Tag Archives: COT report

A Quiet Bull Market Move In The Mining Stocks

This analysis is an excerpt from the opening market commentary in my April 19th issue of the Mining Stock Journal.

I was looking at some charts with a colleague two weeks ago and was startled to discover that a very quiet bull move has begun in the miners. Like the move that began in late 2015, it seems that some of the junior miners per GDXJ have gotten the party going. As you can see in the chart above, GDXJ is up 12.8% since December 7, 2017. GDX is up 9.5% since March 1st. Some individual stocks are up quite a bit more than the indices: AEM up 18% since March 1st, EXK up 49.7% since Feb 9th, Bonterra up 25% since March 1st, etc.

The chart below is two weeks old but the bull pattern in GDX (and GDXJ, HUI, etc) has continued after a brief pullback (which in and of itself is bullish):

In my opinion, the charts in the sector are beginning to look quite bullish. I would like to see the Comex gold futures open interest drop 70-80k contracts – it was 499k as of Friday’s close. However, if a bigger move than has occurred already starts now, the big Comex banks will be forced to cover their large short position in gold futures. This will “turbo-charge” the move [in fact, per the latest COT report, the Comex banks continue to cover shorts and reduce their net short position and the hedge funds continue to dump longs and add to shorts – historically this shift in trader positioning has preceded big bull moves in gold/silver].

Silver is also starting to form a very bullish base:

Wholesale silver eagle premiums are creeping higher, as are retail premiums. Perhaps the big inventory overhang that had formed over the last year is starting to clear out. Also, silver mining stocks, especially the ones that actually produce and sell silver, have been quietly outperforming just about every stock sector (I have had a buy recommendation on a smaller silver producer since early October 2017 – the stock is up 20% since that buy recommendation (I own it) and it’s up 47% since it bottomed in December.

From a fundamental standpoint, given the deteriorating financial condition of the U.S. Government and the escalating rate of inflation and geopolitical risks, the planets are aligned for a big move in the precious metals sector.   If the banks continue to reduce their net short position in Comex paper gold – and concomitantly the hedge funds continue to reduce their net long position – then both the planets and the stars will be aligned for a move in the sector that I believe will take a lot of market observers and participants by surprise.

The Mining Stock Journal is a bi-weekly (twice per month) newsletter that offers in-depth precious metals market commentary and, primarily, junior mining stock ideas.  My goal is to find the hidden “gems’ ahead of herd.  You can find out more here:  Mining Stock Journal information.

Wow great report…by the way I have cancelled most of my precious metal subscriptions except your’s…. You do a treat job for us! – from “Robert,” received last week

Is The Silver COT Bullish?

There’s been an abundance of commentary on the net long position of the “Swap Dealers” in Comex silver futures per the COT report.  As of the latest COT report, the Swap Dealers are net long almost 22k silver contracts.  This is unprecedented.  At the same time, the “Large Speculators,” the majority of which is comprised of the “managed money” (hedge funds) sub-component, are net short nearly 17k silver contracts.  The data my business partner tracks goes back to April 2004.  In that period of time, the Large Speculator category has never been short until February 2018.

On the surface, the silver COT report appears to be extraordinarily bullish. However, there’s a bigger picture not discussed by “COT” analysts that includes the other segment of the large “Commercial” category and the COT structure of gold.

The other “commercial” segment includes producers of silver, commercial “users” of silver (jewelers) and “merchants.”  It would be naive to assume that the Comex banks do not throw a large percentage of their gold/silver short positions in to the this category.  That would be within the CFTC regulations.  Hell, JP Morgan was fined a little over $650k a few years when it was caught by the CFTC putting a portion of its trades into the “speculator” category of trader.  This was not within regulations.  $650k is a joke and would not deter Jamie Dimon from speeding on the Long Island Expressway let alone manipulating the silver market.

Currently the “Commercial” segment per the latest COT report is net short  2.6k contracts.  Again, this is by far the lowest net short position in the Commercial category going back to at least April 2004 and likely ever.  The closest the net short position has been before now was for the June 3,  2014 COT report, when the Commercial category net short in silver was down to 9.6k.   Back then silver was trading at $18.80.  It bounced briefly to $21 by early July then headed lower from there.

