Market Curiosity: Exploring Markets And Systems

September 18, 2011

Silver is still a GARGANTUAN opportunity, enhanced by derivatives

Filed under: Editorials — Tags: , , , — Jeff Fitzmyers @ 2:53 pm

When I looked into it previously (The obvious and GARGANTUAN silver opportunity), the above ground silver to gold ratio ranged from about:

5 to 1 (meaning silver could now be at $350/oz) to
1 to 5 (meaning silver could now be at $9,000/oz)

That is just to reach some sort of equilibrium, today, if the paper supply was exhausted. Then add a dash of monetary panic, which might send gold to $10,000/oz. And silver not overshoot on the ratio itself would be disappointing 😉 So then with gold at $10,000:

5 to 1 (meaning silver could now be at $2,000/oz) to
1 to 5 (meaning silver could now be at $50,000/oz)

People don’t laugh so much anymore at all these high projections. Big numbers are becoming common from credible names:
+ Stephen Leeb – Gold, Minimal Downside, $12,000 Upside
+ Eric Sprott: “Expect The Gold To Silver Ratio To Hit Single Digits”

The US mint has only sold $40,000,000 worth silver eagles this month so far. Money wise, that is absolutely nothing. If the derivatives fail soon, it seems like most US people will be completely surprised and will not know what to do at all.

A bigger question is if these little smolders in metal derivatives will become critical mass for the 465 trillion debt derivatives bomb? I assume that would be completely and nearly instantly unmanageable. Debt derivatives are involved with almost everything, sometimes in very complex ways. A million black swans in a glorious field of unintended consequences.

Tom Stevenson: ETFs have potential to become the next toxic scandal … ETFs are not the cheap and transparent vehicles the marketers would have us believe… When UBS’s $2bn black hole hit the screens on Thursday, no one who read the FSB report was surprised to see the words ETF and rogue trader in the same sentence… A third claim, that ETFs are simple products, may once have been true but it no longer holds water. Many of these funds are now fiendishly complicated and way beyond the comprehension of the individual investors and professionals alike who are buying them. Here are just a few of the reasons why ETFs are not all they are cracked up to be… First, around half of the ETFs in Europe today do not match the index they are designed to track by holding all of its constituent shares. Unlike the plain vanilla “full replication” ETFs which do, 45pc of the market is in the form of so-called “swap-based” ETFs which instead use derivative agreements, often with investment banks, to simulate the performance of the underlying assets.

+ Chart of silver fractional bullion banking suggests silver at $225 to $1,000/oz

May 3, 2011

Mr Ferguson really put things in perspective tonight: 6,600 contracts clears out the Comex

Filed under: Just Watching — Tags: , , , — Jeff Fitzmyers @ 10:31 pm

Smells Like Capitulation (updated)33,000,000 [registered] ounces means the Comex only has enough silver to settle just 6,600 contracts. That, my friends, is the financial equivalent of blood in the water…

Yes the eligible metal could supposedly get the electronic warrants. Well then, why don’t they!?!?! I think an entity can only take a maximum delivery of 1,500 contracts. So now 4.4 entities could spend just $310,000,000 each and take all the registered silver. So the fate of the Comex, partially due to the “regulators” seemingly abdicating all responsibilities, is just a few whims away of a few entities with decent wealth, from being a smoking crater filled with people saying, “Well gee, how could this happen?”

Just watching this chart and waiting for the SLW:Silver ratio to make a higher low. Meaning that SLW is not dropping as much as silver. Mr. Sprott’s actions of sifting PSLV to silver and silver stocks suggest to me that possibly silver stocks will lead the metal after the correction.

April 18, 2011

The gap between paper silver and real paper silver seems to be growing (updated)

Filed under: Just Watching — Tags: , , , — Jeff Fitzmyers @ 5:25 pm

And Mr Sprott’s PSLV has a premium of about 23%.

Harvey Organ today: The estimated volume today was so huge and defies logic. It came in at 151,999 to represent a total of 760 million oz of silver!! This is approximately 108% of annual global silver supply. The confirmed volume for Friday, the day the silver rocket blasted off for unknown northernly destinations, came in at a very high 132,545 contracts.

