Wednesday, July 13, 2011

Guest Post: COMMERCIAL SHORTS LOSING CONTROL ON THE SILVER PRICE MANIPULATION

By: SRSrocco


The commercial shorts are fighting a losing battle in controlling the price of silver. The chart above comes from Jim Willie’s most recent article “The Silver Platter Opportunity”. Willie makes the point that this is one of the four best buying opportunities of the past eight years….according to the COT structure. Even though this is true, I find the overall trend in commercial short/long vs. the price action more interesting.

To simplify the chart above for those investors who are not that familiar with the COT Report, the RED line shows the commercial short positions divided by the commercial longs. The BLUE line shows the price of silver. According to Ted Butler, silver has had the highest commercial short to long position in history compared to every other commodity. The commercial shorts have been able to control the silver market by mere size and leverage of their positions forcing the weaker spec longs to capitulate time and time again.

The one thing that Willie fails to mention in his article is the overall trend of the commercial shorts since 2005. In 2006 we see that the commercials had over 5 times more shorts to longs. Below is a comparison of the Jan 31, 2006 COT Report to the most recent COT Report of July 5th, 2011.

JAN 31, 2006 COT REPORT (SILVER $9.91)
COMMERCIAL SHORTS = 98.383
COMMERCIAL LONGS = 19,688
NET SHORT/LONG = 4.99

JULY 5, 2011 COT REPORT (SILVER $34.76)
COMMERCIAL SHORTS = 66,999
COMMERCIAL LONGS = 33,548
NET SHORT/LONG = 1.99

Now that silver is nearly $25 higher than it was in JAN 2006, the net commercial short/long is almost at the same level it was when silver hit $9.00 in OCT 2008. This is extremely bullish….but this is only part of the good news.

Hardly anyone in the investing community took notice that something very interesting took place in the month of Oct 2010. We can see for the first time the RED line falls below the BLUE price line. This indeed is a significant event. It is my contention that the commercial shorts no longer have the leverage to control the price of silver. Furthermore, the failure of the commercial shorts to control the price led to the CME and other Exchanges to raise margin requirements to help assist in bringing the price of silver down.


Even though I have written about this in previous comments on the SGS blog, I wanted to put it on a chart so everyone could see just how obvious silver was taken down. The chart starts on April 4th and ends on May 5th. The dates on the bottom highlighted in yellow correspond to the closing of the COT REPORT on each Tuesday.

The first thing we notice is the pathetic attempt to take silver down on April 8th. During the week the commercials liquidated 3,700 contracts even as the overall price of silver moved up $0.76 to close at $40.06. In the following two weeks, there must have been panic in the commercials as they liquidated 8,000 more short contracts with an additional $5.40 move higher in silver. In those three weeks the commercials liquidated 11,530 short contracts as the price moved up $6, but only a lousy 5,094 contracts as the price declined the following week….a most dismal performance indeed.

We can see that on April 26th the first CME Silver Margin Hike was announced which brought the price of silver down $1.40. As the price of silver continued higher over the next two days the CME announced the second Silver Margin Hike to take place on Friday, April 29th. At the end of trading on Friday the price of silver fell a lousy $0.55 to close at $47.87.

The third CME Silver Margin Hike was announced to take place on close of trading on May 3rd to be followed by the fourth to occur on May 5th (not to forget the fifth margin hike on May 9th). It was these five CME margin hikes in coordination with several other hikes by other exchanges that the price of silver was finally taken down to the low $30’s. This was not to limit a speculative frenzy as the nitwits on CNBC touted or as the CME reported, but to stop the bleeding of commercial shorts from an ongoing short squeeze orchestrated by strong hedge fund buying.

It is now evident…the damage has been done to the commercial shorts. There is no heading back. With the pathetic 28 million ounces in the Registered Dealer category, the commercial shorts do not have the ammo to increase their positions to any degree without severe risk. We must remember the Fed and US Treasury want silver to behave like a commodity and not a precious metal. When its price finally explodes higher due to fundamentals, any remaining confidence in the dollar will be lost.

24 comments:

  1. Thank you SRSrocco. Very nicely charted and explained for a newbie like me. I think I actually like Blythe today, because she's going to make me some $$$. I only wish I had gotten on board this train sooner...

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  2. What a great morning... gold and silver up at a ratio of 10:1 - hmmmm... let the financial fireworks begin.

