Best of the Week
Most Popular
1.BrExit Looks Set to Win EU Referendum, Final Opinion Polls Give LEAVE Lead Over REMAIN - Nadeem_Walayat
2.BrExit Morning - New Dawn for Britain, Independence Day! - Nadeem_Walayat
3.LEAVE Wins EU Referendum - Sterling and FTSE Hit Hard, Pollsters, Bookies and Markets All WRONG! - Nadeem_Walayat
4.BrExit to Save Europe from Climate Change Refugee Migration Apocalypse - Nadeem_Walayat
5.Trading BrExit - Stocks, Bonds, Sterling, Opinion Polls, Bookmaker Odds and My Forecast - Nadeem_Walayat
6.EU Referendum Latest Opinion Polls Show LEAVE Halting REMAINs Surge - Nadeem_Walayat
7.Gold And Silver – Insanity Is World “Norm.” Keep Stacking! - Michael_Noonan
8.Trading BrExit - British Pound Plunges, FTSE Stock Futures Slump on LEAVE Shock Referendum Win - Nadeem_Walayat
9.Gold And Silver: Security, And BREXIT - Michael_Noonan
10.BrExit Vote - "The Trend is Set" -- And What You Should Pay Attention to Next - EWI
Free Silver
Last 7 days
Stock Market Rally Runs Out of Steam - 29th June 16
Rapid Growth:The Financial Trends Of Online Gaming - 29th June 16
FTSE and Sterling Brexit Trading, Deconstruction of the EU Referendum Result - 29th June 16
Stock Market Bounce May be Over - 28th June 16
Stock Market Meltdown Likely to Drive Gold Towards $1,500 - 28th June 16
Brexit Victory over the EU Globalists - 28th June 16
Brexit Psyop: Greenspan Falsely Blames the Brits for the Crash and Chaos to Follow - 28th June 16
Greenspan Calls Brexit a ‘Terrible Outcome’ as Euro Area Tested - 27th June 16
Stock Market SPX Below Mid-Cycle Support - 27th June 16
Best Holidays for Summer 2016 - 27th June 16
Another Stocks Bear Market? - 27th June 16
BBC EU Referendum Result Highlights - YouGov, Markets, Bookmakers, Pollsters ALL WRONG! - 26th June 16
Investors Map Post-Brexit Strategies Amid Global Market Upheaval - 26th June 16
Gold Price Weekly COT Update - 26th June 16
First the UK, then Scotland ... then Texas? - 26th June 16
Stocks Bear Market Resumes or Just More Noise - 26th June 16
Gold And Silver: Security, And BREXIT - 25th June 16
Dow, Euro & Brexit Recap - 25th June 16
Resistance Holding Gold Stocks after Brexit - 25th June 16
Venezuela vs. Ecuador (Chavismo vs. Chavismo Dollarized) - 25th June 16
Gold, Silver And PM Stocks Summer Doldrums Risk - 24th June 16
Here’s Why China “Economic Hard-Landing” Worries Are Overblown - 24th June 16
Jubilee Jolt: Markets Crash, Gold Skyrockets as Britain Takes Brexit - 24th June 16
BrExit Morning - New Dawn for Britain, Independence Day! - 24th June 16
LEAVE Wins EU Referendum - Sterling and FTSE Hit Hard, Pollsters, Bookies and Markets All WRONG! - 24th June 16
Trading BrExit - British Pound Plunges, FTSE Stock Futures Slump on LEAVE Shock Referendum Win - 24th June 16
EU Referendum Shock Results Putting BrExit LEAVE in the Lead Hitting Sterling Hard - 24th June 16
Final Opinion Poll Gives REMAIN 52% Lead, Bookmakers, Markets and Pollsters ALL Back REMAIN Win - 23rd June 16
Does BREXIT Matter? Outlook for Sterling - 23rd June 16
Keep Calm and Vote BrExit - Last Chance to Break Free of EU Superstate - 23rd June 16
Here’s the Foreign Policy Trump and Clinton Really Want - 23rd June 16
Details Behind Semiconductor Stocks Leadership - 23rd June 16
Trading BrExit - Stocks, Bonds, Sterling, Opinion Polls, Bookmaker Odds and My Forecast - 23rd June 16
BrExit Looks Set to Win EU Referendum, Final Opinion Polls Give LEAVE Lead Over REMAIN - 22nd June 16
Proof that the Gold Bears are Wrong - 22nd June 16
Here’s a Trillion-Dollar Investment Opportunity for Those Few with No Debt - 22nd June 16
BrExit to Save Europe from Climate Change Refugee Migration Apocalypse - 22nd June 16
Increase In U.S. Rig Count Will Not Cap Oil Prices - 22nd June 16
Are Copper and China Stocks Set to Rally? - 22nd June 16
SPX May Break Its Trendline - 22nd June 16
Believe it or Not: More Kids Live At Home Now than Since The Great Depression - 21st June 16
EU Referendum Latest Opinion Polls Show LEAVE Halting REMAINs Surge - 21st June 16
British Pound Outlook - BREXIT, Europe and You - Does your vote matter? - 21st June 16
Fascist Victory Behind the European Union - 21st June 16
EU Referendum Opinion Polls Analysis Shows Strong Momentum in REMAINs Favour - 21st June 16
Is It Time to Dump Gold and Buy Platinum? - 21st June 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Market Volaility

What Just Happened to Silver Prices

Commodities / Gold and Silver 2013 Apr 19, 2013 - 01:25 PM GMT

By: Dr_Jeff_Lewis

Commodities

Both gold and silver experienced historic sell offs during the last few trading sessions. Although market commentary and analyst opinions have been varied, very few outside of the precious metals community have come close to discerning the reality of this move.

