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There are some potentially monster bull formations on the index charts, with inverse head and shoulders abounding, targeting SP 1450 if we get the breakout and confirmation for example.
So, get long the market? My inner bear is growling. I can't really get long with conviction, so I'm back to playing pair trades and playing it on the edges until I get a better feel for which way things are going to break.
The real economy seems sluggish, but the presses are rolling. So we could see things break out nominally, or we at least have to allow for it.
Have a happy holiday weekend. See you Sunday night.
I am not talking about the specifics, about which individual holder of bullion changed the status of a very large portion of the remaining registered silver inventory at the Comex, and what their particular motivation might have been. I imagine that the details of that transaction and its short term intent will become known at some point. I am not even sure yet whether it is bullish or bearish. It could be part of a short term trading gambit tied in with the coming option expiration.
I wanted to step back and get the significance of this in the 'big picture.' So I looked at the interactive Comex silver inventory chart over at 24hourgold to see what the big withdrawal from the registered ounces looked like in context. The chart goes back to middle 2008.
Several things stand out for me. First, there are definitely big declines in the past, certainly on the order of the most recent decline this week.
There is one significant difference. Two of the biggest declines occurred at year end, and are indicated on this chart as circles.
There are another two large declines in inventory comparable to this week in April time frames, marked on the chart by rectangles.
So its just a normal thing, right?
Not really. The prior two declines in April occurred after significant builds in inventory from the first of the year. This year that simply did not happen. There was no bounce.
For me the most significant aspect of the chart is the steady decline in inventory over the past three years, stepwise at times, but getting dangerously low compared to the open interest in the futures market which that inventory supports which continues to increase. That is known in the trade as 'leverage.'
I am sure that the exchange principals will pass along rumours about a short squeeze and an attempted market corner, and try to paint this as some insidious anomaly. Yes there are speculators becoming involved, those who see what is happening. As the British government attempted to hold the pound to an artificial value, and was hammered down by traders, famously George Soros but primarily the faceless acting through the Swiss, so too the metals manipulation by the Anglo-American banking cartel is staggered, and is probably going to go down hard, capitulate with a revaluation and partial disclosure, and move on from there. I think the episode of cheap gold and silver is over, until a new cycle of money begins.
I prefer to view it as the natural outcome of a long term manipulated market, in which artificial shortages have been introduced by protracted interference. If you artificially depress the price of most things for a long enough period, in a market based system you will introduce underinvestment and systemic shortfalls that will only be corrected by either higher prices and investment in production, sometimes with long lead times, and/or with 'rationing' either overtly, or through public relations campaigns that seek to discourage demand from a group of the people while other segments take the remaining supply.
They keep warning about bubbles, and silver 'correcting.' Well, the establishment pundits have no credibility on noticing bubbles, that is for certain. Their hypocrisy knows no bounds.
And what this trend seems to be implying is that silver is already correcting, higher, back to its real long term trend after decades of under performance due to artificial constructions and leverage.
The Comex is headed for a default unless they can secure a large new supply of silver and increase their inventories. Or allow the price to climb higher until the market finally clears and existing supply re-enters the market. Where will that be? From the looks of things, higher, probably where the trend price with inflation would have been, barring sufficient new investment in production. When flagrantly betrayed, the market can be a harsh mistress.
And the same thing is happening, in relative slow motion, in the gold market which was the real point of this all along. But the difference is that in the gold market the bullion banks have been able to turn to the central banks for protection and supply over many years, drawing down their sovereign inventories and masking it at times with accounting tricks. That is, until that trend changed a few years ago, and the central banks became net buyers after twenty five years of selling, motivated primarily by the BRICs and the much abused and crumbling dollar reserve currency arrangement.
I wonder if the bankers can find a willing seller, a new source of silver. And at what price. And with what will they offer payment, what depreciating paper promise?
Someone asked me again today, have you ever seen a market go up like this without a correction? Well, of course not. Nothing ever goes straight up. They are asking the question to get the answer they want, ie. consolation for an existing opinion. The real questions to ask are WHY something is going higher, and to think about how much it might correct, and what it will do after that. Saying something will go down after it goes up is not an investment strategy, it is a sucker play. People go broke following these faux contrarian plays.
Yes, I am cautious on silver in the short term, and yesterday I did take all my trading positions off the table, without touching long term positions. Let that action speak for itself, within the context of my goals and needs. And I am especially cautious now in most US markets because of lax regulation. But I liked and respected the perspective Jim Rogers had to offer. And yet he will be the first to tell you he does not know the future, and neither do I. But I think it is going to take a liquidity panic sell off in broad assets to break the silver bull. I hope it does not go parabolic and at least consolidates here somewhere, to set up a more orderly appreciation such as is happening in gold.
But I am not assuming that these are normal market conditions. I think that the financial engineers and their bankers are becoming very concerned, and even afraid, for good reasons. What has been hidden will be revealed, what has been whispered will be shouted from the rooftops. They will spin stories to hide it, and probably engage in scapegoating, blaming Islam or China or high profile speculators like Soros, or some other group for what is in reality the direct result of their perfidy.
As we have seen in the past three years, the markets have been made a sham, riddled with fraud, puffed up but lacking substance. And in each case there is a violent correction that exposes the graft and corruption. And this is ongoing, because as William K. Black recently said, they have 'left the felons in charge of the system for the sake of stability.'
