Wednesday, April 27, 2011

The Silver Streak

No QE3 Right - So Why Did The USD Just Hit A New Cyclical Low? Citi Explains Why
If you are confused why at one point every word the Chairman said was the equivalent of one pip lower for the DXY and 10 cents higher for gold, wonder no more. Here is Citi's Steven Englander asking, and explaining why the USD just hit a new cyclical low.

From Citi's Steven Englander

Asset markets pretty much liked the FOMC statement and really liked the press conference, but that's not the same thing as liking the USD...The question is what surprised the market to such a degree that the USD basically hit new cyclical lows.

This might explain some of the recent "exuberance" in the Silver also might serve as a warning.

Silver Rush Spreads to Stock Market

by Tom Lauricella and Carolyn Cui
The mania for silver has spread to the stock market as day traders pile into the buying.

Trading got so heated during the past two days that shares traded in the iShares Silver Trust, the biggest exchange-traded fund tracking the price of silver, topped that of the SPDR S&P 500 ETF, usually one of the most actively traded securities in the world.

Day traders "are going crazy," says Joseph Saluzzi, co-head of trading at brokerage firm Themis Trading. "It's typical of the bubbly speculation that's been going on in silver."

Tuesday, April 26, 2011

Bumbling Ben Bernanke Steps Up To The Microphone

Following Wednesday's FOMC statement at 12:30PM est, the Captain of the US Sinking Dollar will meet the press for a live chat on the Fed's monetary policy.  Ben is scheduled to appear before the microphones at 2:15PM est.  His chat with financial reporters should score higher in the ratings than this weekends Royal Wedding.  Odd that Ben is going to wait one hour and forty-five minutes before taking questions about the latest monetary drivel from his FOMC meeting...

Listening closely to what Bumbling Ben has to say about monetary policy going forward from today will be key:

Bernanke's Code: a Guide to Fed Chairman's First Q&A
When Federal Reserve Chairman Ben Bernanke makes his debut press conference Wednesday, his every word will be parsed for signs of where he hopes to take U.S. monetary policy.

Specifically, many people want to know when the central bank will begin raising interest rates, and when it will begin off-loading some assets, including Treasurys and its multitrillion-dollar cache of mortgages.

As Mr. Bernanke touches on topics familiar to Fed-watchers, he will use seemingly ordinary words or phrases that are freighted with important economic messages in the world of the Fed. A few examples:

I suggest listening intently should the issue of "rolling over principle payments on maturing debt, to purchase new debt":

Bernanke May Reinvest Maturing Debt to Avoid ‘Cold Turkey’ End to Stimulus
Federal Reserve Chairman Ben S. Bernanke may keep reinvesting maturing debt into Treasuries to maintain record stimulus even after making good on a pledge to complete $600 billion in bond purchases by the end of June.

Ben has been doing this since August 2010.  It's a kind of QE-lite.  Continuing to "reinvest" maturing debt allows him to keep buying US Tresury debt, but without "creating money out of thin air".

What to Expect from the FOMC Tomorrow and Going Forward

OptionsFor Battling Inflation That Are Not Raising the Federal Funds Rate

1. The Fed could raise the rate it charges banks for emergency loans. That rate, called the discount rate, is at 0.75%. It won't impact consumers and businesses but it does signal to banks and other financial institutions that the Fed may move its federal funds rate soon as well. 2. The Fed can raise the interest rate it pays banks on money they leave at the central bank, or their "excess reserves". This would tighten credit as it encourages banks to keep their money at the Fed rather than lend it out. Therefore, this step would raise rates tied to commercial banks' prime rate and affect many consumer loans. Currently this rate is at 0.25%. The Fed has put some importance on the use of this tool in order to battle inflation. The NY Fed's Dudley, a leading member of thee FOMC, has touted it. From Bloomberg: "Congress granted the Fed this ability in 2008, and Chairman Ben S. Bernanke, Vice Chairman Janet Yellen and New York Fed President William Dudley have all cited it as a main reason why they'll be able to keep the U.S. economy from overheating after pumping record amounts of cash into the financial system.The amount of excess reserves climbed to $1.47 trillion this month from $991 billion at year-end and $2.2 billion at the start of 2007, Fed data show.

This would be the FIRST step in signaling that the Fed may be thinking about raising interest rates.  Ben would be wise to dodge this question.  If his answer is "misinterpretted" the equity markets will get spooked by the "threat of rising interest rates" and head south, the Dollar would rise from the dustbin, and commodities would get whacked.  IMO, this is the single biggest issue to listen for during this press conference.

No point in speculating further on what Bumbling ben might treat us to tomorrow.  You can be certain that a lot of what slips from this man's jaw tomorrow, in front of the whole world no less, will be pure BS.  It should be entertaining.  A Dollar rally is expected by many.  I expect a dead cat bounce at best, but then cats do have nine lives...

What Goldman Expects From Tomorrow's "Watershed" FOMC Press Conference

From Goldman's Andrew Tilton: A summary of tomorrow's events

Here is some incendiary insight into the Silver market:

Short Sellers Now Screaming About a Buy Side Silver Conspiracy
By Avery Goodman
Had the worldwide silver scam remained a secret, suppression of precious metals prices might have gone on forever. But the genie is now out of the bottle and mortal men, not even those who run casino-banks, cannot hope to put him back in. Once it became clear that the bullion banks were leveraged 100 to 1 in a silver based fractional banking scheme, it was only a matter of time before the market clobbered them. That is what is happening.

People have only begun to scratch the surface of the precious metals markets, and few fully understand how undervalued all of them are. Silver has always been worth far more than it had been selling for in the last 30 years. People are starting to see not only this, but also how that corrupt pricing situation came to pass. The whole world now understands that the silver trade has been carried out in a deceitful manner for many years. So, naturally, many people are starting to buy physical silver again, just as they did for 10,000 years before COMEX began trading it. Those people happen to include, in all likelihood, a few billionaires, a few sovereign wealth funds, and a few Asian bankers. Many are politely refusing offers of "unallocated" bullion bank "storage".

The silver market is not rising because of a conspiracy. If so, it would be the most disorganized conspiracy that has ever existed. On the contrary. What we are seeing is the massive unwinding of a silver price control conspiracy that many of us predicted, in public or private for many years. The biggest scam in world history is ending. Sellers are now desperately trying to find metal. A lot of banks that were supposed to be storing silver are really storing air. Converting large amounts of air to large amounts of silver is difficult and bound to be costly. The process, once completed, will permanently increase the price of silver.

Intense upward pressure on silver prices is evident because physical silver is being purchased as never before. It is not stemming from trading on COMEX. In fact, deliveries at COMEX have been relatively small for several months. The process that is now ongoing is one that no performance bond committee can stop. COMEX could declare liquidation-only, as they did in 1980. The only end result would be to catapult the demand for and price of silver even higher. COMEX is now irrelevant except as a way for banks to bankrupt themselves if they continue to try to reduce the price of physical silver by manipulating futures prices there and taking on more short positions to do it. They can crash the paper futures price as much as they wish. It won't stop buyers from demanding physical silver in the real market outside COMEX.

The old prices were a result of a naive market, overwhelming short positions at the futures exchanges, manipulative trading techniques and a deceitful unallocated storage arrangement. The current silver pricing surge may look like a typical short squeeze, but it is nothing of the kind. It represents a permanent change in market perceptions. That is not to say that silver prices cannot fall, but the pressure to buy physical silver will continue to mount. When silver prices finally reach equilibrium, $50 per ounce might be the floor, rather than the ceiling. We don't know how high the price will climb under these circumstances.

One thing is clear. Buyers have discovered that they hold the power to defeat the largest financial firms in the world at their own game. But they still don't recognize the extent of their victory. Silver is the beginning, not the end. It is only one of the precious metals, but not the only one. The same unethical practices have been used for years to suppress the price of gold and platinum, for example. Both metals have been traded in a naive market, with overwhelming short positions at the futures exchanges, manipulative trading techniques and deceitful "unallocated" storage arrangements. There is no fundamental difference except that the metals have different names and appear at different locations on the periodic table.

And here is some truth about the US Treasury market:

Pimco's Observations As The US "Reaches The Keynesian Endpoint" - The QE2 Ponzi Scheme Is "Nothing But A Profit Illusion"
Once again, it is the world's biggest bond manager which either is really tempting fate by telling the truth in an increasingly more aggressive manner day after day, or is engaging in the most acute case of reverse psychology ever seen, coming out with the most critical opinion of the Fed's actions on the verge of the Fed's historic first press conference. And this one is truly a stunner, far more real than anything even Bill Gross has said in the past: "Just as Charles Ponzi needed donuts to turn back a suspicious crowd of investors, the Fed needs “donuts” in order to fill the bellies of the literally millions of investors worldwide who worry about the alarmingly large U.S. budget deficit and the impact that the U.S. debt dilemma could have on their Treasury holdings...Their collective buying has created what we believe to be a profit illusion with many investors mistakenly believing they can continuously reap profits from perpetually falling bond yields and rising bond prices, just as they have had opportunity to do over the past 30 years, amid the great secular bull market for Treasuries and the bond market more generally...For many reasons, this “duration tailwind” for Treasuries can’t last, particularly because the United States has reached the Keynesian Endpoint, where the last balance sheet has been tapped."Must read

Summary of "The End of QEII: It’s Time to Make the Donuts"

Silver and Gold...the TRUTH shall set you free...

