observers will recognize that there is a difference between a "watch" and a "warning". Per the National Weather Service, a "watch" is issued when conditions are favorable for severe conditions to develop. A "warning" is then issued when the storm has materialized and hazardous conditions are imminent. Since I don't yet perceive that hazardous conditions are imminent, this advisory is simply a Cartel Raid Watch. Stay tuned for further updates and possible warnings.

My primary concern here is the continued deterioration in the Comex open interest numbers. You'll recall that the last two weeks of CoTs have been lousy as specs are buying and The Cartels are rapidly creating paper gold and dumping silver longs in order to satisfy the spec demand. I believe that this trend has continued this week and we'll likely see confirmation on Friday.

For this latest reporting week, gold was up $26 and total gold open interest rose another 18,000 contracts. As of yesterday, the total OI in gold stood at 444,849, which is the highest level since 3/2/12. (Does that date set you on edge? It should as it is just three days past this year's peak OI on 2/28/12 at 479,000. Recall that price also peaked that date at $1790.) Undoubtedly, the current trend in the CoTs is continuing and this week's report will show an 18,000 contract rise in the spec net long position and a similar 18,000 contract rise in the Gold Cartel net short position. If that is accurate, look what happens to the all-important net ratios:

Projected 9/4 CoT for gold:

Cartel short 361,ooo and long 139,000 for a net short ratio of 2.48:1.

Total large and small spec long 281,000 and short 59,000 for a net long ratio of 4.45:1.

On 2/28/12, The Gold Cartel net short ratio was 2.69:1 and the spec net long ratio was 5.37:1.

Conclusion: One more stout push higher in price will draw in enough new spec money that the ratios will likely reach the levels last seen on 2/28/12...and we all know what happened next. The price of gold fell $77 on 2/29/12 and it kept falling, reaching a bottom of $1614 five weeks later and $1528 five weeks after that.

For silver, things aren't quite as straightforward. Last week, instead of issuing fresh paper shorts, spec demand for paper was met by Cartel long liquidation. This has had the impact of minimizing open interest growth while still causing higher prices. Yesterday, the trend continued. For the latest reporting week, silver was up a whopping $1.45 but total open interest fell by over 2,200 contracts. And since the August 21st CoT cutoff, silver has rallied $2.90 (+10%) while total open interest has fallen by 8,200 contracts. (-6.5%).

Projected 9/4 CoT for silver:

Cartel short 76,600 and long 35,800 for a net short ratio of 2.14:1.

Total large and small spec long 63,700 and short 23,000 for a net long ratio of 2.77:1.

On 2/28/12, The Silver Cartel net short ratio was 2.32:1 and the spec net long ratio was 3.64:1.

Conclusion: Just like gold, a few dollars higher in price will likely bring the ratios into the danger zone last seen in late February of this year before silver fell from $37 to $26 in a matter of weeks.

NOW, LET ME MAKE A FEW THINGS COMPLETELY CLEAR:

  • Though the CoTs suggest that a raid may be coming, any raid that materializes does not necessarily foreshadow another 100-day correction.
  • London demand for physical metal remains robust and unceasing, even at these price levels, and this physical demand makes it very challenging for The Cartels to rig consistently lower prices.
  • It is widely acknowledged that further Fed "actions" including "renewed asset purchases" are right around the corner, if not prior to the U.S. election, then shortly thereafter. In late February, this wasn't the case.
  • I am still 100% confident of imminent changes to the "fundamental structure" of the metals price discovery scheme. Though I was nearly certain that these "changes" would take place before the end of climatological summer, the ultimate timing of these events is out of my hands. Historic vindication is most certainly coming, though. It's simply a matter of when.
  • Any raid may be significant in the very short term but it will only serve to be an opportunity for you to participate and position yourself for the days ahead. At this point, I'd expect a Cartel Raid to briefly drive metal prices back to their 200-day moving averages. In gold, this would be around $1650 or slightly below. Maybe even the top of the old range near $1635. In silver, we're talking about $30.45 or so with a possible dip all the way to near $30.

So, let's summarize. This is a "watch" not a "warning". If, next week, gold rallies toward 1750 and above while silver pushes through $33 and toward $35, I may be forced to issue a full-scale warning. Even then, the warning will simply be to alert traders to lighten positions and hedge for imminent weakness. Long-term stackers should still use any and all dips to add to their positions in preparation for much higher prices in the weeks and months to come.

TF

About the Author

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

Subscribe or login to read all comments.

Become member and subscribe to Turd's Vault

Contribute

Donate Shop

Get Your Subscriber Benefits

Private iTunes feed for all TF Metals Report podcasts, and access to Vault member forum discussions!

Key Economic Events Week of 6/21

6/21 9:45 ET Goons Bullard and Kaplan
6/22 2:00 ET CGP on Capitol Hill
6/23 9:45 ET Markit flash PMIs for June
6/24 9:30 ET Durable Goods
6/24 9:30 ET Q1 GDP final guess
6/24 9:30 ET Goons Bostic and Harker
6/24 11:00 ET Goon Williams
6/24 1:00 ET Goon Bullard again
6/25 8:30 ET Personal Inc and Spending
6/25 8:30 ET Core PCE
6/25 10:00 ET UMich Consumer Sentiment

Forum Discussion

by Green Lantern, 39 min 6 sec ago
by Empire47, 1 hour 42 min ago
by Green Lantern, 3 hours 27 min ago
by argentus maximus, 3 hours 53 min ago
randomness