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

    withoutwax
    Jun 25, 2012 - 5:43am

    Re Supply of Gold for Central Banks

    Just for a bit of light-heartedness, I suppose you`ve all heard about the tonnes of gold stored underground in the Philippines? Here`s some more about it (scroll through it if you haven`t got the patience to read it, there are some interesting photos of chests and Fed Reserve Bonds...):

    https://divinecosmos.com/start-here/davids-blog/1026-financial-tyranny-f...

    Mind you, did seem funny that the US Fleet recently decided to go to the Pacific around the Philippines...

    Cottonbelt21
    Jun 25, 2012 - 5:45am

    @ Senseosensei

    … agreed re: ‘waking up’ & awareness rising as the global reset slowly unfolds driven by numerous influences such as collapse of sov gov’t social contract w/their citizens, the inevitable end of central bank influence, etc resulting in a monetary reset as you say – key is how we safely navigate our both our financial wealth & family through the transition.

    Lamenting Laverne
    Jun 25, 2012 - 6:26am

    @ Silverstool - Curiouser and curiouser

    As I have said in earlier thread, that in my experience Banks generally have very strict QA processes around their software releases. They have roll-back plans, disaster recovery plans and mirror sites and databases plus a ton of backups. I think this applies to RBS as well.

    At the very least RBS is being dishonest about the situation. They have communicated through the news, that THE problem started Wednesday night on the 20th June with a software update.

    We know, as per 47's reports, that A problem already existed in the systems on the 16th May, so I think it is safe to assume, that the update on Wednesday was aimed at solving the original issue. Clearly the attempt failed.

    They have probably added to the problematic user experience by re-running batches during opening hours, which could explain the random customer lockouts due to record level locking, when a given customer's data is updated.

    Why didn't they use their mirror sites and backups? I think, it is because they too were corrupted, since the original problem seems to date back more than a month.

    It is really really bad to have an unresolved transactional issue roaming the systems for more than a month, when you generate probably millions of transactions per day across a complicated suite of interlinked systems.

    If they were to admit that a problem has gone unnoticed and/or unsolved for more than a month, and that the real fix would be to roll-back the whole system to e.g. the 15th May, they would have to close the bank entirely for a number of days to re-run a months worth of batches on a clean system, and then spend a number of days on reconciliations to assure that everything now matches. And this assumes, that they actually know now exactly with 100% certainty, what caused the seemingly unnoticed issue in the first place.

    In that scenario, I guess no one can know if the bank would ever open again, because it would probably be killed in the stock market as a vote of no confidence.

    Anyway. And this is just my humble opinion and understanding as a complete outsider. It doesn't pass my smell test. When an ATM transaction is rejected, but still manages to turn up in the customer account, we most likely have a functional issue, not just data file upload confusion. And when posting dates on already posted entries can change, we are beyond a mere re-run of already existing batch files.

    I actually feel sorry for those IT guys, who are sweating to solve the problems right now. It is a hellish situation to sit in with humongous stress.

    I am not saying this is the case here with RBS, but some (bad) programming code is written in such a way, that it assumes data to behave in a certain way or being processed in a certain sequence. As long as this is true for the data, the system works perfectly. If one day some of those basic assumptions are not meet, because DATA changes behavior, then issues start popping up - even without recent a system change in the module in question.

    Those errors can be very difficult to find, because it is difficult to establish a pattern, since only single seemingly random records - not entire datasets - may cause the problem. Those cases are hard to detect for IT people, who are monitoring the broad picture and not individual accounts, if single user reports of irregularities are not heeded diligently and immediately.

    In the case of 47, he tried to alert the bank early on of the issue, but was dismissed without further ado. That is very bad IT policy and it is a massive management issue, in my opinion.

