01 May 2011

Portrait of Desperation

The Comex is facing a default, and the powers that be are very nervous since it involves at least one of the TBTF monstrosities.

That does not mean it is going to happen, but with less than 12,000 contracts of silver left in the dealer category, it remains a distinct possibility unless prices go much higher to free up the inventory held by stronger hands.

Nine out of ten Americans might realize that dwindling supply coupled with growing demand tends to result in higher prices, or rationing and other methods of dampening demand, or all of the above. Well, maybe not that high a percentage of the people would notice, given these days of truthiness in thinking and the power of spin.

Perhaps there is some 'Plan B' to handle this growing scarcity of inventory. The only plans I am aware of from the exchange are forced settlements in cash or SLV.

Shock and awe in the thin Sunday night trade, running the stops of the new futures holders whose options were filled. Even more heavy handed and blatant than usual.

Run it up, and then smack it back down.

Take a letter, Ted...

Oh, and by the way Blythe, skip the histrionics. Stand and Deliver.

From Harvey Organ's Saturday commentary:
"The total open interest on the silver comex fell steeply by 6,132 contracts from 135,763 to 129,712. There is no doubt that the leverage for the longs suffered a bit but so did those shorts that have to pay margin requirements. This created much volatility on the silver price yesterday.

All eyes are on the front delivery month of May were the open interest stands at 2166 contracts or 10.83 million oz. The options that were exercised were given future contracts on Friday night and will be reflected in the numbers on Monday.

I believe that Blythe will be some busy lady this weekend.

The next battleground front month for silver is July and the OI rose from 76,365 to 78,060. We still have a long way off until we hit this trading month. The estimated volume at the silver comex was good at 77,167. The confirmed volume on Thursday, the day before first day notice was 226,267 where we witnessed most of the silver longs rolling to July and September."

Here is some background on Comex Inventory and the Eligible vs. Registered categories.

The much higher margin requirements serve to dampen demand due to speculation. But it also has the effect of making sure that the demand that continues to exist is held by some relatively stronger hands, not as susceptible to margin calls and other price antics.

Paper good, metal bad. Paper good, metal bad.