While the silver COT appears to be exceptionally bullish, it needs to be analyzed in the context of the gold COT structure.  The gold COT structure currently, based on historical statistics, is neutral but trending toward bullish.  I looked at data going back to the beginning of the current bull market cycle in the metals, which is commonly considered to be early-December 2015.

From the beginning of December to the latest COT report, the average large spec net long position in gold is 171k. The high was 315k (bearish) and the low was 9.7k (very bullish).  For the Commercials as a whole, the average net short during that time period is 209k contracts.  The high was 340k (bearish) and the low was 2.9k (very bullish).  The low net short  in gold for the commercials banks occurred in the December  1, 2015 COT report.  This also corresponded with the low print in the large spec net long.  This type of COT structure is the most bullish for both gold and silver.

Currently, the large specs are net long 166.5k gold contracts and the commercials are net short 188.8k contracts. You can see vs the averages over the time period that this is still neutral to bearish, but it’s trending in the direction of becoming bullish.

The other element for a bullish gold COT structure is open interest.  A high open interest tends to correlate with a bearish COT structure – i.e. a  high commercial  bank net short – and a low relative o/i correlates with a cyclical low-point in gold.  From December 2015 to present, the average o/i in gold has been 492k contracts.  The high was 652k and the low was 357k.  The net short of the commercials as percentage of the total o/i at the low-point in total o/i was 0.74% – again in the December 1, 2015 COT report.  Currently the open interest is 493k which is about average.  The commercial short position as percentage of total o/i is 38%.  Again, about average for the time period.

I have noticed that the last two moves higher over the last two years have occurred with the total gold o/i in the 420-440k range.  This would suggest that, minimally, the open interest needs to drop by 60-70k contracts before the gold COT structure can be considered favorable for a rally in the price of gold.

On average and  in general, gold and silver are highly correlated in their directional movements, especially over long periods of time.  Since 2001, it’s been my experience that major moves higher in the precious metals sector begin with gold taking off and tend to end with silver outperforming gold by a substantial margin.  The numbers presented above would suggest that both gold and silver will not be set-up to embark on a major move higher until the both the total open interest in gold and the net short position in gold of the commercials banks declines by another 60-70k contracts.

In the context of my analysis and my view on methods used by the banks to manipulate the paper price of gold and silver on the Comex, in my pinion the silver COT report – though remarkably bullish on a stand-alone basis – is not as bullish as some analysts are presenting when both the gold and silver COTs are considered in tandem.  At this point, I believe gold will lead both metals higher when the next big move begins. Once that move is underway, I’m highly confident silver contract short-covering by the hedge funds will send silver soaring.

Is Gold Ready To Move Higher?

The simple answer to that question is: who knows, eventually it will. I like to look at the Commitment of Traders report for signals. I think the COT offers better information than looking at charts, although I like to use my COT analysis in conjunction with charts. My fund partner keeps a database of COT gold and silver data going back to May 2005. Over this time, there’s been a strong correlation between the direction of gold, the net long position of the hedge funds, the net short position of the banks and the total open interest in gold (silver) futures.

Over this time period (Since May 2005), the total open interest in Comex gold futures has averaged 429k contracts. The hedge fund net long position in gold futures has averaged 142.8k and the bank net short position has averaged 168.1k contracts. Since 2015, we’ve had two price cycles starting with the low in December 2015. At the December 2015 low in gold, the hedge fund net long position was 9,750k contracts and the bank net short was 2.9k contracts.  The December hedge fund net long was an extraordinary low net long position and the bank net short was extraordinarily low. This makes sense given that mid-December marked the bottom of the nearly 6-year bear cycle within the secular gold bull market.

If we go back July 2016, the open interest in Comex gold has declined 206k contracts – a staggering 26 million ozs – 737 tonnes (25% worth of gold produced annually).   The Comex banks were short an eye-popping 340k contracts – 34 million ounces, or 964 tonnes of paper gold. This represents an undeniably enormous effort by the Fed via the Comex banks to cap the price of gold.

As of the last COT report (Dec 12th, the hedge fund net long was 107k and the bank net short was 119k. The overall open interest was 446k, about 20k contracts above the average open interest since May 2005.  In a “horsehoes and handgrenades” context,  we should have seen the bottom a week ago.