    The Green Manalishi
    Jun 25, 2012 - 6:27am

    David McWilliams

    ITS 1944 ALL OVER AGAIN

    June 25, 2012

    I am standing outside Selfridges on Oxford Street watching the world go by. What a world it is! There goes an Arabic woman in half hijab with Gucci sunglasses propped on her covered head, carrying two pairs of designer shoes in her distinctive yellow Selfridges bag. Beside her, four Chinese women are similarly laden down, tourists from everywhere are shopping for everything, while London’s newest ethnic minority, the emigré French middle class, can be heard over everyone.

    Is it any wonder that retail sales in Britain bounced strongly in May, with all these people fighting each other in the narrow passage that is Oxford Street?

    This zone of London is the ‘ground zero’” of globalisation where goods from everywhere are sold to people from everywhere in a shopping frenzy of everything.

    While they carry on obliviously, the frenetic shoppers seem to have no idea what is coming down the road financially or what effect the malignant coincidence of a growth slump in China, a fading recovery in America and Europe’s debt crisis will have on their world.

    More here:

    https://www.davidmcwilliams.ie/2012/06/25/its-1944-all-over-again

    David's excellent Punk Economics:

    Punk Economics 1: The European Debt Crisis
    Green Lantern
    Jun 25, 2012 - 6:44am

    Geologic Contributor to Poor Economic Data

    With wildfires in 9 states effecting popular tourist destinations, an extremely early hurricane season having already started now threatening Florida, Louisiana, record number of tornado outbreaks, a reduction of Soy, Corn and other crops due to drought, at some point we might have to start considering the Wild Factor in our economic data.

    I don't believe there is any reliable economic data to measure geologic contributors to declining economies but at some point, usually when it smacks people in the face, we have to realize, something ain't right. Especially with unprecedented geopolitical events around the world, unprecedented economic news, and what seems to me unprecented geologic changes effecting all kinds of business's from hotels, restaurants, farmers etc.... This has to put a drag on the economic data.

    At what point, do people wake up and say, Gosh, something is going on here and it's not just a streak of bad luck

    S Roche
    Jun 25, 2012 - 6:46am

    Hmm...?

    In the Dr Michael Burry story in Vanity Fair (linked above)...when tshtf all the banks he dealt with had outages, technical glitches and computer problems every time the market went badly against them, he said it was a consistent theme.

    thurd aye
    Jun 25, 2012 - 6:51am

    47, you said ,if I remember,

    47, you said ,if I remember, that you were looking to buy in the South.4-bed dormer with acres. I would like to chat about same ,as I am looking too. Could you activate your messages and I will tell you what's on my mind .That is a prepping life etc.

    Some may know I am in South Africa,where I do my PM buying at auction. It is quite anonymous and safe with a PO box number.But the prices! I have just proved to myself how crazy it it with silver. I bid for a 12 gm coin(troy net),which is effectively the Silver Rand, just now and to see how far this s/bug ,my opponent,would go,I bid it up to R145 before he came back in at R150.That is equal to R 388+ per ounce = $46+ !! Now that is crazy.There is no shortage of these coins and the guy looks like metals as opposed to collector from his buying history.

    You guys and girls in USA do not realise what bargains you are now buying! It is seriously expensive here for silver. Luckily I went all-in on my gold when I sold some land in April.Just caught a lucky rise.So I am still ahead maybe 4% on Au. Ag is half a percent up and using a breathing tube and rubber ring to stay afloat. Soon we will see. I firmly believe that the time is at hand 2012-13 ,the ground will shift for PMs.Stay solid fizz.

    Go well,

    T.Aye.

    Senseosensei
    Jun 25, 2012 - 6:58am

    RBS

    Dutch law requires a bank to have a second, fully operational, mirror site where all transactions are logged in real time. Even the slightest delay in logs, would be a failure to comply to said law.

    On top of that, from own experience, i can tell that one of the biggest banks in Holland, has multiple copies of the relevant data stored in separate vaults, from months before date X.

    Whenever some project manager would want to tinker with the systems in such a way that it might collapse it entirely in case of failure, he would have to build a mirror test site, and prove with test results that the procedure he is going to follow will be successful. Also, he would have to prove in front of the 5 most influential operational managers in town that he would be able to roll back in case of a screw up.

