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More on the Friday Spike in Silver

May 10th, 2010

On Friday silver went on a tear starting around noon Eastern time, eventually adding a dollar per ounce and recovering much of the losses suffered earlier in the week. In the meantime gold remained steady above $1,200 per ounce after having caught very impressive flight to safety action while the Greek debt inferno continued to blaze. The fact that silver would have risen strongly on Friday should not be surprising as it was merely recovering its follower status behind gold, which surged pretty much all week and came within a whisker of making a new record high. What is surprising is the nearly vertical lift-off by silver around noon Eastern, and Karl Denninger thinks he knows why:

You don’t think that GOLD was being speculatively shorted beyond intraday position limits, do you?  That oval, by the way, is right when the announcement was made.

Or shall we look at SILVER?

Actually Karl, it is very doubtful that gold and silver were “being speculatively shorted beyond intraday position limits”. The reason is simple. As of the Disaggregated COT of May 4, 2010, there were a grand total of 8,627 speculative short futures positions in the reporting category (by definition a non-reporting position cannot exceed position limits). Since the speculative position limit in silver is 6,000 contracts (1,500 in the delivery month but there were only a grand total of 600 contracts outstanding and 418 contracts traded in May COMEX silver on Friday so that limit could not have been exceeded) that means one trader would need to hold the vast majority of speculative short positions. Yes, I know the CFTC warning is about intraday positions but still there are 30 large reporting traders in COMEX silver futures. It is simply inconceivable that a single or even a group of large speculative traders could have each been short more than 6,000 contracts of COMEX silver on an intraday basis especially when we look at the charts and note the trading volume that occurred in the active July 2010 COMEX silver contract during and after the price spike:

si-n0_05_07_20101

That certainly is impressive volume but not nearly enough to allow a single large speculator, much less a group, to scramble out of thousands of speculative short positions in COMEX silver in order to supposedly comply with the CFTC warning.

The speculative short position in COMEX gold appears to be somewhat larger but gold didn’t make anywhere as spectacular a move as did silver on Friday. It turns out that in COMEX gold there were 40,964 short futures held by 66 large speculators as of May 4, 2010.  Here is the COMEX gold chart for Friday:

gc_m0_05_07_2010

The above volumes in both gold and silver are quite consistent with the volumes we would see when a strong price rise takes place toward the end of the trading session.

So it wasn’t speculative shorts in COMEX Silver or COMEX Gold that the CFTC was warning. Who then was it? Very likely it was aimed at oil and gas traders as part of the CFTC’s ongoing effort to police the energy markets. Some would say those efforts would be better spent policing the precious metals markets but that is besides the point.

Why then did the price of silver jump by such a huge amount at around noon Eastern on Friday? It is quite possible that some traders reacted to the CFTC advisory by assuming that large speculators would have to immediately exit short positions that exceeded speculative limits in COMEX silver. But as we have seen, it is unlikely that any such over-limit positions do actually exist in COMEX silver. In other words, some traders might have become falsely emboldened to make a charge against enemy lines. If so, we are probably going to see silver give up most of its gains above and beyond the $18 level quite soon. The $18 level seems to be intuitively where silver ought to be hanging around at the moment after the technical damage that was done earlier last week. Hopefully we will see some preparatory consolidation in advance of the next surge higher.

An alternate explanation for the spike in silver on Friday is that somebody dumped almost 1,000 contracts of December 2013 in the COMEX pit while possibly placing a large simultaneous bid in the active month (July). I further posit that in order to conceal the nature of the December 2013 position held by this trader (spread vs. outright long), he or she placed the bid for the active contract month using the GLOBEX. By design or coincidentally this may have happened just as gold and silver were on a nice upswing and so the large bid would have given an additional boost to the silver price that perhaps also helped gold along.

Even more intriguing is the possibility that the December 2013 contract was short covered to the tune of almost 1,000 contracts. For example, this could have happened if a bullion bank held a short position as a hedge on a long-dated swap or a forward purchase of about 5 million ounces of silver. Admittedly the December 2013 COMEX silver contract wouldn’t be the best way to accomplish this but the example is still theoretically valid.  In any case, the bank’s customer may have terminated the transaction over the counter for whatever reason and that may have prompted a quick exit out of the short futures by the bank at whatever price the market would bear, which happened to be much higher at that particular moment.

