Tuesday, March 22, 2011


Silver and Gold gapped higher out of their respective developing Flag Patterns Sunday night/Monday morning.  These gaps out of such a pattern would normally be considered supreme signs of bullishness, however, because they came as a result of the "UN" bombing of Libya over the weekend they should be viewed with a bit of caution.  If prices do not follow thru and continue higher on these gaps, then we can chalk them up to "emotional response" and focus on a retest of the breakouts to either confirm them, or deny them.

The US Dollar, precisely at 8AM est this morning, is attempting to rise from the ashes and depths of recent despair.  The Dollar Bears are piling on now and this should give Dollar Bulls an opportunity to "buy low".  It is highly unlikely that the US Dollar is going to "collapse" anytime soon.  Well, it could, of course, but it just doesn't seem likely with a G7 coordinated Yen intervention in the works.  This Yen intervention by the Worlds most pathetic central banks is going to last more than just last Thursday' St. Patty's Day bump.  The Japanese want the Yen back up to around 85/86 on the JPY/USD cross, and it's sitting around 80 right now.

Yes, yes...the Dollar has fallen on it's face amidst all this global turmoil.  But you can blame Bumbling Ben Bernanke for that.  Nobody in the world wants to see the Dollar collapse here, so it is highly likely that something will be "coordinated" to prevent that.  The powers that be are interested in a "managed decent" in the Dollar, not an outright collapse.  It is noteworthy that Jim Rodgers, noted US Dollar Bear, is considering buying the Dollar here at these depths...but with caution:

Internationally renowned investor Jim Rogers told "Breakout" hosts Matt Nesto and Jeff Macke that he's considering buying the U.S. dollar now, but with a catch.

"We're at a moment of truth for the dollar," he says.

Rogers, who is currently long the yen, notes that the dollar has been declining despite events that would normally trigger a global flight to safety.

He says that if the dollar holds here it could rally as much as 20%, but "if it goes down 3% or 4% from here, I would have to sell and get out and hope I'm still solvent."

The Euro is breaking down from a Bearish Rising Wedge on it's daily chart this morning after EU finance ministers unveiled their latest debt fighting strategy yesterday.  It is noteworthy that the Euro yesterday rose back to the early November closing high of 1.422.  This might be significant because from this level last November, the Euro collapsed by 18% over the next 2 1/2 weeks.  A dump in the Euro from this level again would certainly bolster any rally the US Dollar might be "planning".

I am a die hard Precious Metals Bull, but at times even the most stubborn bull must respect the possibility that his market may be getting tired in the "near-term".  I have been cautious about the Silver market since the week leading up to it's recent high of $36.73.  In spite of all the "supportive" geopolitical turmoil in the world today, I am still cautious on Silver here.

The Silver Bulls are salivating right now, and this concerns me.  The Bull's side of the boat is getting too full, and when that happens it is more than likely to tip over.  Is this the "top" in the Silver market?  Absolutely NOT.  Is this a point where the Bulls need to pause, rest and recharge?  Quite possibly.  If not at this point here and now, I suspect soon enough we will see a reaction lower in Silver and the Precious Metals.  Particularly if the US Dollar can mount a rally out of the hole it finds itself in right now.

Much has been written on the Internet recently about the delivery issues surrounding the March futures contract.  It can not be denied that deliveries for this month are far behind where they should be, much like in December 2010 when stories of a CRIMEX default were rampant as I can personally attest.  But if there is really a critical shortage of physical Silver to meet delivery demand, why have lease rates on the metal remained so low throughout the month?

Low lease rates typically signify high liquidity in the market.  High lease rates therefore signify low liquidity in the market.  Lease rates for Silver have fallen throughout the month as Silver has traded in a three Dollar range between $33.75 and $36.75 the past three weeks.  IF there is a shortage of physical Silver, it has not been confirmed by rising lease rates.  You can see Silver's lease rates here.

Jeff Snider, Atlantic Capital Management, commented in a piece he wrote Friday about the perceived physical shortage of Silver and it's lease rates:

We have been watching the price action for silver as it has related to demands for the physical metal in the futures market (see our article from February 24). The delivery month of March saw fewer contracts stand for delivery than did December (although fewer cash settlements thus far), but the lack of actual deliveries so far into the month continues to point to a lack of available metal.

According to available figures from the Comex, there were funds deposited at the February notice dateequal to demand for physical delivery of about 9.5 million ounces of silver. That is not a massive withdrawal demand for an exchange that shows dealer inventory around 100 million ounces. Yet, as of March 17 only half of that demand has actually been fulfilled (futures contracts specify that delivery is contractually obligated to occur before the end of the month).

If there is not enough available metal it seems that sellers would be forced to lease physical silver to satisfy demand. But we have seen lease rates decline modestly throughout the month (after moving sharply higher in February). This means that there may be a potential jump in leasing rates as the month end draws closer, which would confirm the lack of available metal.

