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.

March 29, 2011

Silver update March 29th

Filed under: Just Watching — Tags: , , , , , , — Jeff Fitzmyers @ 12:21 pm

An interesting tibbit…

Ed Steer: Silver’s volume netted out to about 55,000 contracts…which, for the first time I can remember, was a higher volume than was traded in gold… the deliveries in the March contract went right down to the wire…something that Ted has never seen before in silver, or any other commodity for that matter. He’s worked in, or studied these markets, for almost forty years…so he should know.

So entities finally coughed up some silver — but the fact is they led onto it pretty tightly until late in the game. SilverGoldSilver has noted for the 2nd time that SLV calls are in demand and SLV are not at all.

Current SIFO is done with backwardation…

Except the 12 month is still lower than the all the other months. I wonder if that basically means entities prefer near term silver rather than later term?
+ The 2008 silver plunge did not really start until after eh 12 month SIFO rose above the other months.
+ It seems like the final dip in 2008 silver created a lot of steady demand.
+ SIFO has stayed narrow and low for 2 years.

The overall COMEX backwardation has reduced to 74 cents.

March 16, 2011

Silver update – March 16th

Filed under: Just Watching — Tags: , , , , , — Jeff Fitzmyers @ 10:19 pm

Just speculation: Silver price under pressure while people reduce leverage and raise money to buy preps and and fix stuff. Once that runs it’s course, I expect a new leg up in the real assets.

Ted Butler confirmation, get ready for the buy of the century (physical) Ted Butler reported today that he has never seen greater than 50% of oz of silver to be served vs served this late in the delivery month. He also stated that this has never occurred in any metal or any commodity since the comex officially began. I reported this to you yesterday and I am glad that he affirmed this.

Backwardation’s about the same.

March 4, 2011

Silver, backwardation – March 4 – facade cracking under pressure?

Filed under: Editorials — Tags: , , , , — Jeff Fitzmyers @ 10:53 am

(Having internet issues today so things are short. Will post full backwardation update this weekend.)

I’m not reporting on the COMEX inventory “numbers” anymore, nor the open interest numbers. They don’t seem to mesh, so I think they are all cooked. Others mentioning this: Harvey Organ, SilverGoldSilver, Ed Steer,”…the silver deliveries, there weren’t any to be found for the second day running. This is now beyond bizarre… and as Ted Butler told me yesterday, something is definitely amiss in with silver at the moment…as it is the most bifurcated market he has ever seen. The price, the deliveries, the physical tightness…and the backwardation situation are all way out of sync. Things just don’t add up…and it’s the resolution of these issues that he is waiting for.”

Exactly. Been waiting for the facade of deniability to be crumbling faster than can be repaired with spin.

Current LBMA SFIO comparison with 2008.

A bigger chart on 2008’s SIFO.

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.

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

February 15, 2011

Ed Steer and Ted Butler support the idea that it was bullion banks covering shorts not miners hedging

Filed under: Just Watching — Tags: , , , , , — Jeff Fitzmyers @ 10:28 am

As a followup to Main stream media is having a more challenging time painting silver negatively, Ed Steer with Ted Butler posted,

Alasdair Macleod at FinanceAndEcnomics.org “The FT story [about 100 moz silver forward sales] implies the transactions were initiated by the mining companies. I think this is unlikely, there being a greater likelihood that it was initiated by one of the big commercials, such as JPMorgan. Bearing in mind these are forward transactions, they do not appear in the public domain, and can be completed at any price, giving the bullion bank the opportunity to do a very special deal with a nice fat premium for a possibly reluctant miner. And what better time to do this, when the price has fallen and there is uncertainty in the market… So my guess is that it one of the Big Four [JPM?] covering its shorts, because there is no other way of doing so and the timing is opportune.”

The FT story is misleading in some respects, because it insinuates that all of these forward sales had just occurred during the first six weeks of 2011, when silver prices were at their peak…then heading lower. That was not the case at all, as most of these hedges were placed many months prior to the end of 2010… Of that 100 million ounces, the standout was the 70 million ounces sold forward by Mexican silver company Minera Frisco…in which Mexican billionaire Carlos Slim has a huge position. These hedges were placed at $18.82 the ounce…and the last time we were that low in price, was back in the third week of August 2010…so that’s probably when it happened…

This is what Ted [Butler] had to say about it in a note [headlined “Hedging Insanity”] to his subscribers yesterday…”I don’t think I have ever seen such a dangerous hedge book [and I’ve seen plenty]. By my calculations, the company is already in the hole for upwards of $600 million on all its metal hedges…with silver accounting for $300 million of that total. Its additional exposure will be many times that amount if prices move higher, as they are expected to do.”

This sound exactly like what happened to Apex Silver many years back…and they ended up filing for bankruptcy. It’s also similar to what happened to Ashanti Gold…and AngloGold had to come along and take it over because their hedge book had become toxic. And let’s not forget a Canadian gold company called Cambior. As Ted went on to say…”The hedging experience [also] cost Barrick Gold $10 billion in total.”

Based on what happened to all four of these companies, I doubt that Minera Frisco will survive long enough to pay out its hedge book…and I also doubt that the owner [billionaire or not] will have deep enough pockets to cover his company’s ever-increasing losses.

Well, dear reader, I wonder what bullion banks were the ones that did the deals on all these forward sales? Without doubt, virtually every ounce was hedged in the OTC market…so all this happened without causing a ripple in the silver price… As Ted Butler pointed out, the Minera Frisco deal alone is equivalent to 14,000 Comex contracts that JPMorgan might possibly have been able to cover in the OTC market.