With the Dollar looking more and more like a leper by the hour, the CRIMEX charade to reign in the Precious Metals is in full throttle.  The goons were unable to bring Silver down to it's over night low of $44.62, but a gallant effort has been mustered so far this morning at 10AM and Noon est.  The goons were very successful in whacking Gold down to $1492 at 10AM for the London Gold Fix, taking out the overnight low of $1494.

How much yesterdays margin increase has affected the markets is uncertain, but it definitely played into the crooked bankers hands.  Options on Gold and Silver Futures expire today.  Price take downs are standard operating procedure at these times in these markets.  Since tomorrow is the last day for options all holders that stand will receive a futures contract in silver.  In gold they also receive a futures contract but because May is not a delivery month, the investors that stand always seek physical metal.  Traders can either sell their contract by Friday, OR STAND FOR DELIVERY.  The goons are trying to flush out as many longs as they can to lessen the delivery demands for May Silver...therefore the charade of falling prices in the face of a crumbling US Dollar.

We must remain wary though with tomorrow's FOMC announcement and Bumbling Ben's "live chat" that follows.  With this much pressure on the US Dollar here and now, and the Precious Metals looking to explode, been may have to make his decision immediately to either save the Dollar and the bond markets, or toss them both to the wind and charge full steam ahead with his financial assets appreciation plan.  It's called "a rock and a hard place"...and Bumbling Ben has himself pinned here.  Save the Dollar, and the stock and commodity marks suffer a blow.  Cast off the Dollar and the bond market collapses along with the to big to fail banks.  Either way, you, me, and the next two generations are screwed. 

Silver and Gold...the TRUTH shall set you free...

Monday, April 25, 2011

CRIMEX Defends $50 Silver

Regarding margin hikes on Silver futures positions today:

This morning we saw this -

Rein In Rampant Speculation Or Face The Black Silver Swan
Dian L. Chu, EconMatters
The easiest way for the CME to lessen the probability of an epic crash in the Silver market, and the subsequent public and regulatory inquisitions, would be to raise margin requirements by at least 30%, as the starting point.

Actually, the CME could be a little late based upon the manner in which silver speculation has gone bizzerk, especially over the last trading week--the market has simply become parabolic. The CME could have raised margin requirements once Silver broke $40 an ounce, and without a doubt they should have raised margin requirements on the 14th of April, before this latest 12% weekly move.

The longer the CME fails to address the problems in the Silver market to rein in excessive speculation, the more risk there is of an extreme market crash. Just as I said before--"The white metal appears overbought and could be heading towards a bubble stage," and without QE2, that bubble would have formed and burst by now.

This afternoon we saw this -

Silver Margin Hikes Begin... And Nobody Notices

by Tyler Durden, ZeroHedge
As expected, the Shanghai Gold Exchange just announced it had raised the level of deposit required for its silver forward contract by 3 percent and may roll out further measures to curb excessive speculation and manage price volatility. According to the SGE, margins on its silver [Ag (T+D)] forward contract would be raised to 15 percent from April 25 compared with the previous 12 percent, according to a notice posted on its website. Silver did not even pretend to react on the news.

Then this evening we saw this -

CME Lifts Gold, Silver Margins by 50%
CME Group announced yet another series of margin requirement increases for gold and silver futures contracts.

Effective after the close of business today, initial and maintenance margin requirements on gold and silver will increase 50%, according to CME Group. CME is the owner and operator of the New York Mercantile Exchange and Commodity Exchange (COMEX), on which precious metals futures contracts are traded.

Today’s announcement follows several margin increases over the past year, as the exchange seeks to limit speculation as precious metals continue to surge higher.

Silver!  No market is more volatile.  No market is more crazy.

Talk of Silver Bubble Is 'Silly,' It's Tied to Declining Dollar, Other Currencies
By JS Kim
While it is true that silver will pull back and consolidate after an enormous run higher (a mind-boggling 162% since the end of last August!) at some point probably in the not-so-distant future, and while it is true that silver will likely experience some very volatile dips to the downside as well this year, the next significant dip in the price of silver will not mean that the silver bubble is bursting as the disinformation bots in the media will assuredly report when it happens. In fact, I expect the silver bears to proclaim this recent huge move as a "blow-off" top that marks the inevitable bursting of the silver bubble. I would be disappointed if they didn't. My take? I will use any significant dips in silver price in the future to convert more of my savings into physical silver. Let's wait until silver reaches the mid-triple digit range before we start talking about a silver bubble.

Silver Attacks $50

Silver Shorts Squeezed By Tsunami Of Dollar Negative News

Silver’s Bull Market Summary
By Mark Lundeen
Since the 20 September 2010 Issue of Barron’s (31 Weeks), Gold has made 12 New All-Time Weekly Highs, while Silver made 19 New 31-Year Weekly Highs. The 31 Week Gains for Gold and Silver are as follows:

Gold : 16%
Silver : 106%

The Question Everyone should be Asking is Why Doesn’t the Price of Silver Correct?

Why September 20, 2010?  In the week of September 20, 2010, Silver took out the 2008 high of $21.34.  This after falling 60% in eight months to a low of $8.46 on October 27, 2008.  Over the course of the last 31 weeks, Silver has been down ONLY 9 of those 31 weeks.  To call Silver's performance over the past 31 weeks "remarkable" might be the understatement of this new century to date. 

Since Silver broke from a recognized Bullish Flag Pattern on March 21 at $35.66, it was been stampeding any that attempt to step into it's path, and it is up an astonishing 34% in just the last four weeks.  Here's a stat that will truly take your breath away:  In the last 27 trading days, Silver has seen only TWO DAYS where prices closed down...

So, "Why Doesn’t the Price of Silver Correct?"

The easy answer is, "a short squeeze". 

But Silver's open interest numbers in the CRIMEX futures don't "exactly" support that answer according to Dan Norcini :

Thursday, April 21, 2011
This has been a strange market to read with what I consider to be confusing CFTC COT reports and various changes in the daily open interest as well as all manner of rumors surrounding the delivery process. If I had nothing to go on but price action, I would say that a large short or shorts are in serious trouble and are attempting to get out but are not being allowed to by some very big and committed buyers who are going after them. I have seen enough cornered shorts being hounded by wolves who smell blood in the water during my trading career to be fairly confident that this is behind some of the price action in silver.

However, based strictly on the changes in open interest it is unclear if this is actually occuring. The sharp push from $34 to $42 was accompanied by a rather sizeable increase in open interest indicating that it was not primarily driven by short covering. If anything, fresh shorts were piling in, each of them attempting to pick a top or with other purposes in mind and kept on coming in as silver moved an incredible $8 higher in less than a month's time.

From $42 to $44 there was short covering occuring as some of the shorts were throwing in the towel and giving up leaving a lot of blood on the floor of the pit as they departed. However, once again the open interest has stabilized and actually ticked up some Wednesday as price soared above $45. Clearly some new shorting is occuring as top pickers are once again trying to strike what they think is paydirt. I am especially eager to see the numbers from today's sharp push through $46.

At some point the top pickers are going to get it right but as long as they keep coming in and the determined buyers keep showing up, we should see more bouts of this sort of change in open interest - namely - it increases as these fresh shorts take on the new buyers only to see the same shorts run for cover and close out their short positions with large losses as the market buying pressure forces them out. The process can then repeat with open interest rising and then subsequently falling and then repeating again.

It's not for a lack of trying then, that our CRIMEX goons have been unable to halt the rise in Silver with their usual dirty tricks.  Perhaps it is a tsunami of bullish headlines that are keeping a bid under Silver, and preventing sellers from piling in to book profits, and unknowingly aid the bullion banksters in their efforts to "correct" the price of Silver.  Just since the end of March, one bullish headline and story after another has spooked the Silver shorts.  [See alphabetical notations on chart below.]

March 31, 2011:
Fed Unveils Discount-Window Loans  [A]

April 5, 2011:
China announces 2nd increase in benchmark interest rates this year to tackle  inflation  [B]

April 7, 2011: 
ECB raises rates to combat inflation  [C]

April 14, 2011: 
China's foreign reserves surge past $3 trillion  [D]

April, 19 2011:
PBOC governor says foreign reserves excessive  [E]

April 20, 2011:
25% Of Scotia Mocatta's Silver Transferred From "Registered" To "Eligible" Status: A 45% Reduction In "Physical"  [F]

SLV Is Now "Hard To Borrow" At Goldman  [F]

So, "Why Doesn’t the Price of Silver Correct?"

Standard & Poor’s Puts ‘Negative’ Outlook on U.S. Rating - April 18, 2011

The Big Kahuna.  Release of the S&P "negative outlook" on US Debt only got Silver to pause briefly at $43.

Well, if it looks like a short squeeze, but it isn't, then obviously Silver has more buyers with good reason to buy, than sellers with good reason to sell.  And until that buy/sell dynamic flip-flops, buyers will continue to chase the price of Silver higher, and the shorts will continue to retreat to higher ground.

The real question that needs to be asked is:  Why is Gold lagging Silver by a factor of 5?  All of the headlines above should be propelling Gold higher along with Silver, and they have, but to a much lesser degree.

Is Gold too expensive?

Jewellery sales collapse as gold hits new record price

Is there more Gold available for sale than Silver?

Silver Shortage – Silver Is More Rare Than Gold!