Now, I admit the above might sound farfetched but this kind of thing does happen in the markets, often without apparent rhyme or reason. And while I might be wrong about the scenario that resulted in the price spike in silver, it is a fact that the strange doings in the December 2013 contract did take place. Indeed, I might even allow that the December 2013 contract gyrations could have resulted from the CFTC warning (a really big stretch), and yet that wouldn’t really mean much in the scheme of things considering that the alleged manipulation in the gold and silver markets is not speculative at all but rather endemic to the commercial hedgers according to GATA and Ted Butler. The CFTC warning pointedly did not address commercial traders.

silverax Windbag Wisdom

  1. May 11th, 2010 at 06:28 | #1

    Glad i exchanged in some more of my funny money trading profits for another monster box of 500 silver maples in FEB to add to my HUGE TREASURE CHEST which since 2004 has been continously been GAINING WEIGHT.

    Tom and the rest of ya folks,

    Do you think now may be a good time to lower the LARGE EURO GRANITE TOMBSTONE into place knowing the final RESURRECTION has passed that lasted barely an 1 hour yesterday?.

    Looking at DOLLAR/YEN and EURO/YEN trading at 117.20 -2.10 b.p.,I’m anticipating the BOJ and the MoF will start MURDERING the YEN very shortly so I think its time to get to work in the BACKYARD.

    Having received no DONATIONS to purchase funeral stock for my F.F.C.F.T(Frederico Fiat Currency Funeral Trust) in recent days,THANKS GUYS!….1 LARGE GARDEN GNOME will be taken from grandma’s flower garden.

  2. May 11th, 2010 at 07:18 | #2

    FUNERAL SERVICES UPDATE:

    Once the EURO/GOLD(958+16) makes it to the OTHERSIDE by hitting quadruple digits, the GRANITE TOMBSTONE will be then lowered into place.
    The U.K’s Pound Sterling which received the painful HANGING DEATH SENTENCE after their ELECTIONS is continuing to have convulsions, POUND/GOLD(824+14 quadruple digits yet to be seen from the OTHERSIDE.

  3. May 12th, 2010 at 01:21 | #3

    Interesting to see these gold moves being driven by non-dollar fiat currency palpitations, we’ve got some exciting times ahead!

  4. SRSrocco
    May 12th, 2010 at 09:36 | #4

    Let’s not forget the $.90 spike yesterday either. Folks….it’s becoming clear that the world is TEARING APART AT THE SEAMS.

    GOLD +$7.20 @ $1238.60
    SILVER +$.19 @ $19.51

    Will this be THREE’s A CHARM FOR SILVER. Since JP MORGAN took over Bear Stearns huge silver short position, they have killed SILVER from July 2008, the last time it hit $19.55. Then in DEC 2009 Silver hit $19.45. Today we have just beat that last Dec 2009 top with $19.51.

    Once SILVER takes out its HUGE RESISTANCE AREA between $19-$21, we are off to the races.

    Very little time is left to get your REAL PHYSICAL SILVER TICKETS and turn in your worthless PAPER GARBAGE

  5. SRSrocco
    May 12th, 2010 at 10:54 | #5

    PHYSICAL SILVER WAKE UP CALL

    GOLD +$9.10 @ $1240.50
    SILVER +$.33 @ $19.66

    Here is another WARNING to those who still think they can TRADE PAPER GARBAGE:

    Panic Buying Of Physical Gold In Europe Threatens Depletion Of Austrian Mint

    When global governments refuse to act responsibly toward their currency, the people will create their own currency. Welcome gold.

    ( NAW ) 05/12 08:57AM AUSTRIAN MINT SAYS SOLD 243,500 OZ GOLD IN COINS AND BARS IN LAST 2 WEEKS, MORE THAN IN ENTIRE Q1

    ( NAW ) 05/12 08:58AM AUSTRIAN MINT SAYS GOLD ORDERS COMING ENTIRELY FROM EUROPE IN LAST FEW WEEKS, SIGNS OF “PANIC BUYS”

  6. May 12th, 2010 at 12:53 | #6

    Almost there people!…..EURO/GOLD-983+11…..another 17 euros and we’ve NAILED the sucker!….OH,I mean the COFFIN!

    BACKYARD FUNERAL SERVICE UPDATE 2:

    Ladies and Gentleman,there’s not a chance in HELL that any of you will be able to attend this FUNERAL by wearing those BLACK SUITS.
    As the ULTIMATE INSULT my friend THE PRIE$T has requested all those attending to wear WHITE SUITS instead,the reason…..BLACK portrays SORROW/REMORSE of which none is welcome here.

  7. May 12th, 2010 at 13:12 | #7

    @silverax

    Tom,your damn RITE!(pun intended)but not excited as much as i with the planned BACKYARD FUNERAL SERVICE.

  8. SRSrocco
    May 12th, 2010 at 19:47 | #8

    First Gold, Now Europe Running Out Of Silver
    Submitted by Tyler Durden on 05/12/2010 16:20 -0500

    Germany Sovereign Debt

    Earlier we noted that the Austrian mint was on its way to depleting its gold reserves following “panicked buying” from Europeans, who now openly fear the demise of their currency. Now, courtesy of Slim Beleggen, we understand that the situation in the silver market is just as bad and has also spilled over to Germany: the contagion is no longer one of sovereign debt, but of precious metal physical inventory. The primarily silver focused (but holding gold as well) Kronwitter precious metal online retailer is not only not accepting any orders, but has entirely taken down its website.

