Now Testing Bottom
Gold is now testing the $729 level that our mystery technician correspondent?identified several months ago as the likely low in gold, but thanks to its spunkiness yesterday silver is managing to stay above its own low of?$9 reached a few days ago. An analysis by the same technician calls $8.88 in silver a very important level but is willing to suspend judgment down to the mid-$8 level should gold?decline marginally below?$729.
I think it’s?fair to say?that even U.S. dollar bulls are now caught by surprise at the reserve currency’s resurgence given that?the United States holds the?primary role in leading?the world into the current?credit and financial?mess. Is this dollar rally illusory or somehow the result of currency manipulation? I think not. The fact is that there is a very strong demand for U.S. Treasury securities, which coincidentally is keeping interest rates low. Foreign buying of U.S. Treasuries requires buying U.S. dollars first. Actually, this is true only to the extent buying of U.S. Treasuries exceeds the U.S. dollars acquired as a result of the trade imbalance, which is precisely what appears to be happening right now.
In addition, the recent increase in FDIC insurance and other?U.S. Treasury and Federal Reserve actions?may have resulted in?large?depositors moving funds back into?the U.S.?banking system. Even if this has happened only at the margin, it might have been enough to tip the scales. Yes, I know that many other countries have also?started to?guarantee bank deposits, but if?this?Mother Of All Crises continues to its inevitable conclusion, even some of their own citizens?would probably prefer to have their money in U.S. banks. By contrast, I don’t believe that many Americans are looking to move money into?foreign banks at this point. If they are moving money, it is to put it under the mattress, or in small numbers (what will likely turn out to be the “smart crowd”) into gold and silver.
It used to be that?on the way to the inverted?peak of Exter’s pyramid [PDF] where gold (and silver) resides?were the more ethereal forms of fiat?money layered according to counterparty risk. The fiat currency itself, in paper form as Federal Reserve Notes, has the least?amount of counterparty risk and therefore it was the layer closest to gold. Yet recent government guarantees of bank deposits, commercial paper, money market mutual funds and other investments?raise an interesting question. If?every form of fiat money is just as good as?any other form,?what?happens to Exter’s pyramid?
My initial answer is that the pyramid has been?flattened and now sports?a much broader base, with the necessary result being that?the?angle of monetary devolution from more risky forms of money into?the risk-free form (gold) has just gone from steeply vertical to almost horizontal. In other words, it is?possible that?virtually all?forms of money?and not just Federal Reserve Notes now reside just a single step away from the peak of Exter’s pyramid. If true, this theoretically means that vast amounts of wealth?are now poised to move into gold should conditions warrant such a move.
Putting it yet another way, if every form of fiat money has received a guarantee or bailout, there isn’t much reason to move wealth between these forms other than perhaps to chase a?higher rate of interest. In effect, fiat money now exists as a single layer. Adding up all the sums, this single fiat layer now consists of tens of trillions of dollars (and Euros, Yen, Remnimbi, etc.) that is now a single heartbeat away from gold.?I can’t recall?a historical episode where this has been the case, but perhaps some of you can correct me. In any case, it would seem to me that a flattened Exter’s Pyramid is a bullish precondition for a historic flow of funds into gold.?The mere existence, of course, of a?precondition does not mean that a particular event will or will not happen, but it is an enabler for a path or least resistence especially when we consider the eventual need of governments worldwide to inflate or die.
If any of you with artistic talent happen to also have a handle on Exter’s pyramid, I would ask that you consider illustrating the “Flattening of Exter’s Pyramid” and sharing it.
Finally, a quick note on those copper put options. Any of you still holding these should really consider taking the majority of profits now. The December 250 puts traded up to 6650 points ($16,625) today as copper fell toward the $1.80 level. Even if you?are unable to?sell many of the puts?for that price (you probably cannot given how thinly these options are traded),?you can easily offset them with long positions in the copper futures. As I write this, you?should be able to?lock in profits of around 7000 points ($17,000) per put option, which is not bad considering they cost around $200 each when I first discussed them. While my copper price target of $1.60 still looms large,?a prudent speculator will have?taken profits on the majority of the position?and?will?only have a small portion?left to?”let it ride”.