Without a working knowledge of price discovery, most people will fail to grasp the meaning of what just happened.


To begin with, the key is to always focus on the origin of this move. Where and how the selling originated is what matters most. Outside market forces and technical indicators may seem to fit and support the move, but remember that all commodity markets with pricing dominated by derivatives have now diverged from anything resembling a natural trading structure.

Here is What Happened

In the precious metals market, the usual dominant players consist of one or two large entities who maintain exaggerated and naked short positions. They dropped a huge selling bomb into the CME pits last Friday that got the sell-off ball rolling, and the price went down on huge trading volume as stops were triggered and new selling interest emerged. Subsequently, prices have now moved below just about every key moving average.

The latest move is largely a result of panic selling and follow through liquidation triggered by margin calls. Nevertheless, as many gold and silver investors know, these moves are initiated via electronic or high-frequency trading programs, and they have nothing to do with real supply and demand.

In fact, this type of computerized trading now dominates every electronic market, and by some accounts,it is responsible for upwards of 70 percent of all trading activity, including that seen in the equity markets.

Open interest in silver was at record levels for an unprecedented period of time. This was unusual because it occurred during a time when silver had been correcting generally lower after having reached a historic peak in 2011. Normally, open interest falls with prices as speculators sell out their positions.

The Impact of Hedge Funds

Things really ripened with the entrance of the hedge funds. These large speculators had become short the market in waves over the last few weeks for the first time in seven years in silver and in even longer for gold.

Typically, any hedge funds pile in on momentum. This often makes them the last to arrive on a move and the first to bolt and cover their positions.

As long time silver analyst Ted Butler pointed out on Monday, this move probably allowed the big silver shorts to cover the majority, if not all, of their trapped short positions. Obviously it is illegal and immoral to use big positions like this to influence price, but if this is indeed the case, then the market has just been cleansed of at least some of this very uneconomic position so that things could now be set up for a move upward of similar magnitude. The upcoming COT report will clarify this positional situation considerably.

The entire dramatic move down could be about that short-covering and nothing else. Obviously, this is about as far from how natural markets should operate as one could go.

Goldman Sachs’ Revised Forecast and the Cyprus Sale Rumor

Meanwhile, the mainstream financial press remained focused on Goldman Sachs's recent call for gold in the 1200's, the Cypriot "gold-selling rumor" perhaps justifying further gold liquidation from the rest of the EU periphery, and news that the FOMC’s minutes indicated the Fed may be stepping back from asset purchases later this year as catalysts for this dramatic sell-off in the precious metals.

Nevertheless, Goldman Sachs is notorious for talking their book (or the reverse of it) in order to get their customers to do what they want and help them out of nasty positions.

Regarding the Cyprus reasoning, it would be quite a stretch to assume that any of that gold would ever reach the market, especially given the demonstrated record buying levels of the developing world's central banks that desperately need to build hard currency reserves of their own.

Of course, it seems as if the world forgot that the Cyprus template included the confiscation of bank accounts, which in addition to official policy and historic central bank balance sheet expansion via competitive currency devaluation, could be the most bullish reason for moving money out of the fiat currency system and into alternative hard assets like silver and gold that people have seen in modern times.

Behind the Scenes

Basically, speculation about this move outside of the actual trading mechanism is not useful. Furthermore, stepping back a little closer to the underlying positioning issue, one might ask whether the big shorts were actually being pressured or forced to make this move by the CFTC.

Perhaps an orchestrated move like this was the only way these bullion banks could get out from under these dangerous positions? The heterogeneous longs in silver had been standing strong and were a real threat to triggering a short covering panic. They presented a clear sign to the authorities and the concentrated shorts that the decades-long silver price manipulation could not go on forever.

Given how poor sentiment has been, and the general ignorance about what is happening in silver from a macro-economic perspective, it is not hard to envision the price of silver running through $100 very quickly and without even creating a U.S. Dollar panic. In fact, the Dollar could even remain "strong" given what is happening in Japan and Europe.

Of course, the mainstream media will be flashing this week's chart each and every time silver moves up in any significant way, proclaiming legitimate and fundamentally justifiable price rises to be ‘just another bubble’ as they always have.

In the end, the only real market for these metals is the physical market, since futures prices can be manipulated by those who can create money or borrow it very cheaply. Indeed, the precious metals are one of the last remaining markets with a pricing mechanism dominated by paper derivatives, when the commodities themselves are based on a physical unit end point.

Most long term silver investors already understand this situation, in addition to the fact that multiple claims exist for each and every above and below ground ounce of these metals.

For more articles like this, and to stay updated on the most important economic, financial, political and market events related to silver and precious metals, visit www.silver-coin-investor.com

By Dr. Jeff Lewis

    Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com and Hard-Money-Newsletter-Review.com

    Copyright © 2013 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Dr. Jeff Lewis Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife