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

The Jobs Report In Four Pictures

The recovery in employment has clearly faltered.

The most positive spin that can be put on it is that the rise and dip was caused by the secular hiring in census workers. But that removes the big increase, and leaves one with no recovery yet at all. Which is roughly the same thing as a recovery and a resumption, a dip.



Here is a comparison of the Seasonally Adjusted and the Raw Numbers

When the distortion of the imaginary jobs added and occasionally subtracted by the BLS 'Birth Death Model' are removed, the lack of recovery is made more clear. If one were to also subtract the temporary census workers which are the cause of that spike higher, the lack of recovery is even more apparent.



Here is the detail on the current shenanigans in the Birth Death Model. As previously discussed, the BLS shows dips in the imaginary jobs numbers around the big seasonality events in January and July. Since these birth-death jobs are added to the non-seasonalized raw number, the big seasonal adjustment blunts, if not largely negates, their impact.

But considering that the economy has undergone a sea change, an epic collapse in a credit bubble, the regularity of this metric should remove any doubts that it is at best largely 'a plug,' and at worst a means of distorting the numbers in the short term to make them look better.



Does this lack of recovery mean that stimulus has not had an effect? No. The results could have been much worse, and very likely would have been if the government had done nothing.

But it also shows that the actions have not had traction, are not yet creating jobs. Why should that surprise us? Subtracting out the bubble jobs in housing and servicing the financial frauds in mortgages, job growth in the US, and confirmed by the median wage, has been anemic for a long time.

This is what is called a structural problem. It is a problem that was caused by government policy decisions in deregulation, largely one sided free trade agreements trading jobs for cheap good and corporate profits, decisions that favored offshoring and importation, lack of a coherent immigration policy, taxation subsidies for the wealthy, lack of regulatory oversight, and an industrial policy of decline in favor of 'service jobs' that could be more properly be called 'servant jobs.'

What would we expect from a restoration of the status quo that does not include bubbles? A stagnating economy most likely at least from a wage and jobs perspective, with increasing disparity in income distribution.