We managed to miss out on the parabolic rise of silver, which has now been followed by a stomach-churning 12% fall in thin holiday trading. And commodity markets are less deep than securities markets. Recall that the famed peak of gold in 1980 to $850, was a violent spike up, vasty high than the level two days earlier or two days later.
Silver in particular has been closely watched due to the presence of very large short interests which were apparently partially closed out late last week leading to some very serious intraday volatility. Today we have this cheery development, courtesy Jesse:
Now this wild ride might not be newsworthy in and of itself, but it is also accompanied by rumors of Serious Pain, presumably at JP Morgan, which quite a few market participants think has been on the wrong side of this trade:
The Comex is facing a default, and the powers that be are very nervous since it involves at least one of the TBTF monstrosities.
Shock and awe in the thin Sunday night trade, running the stops of the new futures holders whose options were filled. Even more heavy handed and blatant than usual.
Shedlock (hat tip reader furzy mouse) is of the view that everyone who wanted to buy silver is “all in”. The rapid runup in the last few months looks like a classic blowoff, and I’ve been more generally of the view that we are having a 2011 rerun of the liquidity-fuelled commodities bubble of the first half of 2008. But we only saw some hedgies (apparently including Magnetar!) get serious bloody noses by getting that trade wrong. A big default at an exchange by a major bank is a whole different kettle of fish. And with this a holiday in London, we aren’t getting as much
gossip intelligence as we normally might. Stay tuned!
Is JPM paying silver buyers to not take physical delivery?
JP Morgan down 1% today, while the S&P banking index was down 0.1%. Unlikely that the market believes JPM is in trouble.
banking index was down 0.1%. Unlikely that
Although short-term is easily engineered by manipulators, in the long-haul we are dead. Only thing left to analysis is mid-term. Should we cram for mid-term-exam?
What does mining company do for a living? Converts human resources and energy into bullion. Price of energy goes up or labour force shrinking can be tough on mining stocks. Tell me something what is largest determinant of silver price? Jewelries sales? Just look at retail Jeweller stocks have gone up this year. All those pirates who wear silver ear-rings won’t suddenly change modus operande. Petroleum prices about to collapse-bubble? Plenty redundant-labour-force? Mining stocks preparing for upward surge?
It is true that we have run short on oil, but just look at the size of our natural-gas-reserves right here in our own country.
Think about it
Shedlock just does not want to admit he is dead wrong; therfore he’s playing dumb in the meantime.
Tell me why he’s dead wrong with the market down 12%? I’ll consider some reasoning, but must note you offer zip. Parabolic rises just about always end in tears. And if you read his post, he says he could be wrong. Trying to time a market that looks to be in a blowout phase is always a fraught business.
Keep an eye on the dollar. As long as Ben Bernanke and Timmy keep printing money, debasing the currency, commodities and real money will continue to appreciate. If Obama wants to stop speculation, he can direct Mr. Holder to indict Ben Bernanke and Timmy G.
check out tfmetalsreport.blogspot.com for some insight on the commodities.
As long as Ben Bernanke and Timmy keep printing money, debasing the currency, commodities and real money will continue to appreciate. earnyermoney
“Real money”? Says who? Unless the government recognizes PMs as money (a serious and fascist mistake) then they are just commodities.
Fiat is far more real than PMs because it is backed by the taxation authority (and guns, bullets, prisons, etc) of government.
Furthermore PMs as money are silly. A commodity money if used as a commodity is not money and vice versa.
I could go on about environmental destruction caused by PM mining and other things …
The point is they’re both money. Paper currencies are money as dictated by the fiat of the gvmt. PM are money as dictated by the fiat of the market.
When gvmt fiat currencies offer positive real interest rates, the market wil have limited interest in PM. However, when real rates are negative, the market will turn it’s attention back to PM. You may find that silly and maybe it is. But it’s been like this for 6,000 years so I wouldn’t bet on that changing now. Especially not now.
Sounds like you’re a cheerleader for the FED. You put faith in denim, coton, and flax, because the government tells you to? Keep your worthless fiat money. I’ll take gold, silver, platinum, rhodium, and palladium over them all. You’re out of touch with reality buddy. I know plenty of businesses that are starting to take gold and silver as payment instead of the old greenback. Fed IS OWNED BY PRIVATE BANKERS NOT the government. Basic high school history. Fed Reserve Act of 1913.