The open interest report thru Tuesday (Dec 19th) showed 446k open interest. Assuming most of that drop in o/i was decline in the hedge fund net long and bank net short, we should start to head higher, but don’t expect this happen continuously, in parabolic crypto-coin fashion.  The gold bubble is yet to occur.   I can’t promise that gold will move higher from here.  The best we can do is assess probabilities based on historical data relationships as they apply currently.

I want to mention briefly that Dennis Gartman has exited the long position in gold in his theoretical portfolio. Gartman’s market calls have a spectacular track record as a reliable contrarian indicator. I kid you not. This would suggest that the gold market is at or near a bottom.

Back in the September, I advised my Mining Stock Journal subscribers that I suspected the coming sell-off in gold – manipulated sell-off, of course – would take gold down to mid-$1240 area.   It hit $1241 on December 12th.  Sometimes the coin does indeed land on “heads” when I call “heads.”  I also discussed the hedge we were implementing on our mining stock portfolio and provided details on the my opinion of best way for subscribers  to hedge a junior portfolio.  The hedge easily saved us at least 7% (700 basis points) of performance this quarter.

The stock I presented in the last issue (Dec 14th) is up 12% and it’s still highly undervalued, especially given that it will start producing in late 2018.  You can learn more about this stock and subscription details using this link:  Mining Stock Journal.

Trading And Investing In Gold: Follow The Money

The paper gold attack that I first suggested might occur in the September 7th issue has taken gold from $1360 down to $1270 (continuous contract basis). Technically, gold has moved from an “overbought” condition to a mildly “oversold” condition. The RSI and MACD indicate that gold is slightly “oversold” but I believe both indicators will flash “extremely oversold” before this price attack over. This should occur sometime in the next 2-3 weeks.

I say this because I continue to believe the open interest in Comex paper gold, combined with the analyzing the weekly Commitment of Traders report, is the best indicator of gold’s next move, at least until the western Central Banks are unable to control the price of gold with paper derivatives. To be sure, the COT report is not always a perfect predictor but in the last 15 years the two reports combined have been around 90% accurate.

Currently, the Comex banks’ net short position in paper gold is at the high end of its historical range. Concomitantly, the net long position of the hedge funds is also at the high end of its historical range. Per last Friday’s COT report, the banks began to reduce the short positions, thereby reducing their net short position, and the hedge funds began to reduce the long positions, thereby reducing their net short position (click to enlarge):

The graphic above is from the CFTC’s weekly COT report for all commodities. I’ve referenced the COT report quite a bit so I thought I’d put some “meat” on the bones. The report was published Friday (Sept 29th) but the cut-off day for the data used is the Tuesday before last Friday (Sept 26th). Unfortunately, by the time we, the public, can see the data it’s three days old. By the time we can try to trade on it (the following Monday) it’s four days old. This is unfortunate and the CFTC could force a daily disclosure of the data, which would be ideal, but since when does the Government do anything for the benefit of the public? Having said that, we can still get a feel for then general “flow” of positioning in gold futures by the various trading cohorts. Note: though the CFTC publishes the COT report, the actual data comes from the banks who operate and manage the Comex trading floor and computer systems.

I’ve highlighted the data that is important to me. The reportable positions are the “producer/hedgers,” “swap dealers,” “managed money,” “other reportables” and “non-reportable.” The latter two are large money pools that are not hedge funds or mutual funds and retail traders, respectively. They are not a factor in the analysis except to the extent that it is thought, though unprovable, that the banks throw some of their positions into the “other reportables” category to hide them.

The bank positions are primarily in the “swap dealer” account but they also throw their trades into the producer/hedge category. It’s impossible to know how much without having access to the systems. The “managed money” is primarily hedge funds. On the left side is the open interest (o/i) number. You can see at the bottom the o/i declined by 20.4k contracts from the previous Tuesday. It had peaked a couple weeks earlier around the 580k level, if memory serves me correctly. [As of Tues,  Oct 10th, the o/i was 520k]

The bottom row data shows the change in the various positions from the previous week’s report. You can see that the swap dealers covered 14.5k worth of shorts and added 4.9k of longs. The producer/hedgers were net unchanged in terms of net position but still extremely net short. The hedge funds (managed money) sold over 32k of long positions and added 4.8k to their short position, effectively dropping their net long position by 36.8k contracts.