    The only message left for visitors is (translated from German) as follows:

    Dear customers, due to the enormous number of orders we can take at the moment no new orders via the Internet, email or fax contrary. All previously purchased and paid for coins are shipped. In order not to delay the extradition unnecessary to ask is to refrain from requesting payment or tracking number. When shipped our you will automatically receive a shipping confirmation. We hope to do everything within two days and then re-open the shop to buy. Thank you for your understanding. Marie-Luise Kronwit

    Soon coming to an LBMA vault near you - a run on physical and a total collapse of the 100x diluted Precious Metal market.

  9. May 13th, 2010 at 06:38 | #9

    Hey SRSrocco,Its news like this that gives me the energy to continue the back breaking HONEST to GOODNESS hard work in my BACKYARD.

    BACKYARD FUNERAL SERVICE UPDATE 3:

    Work has just been completed in sculpting a MARBLE STATUE of J.Maynard.Keynes.As a TRIBUTE and MARK of RESPECT to all the KEYNESIAN WORSHIPPERS out there, it will be placed directly under a large tree which is the nestling ground of many types of birds and obviously will be GROUND ZER0 for BIRD DROPPINGS!

  10. May 13th, 2010 at 08:35 | #10

    Tom,i was about to buy a COFFIN for my BACKYARD FUNERAL from
    Dignifiedcaskets.com.I read through the specifications and found the product comes with a 12 month warranty?What?Joking aside,seriously if a DEATH occured in one’s family and knowing ya LOVED ONE is laying BURIED TEN FOOT UNDER,who in HELL in their right mind would go to all the trouble to dig up the COFFIN only to come across the CORPSE of your poor BELOVED ONE who would have by then DECOMPOSED anyhow to then carry out that important inspection on the CASKET for FAULTS/DEFECTS?Even if the COFFIN had developed a fault, what will you do?Discard the CORPSE and return the CASKET for a REFUND? Can’t get my head around this one.

    32 oz. Copper Casket Highlights Include:

    32 oz. Copper Material
    Squared Corners
    Adjustable Bed and Mattress
    Swing Bar Handled Hardware
    Locking Mechanism
    Half Couch Casket
    Full Rubber Gasket Seal
    Continuous Weld Construction - (completely seals bottom)
    Fully Insured Product Warranty-(CRAZY IDEA!)

    Casket Dimensions:

    Exterior width of casket: 28″
    Exterior length of casket: 83″
    Exterior height of casket: 24″
    Interior width: 24″
    Interior length: 79″

    Weight: 200 pounds

    This is a standard sized casket and fits in a standard sized burial vault. Please confirm dimension requirements with your funeral director. If you need a larger sized casket, visit our oversized casket selection.Call us at 1-888-268-1550

  11. May 14th, 2010 at 06:24 | #11

    Has anyone being paying attention to the performance of the Shanghai Stock Market…..trading at 2868 down to a 12 month low…..so much for the ENGINE of world growth.

    BACKYARD FUNERAL SERVICES UPDATE 3:14/05/2010 10.00 A.M.GMT

    EURO/GOLD-992+9….ALMOST THERE BABY….COME INTO MY PARLOR,YES….COME INTO MY SWEET FUNERAL PARLOR A 1000 EURO GRAND FUNERAL AWAITS YOU.

    Oh,forgot to mention last night,didn’t sleep much as high pitched CRY’S were heard coming from my BACKYARD CURRENCY CEMETARY.The SCREAMING n WAILING got that loud that my terrified wife made a late call to THE PRIE$T to come and investigate.When arriving,Father said “do not be afraid my children”and walked towards the BURIAL GROUND of the POUND and DOLLAR.The HAUNTING SOUNDS ceased and a EERIE SILENCE filled the YARD.Then suddenly, THE PRIE$T turned around wripped off his shirt,he had an EVIL GRIN on his face.Then STRANGE MARKINGS in BLOOD started to appear on his chest.The symbols were of the £ & $.For a second i thought to myself this whole BACKYARD FUNERAL idea may have been a big mistake.Then it hit me….I pulled off the 24 KARAT GOLDEN CROSS from my wifes neck and hurled it at THE PRIE$T………………..
    ………….TO BE CONTINUED!

