Market Curiosity: Exploring Markets And Systems

March 5, 2011

How high can silver go before a stout pullback? Backwardation and price patterns

Filed under: Editorials — Tags: , , , , , — Jeff Fitzmyers @ 8:46 am

IF the patterns continue to hold, I’m not expecting a significant pullback for 10 more days. Sliver has been sleeping for 30 years…

Parts of silver’s situation are obvious, and linguistics are reflecting that: Short, concise, “very simple”, “realization”; “on fire”, “obviously”.

John Embry: …it’s VERY SIMPLE.  There’s far more demand for silver than there is available supply and the inventory levels around the world have been depleted to very dangerously low levels… It’s the REALIZATION that the value of the money that they are being denominated in is being destroyed…

John Hathaway: Well it’s ON FIRE OBVIOUSLY… If we have a continuation of QE2 past June 30th, I wouldn’t be surprised to see silver in the $50, $60 an ounce territory.

Remonitizing the metals has offically started: Utah House Passes Bill Recognizing Gold, Silver as Legal Tender Interestingly, this was reported on Fox news and the top of The Drudge Report.

The other backwardation charts have not changed enough to repost.

Would expect $38/oz according to the chart above. But if price is in a similar position like coming out of a consolidation in 1979, the target would be around double the old high in about 2 months with few pullbacks. (Markets the breakout to new all time highs tend to at least double. Gold’s getting there, copper almost tripled, platinum doubled, and palladium tripled.) The point is, silver does most of it’s trending in a very short amount of time. I expect to hold onto the SLW position until the weekly oscillators get very overbought.

Jason Hommel has a silver chart adjusted for real inflation.

Other traders are starting to notice and post articles. Options Hawk speculates a ratio call spread was entered in SLV. This illustrates 2 things:
+ Entities are getting interested in silver’s move and making big option bets.
+ Top pickers could get run over, fueling more buying.

If silver has a similar performance to 1979, it will rise, with small corrections, relentlessly. And those who sold longs or went short will be steam rollered and have to cover or reenter, further fueling the rise.

Raymond Merriman: Silver tested $35.00/ounce for the first time in 31 years… With Uranus about to join Jupiter in Aries on March 11-12, there is no telling how high these markets can go. The “Asset Inflation Express” keeps roaring onwards, and the uncertainty about the U.S. deficit being brought under control simply continues to fuel this engine of speculation. I don’t see it reversing until at least late May-June, and maybe not even until early 2012, although there may be a bump on the tracks when Jupiter makes its last opposition (180 degree) aspect to Saturn in late March.

What might March to late June look like? Like the Amanita Bradley Siderograph (for stocks, usually)?

As reported in … facade cracking under pressure?, I’m not reporting on the COMEX inventory “numbers” anymore, nor the open interest numbers because I think they are cooked.

What seems to be happening is that everyone with a large enough account who understands the game buys, say, 100 contracts, and gets paid, say $10/oz to not take delivery. If they just want FRN’s, they can easily make 125% per year. Or roll that premium into physical silver and buy another 100 contracts for the next month. Basically, if they want silver, they are dollar cost averaging silver purchases over a 3-4 month period. This is relatively safe too. After about 3 iterations, the principle can be taken out. And it’s my understanding that ‘money’ is far safer in a futures account than a bank account.

It’s such a great opportunity it won’t last long unless the price suppressors get federal backing. Even then I assume the hedge funds will lever up fast. They only need $20 million to carry out the 100 contract example. There are plenty of hedge funds that have 100’s of millions, and each can hold a max of 1,500 delivery month contracts. Just six hedge funds maxing out at 1,500 contracts is $300,000,000 each and covers all available COMEX silver (41 million ounces, or 8,200 contracts). That is not very far from here. Heck, it appears to multiple people COMEX is having significant trouble delivering 2,000 March contracts.

If all this speculation is at least sort of true, I bet the COMEX game is over within 4-5 months. — Unless the feds flow money into it. That might give a few more months. But then they have to be printing up at least half a billion FRN’s each month to feed the facade at $35/oz.

References
+ If March 1980 silver is similar to the current price pattern, a time based stop loss can be rather tight

1 Comment »

  1. I think you have identified a major catalyst for buying interest that hasn’t received a lot of attention yet. If Utah makes gold and silver legal tender other states WILL follow and there will be a run on the bullion dealers.

    Not sure about all that stuff dealing with planetary alignments and what not. No offense, but that sounds a little hokey. 🙂

    Comment by silverflaunt — March 5, 2011 @ 6:48 pm


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