26/02/2011 by Philinje.

Despite ferocious bear raids on Tu and Thur, silver and gold ended up, and gold had its second highest weekly close ever.

This article talks about the continuing March contracts, and that March may see a huge spike in silver:

http://news.coinupdate.com/huge-comex-silver-supply-squeeze-developing-0695/

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22/02/2011 by Philinje.

It seems the big move up yesterday, even during the US market hours, has been sold off to end up back at about $33. The price got as high as roughly $34.40, which was a target given by Gunner24.

Oddly, silver is not acting very volatile during the NY session today. Gold is back above $1400 and maybe catching up a bit to silver’s recent gains.

Here is an interview with someone considered an expert in physical assets, John Hathaway:

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/2/21_John_Hathaway_-_Silver_Breaks_Out%2C_Paper_Market_is_Nonsense.html

This guy is very no-nonsense. It is a little odd that silver rose so much yesterday when the NY market was closed, though it makes sense - the big boys weren’t there to clobber the price.

Some other targets are $37-38, but maybe that is a stretch. Anyway, if there will be a flood of deliveries, the short squeeze scenario will get played out. There could be a bear raid soon, but that kind of action has not happened yet, aside from the sell-off that happened earlier today in Asia and London.

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21/02/2011 by Philinje.

There are some cycles that say silver will top this week, and then we have futures expiration next Monday. As mentioned before, options expiration is this Wed.

Considering the signs of silver lease rates at high levels, March contract holders not rolling over, backwardation, and another one I didn’t mention before - when the COMEX raised margin rates on Friday, prices did not decline but instead went up!! - it looks like the action could be explosive this week.

Here are some other blogs that discuss all this. This first one gives price targets and what might happen on Tuesday in terms of a pullback:

http://www.gunner24.com/newsletter-archive/february-2011/20022011/

Well, in Asian trading silver is already up to $33.10 to $33.20, so the first quick resistance has been hit and then the bullion banks might drive things down on Tuesday to $32.30 to 32.50

This next one gives some targets for a pullback, including $32.20:

http://tfmetalsreport.blogspot.com/

Then here is a knowledgeable look at lease rates, open interest and the COT breakdown:

http://harveyorgan.blogspot.com/

Finally, Dan Norcini of Jim Sinclair fame has his own site now and he just posted an explanation of what really happens in a short squeeze, giving some examples of other commodities that went through this in recent years:

http://traderdannorcini.blogspot.com/2011/02/what-is-commercial-signal-failure.html

I like what the Gunner24 guys are saying: don’t get too greedy with silver. It’s pretty darn volatile stuff and JP Morgan might be staking their existence on what happens. Meaning, $34 to 35 is a reasonable target for this move up. Then we’ll see what happens in March.

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21/02/2011 by Philinje.

Not to rain on the parade but this article is an amazing collection of all the bad things going on at present in the US:

http://theeconomiccollapseblog.com/archives/what-is-wrong-with-the-u-s-economy-here-are-10-economic-charts-that-will-blow-your-mind

The schizophrenic attitude regarding the markets reflects the dire fundamentals as described in this article, vs. the paper pumping QE orgy to push up stock prices. How will this all end? That’s for you to guess. So far it seems that hard money is a good start at self-protection.

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20/02/2011 by Philinje.

If you ever wondered what a financial instrument in backwardation looked like, take a look:

http://www.cmegroup.com/trading/metals/precious/silver_quotes_settlements_futures.html

Make sure the trade date is Friday, Feb 18. Silver is perfectly lined up from current month out to the future, with declining prices! It’s a mind warp to see that, for those that deal regularly with futures trading.

Does this mean anything? Yes, but what effect it will have on price movement is questionable. In fact, after a quiet day on Monday (a US holiday), we might get a pounding as JP Morgan and friends desperately beat down the price before options expiration on Wed. Futures expiration is Monday 2/28.

On the other hand, they had every chance to do that on Friday and instead the action looked like a short squeeze, while silver went into perfect backwardation. Quite a weird situation. Who knows, the price could go even more vertical from here if there are too many contracts to be delivered a week from Monday. Ed Steer has noted that the open interest in March contracts has remained very high, which is very strange because normally there would be active rolling into the next contract by now.

For some sense of people having fun while the rest of the world ignores silver, check out this brief article and the user comments below it:

http://www.zerohedge.com/article/silver-escape-velocity-another-ecb-intervention-desperately-needed

The comment I like best is so accomplished, from a literary and awareness perspective, that I will reproduce it here. Credit goes to “by almost_have_a_name.”

