Sunday, July 10, 2011

The Silver Revolution Begins Now

"In a sea of nonsense, very few choose to embrace the truth."
 -Andy Hoffman

Lennon and McCartney

You say you want a revolution
Well, you know
We all want to change the world
You tell me that it's evolution
Well, you know
We all want to change the world
But when you talk about destruction
Don't you know that you can count me out
Don't you know it's gonna be all right
all right, all right

You say you got a real solution
Well, you know
We'd all love to see the plan
You ask me for a contribution
Well, you know
We're doing what we can
But when you want money
for people with minds that hate
All I can tell is brother you have to wait
Don't you know it's gonna be all right
all right, all right

ah, ah, ah, ah, ah...

You say you'll change the constitution
Well, you know
We all want to change your head
You tell me it's the institution
Well, you know
You better free you mind instead
But if you go carrying pictures of chairman Mao
You ain't going to make it with anyone anyhow
Don't you know it's gonna be all right
all right, all right
all right, all right, all right
all right, all right, all right

Gold and Silver staged a revolution of their own last week following America's celebration of  it's 235th anniversary of revolution.  When was the last time Gold rose everyday in the week as it did last week?  And Silver...Oh, my!  Silver gets up off the mat from it's pre holiday drubbing down to $33.46 and rockets up last week over $3 an ounce!

Friday's jobs report was abysmal, and only added fuel to the Precious Metals fire.  I will not dwell on it but to offer the following analysis:

U.S. Payroll Stunner, Full "Pathetic"Jobs Report Analysis
By Goldy Malhotra
Few were prepared for today's grim numbers.

This analysis is revolutionary in that it clearly exposes the lie that our government claims has been a recovery the past two years.  There is, and has been no recovery.

Let us focus on Silver this evening...Silver is setting up for a major revolution that could result in shock and awe for our criminal CRIIMEX bankers and their Federal Reserve puppet masters.

Silver Bottoms Amid Subtle but Bullish Factors
By: Jordan Roy-Byrne, CMT
As Silver hit $50/oz, we wrote a piece titled Downside Targets for Silver. We concluded with: “…wouldn’t you rather increase your positions in the $30s rather than at $45 or $50?” Well, now is your chance. Back then, public opinion was over 90% bulls and Silver was in a parabolic state. Today, we see that Silver has advanced to $35 after failing to close below $33 over the past two months. Furthermore, sentiment analysis is as supportive for Silver as any time in the past few years.

Silver: COT Levels into Accumulation Territory
Bob Hoye, Institutional Advisors
The Commitment of Traders data for futures contracts is released by the CFTC each Friday. The data is compiled as of the preceding Tuesday. For each long futures contract there is a short position. Unlike equities that have a fixed number of shares issued by a corporation, there can be an unlimited number of contracts. For each new buyer and new seller a contract is created (called open interest). In a strong uptrend the open interest will expand, identifying that new buyers are stronger than new sellers. In a rising trend with declining open interest it identifies that the market is being pushed higher by more short sellers exiting positions than new buyers establishing positions. When the last of the undercapitalized short sellers have exited their positions the market becomes vulnerable.

The COT report breaks down the positions based upon the type of market participants. In our analysis we monitor the net positions of non-commercials (speculators) and commercials. The total level of positions can be significant, however, what interests us more is the rate of change in positions. When there is a dramatic decline in positions of both commercial and non commercial participants due to a shift in market direction it serves as a buy alert. As of last week commercials have reduced their shorts by 48% and non-commercials by 61%. This produces the ninth cluster of alerts in the data (available from the CFTC back to 1986).

For those investors with deep pockets it is time to begin accumulating bullion and related stocks.

Here are three paragraphs about Friday's Commitment of Traders Report that Ed Steer stole from silver analyst Ted Butler's weekly commentary on Saturday.