Isn't Silver seasonally weak in April?  Yes, but not this much for seasonality!  Silver has moved into a world all of it's own here.  It has become disconnected from all other markets.  As I said last week, when it comes to Silver, "Everybody wants a piece of the action."  From the looks of it, one might even suspect that Silver has become disconnected from reality itself since last Fall.  The reality being that Silver, even at $48 an ounce is still sheap!

The great disconnect of Silver supply, demand and prices
By Dr Jeffrey Lewis
28 January 2011
It has become commonplace for analysts, investors and others to forecast higher and higher silver prices. These analysts, investors, and analysts are 99% wrong.

Most of them are playing the fool’s game, buying and selling paper silver to accumulate paper. The remainder sees opportunity for silver that brings silver prices higher, and they’re wrong as well.

Silver prices are not technically rising, but they’re becoming realistic. The current pricing structure is dependent on a supply of silver that does not exist. When this realization comes to life, silver prices will rise, but in truth, prices have already exploded.

Those trading the COMEX are paying $25-30 [$48] for the CHANCE at taking delivery of an ounce. If we put the current, real supply of silver at 10% the open interest, then prices are already $250 [$480]per ounce.

Silver has short squeeze written all over it, and solid support from a weak and crumbling US Dollar.

Fed Release of Discount Window Bailout: Another Reason to Be Cautious of Banking Systems
The recent release of the discount window bailout by the Fed has given the world another reason to be cautious of the world's banking systems. It gives the world another reason to question fiat and digital currencies while putting more faith into gold and silver.

Was the release of this "secret Information" by the Fed on March 31, 2011 the trigger broke the US Dollar's back, and launched the price of Silver into a near Earth orbit?

Your Pick, Ben, But One Goes Off the Cliff
by Charles Hugh Smith from Of Two Minds
Ben and his motley crew at the Fed reckoned that the financialized U.S. economy would respond positively to the lower dollar and the goosing of the risk trade in stocks. But the guys and gals seem to have forgotten that the real economy is dependent on oil. All the folks at the cocktail parties attended by Yellen et al. may be gushing over their hefty stock gains, but in the kitchen and carpark the workers are grousing about the rising prices of food and gasoline.

Now the cost of oil--the lifeblood of the real economy--is close to the point that it will push the real economy into recession. This sets up a difficult choice for Ben: if he pushes the dollar down to new lows, then oil leaps up and pushes the real economy off the cliff.

Alternatively, Ben renounces QE3 and "surprises" the markets with a rate increase, thus rescuing the dollar from freefall and pushing oil down. But that will send his precious risk trade and equity Bull off the cliff.

The politicos won't like either choice, but sacrificing the real economy will cost them their seat. All the fatcats who've raked in tens of billions from the risk trade Bull will be demanding that Ben "save" the financialized economy, but the politicos will see their political obituaries being written. Yes, the fatcats will shower them with millions in campaign contributions, but even those millions won't change the fact that Americans reliably vote their pocketbooks.

If rising oil pushes the real economy over the cliff, voters will not be re-electing incumbents in 2012.

Welcome to reality, Ben. Your "let's pretend the recovery is real" game is nearing an end. If you push the dollar down any more, then oil will go up and tip the real economy into a recession that QE3 will only make worse as you send the dollar into freefall. If the dollar rises, then your beloved "wealth effect" dies a horrible death on the rocks below.

Take your pick, but choose wisely.

...we will hear from Ben on Wednsday following the FOMC meeting...a turning point may be near.

Tuesday, April 19, 2011

Silver: Everybody Looking For A Piece Of The Action

I received a message on my Facebook page yesterday from a friend who has long known of my interest in the Precious Metals.  I had not heard from him personally in a great while.  He wanted a recommendation on purchasing "some Silver".  A co-worker that knows of my interest in Silver stopped and asked me if now was a good time to buy Silver.  I then became curious about the average Joe's interest in Silver now that it is making headlines daily.

A quick trip over to Google Insights For Search page and we learned that "Silver Bullion" searches on the Web appear to be rising as fast as the price of the metal itself.  As a matter of fact, looking back, searches for Silver appear to shadow the rise and fall of the price of Silver.  It is noteworthy that "Silver Bullion" searches on a monthly basis as seen below are at an all-time high as is the price of the bullion itself.

If anything, this clearly shows that a rising Precious Metal price certainly attracts more interest the higher the price climbs.  The peaks in searches coincides with the peaks in Silver prices clearly in the Spring of 2004, 2006, and 2008.  What is very interesting on this chart is the second higher peak in the Fall of 2008 [and the previous all time high on this chart prior to today].  This peak coincided with the 2008 low in the Precious Metals after their severe beat down following the Bear Stearns blow-up and the onset of the Global Financial Crisis.  Silver was at $8.45 an ounce then.  Today with Silver now at $44 an ounce, "Silver Bullion" searches are at a new high.

What this says about the growing interest in Silver presently, and the steadily rising prices for the past month is open to debate.  One I have been having with myself as I refuse to chase Silver higher up here.  Is this the beginning of a Silver mania?  Silver prices have advanced 23% in the past 30 days, and 44% since the markets opened Jan 3, 2011.  Silver has been on some ride....and rides like this don't last forever.

As you well know, I became cautious on Silver as price reached $37 an ounce just days prior to the earthquake in Japan.  In this chart, I targeted $34.80 as a buy point. All indications at the time were that should silver break higher from it's pause at $37, it had the potential to run towards $41.  And damn if hasn't done that and more!  But now is not the time to throw caution to the wind, and chase Silver higher.

Now is the time to seek an opportunity to buy, or add to positions at a discount to these herd following prices up here.  The question then becomes...will we get an opportunity to buy at a discount, and at what price?

Silver Is Getting Too Popular… Right?
By Jeff Clark
So, as an investor looking to maximize my profit, I have a natural question: is the silver trade getting too crowded, meaning we're near the top? Have the masses finally joined the party such that we should consider exiting? After all, it's not a profit until you take it, and you definitely want to sell near the top.

Silver hardly resembles the picture of an investment that is too crowded.

I'm not saying one should rush to buy silver right now. After all, it has doubled in seven months. Unless this is the beginning of the mania, prudence would certainly be called for at this juncture. The price will always ebb and flow in a bull market, and an ebb is overdue.

How to Ride the Silver Bubble
By Jeff Macke
If you're reading this, then you're going to buy silver if you don't own it already.

I'm well aware of the fundamental arguments for buying silver and gold. In short, the dollar is worthless, silver "should" have been higher all along, silver and gold are going to be the only asset that's going to hold value in the coming global meltdown, etc. All of these theories are well and good, maybe even right, but that's not why people are buying silver today. The fundamental silver bulls have been long for ages. The people buying today are buying silver because it's going higher and they want to get a piece of the action. Put it this way -- I'm long gold from much lower but I'm not at all tempted to get longer here. But, wow, do I wish I had some silver. That covetous thinking is entirely human. Don't ignore it; understand it.

Because I know you're going to be reckless, I'm here to tell you some rules for chasing bubbles. Don't argue with me as to whether or not silver is a bubble. I don't really care. The fact is that charts like silver's 5-year don't occur in nature. They are functions of a mob. Being part of a mob can be fun and lucrative as long as you don't get arrested or killed. Here's how to avoid such a fate:

* Don't pretend you're a fundamental player. Clinging to a position because you're a "long-term holder" isn't appropriate after an 8-fold increase. Getting long now is chasing, plain and simple. Don't convince yourself otherwise.

* Have an exit plan. I give you some points at which to sell, should silver pull back sharply. If you don't like mine, then use your own. Just have a plan.

* Don't fall in love. This is true of any investment, but particularly true when an asset's price goes parabolic, as is the case for silver. The responses to last week's piece suggest a passion people shouldn't have about their portfolios. That's a huge, raging, enormous red flag.

* Scale in. Don't put your money to work all at once. Put a little bit into play to ease your very human desire to chase. Get a taste to ease the pain and keep some reserves ready to deploy if and when we get a minor pullback. You don't want to be the person who plants a flag at the spike of a bubble.

I'm not here to debate the fundamentals of silver. This isn't an economic argument but a guide for being reckless without getting killed. I'm not advising you to do anything; I'm telling you how to get out alive when you chase silver because, in my experience, we're all likely to succumb to the allure of the glistening, sexy metal.

He's right, you know.  The chase is on in Silver as we watch it here at $44+.  But how high will it be chased, and when those chasing it stop, who'll be left to buy?

Silver moving higher on mediocre volume
By Dan Norcini
In watching silver move up towards $44 in today's session, I am struck by the huge amount of air pockets above this market. Based on the manner in which is it moving up, there are simply not enough offers. I get the sense that would-be shorts in silver are terrified to step in front of this market. The dearth of sellers is allowing small bids to take the price up in big steps.

Coming on the heels of what was a huge volume day yesterday, I am a bit concerned about this. Right now it seems to be more a case of fewer sellers than it is a case of more buyers. I want to see the metal clear $44 and hold that level to feel a bit more comfortable about this and I want to see the volume pick up some. This market has come a long way and will need to see plenty of buyers even at these levels to keep it moving steadily upward.

In an essay released March 11, 2011, Martin Armstrong noted that the week of April 25 - May 2 would be a turning point for the markets.  Turning points can be either up, or down, depending on the market at the time it reaches a "turning point" in time.  Coincidentally, next week brings a key FOMC meeting with regards to the market driving QE2 presently in place, and set to expire June 30, 2011.  Make a note...opportunity may soon come knocking.  At what price opportunity, remains to be determined.