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  3. Picked up OCt 22 Calls on SLV $40 strike. Bernanke testimony says hes printing more. LULU puts are now giving it to me, thank you Ben.

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  4. Gold and silver continue to keep things interesting in the global financial system. Somewhere between debt ceiling threats and Netflix price increases, gold and silver continue their stance against fiat currencies. Tuesday started rather calmly for precious metals, however, the newly released Fed minutes quickly changed things. Let’s take a look at the new developments concerning central banks and gold.

    Last week, the Financial Times reported that central banks around the world pulled 635 tonnes of gold from the Bank for International Settlements this past year, which represents the largest withdrawal in more than a decade. Last year, central banks added to deposits of gold at the BIS (a bank for central banks), as opposed to lending it directly to the private sector amid growing concerns over counterparty risk. The big question is, why are central banks now stuffing their own mattresses with gold? Perhaps central banks are unimpressed with the low interest rates for lending their gold, or maybe they see more troubles ahead. The chart below shows an interesting story of central banks and their relationship with gold . After several years of being net sellers of gold, central banks are now net buyers of gold. Furthermore, Eurozone central banks became net buyers of gold in 2011, which has never occurred since the inception of the Euro in 1999.






    Aside from being net buyers of gold, central banks have been causing a stir in financial markets with quantitative easing (QE) programs. For example, as the Federal Reserve injects more stimulus into the markets, the U.S. Dollar weakens. Investors looking for a safe-haven against inflation and anything else that comes along, run to gold and silver. In May, during the Fed’s QE2, gold reached a record high of $1557, and silver reached almost $50. On Tuesday, the mere mention of more stimulus caused gold to shoot higher. Newly released Fed minutes reveal that some members are considering additional stimulus if economic growth fails to improve. Gold popped on this news, and closed at a new high of $1562.30 an ounce on Tuesday. Gold miners such as Yamana Gold and AngloGold closed 3.13% and 2.87% higher, respectively.

    It has only been a little over a month since QE2 ended, and we’re already receiving hints of more stimulus. You don’t have to be a gold bug to have a reason to hold gold in your own portfolio. A new study from Oxford Economics recommends holding at least 5% of your assets in gold, and varying economic conditions (QE3 anyone?) can imply higher allocations for gold.

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  5. F'n great post. Really doped it out.

    "The big question is, why are central banks now stuffing their own mattresses with gold?"

    BB: "Tradition."

    I have never taken Illuminati mind puppet conspiracies very seriously. But after hearing BB's testimony, I cannot but think that this man's brain stem was scarred at birth. And just look at the guys eyes. Blank. Stare.

    "I understand why the American people would be angry...giving all that money to banks...But sometimes it is expensive to bail out the financial system."

    AYFM?

    Look at the Fed chairs since Nixon. Burns (printer); Volcker (incorruptible); Greenspan (shyster); Bernanke (aloof academic ). Exactly the kind of personality necessary to get the job done.

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  6. shit, TINKA was up 16% should have dumped and bought back.

    Ron Paul vs. Alan Greenspan
    http://www.lewrockwell.com/paul/paul267.html

    RON PAUL:"But, since we went on a total paper standard in 1971, we have increased our money supply essentially 12-fold. Debt in this country, federal debt, has gone up 19-fold — but that is in nominal dollars, not in real dollars.

    Even in 1981, when you came before the Gold Commission, people were frightened about what was happening — and that's not too many years ago. And you testified that it might not be a bad idea to back our government bonds with gold in order to bring down interest rates.

    So what are the conditions that might exist for the central bankers of the world to reconsider gold?

    We do know that they haven't given up on gold. They haven't gotten rid of their gold. They're holding it there for some reason.

    So what's the purpose of the gold if it isn't with the idea that some day they might need it? They don't hold lead or pork bellies. They hold gold.

    So what are the conditions that you might anticipate when the world may reconsider gold?"

    MR. GREENSPAN: "Well, you say central banks own gold — or monetary authorities own gold. The United States is a large gold holder. And you have to ask yourself: Why do we hold gold?

    And the answer is essentially, implicitly, the one that you've raised — namely that, over the generations, when fiat monies arose and, indeed, created the type of problems — which I think you correctly identify — of the 1970s, although the implication that it was some scheme or conspiracy gives it a much more conscious focus than actually, as I recall, it was occurring. It was more inadvertence that created the basic problems.

    But as I've testified here before to a similar question, central bankers began to realize in the late 1970s how deleterious a factor the inflation was.