"If there is one word to describe the changes in this week’s COT for gold and silver, it is spectacular. Make that two words, spectacularly bullish. Rarely do we see the reductions in speculative long/commercial short positions witnessed this week. The total commercial net short position was reduced by 6,400 contracts in silver and by 42,500 in gold. Even for someone who believes (me) that the commercials control and manipulate the price of both silver and gold, I stand somewhat in awe of how brazenly and collusively the commercials pulled off this recent sell-off rig job. I don’t use the word collusively loosely. In both gold and silver, all the commercial categories, the big 4, the big 5 thru 8, and the raptors, seemed to divide evenly the speculative selling they were able to induce. I don’t know how that could be accomplished so efficiently without collusion."

"In silver, the total commercial short position dropped to 29,200 contracts, the lowest level since April 2009, when silver traded at $12. The big 4 shorts (JPMorgan) bought back more than 2,200 short contracts, reducing that concentrated short position to the lowest level since October 2006, when silver traded at $11. The raptors (the smaller commercials apart from the big 8) bought 3,400 of the 6,400 commercial contracts bought during the reporting week, increasing their net long position to 12,400, their largest since last November. The 5 thru 8 largest commercial shorts bought the balance, reducing their net short position to among the lowest in years. The obvious takeaway here (aside from all the commercials behaving collusively) is that the commercials are all buying because they expect the price of silver to be higher in time. That’s what you should expect as well."

"As painful as these deliberate sell-offs may be, they are also setting the stage for a rally of monumental proportions in silver. That’s the essence of the COT. I make a point of telling you what the price of silver was the last time the short position was as low as it is now because I believe you should look at silver as if it is $11 or $12. The beauty of the COT is that it does not consider price; all it is concerned with is structure. If the structure indicates a large speculative long/commercial short position, then the danger of a significant sell-off looms large. If there is a small historical speculative long/commercial short position, a large price rally would seem to be in the cards. Currently, there is a small historical speculative long/commercial short silver position."

The Silver Platter Opportunity [MUST READ]
By: Jim Willie CB, Hat Trick Letter
Every few years, a tremendous opportunity arises. The autumn months of 2007 and the autumn months of 2008 offered such an opportunity to buy silver. That $11 silver price is long gone. Many smart folks seized it. Whatever can be said on such silver platters applies almost equally to gold. The silver sprint gains are typically much larger than the gold steady gains. The coming autumn months will feature a gaggle of supposed financial analyst experts backpeddling in their hasty damage control. They have been broadcasting a wide assortment of low level propaganda posing as competent analysis, as they attempt to make the point that the anti-USDollar trade is done, the gold trade is over, the silver trade is spent. They are so wrong. A comedy of clumsy oafs and dolts on the Wall Street payroll awaits the public in a grand chapter on stage. They will struggle to explain the move in silver over $50 on its way to $80 per ounce. They will struggle to explain the move in gold over $1600 and then $1700 per ounce. The mainstream news has been deeply involved in a delicate balancing act. They must report the news, but it is almost all very bullish for the precious metals. A new financial mini-disaster unfolds almost every week. Last two weeks were Greece. The next week might be Portugal. They must report the news, but it paints a picture of a broken monetary system with debased currencies. They must report the news, but it openly provides the gory blow by blow details of ruined sovereign debt. The United States debt situation is Greece times one hundred.

This week, the loquacious jackass will permit some lovely pictures to tell the story. Three graphs adequately tell of a grand opportunity to latch onto the powerful Gold Train with a super-charged Silver Scout. Who were the smart buyers back in September of 2007? The false phony deceptive mainstream message then was that the subprime mortgage problem was contained. That was the first major stumbling block by the hapless witless clueless USFed Chairman Bernanke. He has made not a single correct economic or financial system analytic call. Who were the smart buyers back in October of 2008? The false phony deceptive mainstream message then was that a TARP solution was being put in place to save the US banking system. The solution turned out to be basic largesse to the big US banks, enabling purchase of preferred shares, enabling outsized executive bonuses, and enabling secretive bailouts of banks across the globe. Without the Financial Accounting Standards Board allowance for insolvent banks to continue to dictate the value of their own balance sheets, otherwise known as systemic accounting fraud, the big US banks would have been liquidated. The entire Too Big To Fail principle is actually a battle cry to avoid solutions, to protect the banking elite that was mostly responsible for multiple $trillion bond fraud and mortgage fraud. Without any reservation, it can be said that TBTF means No Solution, no remedy, no recovery, and no attempt at anything remotely resembling a road to economic recovery. In my view, TBTF is the epitaph on the USEconomy and the nameplate on the USTreasury Bond default. So who were the dummies who ignored the opportunity to buy gold and especially silver in September 2007 and October 2008? The majority of them listened and trusted the mainstream news, the Wall Street misdirection, and all their fallacious messages.