He is dead wrong. The dynamics of the Silver short are still strongly in place. The shorts are WAAAAAY out of balance with the longs. China and other Asia nations are putting some of their trade surplus into Silver because they smell blood in the water. The total capitalization of the World-Wide Silver market is much less than other commodities. All n the all the short squeeze will continue until it resolves.
The sudden drop was primarily driven by the large increase in margin requirements and some motivated sellers (trapped shorts?) running the stops on the weekend with light volume. This isn’t rocket science – but it is going to destroy some naked shorts.
In case you missed it, the drop came on the news of the death of Osama Bin Laden.
Basic idea: OBL dead => US bring back troops from Afghanistan => spend less on the military => less US debt => less need to inflate => stronger dollar => weaker silver (-12%).
Then people realised that the US still need to stay in Afghanistan for a while and silver went up again on tis old trendline.
However, such a scenario would lead to some big names losing some big business -> Not good for shares. Also some U.S. contractors will probably lose some business as well -> unemployment will rise.
In short, while the US getting out of Afghanistan is certainly positive in some respects, but is it positive in terms of the US economy?
Then someone had the news before it was announced to the networks, because silver dropped several hours before there was any announcement about OBL.
In fact, since the news it has steadily climbed higher.
Of course, the very determined sellers may want everyone to think it has to do with OSL, but the problem is that the dollar is not higher on the news ( and really why would it be? The deficit is so huge at this point that even of the US left Afghanistan, which I doubt, it would have no real impact). Moreover, gold has traded back to flat.
Whatver happened last night one thing is clear, the only point of the exercise was to move the price lower. The questions are who would do that, and why?
It could have leaked. From the Los Angeles Times:
He could be right if he buy right at the 12% dip. But he switched to gold, and that’s probably wrong. On the long run, silver/gold ratio will increase, but as he said, nobody knows, not he, not zerohedge, and me too.
At this time, it’s only 6% dip. How fast this shock is disappearing !
6% is still a pretty big move.
And yes, if you like precious metals at these levels, probably makes more sense to be in silver.
Look, I’m just trying to get input. silver has been awash with rumors for some time, but we’ve seen other commodities soften too.
Gold, silver and the Middle East, these are the inputs I found interesting. Interesting times …
From The Independent Inside Iran: What life is really like in Tehran
“Sit long enough by the river and the corpse of your enemy will float by,” says an old Middle Eastern proverb. For Iranian leaders, the truth of this saying has been proved this spring as the Arab Awakening unexpectedly overthrew or weakened their enemies across the region.
From atimes.com Osama a casualty of the Arab revolt
Ironically, Bin Laden appears to be a casualty in the great Arab breakdown of 2011. We can only guess as to the details of his demise, and may never know the entire truth. But it is a fair conclusion that he was crushed between the tectonic plates now shifting in the Muslim world.
That makes American self-congratulation over the killing a bit unseemly. American special forces may have been the proximate cause of Bin Laden’s violent death, but the efficient cause is a great strategic upheaval that America does not yet understand, and is not prepared to respond to.
Since OBL wasn’t killed by a serendipitous drone strike but a manned operation, I suspect planning, arming, training, etc. long pre-dated the Arab Spring.
This was a police action, except US Special Services were sent in supposedly w/o Pakistani involvement when it seems pretty clear the Pakistanis felt it now made sense to play ball and (essentially) turn OBL in.
They have been tightening margin requirements all last week.
The only Profit Maximizer with Rational Expectations I can think of whom would decide to dump a bunch of silver into a thin market late Sunday night would be the CIA.
I guess we shouldn’t pass up on an opportunity for a conspiracy theory. It has been rumored for a long time that gold and silver ETFs and commodity contracts may not be fully backed with physical metal. Lately a lot of people have been reccomending that delivery should be taken on the physical metal. Last week I thought it funny that they would be raising margin calls to make sure buyers had ebough cash to cover purchases of metal that couldn’t be delivered. I just realized now that a way to fix that problem would be to make people not want to buy the metal, period.
This would save a big problem for the commodity exchanges and another black mark for paper investments.
Consider the list of “asset” problems so far.