    And, indeed, since the late '70s, central bankers generally have behaved as though we were on the gold standard.

    So that the question is: Would there be any advantage, at this particular stage, in going back to the gold standard?

    And the answer is: I don't think so, because we're acting as though we were there."

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  7. @ Everyone

    I would value all of your honest opinions.

    Is anyone else struggling greatly with the task of "waking up" friends and family?

    Never before have people argued so much with me when I tell them about the pending fiat currency collapse.

    Just this morning, I was speaking to my Mom about moving some of the $100,000 she has in a savings account over to a gold/silver mutual fund. She looked at my like I was crazy. Imagine earning 1.2% a year, with rising inflation, and not seeing the benefit of owning metals.

    I have $400,000 invested in metals so far, and will continue to go "all in" as the situation deteriorates in paper.

    What methods do you guys use to try and save your friends and family from losing all their savings, 401K's, etc?

    The biggest reply I hear when I try to wake people up...."Don't worry, the government won't let that happen."

    When I hear this from the sheeple, I don't care, cause they'll get a wake up call soon enough. But I don't want to see my family and friends come to harm.

    Thanks,

    Josh

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  8. Josh,

    I have been preaching the same points to family and friends. Give up, save yourself, so that you may help them later.

    You see they have all been brain washed, and this is over a lifetime, you can't change that in week or a year even.

    I was explaining the same things to my mom, she was like what, gold is for jewelry, I'm like mom it's really money.

    Mom here is why gas is up or food is up, she's like the MSM said is was greed! LOL

    I fucking give up!

    I bought more PHYZZ, because I'm going to have to save her ass too, lol.

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  9. A CLARIFICATION on TRADING

    In past comments it may seem as if I am down on traders. This is not the case. First, I am probably one of the worst short term traders on the planet (maybe a tad better than Dennis Gartman). Secondly, I tend to be a follower of long term trends based on fundamentals.

    I have a great deal of respect for traders who can make money in this sort of manipulated environment. It seems to me the best strategy is to trade a portion and accumulate more of the main investment.

    That being said....what a great day in the precious metals markets.

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  10. Article was picked up on Max kieser, nice job. Cudos to my boy SRS.

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  11. @nig..
    why don't you elaborate on why 'yall are brainwashed too'? Please, fill us up with your un-brainwashed wisdom.. we're just drooling for it.

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  12. UPDATE ON PERU'S GOLD & SILVER PRODUCTION

    In the first 5 months of 20111, Peru increased production in Lead and Moly, but decreased production copper, gold, silver and zinc. Zinc was the big loser as it declined a staggering 10% over last year.

    Here are the stats for Gold and Silver:

    GOLD Production declined 7.52% over the first 5 months in 2011 at 2,115,110 oz from 2,287,207 oz in 2010.

    SILVER Production declined 6.75% over the first 5 months in 2011 at 44,696,321 oz from 47,933,258 in 2010.

    This is important as Peru fell to second place under Mexico last year in global silver production. If this trend remains, Mexico will make that spread widen in 2011.

    It looks like the decrease in silver came from a good portion of ZINC's 10% decline as well as copper.

    Gonna be interesting in 2011

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  14. PaidinGold,

    I had puts on WYNN, all was going well until today. I'm gonna back off on adding anymore put positions.

    I though that luxury retailers were doing well?

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  15. @IslandStyle I agree with Malcolm. There is nothing you can do. Don't try to convince people of gold/silver...I have found most "are so hopelessly dependent on the system that they will fight to protect it" to use a Matrix quote. I estimate i've had the conversation with maybe 100 people, I'd say 2 out of that 100 of them actually acted on it and went out and bought precious metals and that seems to be the current ratio of people owning physical metals. Don't waste your time...save yourself. Maybe you can help others later, but the rest are just plain doomed.

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  18. PaidInGold: I'm watching HLF. Higher end vitamins, minerals, health care products. Just watching...and waiting.

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  19. @nig4life: if you'd be willing to take some advice. Going around all pissed off will get you nowhere. Whatever you're upset about, whether it is a job, relationship, etc. seems like you might need to make a change. All I know is that life is way too short to carry a chip on your shoulder, or your jaws & fists clenched. You might even have to move from where you're living. Hope you can turn it around, because even though this world has alot of evil, evil stuff...it also has great, great stuff.

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  20. im just so depressed about all the bullshit goin on it fucking sucks

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