Tuesday, April 14, 2009

Silver: Picture Perfect

Silver, what a pretty picture. This daily chart of Silver is an almost picture perfect Cup with Handle consolidation base. The 14.62 high at the end of February forms the right side of the "cup". The shallow reaction in price off the 14.62 high forms the handle.

Technically, Silver is charged up for a breakout to the upside. The Cup with Handle base sets the stage. RSI is at it's downtrend line, and a break of the RSI downtrend should signal an imminent break of the recent downtrend in price off the 14.62 high. Stochastic had a bullish crossover on Monday. MACD has a bullish posture, and should crossover on a break of the RSI downtrend. A tightening of the 4 key daily moving averages is very bullish. A crossover of the 20 day by the 10 day should ignite the next big rally in Silver.

Once again ignoring the games played on the CRIMEX, Silver is poised here for a very real shot at the 15s by Memorial Day. It's fate rests with the equity markets. A break of the cup at 14.62 could set in motion a series of technical events that propel Silver towards 20 by August 2009.

Stocks up, Dollar down, Gold and Silver up.

Stocks down, Dollar up, Gold and Silver down.

Accumulate silver soon: Got Gold Report
Largest silver players positioning for tight supplies
By Gene Arensberg
While each investor really must examine his/her own circumstances carefully, study the issues and make their own investment decisions, it is this report’s strong recommendation that any significant to strong dips for silver should be accumulated opportunistically. That includes both physical silver metal (as long as one can find it with reasonable premiums) and silver ETFs provided one does not use leverage.

All the signs this report follows closely suggest strongly that the chances for an important and historic supply squeeze for physical silver metal developing have increased materially. We cannot know yet if general knowledge of that supply shortage will surface right away or if it will take yet more time to become acute enough to make into the mainstream press, but it sure does look like it is coming and we want to be there for it – in size – when it arrives.

According to the Commodities Futures Trading Commission (CFTC) Bank Participation in Futures and Options Report, as of Tuesday, April 7, with silver trading at $12.27, two large U.S. banks held zero contracts long and 28,492 contracts short silver on the COMEX, division of NYMEX in New York. Obviously that is a net short position for the two banks of 28,492 contracts. A holder of a short position profits if prices fall.

As mentioned just above, all COMEX commercial traders as a group – all of them – held a collective net short position of 29,581 contracts. So, the two U.S. banks’ net short position represents fully 96% of all the commercial net short positioning for silver on the COMEX.

Regardless of whether or not the net short positioning of the U.S. banks represents “legitimate hedging” of corresponding long positions in other markets, as some analysts and the CFTC have argued, it is abundantly clear that these two banks dominate the COMEX silver market from a short point of view. A position capturing 96% of all the action on one side of a market as small as the COMEX silver market is, by definition, an extremely concentrated position.

The fact that the banks held only short positions and no long positions at all argues against the position being the collective action of multiple clients of the banks. The one-way trade on the COMEX also suggests that the banks have a considerable vested interest in silver trading in one direction – down.

Notice, however, that the last time that the two U.S. banks held so much of the net short positioning was in December 2008, with silver then trading at $9.57 the ounce. The banks then held 98.6% of all the commercial net short positioning on the COMEX. Silver went on to test as much as 50% higher to the $14.60s since then.

The enormously concentrated short positioning of the two large U.S. banks may not be sinister at all. It may be the result of “legitimate hedging” as we have been led to believe. Indeed, we have seen the price of silver advance in the past while the banks held such overwhelmingly large, one-sided short positions that would obviously have benefited from lower silver prices – even recently. Yes, even though the bank’s net short positioning appears sinister, it could possibly be benign, but to many analysts it just plain smells of rotten eggs served with anchovies.

So long as the regulators at the CFTC and the SEC continue to allow the banks to accumulate overwhelmingly large one-sided positioning on the short side (and to go unexplained) it will remain grist for the mills of the conspiracy-minded among us. That is a shame, because otherwise bright and sensible investors may end up avoiding the silver game entirely on the basis of conspiracy-minded complaints, concluding that the silver game is “rigged,” or something along those lines.

Please don’t allow the “silver-market-is-rigged” argument any sway at all. Even if the market is manipulated downward over the short term, this report contends that no one can manipulate the price of any commodity permanently, period. No one has the power to consistently disrupt or usurp the laws of supply and demand for a globally-traded commodity over time. Over time silver will relentlessly seek its own supply/demand/liquidity equilibrium no matter if there really is manipulation or if there really isn’t.

If the coming supply squeeze for silver is as real as it currently appears to be, it just doesn’t matter if the silver market is currently being stepped on by a couple of arrogant bullion-trading banks. At worst manipulation, if there really is any, just means a near term delay in silver prices assuming reality price wise. At best a continuation of artificially low silver prices just adds to the bullish “fuel” silver will have as increased demand meets diminished supply and that issue makes it to the mainstream press.

Either way, with silver prices at historically low levels relative to gold, investors have a “golden opportunity” with silver as long as the gold:silver ratio remains above 70 and as long as investment demand continues to outstrip the current decline in industrial demand.

What we are witnessing now, I believe, is a condition where longer-term investors are assuming that investment demand will continue to rise even when industrial demand picks back up not all that far into the future. That’s a potent recipe for silver, especially since silver production is set to plunge in at least the coming two quarters by most all accounts.

With the silver futures contango as flat as a slate pool table, rapidly dropping silver inventories at the COMEX, with the COMEX commercials apparently in a hurry to reduce their net short positioning and with extremely high premiums and spotty availability for retail physical silver products, we have to give silver a more bullish bias going forward. http://www.stockhouse.com/Columnists/2009/April/13/Accumulate-silver-soon--Got-Gold-Report

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