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

    recaptureamerica
    Jun 25, 2012 - 9:02am

    "Netanyahu has decided to

    "Netanyahu has decided to attack Iran before the U.S. Elections in November." https://www.globalresearch.ca/index.php?context=va&aid=31574

    John Galt
    Jun 25, 2012 - 9:03am

    Martin Armstrong - Why Empires Collapse

    This is an interesting article by Martin Armstrong. (My apologies if someone posted this already.)

    https://www.inflateordie.com/files/How%20Do%20Empires%20Die%2006-17-2012.pdf

    In effect he talks about the collapse of empires as capital moves underground i.e. into stores of gold as protection. This, as I understand it, causes deflation as there is less currency around to create demand and sustain ongoing economic activity.

    On the proverbial street level I am seeing much evidence to support this. There is a general reluctance for consumers to spend, with some fearful of the unknowns of the future and others trying to pay down debt etc. In the line of work I'm in I see other businesses only buying (mostly used) equipment to fill immediate needs - there's very little investing with a view to the longer term growth and expansion.

    Granted there are inflationary indicators i.e. rising food costs which are directly and indirectly linked to rising energy costs (despite the recent drops in world oil prices, which also have not translated into proportional reductions in gasoline prices). Taxes also continue to rise as governments remain unable to curtail spending.

    While I am aware that the prevailing expectation is QE to infinity (and I agree that this is going to come) does it not also make sense that once we have clear evidence of additional printing and money debasement that at some point central banks will be forced to raise interest rates just to keep selling the additional debt?

    I know that the immediate reply to this is that rates cannot be allowed to rise because that would be bad for the economy. My counter argument is that in today's world why are we to assume that central banks are doing what's best for the economy? They are going to do what's best for banks.

    That said, if money debasement causes inflation of 20%, I don't see any way that CBs can or will leave interest rates at 0% indefinitely. Once rates rise the move will hammer real estate prices, stock markets, and PMs etc as mass investment moves out of those classes and into interest bearing instruments.

    Before I get flamed for this post or called a troll, let me say that I am not predicting any of this is going to happen. I am merely asking questions so that we can all consider possibilities other than a certainty of QE to infinity followed by hyperinflation followed by PM prices going to the moon.

    This article by Armstrong raises questions that have gnawed at me for some time, and I think it's healthy and prudent for all of us to keep an open mind to other possibilities.

    recaptureamerica
    Jun 25, 2012 - 9:03am
    recaptureamerica
    Jun 25, 2012 - 9:05am
    recaptureamerica
    Jun 25, 2012 - 9:11am

    UPDATE: Venezuela's Chavez

    UPDATE: Venezuela's Chavez Halts Oil Shipments to Paraguay, Recalls Envoy https://online.wsj.com/article/BT-CO-20120624-700916.html

    recaptureamerica
    Jun 25, 2012 - 9:13am

    Neighbors pull envoys after

    Neighbors pull envoys after Paraguay dumps president https://edition.cnn.com/2012/06/24/world/americas/paraguay-president/ind... Why can't we just dump ours when they need to be too? Just ask'n

    recaptureamerica
    Jun 25, 2012 - 9:18am

    Mexico admits arrested 'drug

    Mexico admits arrested 'drug kingpin' is actually a car salesman Embarrassing comedown for Felipe Calderon's government and country's military after they paraded 'El Gordo' for the cameras https://www.guardian.co.uk/world/2012/jun/23/mexico-drug-kingpin-car-sal... Pumped up news headlines..Seems like they got tutored from the north...

    recaptureamerica
    Jun 25, 2012 - 9:20am

    Selfish Pakistan army may

    Selfish Pakistan army may spark nuclear war with India: Bangladesh envoy https://timesofindia.indiatimes.com/world/south-asia/Selfish-Pakistan-ar... Wonder if Sum of All Fears has a sequel coming out soon...

    DBean
    Jun 25, 2012 - 9:23am

    screwtape hit piece

    In "defense" of the "naive", screwtape posted one heck of a nasty hit piece on Turd (in a sleazy, sort of underhand way). A couple years ago, I might have thought twice about what they wrote, but this site has some incredibly well-read, intelligent people that have directed me to invaluable sources, books and articles. (As well as the thought-provoking discussions)!!

