Tuesday, June 26, 2007


Foaming at the mouth and spitting four letter words like a wood chipper, I have but one word to say that I think all who are reading this can agree on: CRIMINAL.

I posted yesterdays charts for a reason. You could almost smell this BS coming... Look closely at both charts. Trace back along the 65 week moving average to the last time both Silver and Gold breached this line to the downside. The summer of 2005. Both briefly breached their respective 65 week moving averages and then launched colossal run-ups. Ted Butler alludes to this in his post today commenting on today's mugging. His observations and insight, as always, are on the money imo.

The current sell-off in silver and gold is a result of tech fund and other speculative selling (both long liquidation and new short selling) and dealer buying (T. rex short covering and raptor long accumulation). In addition, the sharp decline in silver today can also be traced to a large number of put options that suddenly went into the money on today’s option expiration. Bullish silver investors who sold these puts undoubtedly found themselves in sudden loss situation and had to take the only corrective action they could take to protect themselves, namely, sell silver futures. This was not accidental, but a designed strategy by the dealers. The dealers, large and small, can buy on the way down because they are disciplined and collusive, and are keenly aware of how the markets work. The tech funds and leveraged speculators are not. The current sell-off will end when the last tech fund and speculator sells.

My sense is that we must be close to that point, especially with today’s option expiration. In fact, it feels like the dealers are almost wringing blood from a stone, trying to uncover and engineer the very last sell contract from the non-commercials and non-reporting traders on the COMEX. These dealers seem to be using every trick in the book, including using the overnight markets to their advantage. This engineering has taken on the aura of the last big clean out before the real move up.

It is always important to know, in a broad perspective, the general nature of what you are studying. The recent sell-offs in gold and silver have nothing to do with real fundamentals like supply and demand, and everything to do with dealers’ activities on the COMEX. The most appropriate term to describe this activity is manipulation, because the paper trade is dictating the world price of gold and silver. This is against the law, but that matters little if the regulators won’t enforce the law. The good news is that the market structure only improves on these sell-offs, while the bad news is that it necessarily involves interim pain.

Of course, knowing why and what the sell-off is about can’t tell you precisely how much may be left, so you must govern yourself accordingly. Are the metals a great buy here? Absolutely. Should you buy them on such an extremely leveraged basis that you could lose your position on lower prices? Absolutely not.

One last point. Today’s sell-off was particularly offensive in that there were no outside influences to explain it. It was all COMEX and option expiration related. This is like a mugging in broad daylight with the police just watching. Forgetting the police (the regulators), perhaps even worse is that anyone who follows the market should be aware of what happened. To remain quiet and say nothing and pretend no crime has taken place is morally offensive. If you are a letter writer or advisor, you should speak up. The free market is at risk.

Gold showed bullish divergence in it's RSI this afternoon as price made a new low but RSI made a higher low on the hourly chart. 648 is our immediate target. We must ascend to and surpass this number in short order to deter further criminal activity against us.

If you sold your silver today in a panic...I hope you have the good sense to take your money and leave...never to return! Silver has significant repair to do compared to Gold. If you feel like you have been raped, you should...because you have. Silver has fallen all the way back to test it's January lows. Today's mega dump was unusual in that it came following a "downtrend" ...most often when Silver endures an episode like today's it is following an "uptrend". Perhaps as Ted Butler speculates above "this is the last big clean out". A move back to and through 12.65 is imperative. It is tempting to add to positions here, but prudence dictates waiting for a close back above 12.65 .

And if Oil's hokey Crude Invetory numbers don't show a rise tomorrow? Who cares! Oil will be at or near $80 a barrel by Labor Day.

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