1) Buying stock does not mean you own a good company.
2) Buying asset backed securites does not mean you own any assets.
3) Buying Treasuries DOES mean you bought the national debt.
4) Dollars no longer come with the phrase “In God We Trust”. It has been replaced with “If Found, Return to the Federal Reserve”.
5) You can buy junk bonds.
If they shattered our confidence in paper gold and silver, that could be the straw that breaks the camel’s back.
You want *input*? That is, you want better rumors?
Hah! We call them “data points” where I come from.
I’m picking up my (modest) physical tomorrow. Honestly, from that point I couldn’t care less what happens to the “paper” market for Gold or Silver as I suspect they are about to slowly come unhinged. We’ll see :)
I’ve suggested this in another place, and I’ve been told that it couldn’t possibly have anything to do with this. But it just happens that silver is one of the few materials that are good absorbers of neutrons. I wonder: if the engineers at Fukushima asked at one point for a ton of silver, to be physically delivered ASAP, could have that started a bubble in silver?
You made me laugh – I hope you were joking! I think you will find that both Boron and Gadolinium are far more effective “neutron poisoners”, and have been used in nuclear reactor design previously. Silver, not so much ;)
Excuse my ignorance, but wouldn’t JPM’s default – based on all the chatter about their huge short positions – lead to an increase in price for silver?
I make a market in silver spot & hedge it with futures. Asia shift.
Tonight my machine got a little bloodied. Gold too. Had to leave them off for much of the night. The markets were thin, fx too. I thought only Japan was on holiday tonight but you say GB was too? I didn’t know that.
My point is: just last week (I think) silver futures made a new high. And it happened with a very odd order. I only had a silver futures book open. The buy order looked like one of those orders that was willing to pay any price for a fill, so it went way up the book, hard, cleaning out every resting order in sight. I actually sold onesies & twosies into it, to see if it’d go higher still, and it did but my machine automatically sent cash bids to cover, so that left me with nice little loss. oh well. At least my instincts were right….
Anyways, yes, last week’s silver high looked very much like a sped-up version of oil blow-up several years ago, involving that dude from OK who decided to sell oil futures in the $130s only to have JPM & GS (?) force him to cover, which drove the futures up to $145/barrel. It always pays to take the other side of someone else puking up their position. And then that dude had to sell his oil company, right? I can’t remember his name.
That was around/after the time JPM had forced Amaranth to post margin he couldn’t muster, and so that dude had to puke up his position too, which was swept up by JPM and/or Citadel. Can’t remember. My point is: I think Street’s embarassed they got “played” by Magnetar. The real scandal of the financial crisis is in the awesome Levin/Coburn report, which reads like Raul Hilberg’s “The Destruction of the European Jews”: mundane office memoranda from bureaucrats who are decimating the communities they lend to. There is nothing that Magnetar did that comes close to what WaMu and that ProPublica-funding-Option-ARM selling tandem of Herb & Marion Sandler did. But I digress.
Can anyone tell us something more about that peculiar order? Like, how much was it? Any ideas who was buying?
Guess Osama won’t be covering..
Definite manipulation here. Jesse is right. A last gasp attempt to save JPM’s position, after multiple margin increases did not work. But don’t expect any investigation – the regulators are all still captives of the big boys.
Has silver hit a top? A short term one yes, but you don’t hit a real top when everyone tells you it is a top. You will just have more and more people taking possession of silver. The price drop is one more buying opportunity. Everyone is not in (sorry Mish). At some point they will win in their efforts to take down the Comex, because there will be no more physical silver to be had that is not in long term hands.
Yves – the silver/gold bugs have been ranting about a COMEX default for years. Their latest thing is to repeatedly rant that such a default is IMMINENT, despite ample evidence to the contrary. I think this comes from a basic misunderstanding of how metals futures trading works – where the contracts are largely speculative (ie, used with no intention of taking actual delivery), even though they can be physical settled
If you look at the MAY open interest numbers, published daily by COMEX,
you can see that it would be nearly impossible for a default to happen this month – with gold OI down to 116 and silver down to 1502.