    If so worried about the naive...

    How about the grannies that are hopelessly watching their life savings in mutual funds and IRA's rock to the bottom twice in the last decade while their advisors and brokers shrug their shoulders in helplessness?

    How about the 18-22 year old kids taking on massive debt they don't understand in the hopes of getting a better job?

    How about the 20-40 somethings buying houses that may not have hit bottom with once again dubious mortgage products?

    How about folks spending their paychecks on more high-heeled shoes, $200 purses, starbucks coffee and fancy cars?

    Is screwtape actually concerned about the small amount of people buying a couple ASE's with their paychecks or paying down debt?

    As best I can figure, we're riding a huge wave of history and they're "worried" about the people trying to figure out how to surf?

    Seriously?????

    recaptureamerica
    Jun 25, 2012 - 9:30am

    We Are Living in a ‘Modern

    We Are Living in a ‘Modern Day Depression’: David Rosenberg https://finance.yahoo.com/blogs/daily-ticker/living-modern-day-depressio... Keep stacking

    Tube
    Jun 25, 2012 - 9:32am
    recaptureamerica
    Jun 25, 2012 - 9:33am

    Don’t Count on Consumers to

    Don’t Count on Consumers to Save the Struggling Recovery: Economist https://finance.yahoo.com/blogs/breakout/don-t-count-consumers-save-stru...

    recaptureamerica
    Jun 25, 2012 - 9:39am

    Central Banks Commit to Ease

    Central Banks Commit to Ease as Threat of Lost Decades Rises https://finance.yahoo.com/news/central-banks-commit-ease-threat-05144466... Lost decade? What was pm prices a decade ago? Oh yeah.... Got PMs?

    ¤
    Jun 25, 2012 - 9:48am

    Obamacare decision

    The market will go nuts if it's overturned and gold could get hit in some manner if the US is suddenly off the hook for about $1.8 trillion of new spending that won't happen. At least you would think it would be reactive to it being struck down. Strange times, anything is possible.

    I think they'll strike down part of it but leave most of it standing. We'll soon find out.

    ambersky
    Jun 25, 2012 - 10:03am

    @ Number 47

    https://www.rbs.com/news/2012/06/update-on-technical-issues--1200-main-b...

    Update on technical issue 1200

    "We’re making progress in putting things right and will keep 1,200 branches open until 7pm 25th June and from 8am-6pm for the rest of the week.

    We have arranged for our customers to be advanced cash in our branches when they were missing payments and had no available funds.

    All ATMs and point of sale transactions are still available.

    All our current account customers who have an RBS, NatWest or Mint credit card in good order can now also:

    • withdraw up to an additional £100 over their limit, with over-limit fees or charges automatically waived or refunded
    • withdraw cash on their card with cash advance fee as well as one months worth of interest waived or refunded."

    I have been reading on the MSE website that people (with Natwest) have not had payments gone into their accounts but had standing orders sent out up to 4 days early. RBS are talking about the issue not being resolved till the end of the week.

    Some posts from MSE today - taken from these threads -

    https://forums.moneysavingexpert.com/showthread.php?t=4026289

    https://forums.moneysavingexpert.com/showthread.php?t=4029305

    "We don't receive any credits either, but we're still missing our pay and a standing order which was taken early out of one account and not placed in another, leaving us withdrawn.
    They took it out of one of our accounts and haven't put it in the other. It's out there somewhere, but where?!"

    "My local RBS was busy this morning with people all saying their tax credits/wages hadn't gone in - and the bank were just giving out cash on demand. Be chaos for days trying to sort this lot out."

    "Just back from the bank after taking out £20 over the counter,customer in front of me was told when she enquired about wages going into her account on time this week that it's doubtful that it'll happen this week either."

    "I got onto online banking this morning and tax credits that should have gone in on saturaday was in, However Interst on my overdraft and my fee for my gold account had gone out on the 22nd when they are set up to come out on the 26th so it has left me overdrawn.
    I called Natwest and it seems that epic system fail has effected peoples statement dates.
    I also asked how Natwest cant get peoples money into there accounts, but can by the looks of things, debit any money due to the ie interst on an overdraft."