April 19 update: …the confirmed volume at the silver comex yesterday came in at 185,250. In ounces, this is represented by 925 million oz or 132% of annual silver production.

March 1, 2011

Silver, backwardation update on March 1: LBMA 13 days, COMEX (partial) 19 days (corrected)

Filed under: Just Watching — Tags: , , , , , , , — Jeff Fitzmyers @ 12:44 pm

Ed Steer: The CME’s Daily Delivery Report shows that 120 gold, along with 42 silver contracts were posted for delivery tomorrow. This is the second delivery day in the March silver contract…and to only have 294 contracts posted for delivery out of the current 4,250 contracts still open in March, is truly incredible.

Silver analyst Ted Butler had this to say about it in his weekly review to clients on Saturday…”Offsetting the relatively small number of open contracts in March [4,250] is an even smaller number of contracts offered on the first notice day of 252 contracts. [Of special note is that JPMorgan didn’t issue any silver deliveries, unlike their pattern over the past two years.] This is about the smallest number of contracts tendered in my memory for what is usually the heaviest day for deliveries in any physical commodity, including silver…as it makes little economic sense for those shorts intending to make delivery to delay beyond the first delivery day…this is another indication of wholesale physical tightness.”

Mr Steer also reports the US mint sold 9,662,000 silver eagles in the first 2 months of 2011. That is 25% of what the COMEX supposedly has available for delivery.

SilverGoldSilver just pointed out an Eric Sprott interview: (The article has a number of large inaccuracies. Like “In the silver market, there is enough silver..” True for any market. The question is ‘at what price?’ But one interesting tidbit is supposedly solar panel construction used 64,000,000 ounces last year. That’s a lot!)
+ Took 10 weeks to take delivery of 15,000,000 ounces Ag and some of the bars were just 2 weeks old.
+ For the first 2 months this year, the US mint sold the same dollar amount of silver coins as of gold coins.

UPDATE March 3: I have some mistakes on the chart. This one is correct. The following 2 not correct. A similar price rise for 2011 targets 38 $/oz.

Still looking for an effective way to present this data… Just the fact that the mid points almost match (at least so far) is interesting.

Another try in data visualization

The COMEX partial backwardation continues with the front month 1.17 $/oz more expensive than December 2015.

+ Silver backwardation update on Feb 28th: LBMA 12 days, COMEX (partial) 18 days, both about the same

February 22, 2011

Surveying the playing field: fortunes can be made or lost in the next month or so, and sent to PCH :-)

Filed under: Editorials — Tags: , , , , , , , , , — Jeff Fitzmyers @ 11:54 am

I have closed out most other trades. The primary focus is on silver. Why?

1) A comment on Mr Ferguson’s update that Friday March open interest only dropped a small 4.5%.

Difficulty in choosing right currency has become unmanageable – gold will continue to become currency of strength without liability; storehouse of value; medium of exchange

Possibly, at some point, people will begin focusing more on purchasing power stability and less on trying to eek out a few percent deciding which currency is the least worst every month, which bond’s won’t default, and which stocks will not drop too much.

Feb 22 update: And Wow: Fed’s Hoenig Says United States Has “Deeply Undermined Free-Market Capitalism” How can entities manage their affairs efficiently if the rules keep being modified in secret? Sooner or later they find more efficient paths. Ticker Guy’s take.

2) Silver is still, by far, the most undervalued store of wealth.

3) Timing. I don’t have a high success rate at timing things. In a way, that’s why I prefer to sell puts — timing can be off a lot and the trade can still be profitable.

John Embry: Eric Sprott and I have always contended that in silver if you get some serious physical buying in the absence of above ground inventories that are available for sale, that the paper manipulators would basically get overrun. Right now we are in the process seeing that unfolding… I definitely think a short squeeze is underway in silver. The evidence will be if the price of silver moves sharply higher from here. I think you will know if you have a real short squeeze if this thing starts piling on gains in the next week.

4) What vehicle? The COMEX can and will likely change the rules in their favor to try to survive. So other than a few token June 60 calls, that venue seems risky. ETF’s — except Eric Sprott’s probably have less silver than advertised. That leaves silver stocks and SLW appears to be the best. And of course options are to be considered in potential situations where large percentage sustained moves can happen in short timeframes.