So now, the metal-heads will start chanting – “WAIT UNTIL JUNE (gold) or JULY (silver)! THEN you will see the default” – they just roll their default call – as they’ve been doing for the last 6 months.
if all open July silver contracts stood for delivery, of course there would be a problem… that never happens though – and when it does, we’ll know about it in early July, when the open interest numbers are published.
although I agree that gold/silver bugs have been ranting on this for years, as with all things there does seem to be some basis of truth to their musings. (ie there seems to be heavy manipulation).
the pattern is strong enough so that simple bloggers are playing the pattern, and blogging about it before hand.
Turd Fergusen comes to mind. he blogged last week’s big drop in silver over a week prior to it happening
“The pattern from last November (first notice for the Dec10) and February (first notice for the Mar11) is for a brief but sharp selloff in days 4 to 2 before first notice day. This raid is orchestrated to “convince and nudge” as many front-month contract holders to roll as possible. I fully expect the same pattern this week”
is it true? Who knows.
(that said, he did NOT predict the big move in the last 24 hours).
1) JPM is clearly in trouble with their short position. thus, it behooves them to do a few raids to intermittently save their position/solvency,or at least make offsetting bets.
2) COMEX has raised margin requirements SEVERAL times in the last few weeks, and twice last week. this will shake out some speculative demand.
3) others have raised margins even more than COMEX has.
4) we are in nosebleed territory for silver (not to say that it can not go higher, but it’s high). thus many bulls will get trigger happy here.
5) in theory Bolivia did NOT nationalize it’s silver mines, which reduced concerns about supply.
but in the end: haven’t we seen this same trick in stocks for some time. Big moves on thin volume? In the case of stocks, it seems to be big moves UP on low volume. In the PMs it is big moves DOWN on low volume.
anyway, silver volatility is going WAY up lately. nearly historic moves.
These flash crashes that continually occur can not be good for market confidence to the average joe investor, no matter what the market IMO.
last point the silver bugs will make: you cannot buy physical silver for anywhere near the spot price, and the price difference is increasing over time.
there is a mispricing somewhere.
the case against the silver bugs is this: I think they may underestimate the amount of speculation in silver by the “big boys”. we saw this back in the first wave of the financial crash when oil/gold/silver all fell along with every other asset class (except Treasuries).
disclosure: I am not a silver or gold bug. I do hold CEF but I hold no physical silver.
real quick, without turning this into a silver debate:
1) the “raids” that the silver bugs talk about are perfectly normal price action – that’s what happens when everyone in the market knows that 90% of the open interest has to close/roll – the longs are at the mercy of the market if they aren’t willing to stand for delivery. Longs who are capable of taking delivery are MORE incentivized to take delivery if prices are temporarily manipulated lower during the period where they must sell/roll! It’s this selling/rolling itself that causes the price dips.
2) don’t confused the myth of “paper vs physical” prices with “wholesale vs retail” price – you can absolutely buy silver at spot – just not as a retail customer at your local coin shop.
3) is it possible that at the beginning of some month we will walk in and see that the open interest didn’t reduce? yes – sure – it’s possible – but MAY is not that month.
don’t confused the myth of “paper vs physical” prices with “wholesale vs retail” price – you can absolutely buy silver at spot – just not as a retail customer at your local coin shop.
duh… I’m sorry about that.
however: I will say that the premium above spot has changed recently. somewhat significantly. also access to certain products has become difficult at best.
what does this all mean? I have no idea.
the case for silver/gold is strong.
however, the problem is whether or not the CURRENT state justifies the CURRENT pricing. I’m not sure.
the case for a housing bull run was strong as well… at least initially. that doesn’t mean there was not a bubble.
Watching some silver auctions last week on ebay revealed a LOT of trades of PHYSICAL below spot. Well below spot, in the 30’s
Say bob, I don’t think you’re using your internet browsing machine properly. Ebay silver prices have been following spot pretty well over the last couple days. Just sayin’.
Unfortunately, my understanding of the commodity exchanges is still pretty much the way Ms. Kiefer explained it to us in 10th grade sociology class.
She said the reason we have a futures market is so that a producer, like say a Bolivian silver mine, can receive cash immediatly and buy silver seed to seed the mine. When the harvest is ready 6 months later, they then deliver the crop to the holder of the futures contract.
Ms. Kiefer was trying to explain all commodity futures markets in general, and this example is also meant to cover how junior gold and silver mines operate.