    And he would never, ever, be allowed to perform his update during business hours.

    I really cannot believe RBS would operate otherwise.

    This stinks to high heaven.

    truthseeker
    Jun 25, 2012 - 7:00am

    Trader Dan writes an insightful piece on Silver

    I am sure many of you will have seen this. Sure puts things in perspective for me...

    Deciphering Silver

    https://www.traderdannorcini.blogspot.ca/

    Tabberto bronsuchecki
    Jun 25, 2012 - 7:08am

    Bron

    when talking about buying physical in size you advise against 'turning up in one go and getting badly executed' etc - not sure you quite get it. What is being referred to here is sophisticated money averaging in big orders (the size of which i already referred to) which are now already bought and spot-indexed in the market - these now need to be ALLOCATED with good speed, so when you say, 'go speak to London' pls forgive my giggle seeing as you suggested you in Perth could step up! The whole problem is that yes you can buy spot in size, you just cant get it materialised and delivered with good speed. Delighted and interested to hear your refreshed thoughts on the matter.

    Senseosensei
    Jun 25, 2012 - 7:15am

    @truthseeker

    I read the article too. What Dan fails to mention, is that 1) JPM does an excellent job painting the charts which then "help" to guide these hedge funds in making their moves and 2) you don't need to influence the price all the time, but at strategic moments in time (remember Mai 2011?) combined with some margin changes from your buddies at the CME.

    Vermilion
    Jun 25, 2012 - 7:39am

    Turd - you said...

    ..."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."

    Do you have any more details on this, even if anecdotal?

    clueless one
    Jun 25, 2012 - 7:44am

    screwtape stuff...

    I'll admit...have'nt been reading any of this until the link I saw yesterday. It seems funny to me that there is a lot of bearish talk, alot of he said she said stuff... even utube.. with Rawdog dissing Brother John F and saying the same stuff as the screwtape guys...

    All of this is really well timed at the $26 support, eh?

    Hey, whatever. It's such a game. I've got my plans in place and am executing. I won't wait around any longer to see how things play out, to see if I made the right call. I know I've made the right call. My family and I will have a better life...won't be rich, won't have toys, won't have status... but we'll have peace, have shelter and have food. We'll have like minded people around us who want the same thing. A simple life, like it used to be back in the day. Hard work, for self benefit...not for corporate benefit. It'll be hard, but it'll be worth it...becuase the current way, isn't. That's all you can ask for in this world...and really, what more do you need? Certainly not some gadget or some cool car or whatever...

    But that's just me. I'm excited...more than I've been in a while.

    Y'all be well!

    truthseeker
    Jun 25, 2012 - 8:12am

    @Senseosensei

    I think your points dovetail nicely with what Trader Dan is saying. In fact, I would imagine he would agree with you.

    But it doesn't hurt to look beyond the obvious manipulation in the silver market to try to understand that, in this deflationary environment, some of the big money (i.e. hedge funds) is working against the price and to understand why.

    For those of us "all in" it just means we have to be patient a little while longer.

    recaptureamerica
    Jun 25, 2012 - 8:14am

    Bullish for Ag?

    Eyeballing Iran? US commissions 361 cruise missiles https://www.ynetnews.com/articles/0,7340,L-4246311,00.html FUBAR situation developing...

    recaptureamerica
    Jun 25, 2012 - 8:16am

    Toll from Colorado wildfire

    Toll from Colorado wildfire grows to 248 homes 'It was just this god-awful orange glow. ... It honestly looked like hell was opening up' https://www.msnbc.msn.com/id/47938078/ns/weather/#.T-hWuqN5mSN Be safe out there, people

    Tube
    Jun 25, 2012 - 8:17am

    Check it out!