That all boils down to a few SLW June 60 calls (incase price goes ballistic), and SLW June at the money calls that are rolled forward as they get a few strike prices in the money. The stop loss is a close under the 10 EMA. If silver really is about to rise substantially, except for a few fast drops, price should steadily rise higher.

The over all exit strategy? If price really does take off, start shifting some value to things that the gov is not (yet) interested in. For me, that is PCH, PCL and maybe WY.

Bonds/debt are weak:
Feb 22 EDIT: Opps, I did not update the data correctly, this chart is incorrect. Debt did go up today a fair amount on good volume. Correct chart:

Old chart:

Stocks continue to be overbought (I speculate that a tug-of-war going on between value and fed printing):

February 12, 2011

Zero Hedge’s exclusive interview with Eric Sprott

Filed under: Just Watching — Tags: , — Jeff Fitzmyers @ 10:16 am

As Sprott has long been a rare voice of contrarian reason in a field of lemming-like uniformity… we believe the answers were vastly more interesting and illuminating than anything available for mass media consumption.

I just think of how much they’ve spent up to this point to keep this thing going. Think of all the programs they’ve initiated. QE 1, QE 2, TARP, TALF, Fannie and Freddie – it’s all adds up to trillions, so it doesn’t seem far fetched to assume they’ll institute more measures to plug the dam… I think most mainstream investors still struggle to appreciate the changes that have occurred in precious metals market since 2008. Gold is reverting back into a world reserve currency – it’s so clearly visible now. It’s one of the only asset classes that has ‘worked’ for investors and savers. And yet there remains this large contingent who continue to question its legitimacy as an asset class… There are money managers and pension trustees who refuse to view gold as a store of value. They don’t understand the value argument. It’s a peculiar thing… The commentators who call the precious metals market a bubble are laughable. Nobody owns the stuff. It’s extremely tightly held.

Meaning prices can go much higher.

Anecdotally, this Market Curiosity fledgling blog, has only an average of 30 page views per day, yet appears in the top rankings with a search of “silver sifo”. How can that be unless almost no one is writing about silver SIFO, nor silver backwardation.

January 8, 2011

Silver fundamentals suggest higher prices after correction

Filed under: Editorials — Tags: , , , , — Jeff Fitzmyers @ 4:22 pm

Ed Steer’s stunning parragraph:

It was no surprise to me to see that Sprott Asset Management in Toronto had to wait such a long time before receiving the 16 million ounces of silver it had purchased on the open market. I had know that they were having problems, but was sworn to secrecy. It took them ten weeks to get it all. They were given a delivery schedule of about 1.5 million ounces per week…and that’s pretty much the way it came in the door. 1.5 million ounces per week is a hair over 11% of world silver production during that time period. One would have to conclude that large quantities of good delivery silver bars simply do not exist.

James Turk:

One other indicator that the game has changed is that Comex open interest actually increased on Wednesday’s big takedown.  What this means is that all of the silver shorts that are being put on are being met by new buyers… In other words there has been no net long liquidation, which one would expect on a big price drop. The bottom line is that it looks like new buyers are willing to take on the silver shorts, which is very bullish.

Now add this chart from Dr. David Eifrig’s The Silver Rush Is On

And the apparent fact that JPM has reduced their overall silver short by 14%.

These healthy retreats are usually big and fast, lopping 1/4th to 1/3rd off silver prices in less than 6 weeks! Because the fed printing is so rather extreme, the correction might be a bit less deep than usual.

It’s just a matter of time 🙂

December 8, 2010

Silver And Gold Are In Bubbles! — Not!

Filed under: Editorials — Tags: , , , — Jeff Fitzmyers @ 9:29 am

Gold will be in a bubble maybe never. I tend to think James Turk is correct: when this is all over, people won’t sell metals for other stores of wealth (in general). So there won’t be a bubble. But if it was a bubble in the sense that PM’s are being too highly regarded, I would expect the DJIA to have 10 of its 30 companies metal stocks, 50% of all cocktail conversation would be metals and multiple cover stories on Business Week, Time, Barron’s, etc.

And investor exposure would be above 40%.

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