Best of the Week
Most Popular
1.SNP Offers Labour Deadly Death Embrace Alliance, Holding England to Ransom, Destroy UK From Within - Nadeem_Walayat
2.Gold And Silver – Most Widely Used Currency In Western World? Stupidity - Michael_Noonan
3.Election Forecast 2015 - Coalition Economic Recovery vs Labour Collapse - Nadeem_Walayat
4.Election Forecast 2015 - Debates Boost Labour Into Opinion Polls Seats Lead - Nadeem_Walayat
5.Why are Interest Rates So Low? Ben Bernanke, Confused as Ever, Starts His Own Blog to Prove It - Mike_Shedlock
6.Leaders Debate Election 2015 - Natalie Bennett Green Party Convincing Anti-Austerity More Debt Argument - Nadeem_Walayat
7.Labour Economic Collapse vs Coalition Recovery - UK Election Forecast 2015 - Video - Nadeem_Walayat
8.China’s Stock Market Mania; How High can Red-chips Fly? - Gary_Dorsch
9.Gold and Misery, Strange Bedfellows - 31st Mar 15 - Dan_Norcini
10.Ed Miliband Debate Election 2015 Analysis - Labour Spending, Debt and Economic Collapse - Nadeem_Walayat
Last 5 days
Why You Could Make ANOTHER 100% in China Stock Market Starting Now - 28th Apr 15
CIA Prefab State Terror for Human Bondage - 28th Apr 15
Greece: Down and Probably Out - 27th Apr 15
Biotech Stocks and the Power of Context - 27th Apr 15
Strawberry Picking Undervalued Gold Stocks - 27th Apr 15
Rock-Paper-Silver - 27th Apr 15
Gold Flows East - China, India Import Massive Quantities of Gold from Switzerland - 27th Apr 15
Conservatives Start to Pull Away from Labour in Opinion Polls, But is it too Late? Election Forecast 2015 - 27th Apr 15
Gold and Silver - It's ALL about The Big Picture After All - 27th Apr 15
Sheffield School Places Election Crisis - Affluent Schools Demand Increase in Funding - 27th Apr 15
Labour Bribes Voters With Housing Market Stamp Duty Cut and Rent Controls - 27th Apr 15
Stock Market SPX Index at Resistance - 27th Apr 15
Society's Leaders Have Been Digging a Bottomless Economic Pit - 27th Apr 15
Impending Stock Market Top - Trend Forecast Summer 2015 - 26th Apr 15
Desperate Stock Market Bubble Thinking Takes Hold on Wall Street - 26th Apr 15
Stock Market Back into The Bear Suits - 26th Apr 15
One Stock Market Where You Haven't Missed the Bull Market Boom Yet - 26th Apr 15
Migrant Crisis - Europe Has Completely Lost It - 26th Apr 15
What Obama's First-Ever Energy Review Missed - 26th Apr 15
Sheffield Hallam Election Battle 2015, School Places Crisis, Can Nick Clegg Win? - 26th Apr 15
Stocks Bull Market Looks to Resume - 25th Apr 15
Gold And Silver - The U.S. Is A Corporation. Precious Metals Stand In The Way - 25th Apr 15
When the Nuclear Money Option Fails - 25th Apr 15
The War on Cash Special Report - 25th Apr 15
China Economic Slowdown Story - Why “Didi Dache” Is a Phrase You Need to Know - 25th Apr 15
The Trans-Pacific Partnership and the Death of the Republic - 25th Apr 15
Stock Splitting Caused the Stock Market Crash - 25th Apr 15
China Stock Market Parabolic Mania’s Global Risk - 24th Apr 15
What Will Happen to You When the U.S. Dollar Collapses? - 24th Apr 15
Why 2 of U.S. Dollar's Recent Bottoms Have 1 Thing In Common - 24th Apr 15
UK Economy Debt Timebomb Will Explode After Election - 24th Apr 15
Are Gold Stocks the Cheapest Ever? - 24th Apr 15
God, the Stock Market and Pascal's Wager - 24th Apr 15
Greedy Insurers Are in for a Nasty Surprise – Positioning You for Big Profits - 24th Apr 15
Four Things Missing From Obama’s First-Ever Energy Review - 24th Apr 15
How to Grow a Regenerative Medicine Industry - 23rd Apr 15
Stocks and Bonds Seven Year of Negative Returns; Fraudulent Promises - 23rd Apr 15
The Existential Danger To The Euro Is Elections - 23rd Apr 15
Stock Market No Clear Direction As Investors React To Quarterly Earnings Releases - 23rd Apr 15
Is China The Next United States? - 23rd Apr 15
U.S. Oil Glut: How High Can It Go? - 23rd Apr 15
Distorted Financial System Expect Deflation, Inflation And Hyperinflation - 23rd Apr 15
What McDonald’s Corporate Earnings Report Is Really Telling You - 23rd Apr 15
Gold Price Forecast to Become Priceless - 23rd Apr 15
FDIC Plots a Bank Heist Involving YOUR Accounts - 23rd Apr 15
$GOLD Price Year 2007 Again - 23rd Apr 15
Stocks Bubble - The Spread between Stock Prices and GDP is Blowing Out - 23rd Apr 15
Ukraine War - When Did We All Become Murderers? - 23rd Apr 15
Libya Crisis - EU Leaders Are Indicted for Nazi-Style Crimes against Humanity - 22nd Apr 15
Why Alternative Energy Isn’t Taking It on the Chin Despite Low Oil Prices - 22nd Apr 15
Bill Gross - German 10-Year Bunds Short of a Life Time - 22nd Apr 15
How to Profit from the Drop in the Oil Price - 22nd Apr 15
The U.S. Dollar's Move Is More Dangerous than You Think - 22nd Apr 15
Apple Watch Means Apple Will Become Worlds First $1 Trillion Stock - 22nd Apr 15
Half a Stocks Bubble Off Dead Center - 22nd Apr 15
They Said Go to College - Learning to become Debt Slaves - 22nd Apr 15
Best Cash ISA 2015/16, Instant and Fixed Savings Interest Rates, New Flexible Withdrawal / Deposit Rule - 22nd Apr 15
Unsound Banking: Why Most of the World's Banks Are Headed for Collapse - 21st Apr 15
Bitcoin Recent Low Price Volatility Might Be Deceptive - 21st Apr 15
Currency Wars Back As Russia Buys Gold - One Million Ounces in March Alone - 21st Apr 15
The Greece 'Grexit' Issue and the Problem of Free Trade - 21st Apr 15
Why Europe Lets People Drown - 21st Apr 15
Wealth Destruction for the 99.9 Percent - 21st Apr 15
SNP Publish England's Suicide Note as Pollsters Still Forecast Labour-SNP Election Disaster - 21st Apr 15
Characteristics of Extremely Over-Indebted Economies - 21st Apr 15
Trader Education Week -- a Free Event to Help You Learn to Spot Trading Opportunities - 21st Apr 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The War on Cash!

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

© 2005-2015 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

Free Report - Financial Markets 2014