Silver and Gold Find Headwinds In The Headlines

A vortex of relevant headlines met the financial markets upon their openings this week.  Silver and Gold found themselves on the defensive early in Asia and Europe on news related to Oil supplies, Chinese bank lending, and European debt.  Both found support from a "negative outlook" of US Debt by S&P.  Mysteriously, the US Dollar caught a bid this morning and surprisingly held onto it throughout the day. 

But first...  What if the G20 held a meeting, and nobody cared?

What happened at the G20, IMF meetings in Washington
(Reuters) - Finance chiefs from the Group of 20 nations and the 187-country International Monetary Fund met from Thursday to Sunday.

Following is a summary of the outcome of the meetings:

Leading economies edged forward with a complex plan for monitoring national policies to try to avoid a repeat of the 2007-09 financial crisis.

The United States faced heavy criticism from IMF member countries for its massive debts and budget deficit, including from some rich countries.

Policymakers did little to narrow disagreements over what to do about the huge flows of speculative cash pouring into the high-yielding markets of developing nations.

Greek Finance Minister George Papaconstantinou adamantly denied Athens was considering a debt restructuring, comments buttressed by a chorus of similar remarks from top IMF and European officials.

Egypt said it was seeking $10 billion in funding from global lenders and rich nations, but secured no public commitments.

Today's headlines market moving headlines:

Oil Declines in New York After Saudi Arabia Says Market Is `Oversupplied'
Oil declined for the first time in four days in New York after Saudi Arabia, the world’s biggest exporter, said the global market has adequate crude supplies.

“You don’t see a major supplier of crude make comments like that unless there’s a genuine feeling to get prices lower,” Jonathan Barratt, managing director of Commodity Broking Services Pty in Sydney, said by telephone.

Falling Oil prices could be seen as a negative for commodities in general and be a drag on Silver and Gold prices.  Any strength in the US Dollar could accelerate a decline in Oil prices because of over supply.

Beijing Seeks to Cool Prices By Reining In Bank Lending
BEIJING—China announced an increase in the share of deposits banks must hold in reserve, its fourth such move this year, a fresh step in its battle against inflation that came after data showed consumer prices rising at their fastest clip in nearly three years in March.

The People's Bank of China said Sunday that it will raise banks' reserve requirement ratio by a half percentage point, effective from Thursday. It is the tenth time since the start of last year that it has raised the ratio, which the central bank is using to try to slow issuance of new credit into its inflation-rattled economy.

"Beijing did not take long to respond to the strong inflation number on Friday," Royal Bank of Canada economist Brian Jackson said in a note. "Today's move suggests that another increase in interest rates is on the way soon."

This news was expected, but adds to fears that the global economic recovery may be threatened by a forced slowdown in Chinese growth.  A slowdown in Chines growth could threaten the commodities markets,  potentially becoming a drag of the precious metals.  This increase should add a bid to the Chinese Yuan, and pressure the US Dollar relative to the Yuan.

Euro Routed As Europe Debt Woes Trump US Warning
NEW YORK (Dow Jones)--Investors roiled by global sovereign debt concerns took their frustrations out on the euro Monday, which suffered its largest one-day drop in nearly five months as the euro zone's simmering debt crisis was only momentarily outweighed by Standard & Poor's warning about the United States' fiscal challenges.

For months, the euro has rallied strongly on the basis of expected higher interest rates. But the single currency finally succumbed to gravity as worries over Greece--one of the 17-nation currency bloc's most financially troubled economies--sparked widespread speculation that the country would be forced to restructure its debt.

Fears about Europe's debt overhang were also reflected in the weekend's election in Finland, which resulted in the rise of a populist party opposed to bailouts of distressed euro zone countries. But uncertainty about the U.S.'s own fiscal problems was crystallized after Standard & Poor's took the dramatic and unprecedented step of cutting its outlook on U.S. government debt.

For a few hours in the New York trading day, however, attention shifted to the alarming prospect of the U.S. government losing its AAA credit rating as Standard & Poor's took the dramatic and unprecedented step of cutting its outlook on that rating.

Although the dollar saw a bout of knee-jerk selling amid questions about its status as the world's most widely-held reserve currency, the euro dropped further against its U.S. counterpart, losing almost three cents on the day at its lowest point. Analysts said it was a reflection of the immediacy of Europe's problems, while the U.S. as a longer - albeit limited - window of opportunity to rectify its deteriorating fiscal position.

"When you get these periods when Ireland, Portugal and Greece are in the headlines, you wonder what happens if contagion spreads to Spain," said David Watt, senior currency strategist in Toronto at RBC Capital Markets.

Eurozone debt fears, and a falling Euro, were the single biggest factor in the US Dollar catching and maintaining a bid today.  It was that bid in the Dollar that pressured Silver and Gold early in the day.  That is until the US Debt markets received an early morning wakeup call from ratings agency Standard & Poor's brilliant debt rating experts.

S&P Affirms US AAA Rating, Cuts Outlook to Negative
Standard & Poor's on Monday downgraded the outlook for the United States to negative, saying it believes there's a risk U.S. policymakers may not reach agreement on how to address the country's long-term fiscal pressures.

"Because the U.S. has, relative to its 'AAA' peers, what we consider to be very large budget deficits and rising government indebtedness and the path to addressing these is not clear to us, we have revised our outlook on the long-term rating to negative from stable," the agency said in a statement.

In an interview with CNBC, David Beers, S&P's global head of sovereign ratings, said the agency has been "struck increasingly by the difference in how other governments are dealing with fiscal consolidation."

"The U.S. to us looks to be an increasing outlier in that context," Beers added.

It is noteworthy that S & P only lowered their "outlook" on the US Debt markets, and did NOT lower the US' credit rating.  Lowering their outlook on US debt is nothing shocking.  If you didn't already know that the US had a debt problem, you've been living under a rock.  The knee jerk reaction to this "news" was for Gold and Silver to relaunch higher after succumbing to the potentially near-term negatives offered in headlines earlier overseas.

Gold raced towards $1500 on the negative outlook news for US debt, and Silver revisted the rarified air above $43.  The news had little effect on the rising US Dollar at the time as it's bid strengthened on the growing weakness in the Euro.  One began to wonder how much the currency markets were discussed "behind the scenes" at the weekend G20 meetings.  Will an effort be forthcoming by the G20 to stop the US Dollars decent here?  Good luck with that, but an announcement by the Fed following next weeks FOMC meeting that QE2 will officially end on June 30 would certaily put a pep in the Dollars step in the near-term.  The cessation of QE2 would certainly address the concerns that S & P expressed today regarding US Debt.

End of QE2 has some investors fearing fall in June
NEW YORK (AP) — Could the financial markets be heading for a June swoon?

The answer likely hinges on what happens after the Federal Reserve's $600 billion effort to boost the economy expires. Some investors warn that the end of the program, known as QE2, will upend the stock market and push other markets in unexpected directions.

Under QE2, the Fed buys Treasurys from investors who can then put the money in stocks and other investments. Economists call it quantitative easing, and it is the second time the Fed has used the tactic.

Since last August, when Fed Chairman Ben Bernanke outlined the plan, the Standard & Poor's 500 index has gained 26 percent. Many also say it's partly to blame for rising commodity prices on everything from silver to cotton.

"It's the most important factor that explains markets the way they are now," says David Rolley, co-head of global fixed income at the fund manager Loomis Sayles. "So the most important question is what happens when QE2 stops?"

Fed to signal end of monetary easing
An end to global monetary policy easing is on the horizon, with the US Federal Reserve set to signal it will cease asset purchases at the end of June.

When the rate-setting Federal Open Market Committee meets on April 27, it is unlikely to limit its options by ruling out asset purchases beyond the second $600bn “quantitative easing” programme – or “QE2” – that is due to finish by the end of the second quarter.

Fed officials, however, know that announcing more asset purchases at the last minute would disrupt markets. Silence on a follow-up “QE3” at next week’s meeting would therefore signal that their current intention is to complete the $600bn QE2 programme and then stop.

The next weeks FOMC meeting could prove to be a pivitol "turning point" for the financial markets over the near-term, and into the 3rd quarter.  Today's vortex of news that swept across the headlines like a southern tornado may only be a preliminary assault on the equity and commodity markets.  The US Dollar today broke above a downtrend line going back to a bear market rally double top in January at 81 on the USDX.  The "potential" for a near-term Dollar rally has been building for the past few weeks.  It should suprise no one if indeed it does mount a rally into the end of June.  As always, only time will tell.

Thursday, April 14, 2011

Has The Silver Market Become Dysfunctional?

One might ask...Is it time to throw caution to the wind?  I guess that depends.  Are you an investor, or are you a trader? 

If you're a Silver investor, and you think Silver is going to $100-200-300 an're asking, "What is there to be afraid of?"

If you're a Silver swing trader, and you sell into strength and buy into're probably wishing you were an investor. 

Investor or swing trader, we have ALL been sucked into witnessing this voracious run up in Silver prices the past four weeks.  Since Silver gapped higher on the open at 35.66 in Asian trading on Sunday evening March 20, Silver has now risen 16% in 20 trading days.  Silver is runnin' wild!

"The interbank silver market [in Asia] is dysfunctional" says one Hong Kong dealer's note. "Liquidity is getting worse while the price action is getting more exaggerated as a result."

