Best of the Week
Most Popular
1. Will Gold Price Breakout? 3 Things to Watch… - Jordan_Roy_Byrne
2.China Invades Saudi Oil Realm: PetroDollar Kill - Jim_Willie_CB
3.Bitcoin Price Trend Forecast, Paypal FUD Fake Cryptocurrency Warning - Nadeem_Walayat
4.The Stock Market Trend is Your Friend ’til the Very End - Rambus_Chartology
5.This Isn’t Your Grandfather’s (1960s) Inflation Scare - F_F_Wiley
6.GDX Gold Mining Stocks Fundamentals - Zeal_LLC
7.US Housing Real Estate Market and Banking Pressures Are Building - Chris_Vermeulen
8.Return of Stock Market Volatility Amidst Political Chaos and Uncertain Economy - Buildadv
9.Can Bitcoin Price Rally Continue After Paypal Fake FUD Attack? - Nadeem_Walayat
10.Warning Economic Implosion on the Horizon - Chris_Vermeulen
Last 7 days
What to Expect at a Critical Stock Market Point: End of a Wave 2 Rally - 26th Apr 18
A New Lithium War Is About To Begin, Modern Gold Rush! - 26th Apr 18
Silver, silver, and silver! There’s More Than Silver, People! - 26th Apr 18
How to be Financially Prepared When Purchasing Your First Home - 26th Apr 18
Is a Stock Market Crash Imminent or Does this Stock Market Bull Still Have Legs - 25th Apr 18
Gold Price Focusing on May Cycle Bottom - 25th Apr 18
Cash “Vanishes” From Bank Accounts In Ireland - 25th Apr 18
Is the Malaysian Economy a Potemkin Village - 25th Apr 18
Land Rover Discovery Sport Rattling / Knocking Sounds From Car Pillars - 25th Apr 18
China Takes the Long View on Gold-Silver... and So Should You - 25th Apr 18
Russia Buys 300,000 Ounces Of Gold In March – Nears 2,000 Tons In Gold Reserves - 24th Apr 18
Stock Market Study Shows Why You Shouldn’t “Sell in May and Go Away” - 24th Apr 18
CRYPTOCURRENCY MASTERCLASS #CRY90 - 24th Apr 18
UK Gambling Statistics - What the Numbers Say - 24th Apr 18
Chaos Capitalists Short Countries - How Chanos Got China Wrong - 24th Apr
Artificial Intelligence Defines the Political News Narrative - 24th Apr 18
Stock Market "Oops, They Did It Again" - 24th Apr 18
Fox in the Henhouse: Why Interest Rates Are Rising - 23rd Apr 18
Stocks and Bonds, This is Not a Market - 23rd Apr 18
Happy Anniversary Silver Investors! - 23rd Apr 18
The Hottest Commodity Play In 2018 - 23rd Apr 18
Stock Market Correction Turns Consolidation - 23rd Apr 18
Silver Squeeze, Gold Fails & GDX Breadth - 23rd Apr 18
US Economy Is Cooked, the Growth Cycle has Peaked - 23rd Apr 18
Inflation, With a Shelf Life - 23rd Apr 18 - Gary_Tanashian
Stock Market Predictive Modeling Is Calling For A Continued Rally - 22nd Apr 18
SWEATCOIN - Get PAID to WALK! Incentive to Burn Fat and Lose Weight - Review - 22nd Apr 18
Sheffield Local Elections 2018 Forecast Results - 22nd Apr 18
How Long Does it take for a 10%+ Stock Market Correction to Make New Highs - 21st Apr 18
Sheffield Ruling Labour Party Could Lose 10 Council Seats at May Local Elections - 21st Apr 18
Crude Oil Price Trend Forecast - Saudi Arabia $80 ARAMCO Stock IPO Target - 21st Apr 18
Gold Price Nearing Bull Market Breakout, Stocks to Follow - 20th Apr 18
What’s Bitcoin Really Worth? - 20th Apr 18
Stock Market May "Let Go" - 20th Apr 18
Overwhelming Evidence Against Near Stock Market Grand Supercycle Top - 20th Apr 18
Crude Oil Price Trend Forecast - Saudi's Want $100 for ARAMCO Stock IPO - 20th Apr 18
The Incredible Silver Trade – What You Need to Know - 20th Apr 18
Is War "Hell" for the Stock Market? - 19th Apr 18
Palladium Bullion Surges 17% In 9 Days On Russian Supply Concerns - 19th Apr 18
Breadth Study Suggests that Stock Market Bottom is Already In - 19th Apr 18
Allegory Regarding Investment Decisions Made On Basis Of Government’s Income Statement, Balance Sheet - 19th Apr 18
Gold – A Unique Repeat of the 2007 and How to Profit - 19th Apr 18
Abbeydale Park Rise Cherry Tree's in Blossom - Sheffield Street Tree Protests - 19th Apr 18
The Stock Market “Turn of the Month Effect” Exists in 11 of 11 Countries - 18th Apr 18
Winter is Coming - Coming Storms Will Bring Out the Best and Worst in Humanity - 18th Apr 18
What Does it Take to Create Living Wage Jobs? - 18th Apr 18
Gold and Silver Buy Signals - 18th Apr 18
WINTER IS COMING - The Ongoing Fourth Turning Crisis Part2 - 18th Apr 18
A Stock Market Rally on Low Volume is NOT Bearish - 17th Apr 18
Three Gold Charts, One Big Gold Stocks Opportunity - 17th Apr 18
Crude Oil Price As Bullish as it Seems? - 17th Apr 18
A Good Time to Buy Facebook? - 17th Apr 18
THE Financial Crisis Acronym of 2008 is Sounding Another Alarm - 16th Apr 18
Bombs, Missiles and War – What to Expect Next from the Stock Market - 16th Apr 18
Global Debt Bubble Hits New All Time High – One Quadrillion Reasons To Buy Gold - 16th Apr 18
Will Bitcoin Ever Recover? - 16th Apr 18
Stock Market Futures Bounce, But Stopped at Trendline - 16th Apr 18
How To Profit As Oil Prices Explode - 16th Apr 18
Junior Mining Stocks are Close to Breaking Downtrend - 16th Apr 18
Look Inside a Caravan at UK Holiday Park for Summer 2018 - Hoseasons Cayton Bay Sea Side - 16th Apr 18
Stock Market More Weakness? How Much? - 15th Apr 18
Time for the Gold Bulls to Show their Mettle - 15th Apr 18
Trading Markets Amid Sound of Wars - 15th Apr 18
Sugar Commodity Buying Levels Analysis - 14th Apr 18
The Oil Trade May Be Coming Alive - 14th Apr 18

Market Oracle FREE Newsletter

Trading Lessons

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

© 2005-2018 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

6 Critical Money Making Rules