Transcript for Eric Sprott - Paper Markets Are A Joke: Prepare for Bullion Prices to Go Supernova[MUST READ]

Last Monday I posted a chart of Silver suggesting that Silver's battle for independence would begin at $36.25 with a possible short squeeze triggered at that price point.  Silver has responded admirably to it's call to arms.  Silver slipped right past resistance at $36.25 and roared right up to the Silver bears first line of defense at $36.75.  The battle for Silver's independence will be joined here by bulls waiting on the sidelines to "buy the dip" from this level as weak handed longs gladly dump positions and "break even" at this price they put on two weeks ago expecting a breakout then.  They may be sorry...

The charts posted below make the long and short-term case for an imminent Silver breakout this month...contrary to the "summer doldrums" crowd.  Silver at $35.50 is the key to the whole Revolution...that was the spark as it is the 50% retracement of the run Silver made from $21 last Fall up to near $50 this Spring.  As Silver clears resistance at $36.75 it should encounter another skirmish around $37.84.  Expect another dip buying opportunity as more weak handed longs look to dump positions happy to break even once again. 

Once Silver clears $37.84, prepare for a Revolutionary fireworks show near the $39 price point.  This is where the Bulls are sitting to pounce on the Bears.  I do not expect to see the $39 level fall before mid-August...however in this Silver market, you never know what might occur.

I'll let the charts tell the rest of the story:

By George Maniere:
I want to begin with a review of what I learned by my study of the Silver COMEX. In my opinion, there is no debate regarding any physical shortage of silver. It is real and it is undeniable.

Going back to May 2011, 2,166 contracts stood for delivery in the silver futures market. By the end of the first full week, two-thirds had accepted cash settlements to forgo claims on physical metal. For July 2011, 2,397 contracts stood for delivery. In the first two days of July, 697 have already given up their claims compared to only 120 contracts filled by supposed physical delivery. The COMEX only has about 29 million ounces available for delivery to serve those 2,397 contracts (representing about 12 million ounces), so there is no doubt that they have every incentive to induce cash settlement.

As you recall in the first week of May 2011 silver cratered from $50.00 an ounce to $32.00 an ounce in one week. At least the contract holders in May had the massacre to excuse their cash switch. The price had fallen so sharply during that first week that there were probably more than a few who had contract strikes in the $40’s. Financially, the huge mismatch between the strike and the spot was unappealing enough for May contract holders to accept a cash payoff. That payoff was likely far above the spot price, meaning that they were able to pare some of the losses incurred during the silver crash, though I believe more than a few actually made money. [Read: Gold & Silver ETFs: Buy High and Sell Higher]

The price of silver going into July has been pretty steady, though volatile. However, there is no crash-induced incentive to accept cash over physical. The fact that so many people are taking the cash route so early in July leads me to conclude that a hefty premium is being paid to compensate contract holders to give up delivery rights. Is there any other possible financial reason that contract holders would take the trouble to deposit funds into their COMEX account to fully prepay silver delivery and then just accept a cash settlement?

These speculators, as much as they are dismissed as greedy and evil, are performing a simple task that all markets are supposed to feature: price discovery. If there is a physical shortage, and I believe that these cash speculators are showing that it is very real, it should follow through to the price of the metal. Only price discovery can alleviate the shortage – that is the free market way of allocating scarce resources. Yet, after May’s price action, it has not.

This brings up an important distinction that is not supposed to materialize in a free market exchange. If these speculators are indeed obtaining a cash premium in the futures market, then the premium is the actual price of silver. The published spot rate is nothing more than a show.

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