With ever-more money looking to buy silver, "The furiousness of such moves has been increasing in the past two weeks...[and] the flow in/out of silver is excessive with respect to the capacity of the market."

Speaking to BullionVault from Chennai about India's current retail demand to buy silver, "People believe the rumors that silver is going ballistic even from this level," says Daman Prakash Rathod of MNC Bullion. "[There's] huge speculation here as people have money to invest in physical buying."

Having earlier heard clients identify the equivalent of $42 per ounce as a key profit target, "On the contrary, $42 silver revived the frenzy of buying.

"It's a bit calmer now after seeing the correction to $40."

"The type of demand for silver that we have experienced in the last few months has never been seen before," says Prithviraj Kothari, president of the Bombay Bullion Association, to the Financial Times.

"Demand has gone up 25% compared to a year ago as people are going crazy for silver because they think it will give them better returns than gold."

Has the Silver market become dysfunctional?  Or has the Silver market simply begun to overcome the dysfunctional handicap of the CRIMEX banksters that has held it back the past ten years?  Is Silver now just playing catchup by leaps and bounds because the CRIMEX banksters have lost control of it.  Or has physical demand for Silver bullion finally swamped the paper pushers on the CRIMEX?

Perhaps we need to look at the Big Picture of Silver.  The weekly chart can often show us things that the daily gyrations of the market hide from us:

No matter how you slice it, Silver is in Maximum Overdrive.  The big question is can this stampede into Silver be sustained.  Dip buyers are waiting in the wings to buy every 2% drop in price.  Fundamentally there is little reason for Silver prices to react lower.  Market sentiment couldn't be more bullish than it is now, and that is what continues to scare me.  The Silver market desperately needs a rest.  One wonders if the CRIMEX goons haven't allowed Silver to run this far this fast just to scare as many people out of it as they can when they swoop in to crash this party.  ...that is if they can crash this party.  There is NO market in the World scarier than the Silver market.  What began as a short squeeze at $31, is now a full blown buying panic.

This just in this evening:

China's economy slows, as inflation remains feverish CNN 
China growth sizzles, inflation bubbles Reuters
China Economy Grows More-Than-Forecast 9.7% Bloomberg

It will be interesting to see how this is interpreted by the markets overnight.  Will the markets focus on a "small" slowdown in Chinese growth, or it's 5% year on year rate of Inflation?

This news seemed to push Silver higher late today, though the news is not really new...and this story actually hit the wires on April 13:

Bolivia plans to expropriate mines‎
Bolivia's President Evo Morales plans to expropriate zinc, silver and tin mines sold off by previous governments, an official said

The Fed Heads were out in force today in an effort to have their cake and eat it too.  This blah-blah, along with today's unexpected rise in unemployment claims.

Fed hawks look for exit, doves in no rush
BALTIMORE/HELENA, Montana (Reuters) - Federal Reserve officials differed on Thursday over the urgency of withdrawing monetary stimulus on Thursday, with some saying inflation is in check despite oil price rises while others warned of risks if the central bank drags its feet.

I continue to maintain that despite a plethora of perma QE believers, the Fed will allow QE2 to end as planned, and will pause "for effect" before instigating another round of "monetary stimulus" causing a reaction lower in both equities and commodities.  The Fed will NOT raise interest rates anytime soon in an effort to support the nonexistent economic recovery.  Bumbling Ben Bernanke will make this scenario the centerpiece of his press conference following the Fed meeting on April 27.

Tuesday, April 12, 2011

Monetary Inflation vs. Price Inflation

Rising Oil prices are NOT the "cause" of Inflation, they are a "symptom" of  Monetary Inflation.

The term "inflation" originally referred to increases in the amount of money in circulation, and some economists still use the word in this way. However, most economists today use the term "inflation" to refer to a rise in the price level. An increase in the money supply may be called monetary inflation, to distinguish it from rising prices, which may also for clarity be called 'price inflation'.  Economists generally agree that in the long run, inflation is caused by increases in the money supply. However, in the short and medium term, inflation is largely dependent on supply and demand pressures in the economy.
 -Federal Reserve Board's semiannual Monetary Policy Report to the CongressRoundtableIntroductory statement by Jean-Claude Trichet on July 1, 2004

With regards to Oil prices, the financial media is relentlessly pounding their Inflation drums because of the present rise in the "price" of Oil.  They are completely ignoring the supply/demand fundamentals of Oil with respect to price.  This begs the question, what is driving Oil prices higher and feeding Inflation fears?

The media itself is confused on what is driving Oil prices higher.  Just this morning the following two headlines appeared within hours of each other on Yahoo Finance:

Oil extends losses, high prices may hurt demand
On Tuesday April 12, 2011, 2:38 am EDT

Oil near $110 as 2011 crude demand seen rising
Pablo Gorondi, Associated Press, On Tuesday April 12, 2011, 7:54 am EDT

What the financial media SHOULD BE focusing on is the SUPPLY of Oil.  Sure, we get countless reports daily about the unrest in the Middle-East, and how this will effect supplies to an Oil thirsty World.  Absent Libya, there has been very little disruption to World Oil supplies to date because of Mid-East or North African political turmoil.  In fact, at present, the World is literally flooded with Oil.  The US is literally drowning in it, and facing a virtual Oil tsunami as the futures markets head into the May delivery period.  Oil speculators have once again hoodwinked the CFTC and allowed Big Oil to steal billions from energy users via overpriced petroleum products.  

In a revealing piece of journalism at Phil's Stock World, a strong light has been cast upon the Oil speculators over at the NYMEX [The New York Mercantile Exchange...cousin to the CRIMEX].  These "speculators" have driven the price of Oil, literally, to undeliverable heights.  There is now more Oil in the pipeline to the US, than there is room to store it.  Read on:
NYMEX futures expire on April 19th and delivery must be accepted at Cushing, OK, in May for any May contracts still open on the 20th of April.  There is nothing that the conga-line of tankers between here and OPEC would like to do more than unload an extra 277 Million barrels of crude at $112.79 per barrel (Friday’s close on open contracts and price) but, unfortunately, as I mentioned last week, Cushing, OK is already packed to the gills with oil and can only handle 45M barrels if it started out empty so it is, very simply, physically impossible for those barrels to be delivered.  This did not, however,  stop 287M barrels worth of May contracts from trading on Friday and GAINING $2.49 on the day.

Who is buying 287,494 contracts (1,000 barrels per contract) for May delivery that can’t possibly be delivered for $2.49 more than they were priced the day before? These are the kind of questions that you would think regulators would be asking – if we had any. In fact, the last contract actually purchased in June was at $104.03 and the last contract purchased in July was at $91 and the last contract purchased in August was $95.70. Why? Because the price you pay at the pump is set by the FRONT-month contract only and it’s not worth manipulating the forward contracts until they become the front month. Again – if only there were regulators to look into these things…

The great thing about the NYMEX is that the traders don’t have to take delivery on their contracts, they can simply pay to roll them over to the next settlement price, even if no one is actually buying the barrels. That’s how we have developed a massive glut of 677 Million barrels worth of contracts in the front four months on the NYMEX and, come rollover day – that will be the amount of barrels "on order" for the front 3 months unless a lot barrels get dumped at market prices fast.

Keep in mind that the entire United States uses "just" 18M barrels of oil a day so 677M barrels is a 37-day supply of oil but we also make 9M barrels of our own oil and import "just" 9Mbd, and 5M barrels of that is from Canada and Mexico who, last I heard, aren’t even having revolutions. So, ignoring North Sea oil Brazil and Venezuela and lumping Africa in with OPEC, we are importing 3Mbd from unreliable sources and there is a 225-day supply under contract for delivery at the current price or cheaper plus we have a Strategic Petroleum Reserve that holds another 727 Million barrels (full) plus 370M barrels of commercial storage in the US (also full) which is another 365.6 days of marginal oil already here in storage in addition to the 225 days under contract for delivery.

Wow, that is some long-term supply disruption that they are pricing in, isn’t it? It’s a scam folks, it’s nothing but a huge scam and it’s destroying the US economy as well as the entire global economy but no one complains because they are "only" stealing about $1.50 per gallon from each individual person in the industrialized world.

It’s the top 0.01% robbing the next 39.99% – the bottom 60% can’t afford cars anyway (they just starve quietly to death as food prices climb on fuel costs). If someone breaks into your car and steals a $500 stereo, you go to the police but if someone charges you an extra $30 every time you fill up your tank 50 times a year ($1,500) you shut up and pay your bill. Great system, right?

These statistics would seem to indicate that a correction in Oil prices may be at hand.  I have noted recently that a fall in oil prices would bring down Silver prices.  It would appear that this is beginning to now occur. 

Oil was last to the party as the commodity sector soared over the past several months.  One could make the case that it was the speculation in the Oil markets because of the "revolutions" in the Middle-East and North Africa that pushed the CRB over the top and into new All-time highs recently.

Interestingly, it has been the falling US Dollar that has been the primary driver of the explosion in the prices of commodities the past six months.  Gains in the CRB had been modest until revolution sparked in Egypt in late January, and spread across the region driving Oil prices higher amid speculation of supply disruptions.

Oil supply speculation, coupled with a continuously falling US Dollar, has placed enormous pressure on the "price" of Oil globally.  Supply statistics, however, do NOT support Oil prices at such lofty levels as we have seen of late, but the falling US Dollar does.