But rumors of Bolivian nationalizion of #3 producing silver mines did fuel the runup in silver prices. However, one would have to wonder if that would fuel concern that some contracts are not really backed with physical silver?
I would ask Ms. Kiefer, but I don’t know where she is anymore.
I must have missed something again, but how could JPM default with a falling silver price, when the assumption was – at least to my knowledge – that they are short silver in order to surpress the price of silver?
Totally agnostic on the Big Bank short positions. If they exist, they are most certainly not in the PropBook. Price has gone from 5 to 50 – who can stay short this kind of short in an institutional setting?
More probable, some mines might have sold forward via JPM, HSBC, GS or Deutsche – maybe even some junior miners. Their short positions would be carried by the banks. The banks credit risk to the miners explode with the silver price as does political risk when you look at some elections in South America, where the new big mines will come onstream.
FD: This is pure speculation as I know nothing and have no confidence for any position in the silver market.
Far and away the most logical inference drawn from this “big silver short” psychosis.
Can you please find some way to alert the truck drivers cashing in their 401(k)’s on the zerohedge board?
Being a sub micro investor, and not wanting to pay those pesky “handling” charges, I’m not in metals. The dynamics of it look suspicious to me from the street level. Memories of the Hunt Brothers come gibbering to me in my dreams.
What’s going to be the effect of this metals surge on the average “man on the street” in the Traditional countries? Precious metals are generally crucial for “Currency Reserves,” bridal doweries etc. Won’t this further destabilize “The Street” out East of Aden?
Finally, several small time metals types I know all say that this is the time to sell your stocks. “Sell into the bubble” is what I’m hearing. They all know people who got badly burned when the Hunt Bubble popped. If the fundamentals are different now vs. then, will someone enlighten this por foole? Thanks.
Jeez, at these prices I might as well finally get that silver recovery device for my spent fixer. Ilford and Kodak have both had to raise prices. I’ve got enough film in the freezer to last me a while, so I’m hoping the market has crashed before I run out.
There’s an old Roman expression: “A coward dies a thousand deaths, a brave man dies but one.”
I am a huge coward when it comes to my GLD position. So thanks for the panic this morning. :)
I’d be a brave man if I had a measly $2 or $3 million. That’s not very much for some of you big Naked Capitalists. You spend that on your car collection. So either send me your best 10-bagger or send me a check:
PO Box 55
But don’t panic me with these 6 am posts about crashing precious metals markets. Oy vey. I can’t trade on Schwab until 9:30, and then it’s too late.
GLD to 200 or higher. Long and strong.
Kid Dynamite explains part of what is occurring. The recent, substantial margin hikes are another factor.
I presume that the PM markets are manipulated by the major players. The specs are an increasingly significant factor. The positive aspect of the margin hikes is driving some of the speculative froth out of the markets.
It is clear that global participants are accumulating physical PMs with good reason. Silver in backwardation is indicative.
What is unclear is the revelation of a very large, unhedged, short position. There are years of failed delivery forecasts.
Shedlock’s deflation call is looking inaccurate.
Silver, gold, oil, up, down, blah, blah, blah. Look at the monetary base. Where is the next $1.5T in deficit money going to come from? The tooth fairy?
I think silver markets are suffering from the EOTWAWKI contingent’s practice of taking delivery of the silver they purchase. As time goes on, the decrease in silver liquidity is getting much more intense, and the paper based silver market contingent is starting to worry. A lot.
The big speculators have been selling down their net long exposure in silver future for the past three weeks, while commercial shorts covered concurrently. Whenever this happens, you know the market is close to the exhaustion point. Some comments on the warning signals that began to show up in the course of last week here:
The second chart tells the story.
Perhaps they can find a large store of unemcumbered silver somewhere. But even a back of the envelope calculation using open interest shows that Comex is going to reach some hard limitation if something does not change, and they cannot keep engaging in cash settlements reportedly at premiums.
By the way, I do not have any rumours of a Comex default. I do not know what Yves’ source is on this.
What I do have is a chart showing a steady decline in Comex silver for delivery, such that there are only about 12,000 or less contracts worth of silver on hand even at these prices. With an open interest north of 120,000 contracts I would suggest that Comex needs to do something to replenish their physical inventory, and that generally involves higher prices.