Look how low the gold and silver forward rates are!!!
http://www.lbma.org.uk/2008gofo.htm
http://www.lbma.org.uk/?area=stats&page=sifo/2008sifo
In some respects, the physical silver market is even more stressed than gold right now — both of them have the lowest forward rates they’ve had all year.
I would be ALOT BETTER OFF today if you had voiced a similar trade in Silver…Buy Puts at the top…as you did with Copper…Silver…now down to $9+ from almost $20…OUCH!
Don’t complain — it’s your fault if all you do is look for tips on the internet, follow them, and then blame those tips for your own inability to do research and make decisions.
If you can’t stand the heat, get out of the kitchen! Buy dollars! Go long 30-year T-bonds!
Tom says,
While not trying to distract from this question, I have to wonder if it is relevant (given the rise of the dollar)? To me it seems that given our post-Bretton Woods fiat regime, other fiat guarantees are all subordinate to the US’s.
Also, doesn’t Professor Fekete talk about US Treasuries becoming the new lowest layer of the pyramid above hard money, replacing FRNs, due to the guarantee, plus it is an interest earning asset (nominally, at least)?
With so many things priced in dollars, I would think that Treasuries and FRNs will still demand a premium over other currencies. Of course, the White House announced this morning they were holding the next series of Bretton Woods international finance conferences in DC starting on 11/15.
Which could render the whole existing fiat system moot, while they construct a entirely new pyramid.
Which might be the only way they have to try and prevent the flattening that Tom has identified?
Or are they using this scheme to further flatten the pyramid down to a global fiat currency?
Whatever they do, you know they are gonna name it TINA (There Is No Alternative).
J Hunter: I’m pretty sure I discussed the copper puts in no uncertain terms as being a hedge against falling gold and silver prices. The difference is that the equivalent put options in silver would have cost 3-4 times more. Besides, silver puts would not be a correlated asset and that would have meant the very distinct possibility of lifting them way too early (the reasons for that are beyond the scope of this discussion). But the most important thing to consider here is that copper did have strong fundamental reasons to reach a target of $1.60 - $2.00 whereas it would have been difficult for anybody to believe in July that silver would be trading at sub-$10 within 3 months.
(8??: You make valid points but they are sideshows to the main point I’m making, which is that most of the pyramid is now vertically very close to gold, making it very easy for a spillover.
Man! Things are starting to look mighty scary out there in fiat land. The dollar is KILLING all competitors. The more people/funds leaving stocks at every selloff, the higher the buck goes. Bubble status was reached at 80 and today it is just under 86! All the fresh trillions that carry “no risk” are being used in ways Paulson and the boys didn’t forsee. Banks are desperately trying to shore up their balance sheets, using every predatory and unethical trick in the book against their peers.
If countries outside of the G7 dollar cartel don’t lick the boots of their superiors, the door to commerce slams shut in their faces. China may be the only exception.
I was hoping for a somewhat orderly move from bonds to PMs so maybe I could still buy food at the store and gas up anytime I felt like it with my newfound PM wealth. But now, a quick(less than a week), bank holiday, gas rationing, martial law, local commerce halting dollar crash looks inevitable. Were screwed.
We’re screwed? No, we’re not. The dollar is on the verge of a black swan collapse that will yield a reverse in the price of pm’s faster and farther than their decline. You will have time to cash in before the authorities realize what is happening and look for steps to close the door. It won’t be orderly, nor do we want it to be so. Disorderly, violent, quick, and huge, like all else that has occurred recently. If it does not result from a collapse of the dollar, it will surely come with a delivery default in another month.
Tom,
FRN -s and deposits (digital dollars) can not be on the same level of the pyramid as the second is guaranted by the first. When this guarantee is claimed the pyramid will reflect a risk difference. The fact that it seems flat now is due to whatever is promised by the FED to avoid bankruns. The whole system is built on promises and at the end, they go hand in hand to hell. However, right now we are interested in the dynamics. I dare say it will not be flat right before the end as we observed a few weeks ago under the almost terminally strained conditions. People need tangibles even if it is paper. Decades long conditioning keeps working.
Don’t underestimate these guys Kondor. They could pass “emergency” legislation tomorrow to make it a federal crime for individuals to sell PMs to anyone except agents(banks) of the government and set the price as well. Look what they did with short sales on financials. They demonized people who were participating in completely legal activities. What is a guy gonna cash in his PMs for? Sudden devaluation of the fiat you were paid in shortly after you cashed out puts you right back in the toilet.