Monetary Inflation is at the root of rising prices globally.  With the US Dollar as the World's Reserve Currency, and commodities priced in US Dollar's, Inflation fears rest more with the falling value of the US Dollar than with "supply speculation" in various commodity markets.  Legitimate "supply disruptions" in any commodity market will only exacerbate the rising prices already caused by Monetary Inflation.  Speculation in the futures markets of commodities based solely on "possible" supply disruptions will act to distort prices towards unsustainable levels in the near-term.  That being said, we must consider the possibility that a possible peak here in Oil prices may signal a "near-term" top in commodities AND Silver and Gold.  Should the US Dollar find a near-term bottom here near 75 on the USDX, this near-term top would be confirmed and a corrective/consolidation phase may appear and slow the rise in these markets for a short period of time.

Silver's rise near $42 early yesterday did not shock me, but it was somewhat surprising.  That Silver has risen this high should surprise no one.  The potential was there when it broke from it's Bullish Flag formation on March 21.  That the rise from that breakout at $35.50 was relentless and mostly unopposed was surprising.

At it's peak of $41.93, Silver was 59% above its 200 day moving average resting at $26.37.  That Silver has moved this far above it's 200 day moving average is not so much shocking as it is alarming.  Since it's low in July of 2010, Silver has clearly risen higher with the price of's 8% move higher just last week coinciding with an explosion in Oil prices as the Oil futures markets went ballistic:

It is evident then,based on the chart above, that should Oil prices correct here, Silver prices most likely will as well.  This Oil Silver relationship has played a big part in my caution with regards to Silver prices recently.  But Silver's 59% rise above it's 200-Day moving average has screamed caution.  Anytime Silver gets to be over 40% above it's 200-Day moving average, the Silver market is getting far too ahead of itself.  A correction in prices in the "near-term" become inevitable.  Are we there now?  Possibly.  Will Silver undergo a major correction here.  Possibly, but unlikely.  A major correction would be a move down in excess of 30% from here.  A move that big would take Silver below $30 an ounce.  That just doesn't seem likely...but this is the Silver market, and ANYTHING is possible.

Silver opened 2011 46% above it's 200-Day moving average, and corrected by 15.5%.  This correction dropped Silver below it's 50-day moving average to only 18% above it's 200-Day moving average.  A similar correction in Silver today would only drop prices to $35.34, and not even reach it's 50-Day moving average.  A 15.5% correction would only take Silver to within 33% of it 200-Day moving average.  The fact is, we are not even sure yet that Silver is on the verge of correcting, it has yet to break below it's near-term uptrend line now at $39.50 .  But know this, whenever Silver has corrected in the past from extreme valuations above it's 200-Day moving average, it has been a decent that is fast and furious once it begins.  On average, the first week of these corrections in Silver have seen loses of 11%.  For more on the dynamics of corrections in Silver form extreme valuations relative to it's 200-Day moving average please read this essay Silver Toppings 2 by Adam Hamilton.

As I reach for the send button, Gold has just bounced off of near-term support at $1445 in a retest of it's recent breakout from a long consolidation.  Impressive, and expected.  Coincidentally Brent Crude bounced off $120 support and it's rising near-term trend line at same.  The convictions of the Bulls, and the speculators are about to being tested...

Thursday, April 7, 2011

ECB Raises Interest Rates, Precious Metals Pause

With the grand spectre of an ECB interest rate decision now behind us, perhaps some calm might return to the Precious Metals and currency markets.  ECB president Jean-Claude Trichet made it very clear today that the ECB did NOT decide that today's 1/4 point interest rate increase was the first of a "series" of interest rate increases.  The ECB today gained credibility in it's fight against inflation in the Eurozone, but this announcement may have taken some of the stiff breeze out of the Euro's sails for now.

"This makes the ECB the first major developed economy central bank to hike rates and the decision will cement its reputation as a single-minded inflation fighter," said ABN Amro economist Nick Kounis.

"The hike is unwelcome for peripheral countries, but arguably the core member states were in need of this move already some time ago. In that sense, the timing of the increase is a balancing act, which is part and parcel of the one-size-fits-all monetary policy," he added.

In his statement, Mr. Trichet said, "We will continue to monitor very closely all developments with respect to upside risks to price stability."  This is a signal that the ECB will NOT be raising interest rates again before June.  Mr Trichet, during his press conference was clear, in stating that today's interest rate increase was NOT the first in a series of rate increases, and the ECB will, as they have in the past, take action on interest rates when they deem it necessary.

I would assume, based on Mr. Trichet's statement and his comments this morning, that the heat in the Euro may be about to dissipate a bit in the near term, and that Eurozone sovereign debt issues will become once again more prominent in the headlines and may even pressure the Euro some in the near-term.

It was interesting watching Mr. Trichet's post rate announcement press conference, and imagining the Bernanke press conference following this month's Fed meetings on April 26-27.  I suspect Bumbling Ben will look much more the deer caught in the headlights, than the very confident central banker that Mr. Trichet appears to be in his press sessions.  There is an honesty about Mr. Trichet that Bumbling Ben could never pull off...even if this pathological liar took extensive acting classes. 

Mr. Trichet is very clear in his comments and answers to questions.  It is obvious why the Euro has gained so much respect globally of late.  Particularly from the Chinese and the Arab Oil states.  The Dollar's weakness stems from a number of growing inadequacies as a reserve currency, but none more so than the credibility of it's chairman, Bumbling Ben Bernanke.

This, then, puts a great deal of pressure on the Fed this month following their meeting to show equal vigilance towards the threat of rising inflation here at home.  Let's face it, a large reason for the ECB's inflation fears lie at the feet of the US Federal Reserve's blatant money printing to fund it's present QE2 debacle.  The Fed's QE2 is responsible for inflation fears around the globe.  Despite his denials, Bumbling Ben Bernanke's insistance on fighting deflation by printing money IS causing a catastrophic rise in food and energy prices that are threatening to cause more damage to the World Economy than the banking crisis of 2007-08 have all ready.

Therefore, we must take very seriously the possibility that in the very near-term there may be a major shift in Fed monetary policy.  In order to protect the US Dollar AND the US Treasury market, the Fed is going to have to let it's present QE2 program expire as planned, and refrain from an immediate jump to QE3.

The Fed meets on April 26-27 and does not meet again until June 21-22.  Their June meeting is one week before the QE2 program is scheduled to end.  It is unlikely the Fed will wait until their June meeting to confirm their intent to let QE2 expire as planned.  April 27 may well be the "drop dead" day for QE2.  It is noteworthy that Bumbling Ben has schedule the first Fed Chairman press conference following a FOMC meeting for that day.  Bumbling Ben is going to have a lot of "explaining" to do that day if the Fed is indeed going to let QE2 end as planned.

Yes, yes, yes...the Fed can't end their QE.  But, they can pause it, and by every measure it is time that they do.  Quantitative Easing is too threatening the Dollar at this juncture. 

"But who will buy the Treasury's debt, if the Fed stops buying it?"

Great question!  The answer is simple:  The banks.  The banks are the ones buying stocks and commodities, driving them ever higher with the Fed's money to give the appearance of an economic recovery.  If the Fed pulls the plug on QE2, the banks will quickly sell their stocks and commodities, and use the funds to buy treasuries.  This will "temporarily" lift that burden from the Fed.  Once the pain of falling stocks begins to register with the Fed and interest rates begin falling again, then, and only then, will the Fed step forward with QE3.

Dave Galland of the Casey Report in a recent interview can eloquently make much more sense of this than I.  This interview is a MUST READ:

Major Policy Shift Ahead
Interview with Dave Galland by Louis James, Editor, International Speculator
L: David, in recent editorials you’ve warned of what could be an important shift in Fed policy – can you fill us in?

David: That the shift, and it is imminent, will not change the larger trend, but it has the potential to be quite disruptive over the short-term.

L: Explain.

David: In terms of the larger trends, the fundamentals that have caused so much pain and economic woe over the last ten years or so remain intact. If anything, they’ve gotten worse. We’ve gotten currency debasement, not just in the U.S., but especially in the U.S. dollar, which is not just any currency, but the world’s reserve currency. We’ve got a truly mind-boggling expansion of the reach of government into all aspects of society and the economy, with all that that implies in terms of regulation, taxation, controls over investments and finance, impact on personal liberty, and so forth. By recognizing this destructive trend for what it is, investors can position themselves to avoid the worst, and to profit by betting on things like the continuing debasement of the dollar.

So that’s the big picture. There is growing evidence that in the next month or two we will head in to a very dangerous period. As your readers don’t need me to tell them, the Fed has been extremely supportive of the U.S. government’s insane spending, polluting its own balance sheet by buying up toxic loans by the hundreds of billions and by pumping enormous quantities of cash into the money supply. You don’t have to look very hard to understand why we have seen some small recovery in the economy, much of which has been driven by the financial sector that has been the recipient of so much largess – it was bought and paid for by the government, working hand in glove with the Fed. But there is about to be a fundamental change in this arrangement, as it appears that the Fed has decided that it’s time to take a step back from its monetization – or quantitative easing (QE) as they now term it –in the hopes that the market will step in to fill the large gap it will leave.

They can’t know how that’s going to work out, but if they don’t stop pumping money in to the economy, they never will know if the quantitative easing has worked.

Based on a lot of statements from a number of the voting members of the Federal Open Market Committee, the change just ahead is that they are serious about stopping QE in June. As they won’t wait until the last minute to confirm the end of their Treasury buying, I would expect their intentions to be made clear following their end of April meeting, the full minutes of which should be released in early May.