Note: The spread positions (“spreading”) are not important to this analysis. They represent a trade in which one side of the trade might be short October gold contracts and offsets it with a long position in December gold, for instance. This would be a “hedged” bullish trade because the entity with that position is expecting the price of gold to rise by December but wants to hedge out risk factors that might take the price of gold lower between now and then. There’s no way to know how the spread trades are positioned without access to the Comex systems.

You’ll note, based on the change in relative positions, it appears as if the banks have started to cover their shorts and add to longs, thereby decreasing their net short position. Similarly, the hedge funds did the opposite, thereby reducing their net long position from the previous week. The open interest as of this past Wednesday (published daily) was 522k contracts. This is 27k contracts lower than the o/i when the report was put together a week ago Tuesday. The o/i appears to be trending lower, which historically has indicated that the banks are collapsing their net short position and the hedge funds are collapsing their net long. We’ll know if this trend continued on Friday afternoon, when the next COT report is released.

If this trend continues, it indicates that we’re getting closer to a bottom and the next move higher. I’d like to see the open interest on the Comex decline by about another 100k contracts. This might take 3 or 4 weeks. We could also see some short-lived spikes down in price before this over. Typically what has been occurring over the last 3 years or so is that, as the hedge funds dump longs and add to shorts, the hedge fund computer algos overreact to the downside price momentum and begin to “flatten out” the hedge fund net position by rapidly unloading longs and piling into the short side. A couple times over the past few years the hedge funds have been net short for a week or two. This always has preceded a big rally in gold.

I don’t know if it will play out like that this time around. Currently the mining shares are “grudgingly” giving up ground. Often, though not always, that trading behavior in the shares indicates that a bottom is forming. Again, I don’t know if that will be the case and I’m braced for one more nerve-wracking move down to the $1250-$1260 area. We still have a hedge in our stock portfolio via owning in-the-money calls on JDST. We’ll probably remove that hedge sometime in the next week or two.

Although we might be in a for a bumpy ride over the next couple of weeks (then again, we might not be), the mining stocks, expecially the juniors, are setting up for big move after gold (and silver) bottoms out and heads higher.

The graph above (click to enlarge) is a 1-yr daily of GDX. From its bottom in December through Thursday’s close, GDX is up 21%. You can see in the chart the slope of the trendline I drew steepened slightly in mid-July. I still think we could see a short-term drop in GDX below the 200 dma (red line) but I would use this as an opportunity to add to positions.

The one factor that could derail the ability of the banks to engineer more downside to the gold price is China’s return to the market starting Sunday night. China has been closed down this past week in observance of a national holiday, which means their presence as a large buyer of physical gold has been absent. Quite frankly, I expected a bigger take-down of the gold price in China’s absence. The inability to do this may have been offset by India’s continued demand for gold, both through official avenues of import and smuggling. The gold flowing duty-free into India from South Korea has been curtailed but Indonesia, which is party to the same free trade agreement, has stepped in to fill the void. Just this past week, import premiums were high enough to indicate that legal importation of kilo bars also resumed.

One last note, some of you may have seen the report that Russia’s Central Bank has become the world’s largest official buyer of gold (“official” meaning Central Bank/sovereign). I would argue that China does not fully disclose the extent to which the PBoC is accumulating gold (for instance, it’s thought that the PBoC buys most if not all of the 400+ tonnes of gold produced by China’s mines. That said, both the Russian and Chinese Central Banks combined are accumulating an enormous quantity of gold. I would suggest they are doing this a precursor to re-introducing gold into the global monetary system.  In other words, follow the money.

The above commentary is from the latest issue of the Mining Stock Journal.  In that issue I reviewed several of the previous stock ideas, many of which have doubled in the last 52 weeks, and presented a high quality mid-cap producer silver mining stock as shorter term trade idea that I think could be good for at least 25% through year-end.  You can learn more about the MSJ here:  Mining Stock Journal subscription information.   All back-issues are included with your subscription.