As the good Professor put it, the last contango is occuring in paper but in physical it seems that the backwardation had begun. If all that “fiat” money falls into gold and silver the price will explode (in fiat terms); because no one will part with their precious metals for “fiat” debt/credit money of any kind. Would you part with gold and silver for fiat money? Fiat money is some one elses promise; would you take it in exchange for precious metals?
The collapse in confidence of fiat money has already started with us “fringe” buyers. I do not have any confidence in fiat, begining for me all the way back to 1970 (yes, I am “mature” in years). In fact my confidence first starting cracking back in 1958 (yes, I am really “mature” in years). Even back in ‘58′, as a kid, I sensed something was wrong with the US fiat money system. What percentage of the people will it take to reach the “tipping point” for the collapse of confidence? 1%, 2%, 5%, 7%, 10%? Who knows? No one!
The “tipping point” for the confidence failure will only be clear in hind sight. I have been preparing since the early 1970s and I am still frightened; I can only imagine the PANIC building in the minds of the masses who have given these events no thought. The reason for the insane price projections for silver and gold, by gold bugs and silver bulls, is that fiat money will loose any value, over night, because in truth fiat money has no value, never had value, and never will have value!!!
Imagine people who have only thought in fiat dollar terms for every thing in their life; the value of their labor, the value of their savings, their career course, even their definition of who they are; all being threatened with utter distruction in an instant…when that “tipping point” is reached…and the concept of worthlessness of fiat money sweeps through the masses like wind throug fields of ripening wheat. At least wheat plants are rooted in the earth; people are not…they have feet and will all try to get out the same door at the same time.
This “tipping point” will be THE MOST TRAGIC EVENT in human history. The illusion of fiat money has created a ficticious world that cannot sustain itself. We live in a “technology trap” (the term used by James Burke in his 1975 BBC production “Connections”; and yes he could see where this was all going even back then.) Billions of people will be crushed, distroyed, destitute, and desperate; capable of doing anything. If you are going to stay in a major metropolitan area, you will need more than a stash of food and some precious metals. I’d advise you to have a “bug out plan” back up. You will have to leave; the masses will be too numerous to “deal with”; even if you have water cooled machineguns and unlimited amounts of ammo.
Forwill,
If only the Feds would make metals illegal to sell to anyone but an official agent. That would be the catalyst to send metal prices on an interstellar voyage. Human psychology seems built to respond to commands; “Don’t do that”, “Can’t have that” with “Must do that”, “Need that”. There would be a widespread black market before the day was out after such a government edict.
And exactly how do you suppose the rest of the world would react to such an imperial order from Washington?
No, fond as such a dream might be, metal confiscation, metal control by the government in buying and selling just is not in the cards (though government is stupid, so it can’t be ruled out altogether). Instead, the government will continue to rely on ignorance (courtesy of the educational system) and deception (from the boyz on Madison Avenue and in Hollywood). Those tools have worked very well for several generations now and a winning strategy is not easily abandoned.
A year ago, heck, 7 years ago, I would of thought that foreigners (every place but the US) would have seen through the ploy long before now. But the facts don’t, yet, show the rest of the world calling the US bluff. Greed and inertia still rule but fear is rising. And the emotion of fear destroys the confidence the current system is built upon. All the recent government actions are designed to quell the rising fear. But those actions can’t even quell the fear between bankers.
We all think we know how events must end (frantically rising gold and silver prices). And in a rational world they would be rising now. But we live in a irrational world. And crazy folks can do anything.
Even in an irrational world, that last item should send metal prices soaring. Unless there are only 17 rational people left on the planet.
In which case we 17 have much larger problems than metal prices.
I personally don’t think confiscation will happen for a while - at least not with an Obama presidency. I can see the Bush administration doing it, but I really can’t imagine Obama outright seizing people’s personal property his first year in the White House. For one, he seems far more level-headed than Bush or McCain and less prone to making rash decisions. Second, there is a sizable percentage of the population that distrusts Obama and believes he is a Muslim or anti-American - can you imagine the backlash from people (even those who don’t own PMs) if he started seizing people’s property?
I do worry that confiscation may happen at some point, but I don’t think it’s in the cards in the near future. Knock on wood.
