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.”

Here we go again! Another Silver Shortage

In the midst of a Wall Street Journal article that suggests the groundwork for an addendum to the Fed’s ‘Operation Twist’ program is being laid right now, bullion dealer reports of lengthy delays securing silver are surfacing—again.

Of interest to traders seeking to catch the next big move in silver, both previous instances of shortages in the silver market led to an average price appreciation of 156% during an average of 10.5 months time span, with the second instance of a shortage catapulting the silver price higher in percentage terms and within a shorter time period.

“There is extraordinarily tight supply right now in Asia.  When you order silver there is so little available at these prices, that’s the trouble,” King World New’s frequent guest, ‘Anonymous London Trader’, told Eric King.  “You can order it all day long, but you are going to have to wait for it.”

Silver Price Manipulation Scheme Coming to a Close

The symptoms of Big Government seeking to defy nature’s law as it relates to the utmost important of all human behavior, that, of self-preservation, in response to a threat to said preservation, has become increasingly more self-evident in the silver (and gold) markets.  In the end, nature always wins.(1)

In that vein, KWN’s Anonymous sheds some light on the subject of the manipulated market price of silver and what he sees happening behind the scenes as the grip of government weakens on the price of gold’s kissing cousin.

“The price of silver has no reality to the paper market at all, absolutely zero reality there anymore,” Anonymous said.

“All of the sudden the game has changed because you have actual investment demand increasing exponentially vs. industrial demand, competing against industrial demand to buy,” (s)he continued.  “All of these sovereign entities buying silver know it’s manipulated.”

As the Fed successfully brought down the COMEX paper price (with a lot of help from speculative froth created by momentum traders who pushed the silver price up 171% within eight months) in April, the table is set once again for another Fed QE and another relaxation of the shortage of silver—which could result in an even higher percentage rally from the previous monstrous move in the paper price as we embark on the third go-around.

“To the extent that there has been intervention (in the gold market), you kind of have to wonder if the government in Europe or the European central bank didn’t want gold to be on the defensive because of all of these announcements about a lending facility,” another frequent guest to KWN, John Hathaway of Tocqueville, told Eric King listeners on Thursday.

The weekly Commitment of Traders reports illustrate an excellent source of validation of Hathaway’s suspicion in addition to his 40-year experience working the bullion markets.  According to the most recently published COT report, commercials scrambled aggressively to cover their shorts, suggesting, maybe, the a big rally could be coming as traders await word from the Fed of the possibility of an additional QE.

“I believe we should move back up toward the top of the list of options the large-scale purchase of additional mortgage-backed securities,” Fed governor Dan Tarullo stated in a speech at Columbia University on Thursday.

Add Tarullo’s statement to Fed Chairman Ben Bernanke’s recent language on the issue of more stimulus to the U.S. economy, as well as Thursday’s announcement that the biggest thorn to Bernanke’s behind, Kansas City Fed President Thomas Hoenig, has been appointed by Obama to vice chairman of the FDIC.  That should keep Hoenig quiet and serve as warning to other Fed governors who wish to remain at the Fed that transfers to other agencies of less distinction could be coming their way, too.

Aside form the political developments, the pattern of Fed intervention in the silver market prior to QE announcements may not be evident to the typical momentum trader who only watches price movements of anything that happens to be trading well, but for those focused on the Fed’s dilemma as it attempts to cushion a worldwide collapse of debt at ever level of the world economy, the Fed’s modus operandi makes much sense, but more importantly, the Fed’s timing model may provide clues to future movements and price levels along the way.

Back to Anonymous.  (S)he believes time is on the side of the silver bull.  As investors take on an ever increasingly greater role in the ‘pricing at the margin’ in the silver market, industrial demand will always play a critical factor as well, as a goof-ups by the Fed on the downside of price could ironically bust the COMEX.

If shortages become too acute through the Fed’s proxy JP Morgan and its criminal activities, the panic to buy the metal will most likely come from the commercial users, who will pay several times the manipulated COMEX price in order to secure the metal for their business applications.  After all, most industrial applications whereby, silver, specifically, is used, require too small of amounts to affect final product costs in any meaningful way.  For commercials, it’s not a matter of price, it’s a matter of availability.  Therein, lies the Achilles Heal.

But in the end, nature always takes its course, anyway.  The hogtied Fed will eventually strangle itself attempting to free itself from the virtuous Mr. Market.

“Yeah, any sort of attempt to hold back the market sooner or later falls apart,” Hathaway said.  “I mean we saw that with the London Gold Pool in the late 1960’s.  So you can keep the market off balance for a while, but you can’t do it forever and the longer the move is put off, the bigger the explosion on the upside.”

(1) Storing previously endured labor for future consumption as the intended lifespan of a human machine’s usefulness is reached is a serious matter.  But in the end, nature always wins; the human desire to survive outlasts the government’s ability to overcome that spirit.

Therefore, it’s truly time to move off the question of whether the silver price is manipulated.  The question, now, should not be whether Gold Anti-Trust Action Committee (GATA) is correct, or not, with its contention that the precious metals markets have been (and still are) manipulated; the question should be: Why do so few people know of a basic, undisputed sixteenth-century concept of economics, Copernicus-Gresham Law?  Why should GATA have ever existed?