  12. May 14th, 2010 at 06:42 | #12

    ALERT!FUNERAL SERVICES UPDATE 4:

    RECEIVED DEATH CERTIFICATE for EURO from KITCO:

    05/14-06:28 Euro -0.68% -0.8029-1.2456-1000.19 +17.25 +1.76%
    ******* >The COFFIN has just been NAILED SHUT.As a reminder do not forget to wear ya WHITE SUITS to the FUNERAL SERVICE or else there will be(HA!)GRAVE consequences.

  13. May 15th, 2010 at 11:53 | #13

    @Frederico K.
    Regarding the casket, I would go with a simple cheap one with no warranty. Or better yet cremate (although I understand that is no longer politically correct due to the release of CO2 during cremation).

    Concerning the funeral, I think we are still a bit early, the old man is still wheezing upstairs.

  14. May 15th, 2010 at 11:54 | #14

    @SRSrocco
    Those Europeans sure get panicky from time to time, must have long memories or something.

  15. SRSrocco
    May 16th, 2010 at 21:02 | #15

    @silverax

    Couldn’t agree with you more. Looks like the EUROPEAN PANIC is now spreading to the South African Krugerrands:

    With Local Gold Inventories Depleted, Panicking German Dealers Stage Run On Krugerrands

    Last week we noted that several prominent Austrian and German gold dealers had run out of inventory and were no longer transacting with a European population that has suddenly discovered gold religion. As a result, dealers are now focusing procurement efforst outside of Europe, with South Africa receiving the brunt of Europe’s panic for physical precious metals. As the FT reports, “At the Rand refinery in South Africa, the phone has not stopped ringing this week.” Just imagine what will happen when the gold bug goes airborne and jumps across the Atlantic…

    More from the Financial Times:

    Panicking German dealers and banks have been desperate to get their hands on krugerrands, the world’s most popular gold coin.

    “We have some extraordinary sales to German customers,” says Deborah Thomson, the Rand treasurer. The refinery, which usually sells 2,000 coins to each customer at a time, says that last week it received an order from one German bank for 30,000 coins. Another bank requested 15,000 coins.

    TOM….looks like we got FIREWORKS coming down the pike. After SILVER went up 1.60 the COMMERCIALS acutally liquidated 2,800 short contracts. According to Ted Butler, the BIG 4 liquidated some 6,800. Interesting.

    Furthermore….when SILVER hit $21.44 in March 2008, RSI on 3 year chart was 81 and 200 MA was $10.50. Today when Silver closed at $19.31, the RSI is only 62.97 and the 200 MA is up at $14.50. Add this along with JP MORGUE’N liquidating its positions….we got some fun ahead.

  16. May 17th, 2010 at 05:46 | #16

    “Give me a HIGH FIVE brother”…..how about 136 pts! A PHAT PHIVE PERCENT.
    The Chinese Shanghai Stock Composite Index is imploding.As i stated earlier in the above commentary,”so much for the ENGINE of world growth”.

    SRSrocco,ha..ha!J.P.MORGUE’N…ha,ha i like it, I have just RESERVED the perfect BURIAL spot in my BACKYARD for JPM its situated very close to the J.M.Keynes MARBLE STATUE speaking of which is now ABSOLUTELY COVERED in BIRD CRAP!

    Tom, could you let me know when would be a good time to make FUNERAL preparations for the YEN as my BACKYARD BURIAL GROUND has very limited space and comes on a “FIRST COME FIRST SERVED” service,therfor BOOKINGS will have to be taken in advance.So please advise.

  17. May 17th, 2010 at 07:28 | #17

    Oh forgot to tell y’all,
    My dear wife over sunday night’s weekend FUNERAL CANDLE LIT DINNER said during our HEATED CONVERSATION that this whole BACKYARD CURRENCY BURIAL IDEA BUSINESS was rather silly and i should stop this foolishness at once.As you don’t know my wife is very SUPERSTITIOUS and believes in JUDGMENT DAY rubbish whereby the DEAD will RISE from the GRAVE.
    Having FAITH in Gold and Silver i will do nothing of the kind.
    In continuing GODS WORK I’ve HIRED some GRAVE ROBBERS to steal a few COFFINS of the FRESHLY DEPARTED from a nearby CEMETARY as NONE of you TIGHT FISTED at Silveraxis DONATED for the F.F.C.F.Trust.to buy FUNERAL STOCK.

  18. May 17th, 2010 at 20:50 | #18

    Sorry about the tightfistedness, I suppose others are making funeral arrangements as well. In any case, those panicky Germans and Austrians are a sight to behold! Probably the only Europeans who even have any wealth to move into gold and silver! Too bad their buying is pretty narrow as the junior explorers they seem to love so much on the Frankfurt, Berlin, etc. exchanges are taking it in the pants. Who knows, maybe they are selling the gold stocks to buy gold! Actually, now that I think of it, that is probably not far off the truth.

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