Jeff, don’t be so trusting of the false prophet ?bama. He’s got plans for people like you and me.
http://www.youtube.com/watch?v=AdF5TQIv1fU&feature=related
Precious metals are already being confiscated by way of rationing through the mints and control by way of the ETF’s. These are designed so that you do not actually possess the physical metal - unless you are a large investor willing to cover all the overheads and paperwork associated with taking delivery.
Jeff,
FDR also rode to power on demagogue promises. Obama is so cryptic that his followers could read anything into his words. The media is hyping up the populace. Expect also the terrorist card to be played to bring McCain closer. Then with huge turn out Obama will have the mandate for everything. Upon that, what will prevent Barack the First from doing whatever he wants. Another New Deal or even worse is already in the cards.
I agree with Antifiat. Soft confiscation; ration availability, herd investors into etfs then liquidate them for fiat. Low profile. Your coins are safe “numismatic” private property but US gets gld, UK gets iau and slv. The brits will rename their currency the gram as it will contain 1 gram of silver worth about 5 of the old pounds. The US has to use it’s gold to pay off some debts and feed the military. The new currency is called the McDollar and is redeemable for one Big Mac or equivalent.
Guys anything is better than Bush. We already have socialism. Remember1980 the end of the Carter admin., the hostage crisis inflation etc. It was a very very dark time in 1980. I’m sure mark Bee remebers. it looked like the end for the US. Reagan came in on a white horse and saved the day only to start us down the path to where we are today.
We have to give Obama a chance. He has his plan, he’s a smart guy and has smart advisors. And he’s gonna need all the help he can get. Especially if his VP is right and he gets a big test right after office like Iran testing a nuke in Feb 09. Latest intel says they can. Obama does not want any more war.
BTW I’m not a fan, probably won’t vote for him but much prefer him to McCain/Palin
We’ve still got the most dominant military and surveillance on the planet and most of the other governments don’t have anything to replace it with.
So the world is still going to be stuck with the dollar. The big shorts are really bulls and will take all the bullion and miners they can steal which is what they are doing right this second. (along with other oversold assets) Then Gold and silver will be slowly set free and eventually have a major role in maintaining some kind of Intl. monetary discipline.
To those who disagree that the dollar will survive tell me what happens to Japan, South Korea, Saudi Arabia, Kuwait ,Dubai, Europe and Taiwan without the US military umbrella while in the midst of an international financial system in disintegration? Play that one out for me if you could because that’s where I get stuck.
Tom : (From an earlier post) I didn’t mean irritate you with my $730 technical support comments. If I did so, my apologies are due.
However I beg to differ regarding the size of the gold market. From your own comment the gold market is $3 - $4 t. Is that big? I mean compare it to the US Stock market - $40 t before the crash. US property market - $40 t in 2005. bond market - $10 t & growing exponentially. If you compare it to the derivatives market $1000 t or more depending on how it is estimated. Here I have included only the US data.
And the silver market is peanuts. As to your gold investments - only it has one way to go - UP.
One more thing - I wish your family peace & prosperty.
You Guys…..all this talk about confiscation……might just as well SLIT ONES WRIST….LOL. Who knows what will happen…..ALIENS might come down and confiscate all the GOLD AND BULLION in the world.
All I can say is this…..what is going to happen to this country goes way BEYOND confiscation.
Am a watchin these two which are at extremes:
USD/YEN….. 96.95 -0.95
VIX…………70
Currency strategists expect DOLLAR/YEN at 95…..may mark the end of liquidations/unwinding carry-trade/redemptions/dollar short squeeze over……guess will just have wait and see because mass corporate debt defaults ar coming.
Almost forgot people,……….this bulletin just in:
http://blogs.cfr.org/setser/2008/10/21/the-end-of-bretton-woods-2/
forget about gold or silver confiscation. The government already has most of the world’s gold in the FED in New York, the depository in West Point and Fort Knox. The amount held by individual Americans is tiny. In fact, I suspect that less than 2% of the US population has any gold (other than a wedding band).
I don’t have these numbers, but just add up the mintages of gold eagles, canadian maple leafs and krugerands and then divide by 2. This is an approximation for the amount of gold held by Americans. Compare this with the figures in Fort Knox and the FED in New York. It will be a small percentage.
