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 ()


brad_pitts_betterlooking_brother · 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...

Anonymous · Dec 6, 2012 - 1:47pm

Removed comment

Removed comment.

Bollocks · Dec 6, 2012 - 1:48pm


c'est magnifique!

edit: Non, le quatrième!!! smiley

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 :-)

Istack · 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

SilverHawk · Dec 6, 2012 - 1:56pm

Home Oil

Just bought 100 gallons for the house @ $345.

WarningShot · 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!

Excalibur · 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

The Watchman · Dec 6, 2012 - 2:28pm
ivars · Dec 6, 2012 - 2:30pm

Watched the Webinar and

Watched the Webinar and learned that we are now in trend change. So I made Andrews pitchfork:

There seems to be a logic of using slopes instead of horizontal price lines in PMs . At least Coghlan's examples in that webinar were convincing, in short term charts.

Lets see what happens this is my first pitchfork drawing. The support shall lie on median ( 50% in this chart) , top resistance is 0, bottom support of the channel has mark 100 - this is how my platform draws them. On plus side, this pitchfork includes fibo levels so that I was able to match -61,8% level with previous top. I liked that.

Colonel Angus · Dec 6, 2012 - 2:35pm

If price goes straight up...

...then my relative looks like a genius. He has only started stacking but has bought several hundred bucks face value of silver coins from craigslist (under spot) and has picked up a few ounces of gold. I've been holding for three or four years now. 

You know...I'm fine with him looking like the genius. I don't need it...

Monedas · Dec 6, 2012 - 2:35pm

Excellent Fuel Oil Substitute Fire Starter !

When I finish a jug-o-milk .... I double the plastic cap and stuff it in the jug ..... then I collapse the jug with my bare hands .... and stash it with my pallet cut-outs pine kindling .... by the fireplace ! Xty and Katie Rose could stomp them flat with their lumber jack boots ? When I want fire .... I cover one jug with pine kindling .... then place a couple-o-logs on top .... sprinkle with a few drops of gasoline from a pancake syrup bottle .... strike and toss a wood match .... woof .... instant fire I can walk away from and never look back over my plaid, flannel shoulder ! Monedas 1929 Comedy Jihad No Newspaper Nor Brawny Towels Never World Tour devil

Anonymous · Dec 6, 2012 - 2:35pm

Removed comment

Removed comment.

ag1969 · Dec 6, 2012 - 2:39pm

I just got in the mail...

One of those pesky coupon magazines. On the inside cover is a big ad for "Cash for Gold" with three locations here in NH. There is a big coupon for, "15% additional payout on any transaction at cash for gold. Excludes coins and bullion."

I thinks GS is right, with the gold bull over, it makes perfect sense to pay 15% more than the going rate for scrap gold, right?

· Dec 6, 2012 - 2:42pm

More OI discussion - PLEASE READ

A final washout in gold yesterday? Total OI fell another 6,000 to just 428,518. Incredibly, this is down 64,000 contracts (13%!!) from the 2012 highs of 493,245 seen just two weeks ago! For the sake of comparison, the last time we saw total gold OI at this level was on 8/30/12, when price was at $1660. Who is left to sell??? Maybe some additional shorts sellers? Maybe. There is a much greater likelihood, by far, that the next move is UP, not down.

· Dec 6, 2012 - 2:45pm

Silver OI continues to hang

Silver OI continues to hang tight near 141,000. This is down about 10% from the 2012 highs near 155,000 but still sell above recent lows.

In contrast, when the gold OI was near this same level on 8/30, the silver OI was at 117,000. Hmmmm..... Either silver still has a huge washout to come OR silver is being accumulated by some very strong hands.

SteveW · Dec 6, 2012 - 2:48pm

Physical order

So a physical order for 10 metric tons surfaced at 9:30 am EST or 2:30 pm in London. Now what I do not understand is why the afternoon London fix was only $1.25 above the morning fix.