”

We were somewhere around Bankersville near the end of the dollar when the effects of QE3 began to take hold. I remember saying something like “I feel a little long on dollars; maybe you should invest…”

And suddenly there was a terrible roar all around us and the sky was full of what looked like huge Banksters, all swooping and screeching and diving around the car, which was going about a hundred miles an hour, strait to the end of the dollar.

And a voice was screaming: “Holy Jesus! Who are these goddamn bastards?”

Then it was quiet again. My financial advisor had taken his shirt off and was pouring SLV on his chest, to facilitate the QE process.

“What the hell are you yelling about?” he muttered, staring up at the pyramid with his eyes closed and covered with wraparound FRB blinders. “Never mind,” I said. “It’s your turn to invest.”

I hit the brakes and aimed my 401k toward the shoulder of the highway.

No point mentioning those Banksters, I thought. The poor bastard will see them soon enough.

“Banksters!” he said. “If you think we’re in trouble now, wait till you see what’s happening at the POMO.” He took off his FRB blinders and I could see he’d been crying.

“I just went upstairs to see this man Diamond,” he said. “I told him we knew what he was up to. He says he’s a respectable banker, but when I mentioned Max Keiser – well, that did it; he freaked. I could see it in his eyes. He knows we’re onto him.”

“Does he understand we know Tyler?” I said. “No. But I told him every time he pushes silver down, were going to buy the shit out of that goddamned dip. That scared the piss out of him.”

“Good,” I said. “But what about our room? And the golf shoes? We’re right in the middle of a fucking QE zoo! And somebody’s printing zeros for these goddamn things!

It won’t be long before they tear us to shreds. Jesus, look at the floor! Have you ever seen so much blood? How many 401k’s have they killed already?”

I pointed across the room to a group that seemed to be staring at us. “Holy shit, look at that bunch over there! They’ve spotted us!”

“That’s the Zero Hedge registration table,” he said. “That’s where you have to sign in for your id. Shit, let’s get it over with. You handle that, and I’ll wait on the porch. It was raining when the door finally opened.”

”

This guy or gal has a little bit of Faulkner going on, wouldn’t you say?

In other news, check out the silver lease rates. They stepped up on Jan 19 and are heading higher now:

http://www.kitcosilver.com/charts/silverleaserate.html

All of this points to a shortage of physical silver.

Finally, here is a great and also literary piece on silver available for delivery at the COMEX. Note the chart. While it looks like silver supplies are dwindling rapidly, the author speculates that is probably because the sellers can limit the amount of silver to deliver. Nevertheless, it is interesting to see what is going on with the physical supply.

http://jessescrossroadscafe.blogspot.com/2011/02/registered-silver-ounces-available-for.html

Be careful next week.

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18/02/2011 by Philinje.

As I was writing my last post, the silver price was just approaching its recent high of $31.30-ish. Then I went to bed. Silver never looked back and headed straight to $31.80, definitively breaking through its last high. The price did not decline in after-hours trading, as has been the pattern lately, and it’s still there as equity markets open on Friday morning in NY.

That is mighty strong behavior. Gold got to $1385, still far from its recent high, but making it through bearish resistance. The stage is set for some fireworks.

Of course, there is a lot of talk today about a short squeeze in silver, and also about backwardation (where future month prices are in fact lower than the spot or current price), a condition that some claim to be a precursor to major spikes in price. The reasoning is that physical silver is in short supply and that is why the spot price is higher than future prices. As this condition persists, holders of short contracts run the risk of not being able to cover, and therefore stampede for the exits by buying.

That is a short squeeze. In commodities, a short squeeze can be dramatic, because ultimately any trading position has to be covered by the real stuff. I was in the business of trading electricity some years ago, and it was amazing to see how prices could jump from $20 to $2000 - in minutes, if not seconds! That was simply because electrcity demand is instantaneous, and if supply is suddenly not there, it has to come from somewhere immediately.

To be fair, silver has gone into backwardation in recent years and that has not resulted in any immediate spike in price. That is a fact. So take all this backwardation hype with a grain of salt.