PS. don’t bother doing this calculation if you subscribe to the ridiculous theory that there is no gold in Fort Knox.
I did a quick check of the gold coin mintages and the gold reserves.
Fort Knox has 147,000,000 ozs
FED depository 160,000,000 ozs
US gold Eagle mintages 14,000,000 since 1986
Approximate Canadian and Australian mintages 10,000,000
Krugerrand - don’t have this - but probably less than 50,000,000 since 1967.
Numismatic (old liberties, british coins) - Unknown
Probably less than 1,000,000 total
small bullion - less than 1,000,000 ozs.
There might be 20,000,000 gold one oz coins in the USA.
US citizens own substantially less than 20% of the what is in Fort Knox.
If the government wanted to re-establish a gold standard they would not need to confiscate anyone’s gold. I would worry more about the government confiscating your IRAs through taxation.
Could someone verify if my thinking on lease rates is correct? im not sure if this has been discussed recently - im new to this amazing blog…
Could the sustained (and unprecedented in the recent history from what i can see) rise in silver and gold lease rates signal the realization on behalf of market participants that all available fiat (including the global reserve currency) is not a reasonable store of value and that PMs are the true store of wealth? If the lease rates represent the benefit of engaging in lending out existing savings (traditional activity of a saver to get benefit of savings), then is not the rise in PM lease rates while all other benchmarks for cost of lending (Libor, euribor, fed funds rate, and ultimately prime rates) are decreasing indicate that finally PMs are being recognized as money??
i realize that not all benchmarks for the cost of lending are lower - in my mind some of the market derived rates are temporarily irrational given lack of confidence and counterparty trust among participants. so assuming costs of borrowing are lower (they are if one borrows from the source of fiat - central banks), isnt PM lease rate behaviour indicative of their true monetary status - or at least saver’s acknowledgement of their monetary status at the margin?
if so, isnt this what we have all been waiting for?
cheers - great discussions going on here - fascinating stuff!
Alex,
Try Goldsextant.com ….. the essay’s should answer most of your questions.
Thanks for that Freddy. I think you meant goldENsextant.com - the other one is a no-no at work LOL!
Pardon me for this typed error…. hope nobody was watching you!
MORE INTERESTING GOLD DATA:
According to Fortis Aug 2008 report Total Gold Hedging postions are down significantly since last year:
Total World Gold Hedges in Ounces
2007 Q2 = 34,450,686
2008 Q2 = 18,981,361
DECLINE of 15,469,325 in one year
DECLINE of 4,204,898 from Q1 2008
Largest change in hedging by company (000 oz)Moz (Committed) Q1 08 Q2 08 Change
AngloGold Ashanti 10,035 6,894 (3,141)
Sino Mining 285 0 (285)
Barrick Gold 6,660 6,400 (260)
Newcrest Mining 209 0 (209)
Now, year over year those Companies that reduced their Gold Hedging the most from Q2 (2007) - Q2 (2008):
AngloGold Ashanti (4,238,562)
NewCrest Mining (4,200,000)
Barrick (3,100,000)
http://www.kitco.com/reports/fortis_aug2008.pdf
This is another good sign for HIGHER gold prices into the future. Just too many GOOD FUNDAMENTAL ASPECTS for the RISE in price of GOLD and SILVER into the future.
Couldn’t lease rates be rising as demand for recapitalization increases and banks see leasing gold and selling it as a means of obtaining the capital?
While I’m sure there is certainly gold in Fort Knox (since you and I pay for its storage), who owns it?
I don’t know where the data is, but I remember at one time that Treasury reclassified roughly 95% of their gold as being in “deep storage.”
My guess is that most of the gold is owned by either the bullion banks, their clients, or whoever they sold it to as they swapped it with Barrick for proven in the ground gold reserves, or “deep storage.”
Given the criminality of this unconstitutional government, I do not for a second believe that it hasn’t been raided, as it is far to valuable to ignore. They just did it “within the form” to quote Garet Garrett’s “The Revolution Was.”
To those who think the world will turn upon the words of either Obama or McCain, I’d recommend reading this classic, where the value of words are shown to be immaterial in light of actions, except for deceptive propaganda value.
Better yet, if you take out the names and dates, it reads as if it was written today. “The banks won’t lend to each other, we have to do something!”
