Monday, April 25, 2011

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.

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