Silver Short: Days of World Production To Cover Certain Commodity Short Positions

There is a case to be made that world production is not the only issue, but the available supply is just as important, if not more.

In the case of gold, a relatively small portion of supply is consumed, as the bulk of it is held as jewelry and bullion. One might say that if the bullion banks get into a pinch, the central banks can bail them out by 'leasing' gold to them for sale. In fact there is quite a bit of circumstantial evidence that the central banks have been doing this for some time, and would be in serious difficulty if they faced external audits.

In the case of silver however, quite a bit of it is used in industrial production. The counter case is that as the price rises, additional material is available in recycling operations from scrap. There is also a significant supply of bullion, but unlike gold it is widely dispersed in ownership, with central banks holding little or none in their reserves.

There is a remarkable concentration in the short position in silver and gold.

All things considered, silver looks like an accident waiting to happen to a handful of banks who may have crossed up one market too far.



chart courtesy of Sharelynx

Gold Daily and Weekly, Miners, and Silver Charts at Week's End

Gold rallied up to big resistance today on the weaker than expected economic news and weakness in US equities, in yet another example of the 'Risk-on, risk-off' trade.

Next Tuesday is the FOMC meeting for August, and on such auspicious occasions gold is frequently subjected to short selling to express official discouragement by the banking establishment towards a competitive currency.

August is a stronger seasonal month, so the metals will have the wind at their backs. We would be looking to buy on weakness.

Gold Daily Chart



Gold Daily Chart with 50 Day Moving Average

Gold rallied up to its 50 Day moving average which is now just over 1211. I would not expect the momentrum traders to get on board until that metric is taken out and nailed to the daily chart.



Gold Weekly Chart

This is not even a log chart, and the trend in the weekly price of gold looks like a thrown rope. You might want to keep this chart in mind when making your buy and sell decisions, and not allow yourself to get caught up in the short term hype of the daytraders and assorted knuckleheads.



Silver Weekly Chart



Mining Index (HUI)

SP 500 and NDX September Futures @ the Close For the Week

"A long habit of not thinking a thing wrong gives it a superficial appearance of being right." Thomas Paine

The SP futures fell to the bottom of the trendline associated with a rising wedge that is likely to be quite bearish if activated by a confirmed break.

A late day technical rally was able to lift prices back to support on weak volumes, a classic short squeeze. The manipulation in the US equity markets by the big trading desks and high frequency traders is centered around the SP 500 futures. Their fingerprints are all over these markets if you are watching the quotes on Level II access.

The spin from the talking heads will be that the Fed will 'do something' by way of liquidity and further easing for the markets at the upcoming FOMC meeting which is on Tuesday, 10 August.

It is likely the Fed will do nothing next week, but the traders will play their games with the small specs, especially the bears who are an easy squeeze, the markets being what they are.

For my own perspective these markets now are guilty until proven bullish, which means they must break out and stick it, and further, that there must be some substance to support the breakout, even if it is just liquidity from the Fed, aka another asset bubble. The fundamentals just do not support prices at these levels, and the volumes of buyers are not there. But it can drift higher if selling continues to be weak. That is the dangerous, Ponzi like structure of a market that sets up things like the flash crash.

SP Futures



NDX Futures