But at the end of the day, the result remains the same, no matter how they try to shift the blame and the pain.
As the Americans like to say, 'the jig is up.'
"They have sown the wind, and will reap the whirlwind. Their stalks of grain wither and produce nothing to eat. And even if there is any grain left, foreigners will consume it." Hosea 8:7
I try not to react to a single month's number, and instead keep an eye on the trend.
Still, the Philly Fed came in at 18.5 versus a consensus expectation 33, and that is enough of a miss to make me spill my coffee.
The taxes on the real economy from the unreformed financial sector and the gasoline spike are taking their toll. There were also supply chain disruptions associated with the Japan earthquake that may have played a part. The price paid section of the report showed rising prices.
The data are looking and quacking like stagflation to me. And I think stagflation is the result of an exogenous shock or egregious policy error. I'll take that second door, Alex, for a lower 90 percent of the public strangled by corrupt fiscal and monetary policy, and unfortunately, their own gullibility.
Let's see how the trends continue to develop.
Let's refresh our understanding of the difference between registered and eligible status at the Comex.
"Comex has two categories of silver in its warehouse.
The eligible category means that the silver is in a condition that conforms to the standards of delivery. Size and quality of the bar in other words. It is being stored at the Comex warehouse, but is not offered for delivery into contracts.
Registered means that the silver is available for delivery to those who demand bullion by being registered as such with a bullion dealer, in addition to being in a fit condition to satisfy the contract.
Eligible silver can become registered and deliverable if the owner of the silver declares it saleable at some price. And of course if it is there, and otherwise unemcumbered by senior obligations or conspicuous absence."
Registered Ounces Available for Delivery at the Comex
The eligible silver stocks and that of the daily metal warehouse statistics are limited to silver bars that meet the Exchange's criteria for delivery. This criteria specifies that a silver bar must weigh 1,000 troy ounces, plus or minus 10% and be on the Exchange's Official List of Approved Refiners and Brands for silver.
In order for eligible metal to become registered metal, the owner of the metal must have an Exchange Licensed Depository (like Scotia Mocatta) issue a Depository Receipt (Warrant) on those silver bars meeting Exchange standards comprising 5,000 troy ounces (plus or minus 6%) stored at its facility.
It is not a particularly difficult operation to change bars from eligible to registered status, and vice versa. It is a matter of the actual owner's intent. It is a little more difficult to have a new bar introduced to the warehouse and certified as eligible, meeting the criteria of the exchange as stated above.
Some traders use the term dealer to mean deliverable, and customer to signify eligible.
There may be other types of bullion in non-standard forms, such as coins or odd or smaller bars, stored for a fee at Comex, but these are not of interest to us here.
Here is Harvey Organ's take on the silver inventory at the Comex this evening.
"We have just received tonight's inventory changes and it is a dandy. First of all, there were no deposits of silver into the dealer and no deposits into the customer.
There was a rather large withdrawal of silver from one customer of 119,400 oz ( from Scotia). We had another 999 oz from the Delaware vault. Thus total withdrawal: 120,399 oz.
Now the fun begins: We had a massive 5,287,142 oz adjustment whereby the dealer repaid a customer for a prior commitment or a seller had cold feet and decided not to sell his silver and it returned to eligible silver (not for sale) or this is a settlement whereby silver is finally delivered to a patiently waiting long. Ladies and gentlemen..something is up!! The adjustment was in the Scotia vault. Let us see if this silver leaves the Scotia vault."
Turmoil in Silver and Gold at the Comex - Harvey Organ
I suspect the silver has been taken off the market for delivery into some obligation, for example, delivery to an outstanding purchase from a fund like the Central Fund of Canada, Sprott, or some other large customer, perhaps even a sovereign entity (hint here be rumours). But perhaps it is just a customer who has changed their mind about the prospects for silver.
This is what happened. It could be quite bullish depending on what happens to it, as Harvey indicated.
Here is Adrian Douglas' Marketforce Analysis summary of changes to the Comex Inventories.
SILVER
ZERO ozs withdrawn from the dealer’s (registered) inventory
120,399 ozs withdrawn from the customer (eligible) inventory
Total dealer inventory 35.76 Mozs
Total customer inventory 67.24 Mozs
Combined Total 103.00 Mozs
GOLD
139,996 ozs withdrawn from the dealers (registered) category
70,796 ozs deposited in the customer (eligible) category
Total dealer inventory 2.11 Mozs
Total customer inventory 8.90 Mozs
Combined Total 11.01 Mozs
Adrian's analysis appears each day after the market close in Bill Murphy's metals discussion at LeMetropole Cafe. This is where I first learned about the lesser known aspects of the metals markets in 2001 before gold and silver started to rally, and it remains a must read for me every day.
Remember we are entering a period of May option expiration at Comex, on Tuesday April 26th.
As I mentioned earlier today, something is obviously up. I am trying to get to some level of understanding of it, and am wading through rumours, innuendo, and speculation. But there is something happening behind the scenes, I am now sure of it. And it might be big, because the usual trading desk chatterers don't seem to know what it is. Or aren't talking.
But I am wondering, are the BRICs going to make their move? Or is it something else.