    "Called Natwest at Dinner and spoke to lending team about possible charges being refunded and the advised that they have no systems at all even to do a security check. The chap advised that he had no idea what was going on."

    There are posters reporting that everything or almost everything seems fine now with their accounts.

    And there's this post from here:-https://www.davidicke.com/forum/showthread.php?t=214544

    "I dont know about hacking but i know nearly everyone of my scoundrel mates made 1000's on Friday from them. They were giving a maximum of £250 on withdrwels even if NOTHING was showing in your account!!
    They went round almost every Natwest in Lancashire.
    I hate being honest sometimes "

    I live in London and do have a NatWest account myself which I now only use for a single small direct debit transfer online and receive monthly statements. I did use their online service once but I was messed about so much with the login process I gave up years ago.

    I Run Bartertown
    Jun 25, 2012 - 10:10am

    SCOTUS better come through...

    I've got a neighbor who loves obamaocare...we've debated it through the whole process...I hope they announce it soon - I see him out there now. I've got fireworks and balloons ready...celebratory music with speakers at the window...and two cold beers ready just in case he's able to be civil.

    bronsuchecki Tabberto
    Jun 25, 2012 - 10:11am

    @tabberto

    I never suggested we could step up - I have explained what that original comment was saying and our situation and capabilities regarding silver in subsequent comments - we are primarily a gold business.

    If I didn't "get it" it was because you were not clear. When you said "can you really fill an order for 5m oz" that means to me a trade, ie a purchase. It does not mean "now already bought". Keep in mind I also read your comment in the context of TF's observation "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." References here to "buyers"and "price-efficient" do not imply an allocation process.

    If you had simply said "can you allocate 5moz" then I wouldn't have made any comment about execution. BTW, what does "spot-indexed in the market" mean, that is not a term used in the markets we deal in? Are you referring to unallocated or some other paper contract?

    This little confusion doesn't change my answer, which was "we haven't been shipping in from London recently so I don't know the state of that market, but SLV has allocated those sort of quantities in the past so I would be surprised if we can't source it from London and our other contacts if required."

    When I hear vague statements of tightness by unnamed intermediaries, excuse my skepticism. I stems from 2008 when everyone was screaming of silver shortages (mistaking production capacity issues making retail sized products for wholesale market, ie real, shortages) when during that time we were allocating and shipping in 20t of silver a week for weeks on end, without any issues or need to pay a premium. I don't doubt TF's source, but when talking about tightness or shortage one needs to be specific because the vague nature of TF's comment that "silver is in very tight supply" may or may not be meaningful without such detail as:

    • where is it tight? A big market like London or some smaller market like Perth.
    • ​what sort of quantities are we talking? (which you have clarified).
    • what sort of product (retail or 1000oz wholesale bars)

    Unfortunately 10pm in Perth so off to bed so I'll have to pick this up in the morning.

    I Run Bartertown
    Jun 25, 2012 - 10:31am

    scotus rules

    that if a State objects to having its people displaced and ethnically cleansed away,

    their only recourse is secession.

    They didn't phrase it exactly like that, so I'm paraphrasing.

    tobydaniel
    Jun 25, 2012 - 12:33pm

    Nice spike... and nicer catch!!! holy cow

    Man these bankers are good! Nothing gets away from them. The fact that they can catch the price of silver from holding over 27.50 is pretty darn impressive. Thats what I call being in in control of the price. Hats off to them even though I hate what they are doing. Still is very impressive. Guess this is our pop. Time to wait for the drop now. lol

    bam El Gordo
    Jun 25, 2012 - 1:29pm

    @ El Gordo

    I assure you that Whale Oil will NOT be the energy of the future. There aren't enough whales in the oceans to take care of Japan, never mind the rest of the world. If Whale oil became 'the thing' in the US, whale populations world wide would be wiped out in short order.

    Urban Roman bam
    Jun 25, 2012 - 1:54pm

    @bam

    Maybe bankster oil, then?

    bam Urban Roman
    Jun 25, 2012 - 2:25pm

    LOL urban

    I think you'd find that particular type of oil astoundingly popular.

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