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"A number of high-profile investors remain huge holders of gold and silver, amid continuing concern about inflation and the dollar. Mr. Paulson, known for his lucrative bet against mortgages a few years ago, told investors he still has most of his personal money in gold-denominated funds operated by Paulson & Co. Mr. Paulson told investors Tuesday morning that gold prices could go as high as $4,000 an ounce over the next three to five years, as the U.S. and U.K. flood the money supply." WSJ
"The bankers are waging a paper silver war on paper longs. This is why I urge all of you not to play the crooked Comex. The Comex is nothing but a paper game. Do not use leverage whatsoever. Just go and buy the physical silver from your local dealer or bank. This is what will kill the bankers game." Harvey Organ, 3 May 2011
I told a small group of traders, with whom I speak about the markets and our positions during the day, that I was pulling my big Russell 2000 short position hedges off around 3 PM, and was buying into some deeper long positions in the metals sector. And so I did.
Unless this is going to turn into a liquidation event, I believe the consolidation/correction, whatever you wish to call it, is about done, save perhaps for another gut check or two in case the dip buyers get over eager. There was a little profit taking rally back in the last hour, so perhaps I was not the only one who had this idea.
Silver May futures retraced roughly 38.2% of their gains since the last major correction intraday around the low of 40.50, (or 50% from the point of the last breakout), and the major stock indices tested key support levels as well. Gold has done remarkably well, but just eyeballing the chart, it too corrected almost 50% of its recent gains. The gold silver ratio is now back to something a little more familiar around 37.
I was very glad to see this correction in silver because it had gone parabolic. As Jimmy Rogers said, if silver had kept going it would have set itself up for a much greater fall later on. If we can sustain a more reasonable appreciation in the market, I think the upside is much further than most think. It depends on how the banks are able to unwind and hedge their shorts, and the progress silver makes as a store of value and alternative currency, particularly in Asia.
As you know I said I was taking my profits last week. I started buying back in yesterday and today and am now holding PM positions again with some hedges for a stock selloff.
I tend to believe that much of this market action in the States is just the tail wagging the dog, the few managing market prices for their fairly narrow personal benefit. So perhaps this little episode is done for now. The offtake of physical at these lower prices overnight has to be killing the supply lines.
There are rumours that some of the PIGS have been selling their central bank gold under some duress. Too bad they do not have any silver.
I do think there could be a more profound correction in the markets, but not yet. However, something could happen, or I could just be wrong.
Now that Blythe has had her fun, let's see what happens.
Until the banks are restrained and the balance is restored to the economy, markets will not be returning to anything resembling 'normal.'
My friend Pierre Leconte does not agree with my charting of silver, and offers one of his own. I include it here below to show the other side of the discussion.
Obviously I do not believe his chart is probable, but it is possible. I would not measure the retracement from the very bottom
He presents his argument, en français, here at Forum Monétaire de Genève. Here is an 'automatic translation into English.
I would not draw my retracement levels in this way, or a rising wedge in this manner. But that is a matter of taste. His chart does help to explain where some people obtain their forecast of a drop in price to the $27 dollar level. He is using a monthly logarithmic chart.
I will not offer any criticism of his point of view, except to say that I think he does not address the leverage in the market, that is, with the dwindling supplies that have been sold many times, and the persistent buying of bullion that is stressing the 'paper markets.' This is not incidental but critical. The rally in silver is because of a breaking down of a long term scheme to manipulate the price using paper and leverage. And the condition that caused this has not been relieved or corrected. But this is my point of view, my conclusion with which one may or may not agree.
We can discuss these things and remain friendly. This is what makes a market. And the market is the one who will tell us eventually what is correct.
But I think that while Blythe may play the coquette to take our silver, she is really a femme fatale to longer term wealth.
I told the traders I speak with occasionally throughout the day that I thought the correction ended around 3 PM, and so I took off my big Russell 2000 short position.
Unless this is going to turn into some kind of liquidation event, we might get another jog or two down to spank the eager buyers, but unless something happens the trends are back in play.
Let's see what happens. And be prepared to follow whatever the market tells us.
Some instant pundits were citing 'exhaustion' which they had seen in the silver market as a cause for the recent declines.
Only someone talking their book, or in complete ignorance of market dynamics, would cite 'buyer exhaustion' for such a precipitous decline when the exchange continues to raise margins, and the bears hit the price repeatedly in the off hours trade.
As Dave from Golden Truth observed:
"Needless to say, last night's ambush was comically initiated right at the open of electronic trading, which commences in the early evening on Sunday, when the futures markets tend to be at their least liquid. There was an absolute flood of sell orders at the open but the cliff-dive chart was accompanied by a relatively small amount of total volume. This suggests that there were some motivated "sellers" trying to push the market lower and force selling by the MF Global or Ameritrade customers who would be unable to meet the new margin requirements. To be sure, there was also plenty of unloading by longs who were frightened by the volatility and wanted to protect any profits they might have."