L: To be clear, do you mean no QE3, or that they cancel the portion of QE2 they haven’t spent yet?

David: They may leave themselves a bit of wiggle room by holding back some of the funds slated to be spent as part of QE2, in the hopes of demonstrating a high level of confidence in their decision to stop the monetization. That would also give them a bit of powder to use should the need suddenly arise, without exceeding the mandate of QE2. The important point is that I am increasingly sure they won’t just roll out QE3, and that will have consequences.

L: Are you saying, no QE3 at all?

David: No. I think there will be a QE3, but it won’t materialize until after a relatively lengthy period during which the Fed stands aside in order to give the market the opportunity to adapt and adjust to their exit from the Treasury auctions. In other words, once they stop, I wouldn’t anticipate them jumping right back in at the first sign of trouble – say, if the stock market crashes.

In time, however, as the ponderous problems weighing on the economy come back to the fore and return the economy to its knees, the Fed will be forced to reinstitute the monetization, though they will likely try to come up with a moniker other than quantitative easing to describe it.

L: You’re as cheerful as Doug. Why are you so sure there will be a QE3?

David: Because the problems that made the economy stumble in 2008 have not been solved. As I said before, most have gotten worse. Have the impossible levels of sovereign debt and trillions in unresolved bad mortgages embedded in the balance sheets of Fannie, Freddie, the Zombie Banks, and even the Fed been resolved? Hardly.

Is there any real sign coming out of Washington that the deficits will be substantively tackled? You don’t have to be as active a skeptic as I to understand that the deepest spending cuts being discussed don’t even scratch the surface of the $1.5 to $2 trillion deficit. As for the $60 trillion or so in debt and unfunded obligations, forget about it.

The U.S. government and the governments of most large nation-states are fundamentally bankrupt. In time, they will have to default on their obligations. While there will be some overt defaults, I expect most of them to follow the path of least resistance, which is to try to inflate the problem away. And that means QE3. For now, however, the Fed will claim victory over the economic crisis and follow the suit of many other central banks –switching to a less accommodative monetary policy.

L: They’ve done their job and now it’s time for back-slapping and cigars.

David: Yes.

L: Consequences?

David: If you look at a chart of the dollar, you’ll see that it has been bumping along the bottom recently. Logically, if the Fed stops monetizing the Treasury’s spending, we should see a rebound in the dollar. The big traders –the big institutional money out there –are going to use the change in Fed policy as a clear signal that it’s safe to get back in the U.S. dollar.

It would be wrong to underestimate the amount of money that needs to find a home, and the liquidity advantages offered by the U.S. treasury market. If the river of money redirects into Treasuries, it could – at least for a time – offset the Fed’s exit, and push the dollar up, maybe significantly so. And if the dollar comes roaring back, commodities, including gold and silver, would likely take a fairly hard hit.

Again, this is a short-term view. The longer-term trend for the precious metals is absolutely intact, because the fundamentals are entrenched – namely that the sovereign debt and spending is out of control, and politically uncontrollable.


It would be foolish to dismiss the "possibility" of the Fed ending QE2 and pausing before continuing with QE3 or some other coyly named money printing program.  This "possibility" forces me to be, and remain, cautious with regards to the Precious Metals Markets at this time.  The Bulls are stampeding in the Precious Metals right now.  Stampedes are dangerous.  I remain an ardent Precious Metals bull in the "long-term", but when I look at the "big picture" and what is driving the markets higher I have to respect the possibility that the main market driver at this time, the Fed's QE2 program, may be running on empty and a pause may be due while they stop and fill up their tank.  A pause in QE2 will without a doubt negatively affect the equity markets, and to some degree, the commodity markets.

With respect to the fact that Gold and Silver are taking on more and more of a role as competing currencies relative to the likes of the US Dollar, I must assume that should the Dollar begin to rally on cessation of the Fed's QE2, Gold and Silver might be pressured initially, but not to the degree that equities might be.  If the Fed allows their QE2 program to end, an excellent buying opportunity in the Precious Metal will present itself.  Preparing for the possibility of sale prices in the Precious Metals seems prudent at this time.  I can not justify chasing Silver here.

I have been cautious on Silver prices since they peaked on March 7 at $36.73 as $37 was my target price at that time.  Silver did break higher from the bullish flag that formed in the days following that March 7 peak,  has run up $3 since, and may well get to the $41 projected move out of that formation.  But I sense more of a headwind up here than a tailwind.  The stampede into Silver up here has been intriguing to say the least, but jumping into the crowd at this level might prove the "near-term".  Sell into strength, and buy into weakness.

Ed Steer in his Gold and Silver Daily report passed along this comment from reader Nick Laird yesterday:

..."Hi Ed, E-Bay's base price for Silver Eagles is now over $40...and they have few sales happening - the volume of sales has dried up by 80%. Silver has doubled since August. If gold had done the same it would now be $2,600. We shall be patient. Cheers, Nick"

Patience with regards to Silver is most certainly a virtue...

Monday, April 4, 2011


Oil Hits 30-Month High on Demand Outlook, Jobs- Bloomberg
Oil climbed for a third day in New York as signs of a strengthening U.S. economy stoked bets fuel demand will rise in the world’s largest crude user.

Ignoring the fact that the "job creation" is phony AND the "strengthening economy" is all due to the Fed printing money [not organic growth] ...historically, rising gas prices have CUT demand for fuel. Oil is hitting these highs purely on inflation driven speculation and news out of the Middle-East...despite what the headlines say.

Schork Oil Outlook: Consumers' Appetite for Gasoline Is Falling
By: Stephen Schork, Editor, The Schork Report
Per last Wednesday’s weekly update from the DOE, the amount of gasoline supplied to the market fell by 2.3% to 8.87 MMbbl/d. The four-week average is approximately 9.03 MMbbl/d and has been trending lower over the last three reports.

Owing to student spring-break vacations as well as the Easter and Passover holidays, discretionary demand for gasoline typically picks up at this point in the season. This makes the recent pullback in consumption even more telling.

With demand suspect, what about supply? Total crude oil supplies in the United States, 355.7 MMbbls, are 4.2% above the upper limit of the 95% confidence interval (CI) of the mean from the previous ten years. Gasoline supplies, 217.0 MMbbls, which have had a precipitous fall over last month-and-a-half, remain near the upper limit, 218.3 MMbbls, of the 95% CI.

In spite of these metrics Wall Street shrugs. Per Friday’s update from the CFTC, money managers were sitting on net length of 61,253 contracts of RBOB and 38,624 contracts of heating oil.

Juxtapose this speculative length to DOE commercial stocks. At present there are 32.8 MMbbls of gasoline and 30.96 MMbbls of distillate fuels in PADD IB (inclusive of the Nymex delivery hub in New York Harbor). The upper limit of the 95% CI is 33.2 MMbbls for gasoline and 27.4 MMbbls for distillates.

As written in today’s issue of The Schork Report, demand for petroleum products is falling while supplies are near the upper limits of the historical range. More importantly, the current price path on the Nymex indicates that demand inelasticity for gasoline this summer will fall even further.

How long can Wall Street continue to ignore this fundamental?

So, let me get this straight.  There is plenty of Oil AND demand for gasoline is falling, but Bloomberg is telling us that Oil prices are at a two year high and rising because demand for oil and gasoline is on the rise.  Okey-Dokey.  And the weak US Dollar has nothing to do with the high Oil prices...

You can bet our overworked money printers at the Fed are on top of this current rise in the price of Oil.  As a matter of fact they are of the opinion that Oil is relatively cheap at current prices:

Tipping point for oil seen at $150 per barrel
By Patrice Hill, The Washington Times
March 08--A top Federal Reserve official on Monday said the central bank should react if oil prices soar as high as $150 a barrel because prices that high could throw the economy back into recession.

Dennis P. Lockhart, president of the Federal Reserve Bank of Atlanta, for the first time Monday spelled out what level of oil prices might trigger Fed action, pinpointing the record level around $150 set in 2008. Many economists say those oil prices, along with $4-per-gallon gas, helped throw the economy into a recession.

"I think at the $120 range -- it's a manageable level," Mr. Lockhart told the National Association of Business Economists.

"Around $150 it becomes a much more serious concern," he said. "If it plays through to the broad economy in a way that portends a recession, I would take a position we would respond with more accommodation."

Unless I misunderstand Fed Head Lockhart, or he was misquoted, he just said that if Oil got to $150 a barrel and threatened a recession, the Fed would respond with MORE accommodation?  Oil is at $108 a barrel now with too much accommodation already, and he stands ready to offer more if the price rises to $150 a barrel?  Obviously Mr Lockhart needs a primer on Inflation.

Oh, excuse me Mr Lockhart.  I missed your comments last week on Inflation Risks to the US Economy.  In a speech March 28 in Atlanta, Fed Head Lockhart had the following comments on Inflation Risks:

Inflation risk
I know inflation is on everyone's mind at the moment. It's worth taking some care to explain current circumstances as regards inflation. In the summer of last year, there were widespread signs of disinflation in price data and there was legitimate concern of a deflationary cycle becoming established. Financial markets had priced in more than a 30 percent chance of deflation over five years, about twice the probability indicated in the spring. That trend has been reversed in recent months.