The spot price of silver seems to have found a floor at $34 per ounce despite all the liquidity unwinding related to the yen. This is also a sign of tight physical markets since investors on the long side refused to give up their positions in the face of both uncertainty and heavy volatility.

Low lease rates, and a lack of demand to borrow Silver can also be interpreted as a sign that shorting of the commodity's price has dwindled.  A capitulation by the shorts?  This would be very bullish indeed.  But it would also require one to "trust" the goons on the CRIMEX.  Earlier this month, Ted Butler confirmed JP Morgan increased their Silver short position by 6000 contracts in February.  That doesn't look like capitulation to me.  It looks as though JP Morgan may be loading for Bear.

JP Morgan has a vested interest in keeping Silver prices below $36 an ounce.  Any substantial rise in price above this point would potentially cost JP Morgan BILLIONS of Dollars, and possibly put the banks solvency at risk.  We learned this about JP Morgan last November when Wynter Benton's Friends Of Andrew McGuire were attempting their December delivery assault on the CRIMEX:

"WB: JPM is in worse shape then we ever dared to hope 20-Nov-10 07:06 am

This is what I am now hearing from traders on the floor. These traders are not even sure if Blythe knows the full extent of JPM's silver exposure.

When I first started to realize that JPM has shorted far more silver than they could ever hope to cover, my first question was "why would they do that?" Not only that, why do it with a commodity where you must report your positions through the COT and Bank Participation Report? After all,the whole world can see what you are doing. [my added comment: Ted Butler included!]

Now I know the answer. According to Max Keiser and now a couple of other independent sources, it seems the reasons why first Bear Stearns and now JPM are so desperate to manipulate the price of silver down is due to the fact that BS and JPM shorted billions (yes billions not millions) in ounces of silver through their derivatives.

Just like Joe Conason at AIG, silver shorting through derivatives have caused literally billions in losses not the millions that we know about publicly. That is why JPM has been so desperate to manipulate the price of silver downward so blatantly. If I am right about this, then JPM will be dead when silver hits $60 or so. Based upon the COT and BPR, if silver hits $60, JPM will lose around an additional $6 billion dollars, a large number but not nearly large enough to bring down mighty JPM.

But what is not known is that due to the way that its derivatives are written, JPM's losses are exponentional once silver breaks $36 or so. Rumors has it that JPM could be losing as much as $40 billion once silver is above $50. It has something to do with how the derivatives are written with payment tied to the price of silver.

Since JPM was a price manipulator with respectt to the price of silver, JPM assumed that any derivative payments tied to silver would be less than they would be tied to some other index like the CPI or TIPS implied inflation index. JPM's inability to hold down the price of silver relative to other measures of inflation will cause unbelievable losses due to a mismatch in their derivative structures.

In essence,JPM has bet (a huge amount)through derivatives that silver will never outperform inflation. And why not,since JPM assumed that it will always be able to manipulate the price of silver. We have now come to understand that JPM's loss exposure to silver is much greater than we have ever dared to hope.

WB: In an effort to clear up some recent confusion regarding my latest posting, I will try to explain what I have recently uncovered.

JPM's current short silver position is estimated to be approximately 150 million ounces down from the recent 180 million ounces in August. The losses from these positions are easy to figure out. For every $10 rise in the price of silver, JPM will lose $1.5 billion. But what I have recently discovered is that through its derivative positions, JPM will lose about 5 times that amount ounce the price of silver is above $36. And ounce silver is above $45 dollars, JPM's losses will increase to 8 times the amount of losses in their short positions. The reason is that as the price of silver increases, certain provisions get activated which multiplies the losses.

One reader asks the question why isnt the price of JPM going down to reflect the lossesd in silver. My answer is that the price of silver is not high enough to begin to trigger losses in their derivative positions. But once silver approaches this critical level say around $36, then you should begin to see the price of JPM stock begin to reflect these losses.

In fact, traders are saying that once the price of silver surpasses the stock price of JPM, then for every dollar the price of silver go up, JPM should lose around 70 cents or so. This means that if silver hits $60, JPM will be a single digit stock.

JPM market cap is around $170 billion. If silver losses are as great as $40 billion in cash , then JPM will be insolvent. Period.

From your former traders (whom you dismissed so callously)"

And we wonder why Silver has been engaged in battle here at $36 an ounce since March 6th when it rose overnight to $36.73 an ounce to the complete dismay of JP Morgan and their banking goons at the CRIMEX.

Despite Silver's Bullish move here, I must remain cautious.  With Silver's rise back to it's recently broken uptrend line, a Bull Trap may may be setting up for the Bears to attack.

Traders, proceed with caution.

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