Silver price: Launch Underway!

With the global shift back to the dollar-flight trade, let’s look at the silver price’s technicals to see where we are in the trade, with the emphasis on one-way bets on silver—long!  With physical buying pouring into the market, taking a short position is suicide.

During the massive plunge (normal for the silver market) in the silver price, noticed where the heavy buying came in—right below Richard Russell’s 20-month moving average.  Russell looks for where to 20-month MA is relative to the 40-month for long-term buy and sell decision points.

“I’m looking right now at a chart of 20-month and 40-month moving averages of gold [said can be said of silver],” Russell said in a roundtable discussion with FinancialSense Newhour’s, “and May of 2002 . . . the 20-month moving average finally moved above the 40-month moving average.”  Coincidentally, the buy signal in the precious metals followed UK’s Chancellor of the Exchequer Gordon Brown’s dump of 60% of British of England gold reserves.

With no foreknowledge of the schemes of the gold and silver cartel, it appears the sell-off in silver is complete.  Notice the similarities between the sell-off during the de-leveraging event brought on by the collapse of Lehman Brothers in 2008 and the sell-off in the silver price during the coordinated raid by the cartel in May, made easy for the cartel from all the shallow-pocket speculators jumping on a moving train.  A simple margin raise was in order and watch the speculative longs fall like dominoes.

Volume statistics, as shown in the above graph, suggest a confirmation of COT reports which show speculative longs flushed out of the market during the May sell-off.  But note the volume; it’s reached levels not seen since the summer of 2010 when silver traded below $20.

More importantly, the difference between the two sell-offs cannot be gleaned from the charts.  The action is in the physical market is decidedly different this time, as a slew of reports coming from bullion dealers across the globe tell of physical buyers jumping into the market with both feet at these lower prices—in stark contrast to the 2008 sell-off.  Goldmoney’s James Turk and Eric Sprott of Sprott Asset Management (read article here) have both reported experiencing equal dollar amounts of purchases between gold and silver.  Significant order of silver run weeks to delivery—again!

Considering the price ratio of gold and silver is 50:1, already-long delays in securing a supply of silver provides a critical disincentive for the cartel to act anytime soon—if at all, in the future.

Tocqueville Gold Fund manager John Hathaway told KWN, “To the extent that this is a rigged game, the game is now over.”

He notes that commercial physical buyers may panic to secure silver at any price to keep production of its products moving.  Due the small amounts used by commercials in the production of most consumer electronics, to them, silver is an inelastic commodity.  JP Morgan is very well aware of this dilemma and most likely won’t push this manipulation scheme to a de facto force majeure (may never officially acknowledge one) at the COMEX intentionally.

Chief Investment Strategist of Sprott Asset Management John Embry agrees. “Right now we are in the throes of something similar to the old ‘London Gold Pool’ getting overrun,” Embry told KWN.  “I remember the London Gold Pool situation quite well, you have to be old to remember it but I do.  I see absolutely no difference this time except conditions are infinitely worse this time around and there is less central bank gold [silver supplies worse] available for the manipulation.”

Embry added, “So to me if the seventies were fantastic as a result of the London Gold Pool being broken, this one is going to be way better.”