On the subject of msasive jumps in price, here is a level-headed assessment of how high prices could go in both silver and gold. Note that this is not a call on the immediate action, just a general idea of what is reasonable to expect down the road. Short answer: about 5X from today’s prices, a little less for gold.

http://www.caseyresearch.com/displayCdd.php?id=657

In terms of the immediate action, I’ve often referred to Toby at Gold Scents. His analysis is excellent and covers both the big picture and very near term. This piece talks about a possible scenario for the dollar and what that would do to commodities in this melt-up boom. If this scenario unfolds, we will know what to expect over the near term and into next year. We will know in a week or two.

http://goldscents.blogspot.com/2011/02/dollar-on-edge-of-abyss.html

On the subject of silver backwardation, James Turk talks like it’s already here. Well, December 2011 is almost in backwardation. And as of today, in fact just hours ago, the front-month delivery contract has gone to 0 spread against the current contract. Open interest in silver was just huge yesterday. Something is going on and chances are we’ll see some big moves shortly. Here is what James Turk says:

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/2/17_James_Turk_-_Silver_Squeeze_in_Silver_Could_Be_the_Big_One.html

Please note: he says there will be a short squeeze as we move toward end of Feb. At this moment it seems likely we’ll see into mid-$32. But short squeezes can be dramatic events, and silver was already moving into parabolic mode, so the end result could be $34 to $35, within the next week or two. Maybe.

Finally, here is a historic look at global trade balances resulting in silver movement from West to East and the Opium Wars. This episode with China has strange parallels with the current situation. It will get you thinking about how human history moves in big cycles, repeating itself in new but familiar variations:

http://www.atimes.com/atimes/China_Business/MB17Cb01.html

Buckle up and enjoy the ride.

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17/02/2011 by Philinje.

Silver just pushed through $31 and gold has moved through $1380. These were resistance areas that defined the last defense of a bearish outcome in the short term. Silver is now near its all-time high and may go past it to the mid $32 range. Gold is considerably weaker and may just get to its former all-time high, or thereabouts.

It’s possible we’ll see a dramatic pullback tomorrow, so this is not yet the final word. But signs are looking good.

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16/02/2011 by Philinje.

Two articles to help your decision making, I hope.

This one is an interview with a noted expert in small cap miners and the gold investment world. Interesting that he thinks gold was oversold with extremely negative sentiment and therefore should go up. There is an analysis of seasonality buried in there. Jan and Feb are up months, March is down, April and May are up.

http://www.theaureport.com/pub/na/8614

Small cap miners are a great play, especially if recommended by an expert like this. But if we get a general crash in equities, mining stocks will get crushed, so probably it’s better to wait till this summer.

This next piece makes the argument for a sizable correction in gold. The possible target levels mentioned at the end are realistic. We hit the first one, $1320, in January and have been going up since.

http://oilprice.com/Metals/Gold/Beware-the-Coming-Collapse-of-Gold.html

Interestingly, this piece was published right at the recent bottom. Kind of validates the point made above - sentiment was quite lousy in January. But the points made here are valid, sort of - inflation fears are making gold less attractive relative to currencies. The funny thing is, gold is supposed to be an inflaiton hedge, isn’t it?

The thinking last month was that higher interest rates would slow growth excessively, AND make currencies higher yelding. But when gold spiked in 1980, interest rates were at historic highs in the US. Maybe it’s just in the beginning when central banks switch to tightening cycles that gold takes a hit. But it’s bound to be a small hit, in the overall scheme of things.

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14/02/2011 by Philinje.

Here is an excellent blog piece on what happens to real estate during inflationary and hyperinflationary episodes:

http://gonzalolira.blogspot.com/2011/02/inflation-hyperinflation-and-real.html

We can learn from our South American brethren. Food for thought. Have those gold coins ready. The founder of Hilton hotels bought his first hotel during the Weimar period with a single gold coin, or so the story goes.

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14/02/2011 by Philinje.

It looks like equities confirmed a bullish trend by end of last week. They tested their breakout above 2008 highs and now the breakout is confirmed. We should see higher equity prices from here.

This also will lift silver, regardless of dollar action. Silver has been stronger than gold of late, and the reason is that the thesis of economic growth is winning the day. That is just a thesis, and in fact equities are dangerously close to crashing, but anyway it looks like at least a small rally is in the cards for now.

So what happens next? Silver could move up to previous highs and in fact could even go up to $32, before a correction sets in. Gold may barely make it up to its previous highs around $1440. Then gold will likely roll over and take silver with it. We may also get a crash in equities at that point, possibly in a week or two. Or not. Equities may just swoon a bit before taking off on a major rally toward end of this year.

Regardless, there will likely be a break as we get into spring and then by summer it’s time to step aside and see how things develop. Here is an excellent article on a likely path forward:

http://goldscents.blogspot.com/2011/02/silver-bull.html

Please note that a triangle consolidation right now in silver would mean lower prices only briefly after this next high. So it’s up to you how to play that. Gold may take a deeper dive.

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