Sunday, May 22, 2011

May update

Here is a quick update on the silver market, as always, there are many dynamics to any market, and so I'm sure that there are areas that I am not seeing, but I would like to share with you some of what I see in the silver market.

First of all the good news from the most recent Commitment of Traders report released last Friday (which shows a snap shot of Tuesday--Tuesday trading), the commercial shorts have their lowest position of shorts (pre-sold silver) since May 2009, when silver was trading at around the $17 range. The managed money (Hedge funds) that had been holding long positions (buyers) have sold a large percentage of their positions to the commercials, and now there is very little that they can liquidate to the commercials. In other words the internal structure of the COT report is most positive it has been since May 2009, when silver was at $17 per oz.

For a more complicated look at the situation see this graph below, it was updated only until April 2011, give it a couple of minutes and it'll grow on you;

Please also see the difference in the 2 graphs below the first one is based on the most recent commitment of traders report, showing the still present roughly 110 days of world silver production that the commercials (Banks) have pre-sold (and need to buy back), compared with 160 days from back in August 2010.

This is the most manipulated commodity market in the world, as can seen in the 'Days to cover' charts above. -where the banks have held huge manipulatively large levels, and as the price has increased, they were in the red for huge losses, the futures market is a zero sum game, someone's loss is someone's gain. All along the recent price rise to $49 the commericals were unloading their positions (buying them back), and if price broke above $50 at that time, the banks could have been in big trouble facing huge losses! These banks sit on the board for the CME (exchange), and are the exchanges largest customers so many believe that the CME pulled the rug out from underneath the hedge funds, speculators and investors to save their business partners, the CME contiually raised margin requirements for silver trading on the Comex, on this recent decline, and along with banks pulling thier bids, they got the ball rolling down. This smacking was done at the very beginning of Monday trading  (Sunday evening in the U.S.), when there was not one physical exchange open, just light globex electronic trading, and asia on extended holiday. To many people including myself, it seems manipulative in nature! --all of this has to do with the paper market in the U.S.

As I wrote on April 19th note to you our monthly purchase participants; "I have come to believe we could be in for quite a rough ride over the next 2-4 months."  I wrote that I thought we may have a correction, I thought this would be due to dollar strength based on a ending of QE2 in June, or maybe an even earlier ending, but rather than a large bounce in the dollar strengthening, what turned out to happen was a creation of weakness in the commodities that are priced in dollars. --same result by a different method. And very welcome by central banks around the world who looked helpless fighting the inflation they had created.
The rate of silver's ascent, without some kind of a geopolitical or other crisis was unsustainable. (Still we could have an known or as of yet unknown event take precious metals to the moon.)  Many traders booked profit, many over-leveraged traders got forced out by the numerous hikes in margin CME requirements, etc. Many people also speculate that this had a lot to do with getting metal out of SLV (the largest silver ETF).

This all has little, if anything to do with the physical market, the physical market is still tight, premiums are high, many products have long delays from the mints, even on the comex there is still backwardation (cheaper to buy it in the future) showing the constraints on the physical market. --and when the price declines it allows countries and citizens that run surplus to continue to divest themselves of more paper fiat money, into gold/silver at better prices, which only accelerates the physical shortages developing. (Mexico recently bought 93 tons of Gold, Thailand, bought Russia bought 400,000 oz of Gold, etc

India continues drive demand, but has now taken 2nd place to China;

Here is another great article about China's Precious Metals purchasing.

As Marc Faber said 'become your own central bank by buying gold & silver'. The paper market continues to determine the price, but it will be the physical market that will set it in the future!

Nothing has changed on the fundamentals for silver or gold, it is still the insurance that you can buy even when the financial house of the world built on paper debt is burning. Most investors of the world still are playing the paper game of fleeing from one currency/stock to the other, as each displays more weakness than the other, eventually the world will see through this paper game;

The fiscal monetary situation of the world could hardly be more precarious, the U.S. has a battle in the Congress on raising the debt ceiling

Central Banks of the World continue to increase the money supply, albeit at different rates;

Running higher and higher amounts of debt;

While taking in less and less income;

In conclusion, for those who have bought at higher prices, I suggest to hold tight, we will break out above $50, its just a matter of time. If you can add to your position, taking advantage of this drop in price, or any further price declines, it will average your total cost lower. --in the end, when the current financial system collapses under its own debt weight, or from some outside shock, it will be about how many oz that you have and not so much of the price that they were purchased at. -this is the period that I am holding for. Gold/Silver will be repriced at much higher multiples in the future either by choice, or by the force of the markets, world demographics, and the money supply creation.

Right now gold/silver represent a small portion of the total paper holdings of financial institutions and investors, when the gray portion moves into the gold portion, the price will explode, patience, patience my friends......

One for fun

Wednesday, May 11, 2011

CME Margin Hike Is 4th AND 5th - Charting The Parabolic Rise In CME Silver Margin Hikes

Remember when earlier we said the CME had hiked silver margins for the 4th time in 8 days? We lied. In fact, what the CME did was to hike margins for the 4th (effective May 5) AND 5th times (effective May 9). That's right, dear reader, in one release, the CME has performed two concurrent margin hikes, which means today's action is the 5th margin hike in 8 days, a previously unheard of event! As of May 9th, the initial margin is $21,600, or 11% of the contract value, while the maintenance is $16,000. This is nothing short of sheer panic at the CME. At this point we can only wonder if the FDR-style precious metals confiscation executive order will come by way of the CME or the FBI. And for everyone asking, below is the chart of recent CME margin hikes in silver.

Silver, Gold 'on Steroids'

Silver, Gold 'on Steroids'

Mon 09 May 11 | 01:45 AM ET
With about 1.2 billion ounces of available investment silver it doesn't take much to set prices higher or lower, Ben Davies, CEO of Hinde Capital, told CNBC. In the end, both gold and silver will, in the long term go up, he added.

Forbes Predicts U.S. Gold Standard Within 5 Years

Forbes Predicts U.S. Gold Standard Within 5 Years