Feb 16: James Turk explained the possible hedging very well:

In a typical hedge, a bullion bank borrows physical metal, which it sells into the spot market in exchange for dollars. The bank then lends these dollars to the hedger. So hedging depresses the spot price. That’s why gold had so much selling pressure placed on it in the late 1990s and early 2000s when hedging by many gold mining companies was the rage. But look at what is happening to the spot silver market now.

There is no pressure on the spot price, as evidenced by the fact that spot silver has jumped more than $4 higher over just twelve days while these hedges were supposedly taking place – and of course silver is still in the extreme backwardation that I mentioned when it first happened last week…Click Here

In fact, the backwardation is steepening almost every day. The 13-cent backwardation to Dec 2015 I mentioned previously has now widened to 32-cents, meaning physical silver is becoming even more scarce – and the shorts are in an even more difficult position.

So even if a bullion bank is borrowing silver to sell spot to complete a hedge for a mining company, the important point is that the spot market is absorbing everything the bullion banks can throw at it, and even more importantly, silver remains in extreme backwardation which itself is growing. All of this is very bullish, but here’s another even more bullish interpretation of this hedging.

January 30, 2011

A few silver fundamentals updated. How much more silver is in the ground? USGS: About 25 years?

Filed under: Just Watching — Tags: , , , , , — Jeff Fitzmyers @ 6:40 am

Eric Sprott: We had to go into the market and buy about 15 million net ounces from third parties and it took us about ten weeks. It was a very, very long process and the one thing we can read out of it is obviously there weren’t 15 million ounces sitting around somewhere… I haven’t had time to study where the bars came from, but I can tell you by looking at the pictures of the bars they look like they came right out of the refineries. So I suspect it’s a hand to mouth situation in silver… we had an order to buy a million ounces about five weeks ago … and the delivery was going to be two months. So I think silver is as tight as a drum.

Bill Haynes: All of the major suppliers of 100 ounce silver bars are either weeks or months out, some will not even take orders.

Ed Steer highlighted Nick Laird’s Days of world production to cover short contracts chart. The 8 largest traders are short 130 days of world production and that number has recently dropped by 25%. Yet they are still crazy net long.

Friedman’s Theory by: Theodore Butler in January 2005 suggested that there were about 14-22 years left of silver mining, and 17 to 34 years for gold.

A large caveat about reserves from USGS: (which has already proven true)

Reserves data are dynamic. They may be reduced as ore is mined and/or the extraction feasibility diminishes, or more commonly, they may continue to increase as additional deposits (known or recently discovered) are developed, or currently exploited deposits are more thoroughly explored and/or new technology or economic variables improve their economic feasibility.

Current estimates superimposed on the ascending order of 2005 estimates:
EDIT: Apologies, this chart is poor. The idea is that the “Low Estimate” of Years of Production Left has been about the same for the past 6 years. In silver’s case, the low estimate has actually risen. I hope to update this chart someday.

US mine production essentially looks flat.

The USGS indicates that the US gets 65% of it’s silver from outside the US compared to 33% for gold. (page 6)

COMEX inventory from Investmenttools.com (Some don’t trust the COMEX inventory numbers.)

References:
The obvious and GARGANTUAN silver opportunity
LMBA SIFO update: Backwardation up to 6 months still
Silver’s January backwardation out to 12 months, SIFO chart, implications

Feb 27: The Silver Bullet And The Silver Shield highlighted a reply from the USGS about silver becoming more valuable

I don’t believe that the USGS would ever use the term “extinct” in regards to the depletion of a resource. The USGS estimates current worldwide silver reserves are estimated to be 510,000 tons. The global demand for silver in 2009 was about 24,400 tons. If nothing else were to change, the implication would be that we’d run out of silver in about 20 years. However, new deposits are still being discovered, and scarcity should lead to higher valuation, which should eventually lead to more exploration interest. Here’s a diagram [shown below] showing silver’s relative abundance.

While cheap silver ore may become scarce, given the right price, it shouldn’t become extinct!

Regards,

Greg Durocher
USGS Office of Communications & Publications
Science Information Services – Alaska

The only date shown is 1997

February 16, 2009

Does GLD have gold?

Filed under: Editorials — Tags: , , , , , , , , — Jeff Fitzmyers @ 8:53 pm

Jim Sinclair first asked “Where Do All The Gold ETFs Get Their Bullion From?” (Some discussion.)

James Turk sums up the work of Bill Murphy and Nick Laird: “How can a 150-tonne increase in demand for metal in recent weeks translate into such a relatively small increase in the price of gold?”

COMEX’s gold:
2.7 moz regestered (available for delivery)
5.7 moz eligible (just in storage)

Supposedly 4.8 moz was put into GLD in the past month-ish. Where did it come from? In the past almost nobody would care. What if people decided to find out what was going on and what would they do if they figured out it was mostly “paper gold” (futures contracts) at best and nothing at worst?

It would be really interesting to see how GLD might be unwound. If the shareholders did not get stuck with zero (likely), they would likely demand delivery, or just sell and attempt to buy physical gold. Either way the cat would be out of the bag.

Then add Ted Butler’s latest post: In the last month 2 US banks (likely GS and JPM) accounted for more than 100% of all total short selling in silver. They are currently short about 30,000 contracts or 150 moz. That’s more than 20% of total annual world mine production.

It would only take 5,000 contracts ($900 million) to acquire all the registered silver. That is 0.001% of the most recent bailout.

Okay, I will just says it, even though I don’t believe it myself 🙂

Apparently, there used to be about 15 times more aboveground silver than aboveground gold. But, apparently, now aboveground gold is 5 times more abundant than aboveground silver.

So if silver is remonetized and gold is around $2,000 / oz, that implies silver might be trading at $10,000 / oz.

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