Current statistics - as at Thu 6 Dec 2012

London Gold Fixing
AM 1693.00 1050.770 1295.135
PM 1694.25 1052.787 1303.771

Posted: 15:07 Thu

Bill of Rights · Dec 6, 2012 - 2:49pm

Fmr. Thatcher advisor Lord Monckton evicted from UN climate

Fmr. Thatcher advisor Lord Monckton evicted from UN climate summit after challenging global warming -- 'Escorted from the hall and security officers stripped him of his UN credentials' | Climate Depot

Give this guy a medal...This guy is great. I've heard him interviewed a few times. How dare he challenge the UN's agenda? They have a plan, and they'll be damned if any well educated, articulate naysayer gets in their way.

Purplefrog · Dec 6, 2012 - 2:49pm

For and against

Let's see who wants silver (and gold) to go down in price.

That would be 1) industrial users, 2) central banks who want to keep the fiat fantasy going, and 3) major stackers; i.e. central banks, countries, etc.

Let's see who wants the price to go up.

Uhhhhhh....I guess it's just we holders.

Okay. Place your bets as to who wins.

The prices will go up when those in the first group WANT it to go up.

OhOh · Dec 6, 2012 - 2:50pm

@Turd " Rumors (subsequently confirmed)

@Turd " Rumors (subsequently confirmed) began to circulate that an unexpected and substantial order for physical gold had materialized in London."

Would you care to elucidate?

ag1969 · Dec 6, 2012 - 2:51pm

Steve W

I love the way it is called "Gold Fixing"

OhOh · Dec 6, 2012 - 3:00pm

In what way?

First there were rumors that a CB was looking to fill a very big order. The rumor was then discovered to be true. All totaled, somewhere north of 10 metric tonnes.

OhOh · Dec 6, 2012 - 3:02pm

Rumours by whom, confirmed by

Rumours by whom, confirmed by whom, amounts, buyer?

· Dec 6, 2012 - 3:04pm

In London. Confirmed by a

In London. Confirmed by a very well-connected source. 12 metric tonnes. Likely a central bank.

If you want more, like a receipt or something, I'm sorry to disappoint you. LBMA stuff is deliberately opaque and this is all we have to go with.

· Dec 6, 2012 - 3:07pm

Email campaign

I'm not much into email campaigns but if anyone wants to take a few moments to C&P these two paragraphs from Uncle Ted's latest and send it off to Thunderlips, I certainly wouldn't discourage you from trying.

In fact, the unavoidable attention that will attach to the termination of the silver manipulation is also one of the main forces delaying the coming resolution. If ever there was a can that needed to be kicked down the road by important insiders, the sudden end to the silver manipulation is surely that can. JPMorgan and the CME, as well as the various federal agencies involved are dreading the resolution of the silver manipulation, probably as much as informed silver investors are cheering for it. In a nutshell, this is why it has taken so many years to put a wooden stake through the heart of the silver manipulation; those who should be ending it know that in its termination they will be exposed for not ending it sooner. After all, there is a documented 25 year history of the CFTC being continuously alerted to the silver manipulation with the agency always rejecting the allegations. There’s no way any termination of the silver manipulation won’t be connected to the clear prior public warnings. No one rushes to their own funeral. Postponing the shame is particularly relevant in the case of many at the CFTC, as an oath of office was taken to protect the public and the public’s pleas for relief were ignored.
While Chairman Gensler and the other commissioners were not at the agency for the past 25 years, most have been there for as long the current prime silver manipulator, JPMorgan, has held its giant concentrated short position. Incredibly, a formal silver investigation was initiated more than 4 years ago because of JPMorgan’s monopolistic share of the silver market that is unresolved to this day. Justice delayed or left incomplete is justice denied. Considering the specific nature of the allegations regarding JPMorgan’s concentration on the short side of COMEX silver futures, the lack of action or response from the Commission has undermined public confidence in the agency and in the regulation of the silver market. From any regulator’s perspective, what could be worse than that?
brokerk22 · Dec 6, 2012 - 3:07pm


Turd I will apologize for the imbeciles on this site that dont tust you. Sheesh.

Bill of Rights · Dec 6, 2012 - 3:09pm

South Korea central bank bought 14 tonnes of gold in Nov

By Christine Kim SEOUL, Dec 5 (Reuters) - South Korea's central bank said on Wednesday it bought 14 tonnes of gold in November using its foreign reserves in order to spread its portfolio risks, while releasing data showing total reserves rose after talk of market intervention.
crg · Dec 6, 2012 - 3:09pm



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