    TurdTalksMetals Landing Page Video
    recaptureamerica
    Jun 25, 2012 - 8:18am

    Bank Chiefs Enjoy

    Bank Chiefs Enjoy Double-Digit Pay Rises https://www.cnbc.com/id/47942126

    recaptureamerica
    Jun 25, 2012 - 8:20am

    RUSSIA WARNS TURKEY, NATO

    RUSSIA WARNS TURKEY, NATO AGAINST MILITARY ACTION https://www.wnd.com/2012/06/russia-warns-turkey-nato-against-military-ac... World is quickly spiraling deeper into the toilet bowl....

    recaptureamerica
    Jun 25, 2012 - 8:22am

    Putin arrives in Israel to

    Putin arrives in Israel to discuss West's standoff with Iran Putin calls Holocaust 'darkest, most shameful chapter in human history', praises Soviet Union for defeating Nazis in speech at memorial for Red Army in Netanya. https://www.haaretz.com/print-edition/news/putin-arrives-in-israel-to-di... Old saying i just made up, Beware snakes wearing bear clothing

    recaptureamerica
    Jun 25, 2012 - 8:24am

    China Iran oil imports rise

    China Iran oil imports rise as payment dispute resolved https://www.bbc.co.uk/news/business-18545973 Hmmm, I must have missed this 4 day old news...

    57Goldtop
    Jun 25, 2012 - 8:24am

    Turd, congrats!

    Can't wait to see the new site and participate in its success.

    Cheers,

    GT

    recaptureamerica
    Jun 25, 2012 - 8:27am

    EU to huddle on

    EU to huddle on Turkish-Syrian crisis https://m.upi.com/story/UPI-44731340605800/

    achmachat
    Jun 25, 2012 - 8:28am

    @recaptureamerica

    yep.. that's more than 180.000 troy ounces of silver gone forever ;-)

    recaptureamerica
    Jun 25, 2012 - 8:29am
    recaptureamerica
    Jun 25, 2012 - 8:49am

    J.P. Morgan Unit Shifts

    J.P. Morgan Unit Shifts Operations https://online.wsj.com/article/SB100014240527023044414045774830925129226... New saying... Step on snakes head so they can't bite you

    recaptureamerica
    Jun 25, 2012 - 8:53am
    recaptureamerica
    Jun 25, 2012 - 8:56am

    Schäuble On German Endgame

    Schäuble On German Endgame Plans: Can't Let A European Crisis Go To Waste https://www.zerohedge.com/news/schäuble-german-endgame-plans-cant-lets-european-crisis-go-waste

    recaptureamerica
    Jun 25, 2012 - 8:58am

    Be Afraid: Some in US See

    Be Afraid: Some in US See Shades of 2008 in Euro Crisis https://www.cnbc.com/id/47940591

    recaptureamerica
    Jun 25, 2012 - 8:59am

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    Key Economic Events Week of 4/15

    4/16 9:15 ET Cap Util and Ind Prod
    4/17 8:30 ET Trade Deficit (Feb)
    4/17 10:00 ET Wholesale Inventories
    4/18 8:30 ET Retail Sales (March)
    4/18 8:30 ET Philly Fed
    4/18 10:00 ET Business Inventories (Feb)
    4/19 8:30 ET Housing Starts and Building Permits

    Key Economic Events Week of 4/1

    4/1 8:30 ET Retail Sales (Feb)
    4/1 9:45 ET Markit & ISM Manu PMIs
    4/1 10:00 ET Construction Spending (Feb)
    4/1 10:00 ET Business Inventories (Jan)
    4/2 8:30 ET Durable Goods (Feb)
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    4/5 8:30 ET BLSBS

    Key Economic Events Week of 3/25

    3/26 8:30 ET Housing Starts (Feb)
    3/27 8:30 ET Trade Deficit (Jan)
    3/28 8:30 ET Q4 GDP final guess
    3/28 10:00 ET Pending Home Sales (Feb)
    3/29 8:30 ET Personal Income (Feb)
    3/29 8:30 ET Consumer Spending and Core Infl. (Jan)
    3/29 9:45 ET Chicago PMI
    3/29 10:00 ET New Home Sales (Feb)

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