I don’t think we will see a default per se. I think there will be a forced cash settlement to complement the existing cash settlements being offered at a premium to those standing for delivery.
One rumour I do have is that some ex-JPM’ers are enjoying this trade immensely.
Anyone else see the irony of the gold and silver bubbles? I mean, they have been inflated — in part at least — by gold and silver bugs; you know, those ‘hard money’ types that spend their days looking under Ron Paul’s pillow for a permanent store of value. The type of people for whom QE is not so much bad macroeconomic policy as it is an ethical violation of the rule of economic Law.
And yet — and in part due to their own actions — bubbles blow up in these markets and eventually burst.
My question has always been this: how many more fearful people are willing to pour into these markets? Well, Glenn Beck is off the air soon, right? So the pool must be drying up…
I had this exact thought last week, including the Glenn Beck thing.
“Permanent store of value” — ha! I’m sure the irony will be lost on them.
As a technical analysis guy, I can say that silver was screaming abandon ship last week — there was a big ole doji on the weekly, which after a run up like it had, would have sent technical guys dumping their bullish positions.
Could someone translate this into English for me?
Like most markets, silver is a manipulated market and when countries i.e. Russia, China, India… begin buying silver in large quantities then the bankers of the world are no better than the guy on the street and both stand in awe. China by itself could break the COMEX but in the process would cause an astronomical rise in silver prices so it’s a game of chess where the COMEX is use to a game of checkers.
Silver is returning to its historical ratio price to gold that floats around 16/1. I’d settle for $80 silver by the end of the year.
I only give this link as point of view/opinion…
What Doji? Spot was up like 8ish on the week. How that leaves a doji on any chart is beyond me…
I am curious at the lack of mention of the steadily dropping COMEX warehouse registered silver. Jesse made a great comment on it not long ago: http://jessescrossroadscafe.blogspot.com/2011/04/what-i-think-fluctuations-and-trends-in.html
I would also mention that the extreme volatility is happening strictly outside of the Europe/Swiss market hours. The Silver peak above 32Euro/ounce and the subsequent 12% decline never happened for all we care. What we see in Europe is a different tape (not to speak about Asia).
Sell,Sell,Sell all your silver now its dropping to under 10.00 nobody here has a clue!!!LOL ya sure go to Bolivia
Amazing the excellent comments from people who know the government and the Wall Street Journal are not their friend.
I have never seen a more useless and corrupt mainstream media in my entire life.
The difference between precious metals and other commodities is that they have always been use as a currency and will be again when all the world’s paper fiat currencies collapse.
Copper and oil will collapse for lack of demand but silver and gold will become the default currencies when the paper money is proven worthless.
It will be hard to price precious metals as the paper currencies collapse but THEY are right when THEY say gold doesn’t give milk and doesn’t pay interest but after the COLLAPSE everyone will be glad to sell their house and milk for a grain of gold.
Despite the illusory end of the gold standard central banks have continued to use gold as their basis. The sheeple were taken off the gold standard so they would be naked for the rape by inflation by the money wizards.
The big nuts manipulating silver have leveraged it thru coupons, that is they are investing in silver without owning any silver and this is why they can get their clock cleaned at any given moment. The wise invester’s are only buying physical silver. The big nuts may be in for a squashing.
PS: I would be very hurt to be classified as a troll!
I know a guy who knows a guy….anyway, this guy bought physical silver below and at around $5 back in the day when people thought nothing of it. He also bought gold when it was openly called a “barbarian relic”. He backed up the truck so to speak and got loaded. He said he will not sell under $100. More likely he will sell somewhere between $100-$200. Then, he will rotate the profit into rental housing, farm land, uranium and coal stock. He said, the time to sell is the opposite of the time to buy. When the headline says: Best investment of the decade:Gold and silver, or gold and silver banned…that is the time to sell.
Who cares if it goes to 10 from 49 if it goes low I,ll buy another 100 ounces.Someday silver will be valued where it belongs. And I have no concern for holding on to it for 20 more years if I live that long. There is a strange pleasure in knowing my few hundred ounces are in my possession and not something the bankers can get their greedy, sinister, sneaky,scheming, thieving hands on.
Right on Bob!!