Market Curiosity: Exploring Markets And Systems

April 22, 2011

When will silver stop going up??? (update 1, Sep 2, 2012)

Filed under: Just Watching — Tags: , , , — Jeff Fitzmyers @ 3:31 pm

Ed Steer: It’s a short-covering rally, pure and simple… Ted Butler has mentioned for weeks now, this silver rally is a short-covering rally. Open interest is actually declining because the bullion banks are covering their short positions…it’s not caused by new speculative longs coming into the market and bidding the price up.

If so, I have read that short covering rallies usually end when the shorts are basically done covering. The shorts just stay pressured on an hourly basis until they capitulate. That does not seem near. 🙂

Also, Mr Steer has commented each of the past few days how his local bullion dealer is very busy.

My bullion dealer had another monster day at his store yesterday…and it was certainly one of his biggest sales days of 2011. He has almost more business than he can handle. Because silver bullion deliveries are now many months in the futures, customers are limited to 10 oz. of silver bullion per customer in over-the-counter sales. If they wish to purchase more, it’s a 3-month minimum wait for most items.

Ted Butler: While the current lofty price levels do allow for a sell-off of significant proportions, the underlying facts and market structure also indicate a melt up is also possible. The financial pain to the silver shorts has been immense and, as a result, the odds of a short covering panic have increased. The odds still favor higher silver prices.

Alasdair Macleod: Anatomy of a short squeeze: The short was closed out at about three times the share price of earlier that morning. The squeeze on the bear position had nothing to do with the company’s underlying value: it occurred because one big speculator got into an impossible position that had to be resolved. And that more or less is where gold and silver appear to be today.

This post by Carl Swenlin is almost stunning. He always seems like a mellow and thoughtful analyst.

Silver Still Soaring: … Parabolic and/or vertical advances … usually end badly, with vertical declines as steep and speedy as the ascent… However, there are reasons to believe that fundamental and technical conditions exist that will continue to be positive for precious metals… For those who bought at much lower prices, from a long-term point of view I see no reason to be concerned about any pullbacks. The kind of extreme financial crisis that precious metal advocates have long predicted is now actually upon us.

And his 2 charts are wonderful.

Comex partial backwardation — new backwardation on the front month.

A scenario: Silver rises to around 53 FRN’s / oz. Many who do not know the fundamentals sell and/or short. Price screams down for just long enough to satisfy the the astro turn date, let the new shorts high five each other and turn their attention to other things, and induce weak longs to sell. Then price starts up with alacrity, and entities scramble to cover and get long. The next big number might be 66.

I can’t come up with a reasonable fundamental scenario where silver goes down for years.

Update September 2, 2012: “…fundamental…” Ah, such wishful, yet, incorrect thinking. Yes, if a commodity is bought near the cost of production, and a long position can be held indefinitely, profit will follow… But I have never been able to time such things. Obviously. Instead, I now take a position, take partial profits, and let the rest run with a trailing stop.

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