Stocks slid hard today on poor economic news from the US, more significant signs from Europe of a test of the European Union and a Greek default that might cause repercussions in the global banking industry.
There was a flight to safety into the US dollar and into gold and to a lesser extent silver. Gold looks to be making a move to break out of its consolidation range, but it has not done so yet.
Silver continues to struggle after the big smack down, but the inventories on the Comex are still in a very steady decline. Someone sent me a piece from Ted Butler in which he says that over the years he has not been able to correlate the price of silver and the Comex inventory levels.
Well, I think if there is plenty of available supply that makes sense. If the inventory gets low, then the dealers would just procure more.
However, when available supplies start to tighten beyond a certain level, especially after years of price manipulation causing distortions and underinvestment on the supply side, then a demand supply trade off comes into play and the correlations and the significance of the data can most decidedly change.
I was a little disappointed with his analysis since he has studied the Comex for the past twenty plus years, but offered no insight into Comex deliverable inventories from an historical perspective, and in particular, as a percentage of open interest. What was the prior low, and what else was going on in the industry at that time? How low was it?
I will make one prediction. The deliverable Comex inventory will not fall below zero. And that is exactly where is has been heading, slowly but surely, for the past three years, like a train wreck in slow motion. Should there be any sort of default incident, Obama should find a new head for the CFTC.
If you have seen the movie 'Super 8' you will understand it when I say that one can only wonder what ugly thing will be crawling out of a Comex train wreck, looking for payback after years of abuse.