This Feels Like the Action in 2008 Right Before the Collapse

Doc asked me last minute to fill-in for Eric Dubin, who’s M.I.A. somewhere on the shoreline of southern France, on Silver Doctor’s Metals and Markets weekly podcast. Among other topics we discussed why the current trading action in the precious metals paper market feels very similar to trading in the spring/summer of 2008 – ahead of the great financial collapse crisis and why the Fed/bullion banks are making it obvious that they seek  to scare investors away from buying precious metals with their “shock and awe” price-takedowns.

But one big difference between now and 2008 is that these “zip-line” vertical drops in the paper are being met with aggressive buying from the eastern hemisphere physical buyers, thereby limiting the size, intensity and duration of the price-hits.

As of the latest COT report release Friday which details the constituent trader positions through last Tuesday, the trader positions are moving toward a highly bullish set-up for gold and silver. In silver, the hedge funds are now net short silver futures and the swap-dealer segment of the bullion bank positioning is net long. In gold, the hedge funds have aggressively reduced their net long position and the swap dealers are long to a relatively large degree. Historically, this position shift has preceded major bottoms.

In the latest Mining Stock Journal, I present a silver producer who’s stock that was ruthlessly taken recently. I review the details in-depth, including my conversation with the CEO, and discuss why this is an opportunity to buy into a major producing company at irrationally low price level based on the facts of the situation. I also lay-out the call options I put into the fund I manage in large quantities to bet that my assessment has good probability of being correct. You can find out more about subscribing here:   Mining Stock Journal info.

After subscribing to Brent Cook for 3 months, I was underwhelmed.  Resubscribed to you a few weeks back and sure am glad I did so. You are one the few straight shooters still out there. Keep up the great work. I think we are right on the cusp of a serious market break, thus the war drums.  – subscriber “Chris

Gold And Silver Are Potentially Explosive

Gold and silver are acting differently right now. Usually when the open interest in the paper gold (Comex) net short of the bullion banks becomes overweighted, it’s a signal that they are getting ready attack the price of gold by triggering massive stop-loss selling by the technically-driven hedge funds.

And through last Tuesday, per the latest COT report, the Comex banks had piled heavily into the short side, feeding paper shorted to the hedge funds. And true to form, the market was attacked aggressively this past week starting Tuesday with the expiration of Comex options. Interestingly, the banks had to wait until after the Comex floor trading closed on Tuesday in order to take advantage of a thinly-traded electronic “access” market that is open for about another 90 minutes after the Comex closes in order to push down the price of gold enough to trigger automated hedge fund algo stop-loss selling.

The attacks on the price of gold persisted through Thursday, resulting in what appears to be a record weekly percentage drop in Comex gold open interest. But this attack resulted in a shallow price decline.  And if you trace the build-up in the bullion bank short position over the past couple of weeks, it appears that the banks were willing to sustain losses on those shorted contracts in order to cover them.  Bill “Midas” Murphy at Lemetropole Cafe first pointed this pattern out to me and I confirmed his theory by tracing out the rise in the commercial short interest with the movement in the price of gold.

At the same time, there has been a massive amount of silver – as reported – moving in and out of the “registered” accounts at the Comex silver vaults.  The silver in the “registered” account is the silver designated to be available for delivery.   On the last two days of this past week, for instance, nearly 30% of the silver held in the registered account was moved into the “eligible” account. The “eligible” account is the account in which silver is allegedly “safekept” for the owner of that silver.

Finally, although the mainstream financial media and the fear porn oriented alternative media has been making a lot of noise about the sudden fall-off in the sales of minted bullion coins, I heard a report from a large bullion dealer who said that, while retail coin sales are slow, his company has been receiving very large orders from very connected quite off the radar types purchasing large quantities of physical silver. The recurring theme from these buyers is a desire to move money out of electronic fiat currency bank credits and into privately safe-kept precious metals in bullion form.

Eric Dubin (The News Doctors) and “Doc” invited me to join them on their weekly Metals and Markets podcast to discuss the latest developments which point to possibility of a big surprise move to the upside in gold and silver that is driven by the physical market:

Gold And Silver: Patience Required

I wanted to share a discussion on the metals that I had with GATA’s Bill “Midas” Murphy this morning.  I had emailed him to ask him if he knew of any reasons the metals were getting slammed today because the dollar was down a bit, the economic reports were poor  and the stock market was selling off –  all three occurrences of which are precious metals-friendly.