Which is why I have to doubt Tom’s scenario. (BTW, I’m assuming he is talking about all nations’ guarantees, and not just the US, otherwise I agree, one US backed paper is no different than any other, flattening the dollar-based pyramid)).
Every banking crises has been created (or fostered) in order to further their control as they reabsorb our wealth, in the manner of capital destruction via interest rate manipulation as noted by the Professor. As he said, it works like a bellows, sucking up wealth in one place and depositing it in another. All in order to prevent competition from real capital, our savings.
I see this crisis as the next attempt to globalize inflation under a single entity, as they believe if they can monopolize paper production, they can keep the monetary cat in the bag. Problem is, over time we manage to recover and create new wealth, loosening their stranglehold, so they need to create a Maestro to destroy it all over again. All while giving lip-service to the “free-market.”
Speaking of Greenspin, that *&(&%###!!!, he is actually testifying how he warned us all about the consequences of ignoring risk. Even Mark Haines on CNBC called his testimony “a crock.”
The rise in “lease” rates is a result of the drop in the forward rate, which means there is more spot demand for gold and silver than there is forward demand. One reason for this is that apparently come of the central banks and other lenders of gold are not willing to renew gold “leases”, which means the “lessees” have to go out into the market and buy gold. Another reason the “lease” rate has fluctuated is the change in LIBOR. Recall that “lease” rate = LIBOR - Forward Rate. You can find more discussion about lease rates in my older comments as well as here: http://www.silveraxis.com/commentary/gold_silver_leasing.pdf.
“Deep Storage” of gold refers to U.S. gold reserves held in sealed vaults and not part of the U.S. Mint’s working stock, it is as simple as that.
Tom, you have attracted such a high quality of participant here.
Each of the contributors — Andras, Kondor, Mark Bee, Rob, Eddy, (8?> — has added such a sharp and clear point to the entire picture.
We may not be the six blind men trying to describe by touch the elephant standing next to us, but we are certainly “small” people trying to survive a tsunami coming at us, which has our fellow humans hypnotized on the beach watching, and, unfortunately, still supporting with their labors the powerful few who are attempting to ride it to greater power.
The Exter pyramid has stuck in my mind since first encountering it, though it has evolved in my imagination into an hourglass shape, as I have studied more the Fed balance sheet and its recent momentous changes.
There are now only 853 billion FRN dollars in circulation (up 38 B from a year ago) and we know a big fraction of those are under mattresses “in Poland”, or used to be.
Americans have not yet made a point to collecting their own currency, though it is the only “solid” evidence of Fed “liability” on the balance sheet. Indeed, it is the very definition of “a dollar”.
All of the money market funds, T-bills, T-bonds etc etc are nothing if they cannot be readily converted into the paper FRN. (Yet the FRN can be transformed into any of these forms of “wealth”.)
Here is the hourglass shape I imagine: At some point, all of the $10? $15? trillion of “dollar liquid” assets will test whether it can convert itself into FRNs. Of course, this is the definition of bank run. (Never mind that the FRN is not really convertible at the Fed into any solid asset — it is merely a psychological representation used in trade.
(I better hit Post now and then continue — this hotel computer is flaky at times)
A little Silver COT update
The large speculator net position in silver futures reached a recent peak in Feb, 2008 (this was not an all high position) of 52,000 contracts net long. This position has now been reduced to 18,000 net long contracts (as Oct 1, 2008) and 17,000 contracts in the most recent report. Generally silver prices closely parallel net speculator positions. It actually quite a good correlation.
(The only exception was in early 2006 when net speculative long positions declined and net commercial short positions also declined. This was during a furious run-up to $16/oz. It was apparently due to panic conditions by the commercials.)
A total of 34,000 NET long contracts have been sold - most since Sept 1. this is 170,000,000 ozs of paper silver on the market just from the large speculators. A total net silver contracts of 17,000 by the speculators is consistent with most silver bottoms. The only exception is in 2001 when the total net went to zero and the price fell to about $4/oz. However, at that time, during the previous ‘boom’ the price of silver had only reached $5.50/oz. Also, it followed the tech bubble bust, the Buffett silver purchase and was prior to the establishment of the SLV trust. In addition, you could actually buy as many bags of junk silver coins as you wanted back then.