This does not look like a market showing anything like classic buyer exhaustion. This is more like a speeding train, running higher in response to a short squeeze on a massive overhang of paper silver obligations that cannot be delivered at current prices. The exchange authorities are throwing everything but the kitchen sink at it to try and slow it down, to break its momentum. I obviously do not have a problem with that per se. But it would be nice to see the regulators and exchanges occasionally intervening on behalf of the broader class of investors, and not so exclusively for the benefit of their insiders.
The reason is fairly obvious. The Comex inventory is down to a new low of 33 million ounces of deliverable silver, at least according to their published records. It is tough to talk your way out of that one, without showing the metal to the market. Stand and deliver.
And there are no Hunt brothers for the exchange officials to lean on to break the bulls. The buying is dispersed and world wide. They can raise the Comex margins to 100% and it will not affect the buying of bullion. But it may open up a yawning chasm between the paper markets and the physical markets that will be harder and harder to ignore. And that is unfortunate for those who seek to be the masters of the world, at least on paper.
As Harvey Organ notes in his commentary tonight:
"...another startling announcement from the CME, tonight, a third straight raise in the silver margin requirements. This shows how severe the bankers are into the silver glue..they are massively short of ounces and there is no available resources on the planet."
The silver market will keep going until the market clears, wherever that price may be. This may have to involve a few Banks, or their rumoured 'secret customers,' taking a substantial loss on their massive short positions, something that they are loathe to do. It's not so much the money, as the public will almost certainly absorb their losses through the Fed. It will be the admissions of failure, and potential exposure, and the need to construct yet another cover and diversion for a fraud based failure in the Anglo-American banking system.
What does not kill this rally makes it stronger.
Fighting the paper price is becoming counter-productive, because it opens the door to additional buying of physical bullion from Asia. It is starting to look like a feedback loop, in which the struggle of the shorts to extricate themselves merely tightens their bonds.
Tens of thousands of buyers, both big and small, taking on the banking giants, draining them of silver, bouncing back again and again, and finally leaving them exposed, high and dry, and nakedly short, for all to see. The many, seeking to string the bankers on a rope of silver, and bring them down.
"Can you catch Leviathan on a fishhook, or tie it down with a rope?"
Those dreamers. Those crazy dharma bums.
And the shorts are trapped in their pride, and their tangled web of lies. Karma? Ain't it a bitch.
"Our battered suitcases were piled on the sidewalk again; we had longer ways to go. But no matter, the road is life...Whither goest thou America, in your shiny car in the night." Jack Kerouac
CME Margin Increase for Silver
These are wild, triple black diamond markets. These are big changes occurring, understood by very few, and emotions will be running high.
If you are not a very experienced trader, better to stay off the slopes and as far away from leverage as you can get.
One cannot help but notice that the bear raids in the precious metals sector are coming in thin trading and are notable for their lighter volumes as compared to buying. They are also coordinated across a variety of related products including mining stocks etc. which are likely used to hedge losses on the futures contracts.
One possible explanation for this unusual volatility is here: Portrait of Desperation, and I suggest that you take a minute to look at it.
I think the Comex dealer inventory chart is telling, and while it might be resolved through procurement of a large, unallocated inflow of silver, I am at a loss to find out where that might originate, unless it is from the market itself, which would seem to demand higher, not lower prices, despite all the jawboning and spin from the Wall Street demimonde. The western governments, central banks, and IMF have long ago exhausted their strategic supplies of silver, so the bullion banks cannot effectively turn to them for direct relief as they have done over the past ten years in the case of gold.
Obviously there are other explanations. But a short squeeze being conducted not by one or two big players who can be dealt with by the exchange, but by a global market acting independently and almost en masse seems to satisfy Occam's Razor, at least in my mind.
In this case the market corner by a few traders has been on the short side, which is what went parabolic first, in both the futures and the derivatives markets. And it appears to be largely held by two big banks.
The big players are eating that short position in stages while they scramble to hold the markets under some measure of control. I agree with those who say that this will end badly.
As someone who watches the markets daily, and for many years, I cannot help but feel that after all this, after the financial collapse and all the related frauds and deceptions in mortgages and CDS, that we have ultimately learned nothing.
Could the precious metals market and the Comex be placed at risk by a few large financial institutions that in their hubris engaged in over-leveraged but highly profitable trades that placed them at excessive risk, and by extension risked the financial system?
How many times can one be surprised by the disclosure of an outrageous and pervasive fraud before they might wish to start questioning their basic assumptions about how things really work?
But at the end of the day in the short term silver had gotten ahead of itself, and it is now correcting and consolidating its gains as I had mentioned it would. And the new holders of futures contracts from the option expiration will be tried, and after this silver will be held in strong hands.
And in the background, gold grinds steadily higher to our objective of 1590.