As Bill suggested, silver is under more pressure today than gold, with JPM going all out to get the speculative traders to sell, which helps JPM push the price down.  If you look at short term chart, it would appear that silver is forming a head and shoulders “top” formation, something which JPM is trying achieve, as Bill correctly pointed out.

However, technical formations almost NEVER work in the metals. Typically doing the opposite of the what the  formation is indicating works the best over the last 15 years. That would imply a big upleg coming, which supports my view based on the fundamentals, which would support the view of another big move higher on the horizon.

I think JPM is doing whatever it can to minimize the damage from the inevitable. The biggest seasonal physical buying period starts in another couple weeks. Next week is options expiry for Sept silver. They probably want to push silver below $19.50 if they can because the Sept silver put/call structure currently is favorable to the call-writers (i.e. JPM) is silver closes below $19.50 on the 25th. The problem is, the way the economy and the political system is melting down, they can’t control the possibility of a random news event hitting the tape that would send the metals soaring. I believe there’s high probability a news event like that could happen at any time.

Interestingly, the o/i for gold is coming down a bit earlier than usual for the typical contract “roll” period (for Aug) and the Sept silver o/i is coming down. They are covering for a reason, I believe.  (click image to enlarge)

Untitled Silver is up 42.4 % since Dec 14, 2016. That is a HUGE run.  If you look at a 1-yr graph, silver is trending sideways consolidating that gargantuan move it made in just 7 months.  JPM and all of the other technical analysis cretins out there want us to believe that silver is forming a head n shoulders top formation. But it’s not.  It was in danger of going parabolic, something we DON’T want to have happen. Yes, silver could go parabolic up to $50 and still be insanely undervalued relative to the supporting fundamentals, but the huge hedge fund trading algos would not treat it that way.

Silver looks like it will pullback to its 50 dma, which is around $19.15 right now. As long as it holds that level – and they may crush it below that level with A LOT of paper for a few days, it will be ready for the next upleg. Since mid-Dec, we have been in an uptrend that is bouncing off of the 50 dma and moving higher.  The RSI and MACD momentum indicators are signalling the probability that the current move is becoming “exhausted,” with probability weighted toward a move higher soon.

At some point we might see a 200 dma correction. But silver could correct to its “chart” uptrend line around the $17 and still be up 24% since Dec 14.  Anyone who would sneer at that ROR belongs in an asylum or is an internet blog terrorist.

Both gold and silver are in the process of making an eventual move that will shock and awe.  We’re now aware that some of the biggest, most influential money manipulators in the world are shoveling fiat currency confetti into big positions in gold and silver – including the nefarious Rothschild clan:  LINK.  These guys are not buying gold for just a double or triple. They’re buying it because they know that the global fiat paper currency experiment is coming to an end.  And along with it so is the debt-fueled lifestyle America has enjoyed since 1971…

Gold And Silver Continue To Scaling The Wall Of Worry

At the beginning of this week, almost every so-called gold market analyst was predicting a wash-out in precious metals because of the huge bullion bank short being reported in the COT report.  A few of us believe that character of the market has changed and paper market price manipulators are losing traction – for a lot of reasons.

This week shows that the banks covered a portion of their shorts and the hedge funds and little guys sold down longs and increased their shorts.  This information may be largely irrelevant.  Interestingly, in data I’ve parsed and presented in a previous blog post,  the beginning of two of the best gold/silver rallies since 2001 occurred at a time when the bullion banks held their biggest short position in gold futures (expressed as a ratio of total open interest).

The latest issue of the Mining Stock Journal was released last night.  In it I discussed the use of JNUG (the 3x junior mining stock index ETF) and I explain why we could be on the cusp of the best move yet in the sector.   And of course I present a remarkably undervalued junior mining company (a royalty company) in which insiders bought a boat-load of shares in January and now control over 30% of the equity.  You can access the MSJ here:   Mining Stock Journal.  

