The Dog Wags The Tail

Thu, Dec 6, 2012 - 1:37pm

In what will soon become a regular occurrence and the norm, the physical market finally trumped the paper shenanigans today. The spike in price was fun to watch but will it be enough to change the short-term trend?

Earlier today, beginning at about 9:30 EST, we saw a nearly $15 UP move unfold on the Comex. What happened? Was it short-covering? Well, yes it was but the spark was organic and real, not simple paper shenanigans. Rumors (subsequently confirmed) began to circulate that an unexpected and substantial order for physical gold had materialized in London. This sudden demand for metal prompted bullion bank buying, which in turn, led to some weak-hand short covering. Price moved to a peak near the resistance (used to be support) level of $1705 and has since consolidated near $1700. What happens next is anyone's guess. Perhaps the HFTs will attempt to re-establish downside momentum and drive things lower overnight? Maybe. We could also just hover here in a tight range. We'll see. The obvious key will be the BLSBS data at 8:30 tomorrow. A weak NFP will lead to another round of short-covering and an obvious trend change, which could really get rolling ahead of the FOMC next week. For now, I'm sitting tight with lots of time on my hands as I have Feb13 calls.

Perhaps, though, silver will continue to lead the way? It rallied in sympathy with gold and this drove price out of the "fork" that Paul Coghlan showed us yesterday. The key now will be whether or not it can hold these gains and remain near or above $33 into tomorrow. If so, the BLSBS may drive price back through the critical $33.30 area and, if it does, silver will likely be in the early stages of its next UP leg.

Speaking of silver, the previous post reminded me that I needed to post the following link. Earlier this week, Alasdair Macleod of GoldMoney wrote this fantastic piece and it is imperative that you read it. Please do so now and try to remember to always consider GM when making your physical purchases.

The Coming Silver Price Eruption

There was a degree of predictability about the knockdown in gold and silver at the US futures market (Comex) last Wednesday. The reason is that the Commercials (together the producers, processors, fabricators, bullion banks and swap dealers) have large short positions, so they have a vested interest in lower prices. This is particularly noticeable in silver, which is shown below.

The chart is of Commercials’ shorts and longs as of Tuesday November 27. The Commercial shorts (the red line) now stand at 99,317 contracts, or 496,585,000 ounces, about two thirds of 2011’s worldwide mine production, and is the highest level of exposure since 2009. Because the longs have ticked up (the blue line), the net figure is not yet at record levels, but is only 9,212 contracts away from it.
The justification for looking at the gross short commercial position is that the shorts are mostly the bullion banks, and producers hedging future costs (whose business is channelled through the bullion banks). The long commercials are more genuine, being manufacturers satisfying physical demand and locking in current prices to secure their margins. Swap dealers, again mostly the bullion banks, have positions both ways. The gross short position is therefore a better indicator of the futures market position of the “liquidity providers” than the net balance.

In a properly functioning market, net public demand is always long, so liquidity providers, such as market makers, or in this case the bullion banks on their own account, are always short between them in a bull market. The skill required is to make trading profits in excess of losses on the underlying position. The proviso always is that you never become so short that in an emergency you cannot cover your position. The bullion banks in the silver market are ignoring this overriding principal.
They now have a problem. Instead of having record short positions against an over-bought market, there is only moderate managed fund interest. This interest is shown in the next chart.

While money managers (mostly hedge funds) have nearly doubled their longs and slashed their shorts since July, their longs are still only a little more than average: this hardly represents the overbought conditions suitable for a major bear raid.
On this evidence, the bullion banks which are short in the silver market are potentially in serious trouble, unless somewhere there is a pot of physical silver they can dip into. There isn’t, if we assume that iShares Silver Trust’s 315 million ounces is unavailable. There is no other identifiable source of silver, other perhaps than some producer supply, and there is anecdotal evidence that on every dip, cash silver migrates from West to East, confirmed by silver being constantly in backwardation.
The odds now favour a substantial bear squeeze. And as the managed funds which lost money on their shorts in June-July sniff sweet revenge, this could rapidly escalate. At the moment, every dollar move upwards in the silver price costs the shorts nearly half a billion dollars. And there is no way it can be covered, because the cash silver simply does not exist.
When the shorts finally run for cover, the effect on the silver price is going to be spectacular.

Speaking of the CoT, the one that we get tomorrow is going to be a doozy! For the Tue-Tue reporting week, gold was down almost $50 and the total open interest fell by nearly 45,000 contracts (9%)! Silver was down about $1.25 and the silver OI fell by around 9,000 (5%). Recognizing that the CoT is almost always "painted" by The Cartels in order to mislead everyone else, moves of this magnitude will be difficult to camouflage. Tune in tomorrow at 3:30 EST for all the gory details.

