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Silver was hit harder as the US equities fell, and gold maintained some resilience.
The intraday moves had the character of bear raids and sharp selling in size, rather than steady liquidation.
Notice that the dollar too was weaker today, although it remains in a short term uptrend.
The number of contracts standing for May delivery of silver ROSE today according to Harvey Organ. The Comex delivered no actual silver, but the trading desks offered plenty of paper, as overall open interest rose again.
Someone asked me what it might be like if the Comex was unable to meet its deliveries, and there was a cascading effect to the metals encumbered by counterparty risk in the two big ETFs, if they were hit by a wave of redemptions as large shareholders sought to lock in supply.
I did not see their scenario of multiple days of up limits until the market clears, simply because it seems to be a few large members important to the exchange who seem to be 'holding the bag' in this case. Market solutions are for the little people and relative outsiders like the Hunt Brothers.
Rather, I would anticipate a declaration of force majeure, and a forced settlement in cash and shares of SLV, which themselves are probably representations of bullion rather than the metal itself. I do not know what the rationale for this might be, and it is not quite clear to me that they would even need one except for cosmetic purposes.
When you have power and have learned to use it with ruthless hypocrisy, the only thing you need to respond to is a greater force of power that calls you to accounts. This is one of the great lessons from the recent financial crisis. When the government and the regulators do not uphold their responsibilities, fraud becomes fashionable.
The Comex has about 32 million ounces of deliverable silver on their books, and they are dragging out the delivery process each month, as virtually no new inventory becomes available to replenish their supply.
I was a little shocked that the parabolic rise in price and the subsequent calculated smackdown in conjunction with the increased margin requirements shook no new significant inventory loose for the dealers, only more paper profits. Customer withdrawals continue as well, with almost 3.5 million ounces leaving this month.
However it transpires, if it does, it will be memorable. I am looking at the supply and demand as the numbers are published, and not at anything esoteric or private. So I would imagine that the CFTC and the least sophisticated traders in the market can see the same things unfolding. I hear things from time to time about back room discussions about the resolution of all this, and have to work to separate them from the tide disinformation, of which there is quite a bit more than you might imagine. People are very concerned about a potential shock to the credibility of the system. Of course, they may be utterly out of touch with current reality. Trust is in short supply, and the natives are growing restless.
Rumours, and disparaging talk, and theoretical discussions are well and good, but as they say, show me the money, or in this case, the bullion.
Where is it, how much of there is it, and what are they going to do when and if the supply of silver bullion drops below 30 million ounces deliverable, which is really a pittance given the size of the market? A silver futures contract on Comex is 5,000 ounces, and so that represents a mere 6,000 contracts. There are a total of 123,000 contracts open today. Last Friday the volume was an eye popping 126,000 contracts! This at times seems less a market, and more a game of musical chairs, or a shell game. And if the allegations are true about the LBMA, and their leverage, then what we have here may be a recipe for a severe market dislocation.
And this is why I expect the silver market to remain highly volatile, with some amazing moves ahead, both up and down. And stretchers perhaps, to carry out some players from the pits, as they get caught offside in high frequency moves, and an increasingly disorderly trade. And this due to the failure to reform the financial system.
And for us, the smaller investors, caution is advised.
Another weak day on stocks.
They are pressing on the pivots, wherein this starts changing from a correction to a new downtrend.
The techs were leading the way down today, followed by consumer discretionaries.
The markets were shocked a bit today by the startling events in NYC, as IMF chief Dominique Strauss-Kahn was arrested on very serious sexual assault charges. DSK was one of the leading candidates for French political office, and was in the midst of critical meetings at the IMF on global currency and European solvency issues.
Strauss-Kahn's position at the IMF will be filled for the time being by John Lipsky.
John Lipsky assumed the position of First Deputy Managing Director of the International Monetary Fund on September 1, 2006. Before coming to the Fund, Mr. Lipsky was Vice Chairman of the JPMorgan Investment Bank. Previously, Mr. Lipsky served as JPMorgan's Chief Economist, and as Chase Manhattan Bank's Chief Economist and Director of Research. He served as Chief Economist of Salomon Brothers, Inc. from 1992 until 1997. From 1989 to 1992, Mr. Lipsky was based in London, where he directed Salomon Brothers' European Economic and Market Analysis Group.
Here is some general knowledge on Fibonacci Retracements
The placement of the pattern on the chart is given to some subjectivity. I prefer to do it according to the patterns I am attempting to analyze. Obvoiusly there are other ways of doing it.
This is by way of saying that these are my own calculations. There are others.
The Anglo-American banking cartel will resist change with increasing determination, and at times bitter opposition.
It is easy to be misled by short term trending in money supply charts, especially those showing year over year growth as a percentage. Money supply changes are seasonal and often very volatile, but nevermoreso during a credit collapse and quantitative easing.
A look at the longer term trends is most useful. And if necessary a review of Money Supply: A Primer.
The last chart is an index where 100 equals the M2 supply around the end of 2007, and the onset of the credit crisis. Since then it has grown almost twenty percent.
Has GDP or the population grown 20 percent? So money per capita or per unit of productive effort is growing. All one has to do is look at some reality based metric of money supply growth and negative real interest rates to understand the ten year bull market in gold and silver, and commodities in terms of US dollars.
I understand people like to look at the various independent M3 estimates, but since the Fed no longer reports Eurodollars I have not seen what I could consider a credible recent estimate. And I doubt VERY much that M3 is underrunning M2 given the dollars that the Fed has been spreading around the world's banks.
Can the Fed keep this QE up? Will deflation set in, finally? It is a policy decision in a purely fiat currency. That could change, and I will know what to look for when it does. The Fed could be subjected to some external force, either from foreign creditors or domestic politics. I expect that foreign shock to be inflationary rather than deflationary however. As for the domestic forces, a choice for third world status is always an option.
The top five percent of Americans hold by far most of the country's wealth. And deflation may be in their short term interests, as in the case in the UK which seems to be going down that path. These policy decisions bring up a different set of considerations, many of which will stress the social fabric to the breaking point. But a people grown coarse by war and ideology have done much odder things before.
But for now the trend has not changed, and it would probably take a global economic collapse to change it. That is possible. And in such an event everything will get sold, for a time, as they were in the market crash of 2008.
Those who have been betting on deflation for the past five or ten years have been wrong. They could be right some time in the future. But one can be wrong on a mistaken principle for a very long, long time.
US Bonds have been in a long term disinflationary rally. There seem to be a number of 'name' people now looking for a trend change. That is the crux of Bernanke's short term focus, and the target of QE^n.
