02 May 2011

CME Announces Third Margin Increase For Silver in a Week - Karma? Ain't It a Bitch.

Some instant pundits were citing 'exhaustion' which they had seen in the silver market as a cause for the recent declines.

Only someone talking their book, or in complete ignorance of market dynamics, would cite 'buyer exhaustion' for such a precipitous decline when the exchange continues to raise margins, and the bears hit the price repeatedly in the off hours trade.

As Dave from Golden Truth observed:
"Needless to say, last night's ambush was comically initiated right at the open of electronic trading, which commences in the early evening on Sunday, when the futures markets tend to be at their least liquid. There was an absolute flood of sell orders at the open but the cliff-dive chart was accompanied by a relatively small amount of total volume. This suggests that there were some motivated "sellers" trying to push the market lower and force selling by the MF Global or Ameritrade customers who would be unable to meet the new margin requirements. To be sure, there was also plenty of unloading by longs who were frightened by the volatility and wanted to protect any profits they might have."

This does not look like a market showing anything like classic buyer exhaustion. This is more like a speeding train, running higher in response to a short squeeze on a massive overhang of paper silver obligations that cannot be delivered at current prices. The exchange authorities are throwing everything but the kitchen sink at it to try and slow it down, to break its momentum. I obviously do not have a problem with that per se. But it would be nice to see the regulators and exchanges occasionally intervening on behalf of the broader class of investors, and not so exclusively for the benefit of their insiders.

The reason is fairly obvious. The Comex inventory is down to a new low of 33 million ounces of deliverable silver, at least according to their published records. It is tough to talk your way out of that one, without showing the metal to the market. Stand and deliver.

And there are no Hunt brothers for the exchange officials to lean on to break the bulls. The buying is dispersed and world wide. They can raise the Comex margins to 100% and it will not affect the buying of bullion. But it may open up a yawning chasm between the paper markets and the physical markets that will be harder and harder to ignore. And that is unfortunate for those who seek to be the masters of the world, at least on paper.

As Harvey Organ notes in his commentary tonight:
"...another startling announcement from the CME, tonight, a third straight raise in the silver margin requirements. This shows how severe the bankers are into the silver glue..they are massively short of ounces and there is no available resources on the planet."
The silver market will keep going until the market clears, wherever that price may be. This may have to involve a few Banks, or their rumoured 'secret customers,' taking a substantial loss on their massive short positions, something that they are loathe to do. It's not so much the money, as the public will almost certainly absorb their losses through the Fed. It will be the admissions of failure, and potential exposure, and the need to construct yet another cover and diversion for a fraud based failure in the Anglo-American banking system.

What does not kill this rally makes it stronger.

Fighting the paper price is becoming counter-productive, because it opens the door to additional buying of physical bullion from Asia.  It is starting to look like a feedback loop, in which the struggle of the shorts to extricate themselves merely tightens their bonds.

Tens of thousands of buyers, both big and small, taking on the banking giants, draining them of silver, bouncing back again and again, and finally leaving them exposed, high and dry, and nakedly short, for all to see. The many, seeking to string the bankers on a rope of silver, and bring them down.
"Can you catch Leviathan on a fishhook, or tie it down with a rope?"
Those dreamers.  Those crazy dharma bums.

And the shorts are trapped in their pride, and their tangled web of lies. Karma? Ain't it a bitch.

"Our battered suitcases were piled on the sidewalk again; we had longer ways to go. But no matter, the road is life...Whither goest thou America, in your shiny car in the night." Jack Kerouac

CME Margin Increase for Silver

These are wild, triple black diamond markets.  These are big changes occurring, understood by very few, and emotions will be running high.

If you are not a very experienced trader, better to stay off the slopes and as far away from leverage as you can get.