Lastly, LOTS of noise today regarding chemical weapons, aircraft carriers, troops and missiles. Maybe the world is on the edge of a major conflagration regarding Syria? Maybe not. The action in crude today would certainly suggest the latter. Again, keep an eye on the $90 level. Until and unless price breaks decisively above, there's no reason to get carried away by the headlines.

Have a great rest of your day. I'll be back tomorrow with an update, once we see the NFP numbers and hear what The Coug, The Shill and LIESman have to say.


About the Author

turd [at] tfmetalsreport [dot] com ()


Dec 6, 2012 - 1:39pm

well i'll do my part

and get my buy order in...

Dec 6, 2012 - 1:47pm

Looking more closely at that crude chart

Note how price just got blasted all three times it approached $90 recently. Also note, though, that price is still trending off of the early Nov lows. Could be a buy here...

Dec 6, 2012 - 1:47pm

Removed comment

Removed comment.

Dec 6, 2012 - 1:48pm


c'est magnifique!

edit: Non, le quatrième!!!

القراع عصفور
Dec 6, 2012 - 1:49pm

die Dritte

which means "the third" in German. i would not have even bothered with this silly game except that Istack has again cheated. despite his bid sniffing evil algo, i still have "showed" i am happy as a lark, though even happier as a woodpecker!

"Win, Place, and Show bets are commonly called straight wagers, and are the most traditional in horse racing. They are lower risk bets compared to exotic wagers like Exactas and Trifectas. These wagers are a good place for the novice horseplayer to jump in."

more here :-)

Dec 6, 2012 - 1:55pm


how many more reasons do we need to only stack the physical stuff. i started stacking because i figured out that it was one of the wisest ways i can save money. now obsession is kicking in as well. thanks for the great info and for keeping us on the cutting edge Turd!

Edit: this definately sounds like the source of HEH to me

Dec 6, 2012 - 1:56pm

Home Oil

Just bought 100 gallons for the house @ $345.

Dec 6, 2012 - 2:14pm

Coghlan Webinar

I never had much interest in getting into the paper game as I've only been a stacker for the past few years. However, a group of committed individuals (or a group of individuals that some would like to see committed) that roll profits into physical metal can't hurt the cause... I'm going to reopen a futures account and give it a shot.

Who's coming with me?

Corsair TF
Dec 6, 2012 - 2:19pm

Re: crude chart

and how the lows have been painted with nice upward trend. Look at daily, starting 11/6 and draw a line to today's low. This made my decision to put some dry powder into UCO versus AGQ.

Thanks again for this wonderful site!

Dec 6, 2012 - 2:25pm

Another cartel

Could you have been overcharged for a TV? Philips, LG, Panasonic and other electronics giants hit with £1.19BILLION in fines for price fixing

Read more:
Follow us: @MailOnline on Twitter | DailyMail on Facebook

Subscribe or login to read all comments.


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 8/12

8/13 8:30 ET Consumer Price Index
8/14 8:30 ET Retail Sales
8/14 8:30 ET Productivity & Labor Costs
8/14 8:30 ET Philly Fed
8/14 9:15 ET Ind Prod and Cap Ute
8/14 10:00 ET Business Inventories
8/15 8:30 ET Housing Starts & Bldg Permits

Key Economic Events Week of 8/5

8/5 9:45 ET Markit services PMI
8/5 10:00 ET ISM services PMI
8/6 10:00 ET Job Openings
8/8 10:00 ET Wholesale Inventories
8/9 8:30 ET Producer Price Index

Key Economic Events Week of 7/29

7/30 8:30 ET Personal Inc/Spending & Core Inflation
7/30 10:00 ET Consumer Confidence
7/31 8:15 ET ADP employment
7/31 2:00 pm ET FOMC Fedlines
7/31 2:30 pm ET CGP presser
8/1 9:45 ET Markit Manu PMI
8/1 10:00 ET ISM Manu PMI
8/2 8:30 ET BLSBS
8/2 10:00 ET Factory Orders

Key Economic Events Week of 7/22

7/23 10:00 ET Existing home sales
7/23 10:00 ET Richmond Fed Manu Idx
7/24 9:45 ET flash Markit PMIs
7/25 8:00 ET Count Draghi/ECB policy meeting
7/25 8:30 ET Durable Goods
7/25 8:30 ET Wholesale Inventories
7/26 8:30 ET Q2 GDP first guess

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

Forum Discussion

by sierra skier, 2 hours 2 min ago
by Boggs, Aug 16, 2019 - 7:46pm
by Boggs, Aug 16, 2019 - 7:07pm
by NW VIEW, Aug 16, 2019 - 6:29pm