A subscriber had an interesting question that is a common question I get currently:    I really enjoyed this latest edition of your newsletter. I find myself getting less and less nervous about a price smash as it feels that the powers that be can no longer stem the tide of reality. One question I do have is whether you think a massive asset deflation event (similar or greater than 2008-09) will have a negative or positive impact on the shares

My reply:   I think there’s is going to be a collapse in all “assets” that have been inflated in price by the use of debt:  housing, NYSE stocks, bonds, etc.  That is different than general price deflation.  We may see a LOT more money printing as the Fed/Government attemptsUntitled to prevent a debt-driven asset collapse.  This will could drive the price of necessities up a lot.  But this  will really fuel the entire precious metals sector, especially the junior miners which have proved gold/silver/poly-metallic deposits.  (click in image to enlarge).

Any asset valuation collapse because of debt implosion will act like a heavy dose of Viagra on the value of mining stock shares.  Look at what happened in the 1930’s to stocks like Homestake Mining when the Dow was crashing.  When the initial stock plunge occurs, the miners might correlate lower for a bit but then they’ll do a life-style changing moonshot.

mining-stock-journal-header-border

The Silver Market And Inaccurate Analysis

Commentary was posted on Zerohedge today about the silver market that needs to be swatted out of the air. Some investment advisor who for some reason gets air-time on Zerohedge posted an analysis which asserted that commercial hedgers hit their most “extreme net short position ever in silver futures” LINK.  This is at least the fifth “analyst” I’ve come across who’s written, incorrectly, about this topic.

While it’s true that the open interest in silver hit a high as of LAST Tuesday (April 26), the “net short position” by the Commercial trader Bullion Bank segment, the trader segment to which Dana Lyons refers to as “smart money,” did not come close its most “extreme net short position ever.”

Since that COT report was released showing April 26th’s open interest, the open interest in silver futures has declined to 199k.  As of the date of that COT report,  the bullion bank short interest as a percentage of total open interest in silver is 71%.   But the highest this ratio has been going back to April 2005 is 82%.  The average short interest as percentage of total o/i over the time period is 63%.   In fact, from the week ending December 9, 2005 to the week ending January 27, 2006, the short interest as a percentage of total o/i ranged between 78% and 82%, which is quite a bit higher than it is currently

During that week – which was the most extreme net short position taken by the bullion banks – the price of silver actually rose.  More interestingly, that extreme net short interest in silver preceded a huge move that took silver from $9 in early December to  an intra-day high of $15 (futures basis) the week of May 12, 2006.

There’s been plethora of repetitive precious metals market analysis that has proliferated recently.  Many of these so-called “analysts” have not been around the precious metals market very long.   The trader category which Dana Lyons references as “smart” money did not look so smart when its true net short positioning in the context of total silver futures open interest outstanding (Dec 2005 – Jan 2006) is assessed.  And the trader category to which he labels “dumb” money made out like bandits.

Too be sure, there have been several periods in which the short term direction of gold and silver can be anticipated  with better than 50% probability based on assessing the relative long/short distribution across the COT trade classifications.   But a superficial analysis of the nominal open interest positioning is not the right tool to use in analyzing the driver of the gold and silver markets.  And furthermore, the Comex is a small part of the overall global market equation.

The reality is that many of us believe, based on well over a decade – and in some cases several decades – of precious metals market assessment and participation that purveyors of paper derivative silver face a potentially bigger problem than with gold of finding enough actual physical silver to deliver into those paper promises should the “dumb” money in any unexpected quantities decide to stand still with their paper longs and demand physical delivery.   And this why you get long term graph that looks like this:

Untitled

Official Intervention In The Gold Market Is Now Blatantly At Work

The damage done to gold on Friday was due to skillfully timed flash crashes rather than powerful selling.  – John Brimelow, JB’ Gold Jottings Report

As a wider audience of market observers becomes aware of the flagrant use of the paper gold market to manipulate the price of gold, the degree of intervention in the gold market by the Fed/Treasury becomes more openly aggressive.

Eric Dubin of the News Doctors wrote a useful commentary on the current effort by the “gold cartel” to take down the price of gold:

The cartel is acting aggressively this week on top of the mountain of paper-based gold issuance into the COMEX market they’ve been shoveling into the short side already – for weeks – in an effort to slow momentum. Now, as you see today, with traders getting nervous considering sky high commercial short positions and an FOMC meeting starting tomorrow, is it any wonder that the cartel was able to get some traction to the downside?

You can read the rest of his analysis here:  The News Doctors