The small speculators have also unloaded their positions very heavily. These dropped from 22,000 NET long contracts to 10,000 NET long contracts. A remarkable drop considering during most ups and downs in the silver market, the NET long position of the ’smalls’ is rarely under 20,000 (they are quite consistent). Apparently, this ferocious decline wiped out many a small speculator - normally it doesn’t.
Bottom Line - silver should be near a bottom soon around $8 - $9/oz Unless, the market goes back to the 2001 market where the large speculators were nearly out of the market and the open interest was very low. Under those conditions we might fall to $5 - $6/oz.
Notice I didn’t mention the commercial operators, the raptors or the 4 concentrated shorts very much. Of course they have covered their positions since they ‘balance’ the long speculators and the smalls. However, with the exception of early 2006, the silver market rarely moves as a result of their actions. It is clearly the large speculators that make the silver market move. Most of the commercials may be simple ‘market makers’ who take the other side of the trade from the commercials and smalls. The large specs are mostly trend following black boxes who come and go with the wind.
Ted Butler is correct in one aspect - if they didn’t exist the price would likely be much higher. There would be no one to take the short side of the trade from the smalls and large speculators. Since the smalls rarely want to take the short side, this duty would fall on the large speculators. Would they be willing to do it.
Yes, but it would cause much different silver market dynamics and much higher prices.
Oh, I was going to cite the concepts posted above that helped stimulate my thinking (in 3, or 4?, dimensions, like a big, wacky hydraulic system).
The pyramid going vertical, the exchanges defaulting on pyramided promises, tipping points, 17 rational people left (it’s lonely at the bottom of the pyramid!) the engineered crisis to centralize control — when dinosaur banks clash, we blades of grass get crushed!
Also, a quirky note i may be original in citing: Last week, the Fed’s balance sheet here
http://www.federalreserve.gov/releases/h41/Current/
had the gold reserves near the TOP of the list — first time in my memory! — then today I look, and they are back down at the bottom. How wacky is that!
Of course, I’m expecting (as I guess Sinclair is) that at some point that gold reserve becomes the last-ditch ace-in-the-hole to backstop a new currency regime. (I appreciate Eddy’s somewhat-reassuring research on available coinage out there!)
But a had an experimental train of thought yesterday that impelled me to write this: The dollar price is not reflecting greater issuance that ought to reflect the ballooning Fed/Treasury promises now at $2 trillion or more.
Just the off-chance thought that Bernanke or actually the PTB behind him intend to NEVER issue those actual FRNs and devalue their own balance sheet all the more.
How might this be accomplished?
The utter impossibility of the above-mentioned attempt to convert all the financial assets ($10 trillion plus?) into core FRNs would dictate they be shunted off into some parallel asset world (if not money Heaven or Hell, then maybe Purgatory?) sort of like happened with Argentina back awhile ago, but on a much huger scale.
It would have to be some kind of time-deferred, government-promise backed, future “personal retirement” account. Something where you are promised you’ll get your money “when you really need it. It’s still all there! Really!”
Allowing minimal current withdrawals, based on age and means testing?
And then let the hope and expectation of future economic recovery (gov revenues — by taxing whom?) smooth out the anxiety about inaccessibility of current “wealth”.
In other words, everyone takes a haircut, using time to devalue the current fiat-denoted assets, and allow trust in gov and math-fuzziness to cloud the extent of actual loss. Keep them from rioting in the streets (I’ve never pictured passive Americans much likely to do this anyway)
It’s an “out” they still have, using time and ignorant passivity, to mask losses of real capital.
Now, what would this do to Dollar Index (most of which currently is only a stat held up against, what?, Euro, Yen, Pound?)
What does this do, short-term, to metals prices? Do they sky on the news? Or simply rest at 700-900, 10-20, content that they are still a real, accessible wealth asset?
I don’t know. My imagination has exhausted itself at this point. I need a workout, a shower, and breakfast. Maybe a new brain, with more dimensional capacities?
You guys are great!
If only I had googled first…
“deep storage”
Also, I guess if I’m going to take up your time, I better go pay my “Founding Member” dues.
Ooops, broke my link
deep storage
Hi there! Your Post “Now Testing Bottom” is very interesting for me. Unfortunately my written English is not so good so I write in German: Dir, meinem liebsten, geh