Starting in the fall of last year and running through the most recent readings, prices have been firming, and this is bringing trend inflation closer to the desired levels for the longer term. By trend inflation I mean the average rate of inflation measured over a time frame long enough to allow the factoring out and dismissal of monthly noise and one-off signals in the data. Historically, food and energy prices have been volatile and not necessarily indicative of the broad inflation trend in a given period. Food and energy prices have been moving up strongly over the last few months. But broader measures of prices have been growing as well at a rate that would not be acceptable if sustained for very long. This price growth is largely attributable to increases in food and energy prices, but even so-called core measures of inflation rose at a higher-than-desirable pace in February.

For the time being, I think the risk of deflation has retreated. For a variety of reasons, many commodity-based prices have risen sharply. I expect these strongly accelerating upward movements of commodity prices to be short-lived, and, in fact, many of these prices have either moderated somewhat or leveled off in the past month. Nonetheless, in such circumstances, it's understandable to be somewhat apprehensive about the inflation climb path we're on, and whether or not it will level off.

In light of these developments, let me make three observations.

First, inflation pressures associated with rising commodity prices will dissipate if, as currently expected, the rate of growth in these prices slows. Let me emphasize that this is not a prediction that the prices of gasoline or groceries will actually fall. I'm distinguishing here between the rate of inflation and the level of prices. These higher costs are a result of real growth in emerging economies, developments in the Middle East and North Africa, and the fallout from natural disasters around the world, be they droughts, floods, or earthquakes and tsunamis. The pain of having to allocate a larger share of your income to driving your car or preparing dinner may well persist.

Second, contrary to popular opinion, Fed officials actually do eat and fill up their gas tanks. The FOMC's mandate, as I see it, is to control the inflation rate we all experience—so-called headline inflation. In other words, I interpret the Fed's price stability mandate as requiring the FOMC to manage the growth rate of the average of all prices, including food and energy.

Third, it's our job to control that headline inflation over the course of time. It's not feasible to exert such control day to day or month to month or even quarter to quarter. But monetary policy can control the rate of overall inflation over the medium term. In general operational terms, I think growth in overall consumer prices at an annual rate around 2 percent through a period shorter than the proverbial "long term," say, a medium-term period of three or four years, is consistent with the Fed's price stability mandate.

While short-term measures of inflation have accelerated in the last few months, I hold to the view that this trajectory will not continue. I continue to see the Federal Reserve's inflation objective I just outlined as attainable.

That said, like my colleagues on the FOMC, I continuously monitor performance against our price stability objective. This involves monitoring not just inflation today but importantly the course of inflation expectations, whether derived from surveys or pulled from financial market prices. I am prepared to support a change of policy if evidence accumulates that the low and stable inflation objective is at risk.

For now, however, I remain satisfied that the current stance of monetary policy is appropriately gauged for the current state of the economy and the outlook from here.

It would seem that Fed Head Lockhart not only accepts the risks of Inflation, but welcomes it.  He'll be a prized aquisition when the lynch mobs start roaming the streets of Washington in a couple of years.

It's almost worth the Great Depression, to learn how little our big men know.
-Will Rogers

Once again, Silver had the lead foot in the Precious Metals today.  Bursting through the $38 level today with reckless abandon as markets opened overseas last night and climbing steadily throughout the day on the CRIMEX.  Gold, though it broke through $1430, continued to perform as if were dragging an achor across a rising tide of fiat currency.

Volume in Silver has been relatively light of late.  The signs of a short squeeze feeding on itself becoming evident.  It is unlikely any buyers of size are entering Silver at this level.  It is equally unlikely that any shorts in size are not going to cover way up here.  The little guy that recognizes a potential near-term top in Silver is getting chewed up because it's a bit too hot in this kitchen.

Silver is overbought, and bullish sentiment is off the charts.  These are indeed dangerous times to be short, OR long, the ever volatile Silver market.  Gold is the much less risky bet right now.  I love Silver, but not right here, and not at this price.  Silver is 49% above it's 200-Day moving average right here and now.  Gold is a mere 8% above it's own 200-Day moving average.  Silver stocks at the CRIMEX have risen by 3.8 MILLION ounces since March 11, and backwardation in the Silver futures has disappeared out to December 2011.  I hate to say it, but Silver looks like an accident waiting to happen up here.

Consider also Silvers seasonality.  In this bull market to date, over the past 10 years, Silver usually finds an interim top in early April following it's annual bull run from mid-December through March.  This annual interim top in April sets up the annual May rally in Silver.  May has been Silver's 4th most bullish month of the year during it's ten year bull market to date.  A pause in Silver's rise here would be beneficial to all traders going forward.

Adam Hamilton opens the door to Silver's seasonality in his essay Silver Bull Seasonals, and he cautions as to it's usefullness and interpretations:

In every market including silver, when prices surge too far too fast they simply need to correct. This is a psychological phenomenon, supply-demand fundamentals are completely irrelevant. Any price rising too far too fast generates tremendous greed. This unbalanced sentiment sucks in all traders interested in buying in anytime soon. Once all these buyers have bought, only sellers remain. And then some minor catalyst ignites initial selling pressure which quickly snowballs, resulting in a full-blown correction.

Like gold, silver tends to rally strongly in January and February. But while gold retreats modestly in March, silver simply consolidates high. Spring is always an exciting time of the year for speculators, and optimism grows with the lengthening daylight and warming temperatures. Maybe this helps explain silver’s March resiliency relative to gold, and maybe not. But it definitely exists statistically regardless of the reason.

In April and May gold starts rallying again, but in its weakest big seasonal rally of the year. Silver initially leaps up much more quickly than gold in early April, but by the middle of the month the probability of silver selling grows.

While silver bull seasonals are interesting, and useful, a huge caveat applies as in all seasonal analysis. Seasonals are merely secondary drivers of prices, tailwinds or headwinds. Far more important for silver’s near-term fortunes at any time are its prevailing technical and sentiment situation. If silver is seriously overbought, and greed reigns supreme, it is likely due for an imminent correction no matter how bullish its seasonals happen to be. And if it is deeply oversold and drenched in fear, it will probably rally sharply no matter how bearish its seasonals are.

So don’t overestimate the importance of seasonals in your own trading. Look to technicals and sentiment first, and only then consider whether seasonals are likely to amplify or retard the prevailing short-term trend. Profitable trading requires investors and speculators to carefully consider and process a broad array of often-conflicting information before determining the highest-probability-for-success course of action. Within this weighing, seasonal influences cannot override significant technical and sentiment levels.

Is Silver going to correct from up here?  I'd be foolish to say yes, and ignorant to say no.  But the current technicals and overly bullish sentiment are supportive of an interim top near here when confronted with the headwinds of Silver's April seasonality.  And bear in mind, a correction does not neccessarily mean a dramatic fall in price.  A correction could merely be a "period of consolidation". 

Caution is my outlook for the near-term in Silver.  If Silver is going to $50 or $100, a little caution at $38 will be consider cheap in the long run, and a wise investment if sale prices present themselves later this month.  Silver is in the midst of yet another short squeeze, not unlike the squeeze we saw in December.  The last place you want to find youself as a trader is buying a market as the last short is wrung out.

With respect to the floundering US Dollar.  We must remain open to the "possibility" of a rally in the US Dollar in the near term.  The odds of QE2 wrapping up at the end of June are increasing.  The Japanese central bank is determined to see the Yen lower.  The value of an interest rate increase in Euroland is already priced into that market.  The Fed is caught between a rock and a hard place.  End their QE program and the stock market and the economy roll over.  Continue the QE program and the US Dollar plummets and takes the bond market with it driving interest rates to the Moon.  The Fed and the World cannot afford to see the Dollar collapse and implode the bond market at this time.  The stock and commodity markets must be sacrificed at this point so that the Fed might be asked for QE3 in the Fall of this year.  And let's not dismiss our fearless leaders run for re-election...a weak Dollar would not be very supportive of a $1 BILLION re-election campaign.

Friday's Jobs Report and Its Effect on the USD:
By Cliff Wachtel
The US monthly non farms payrolls and unemployment rate report our Friday morning EST was an unqualified victory for QE, the USD, and risk appetite. Not only were expectations beaten, the improvement was widespread in the detail as well as the headline figure, and occurs within the context of an already bottoming USD.

USD Rate Increase Expectations Revised Higher

In recent weeks, there has been growing support within the Federal Reserve to start withdrawing stimulus and the latest NFP report only reinforces the arguments favoring tighter monetary policy, even from the more dovish (anti-rate increase) members like Bullard.

Why? Continued evidence of recovery, a weak dollar, and high commodity prices have made central bank officials both more optimistic about U.S. growth and also more concerned about inflation and asset bubbles.

The key takeaway from Friday’s US jobs report is that the labor market is improving and as a result:

The Federal Reserve will most likely not continue asset purchases beyond June.
Markets must revise their expectations higher for USD rate increases, because jobs and spending data are the 2 key metrics the Fed is using for deciding the extent and pace of stimulus exit and tightening.
The USD is more likely than ever to start rallying.

While the EUR is expected to be raising rates within the coming week, much of that increase is already priced into the EUR. It’s the USD that now has the bullish surprise and new fundamentals on its side.

The JPY repatriation story is fading, so is that of GBP rate increases as both Japan and the UK face new economic challenges, while the US outlook is improving

The Bears side of the US Dollar boat is getting pretty full.  The Bulls side of the boat in Silver is pretty full also. Tippy, tippy....