gonegolfin
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- Thread starter
- #21
My gut says yes, but I am still wary that either ...
1) One or more of the big banks/investment banks may still attempt to drive prices down for gold and silver in the futures market
or
2) We may see a wave of central bank selling to provide support against the destruction that is about to befall the dollar
... transpires.
That said, I think that part of the reason we saw large price increases in gold and silver this week was that Lehman had some short positions in gold and silver liquidated. I was curious to see if there were going to be any more big financial blowups, resulting in the liquidation of even more positions.
I am bullish on both gold and silver. But I think that silver has the most upside. The paper silver market has been manipulated to the downside. We have a shortage in physical silver. It has been there off and on since March. But during the most recent plunge in price, reputable retail bars (in sizes of 100 oz. or less), Silver Eagles, and Silver Maples disappeared. When pockets of Eagles and Maples came back into stock in small amounts, they disappeared quickly and had huge premiums over the spot price attached. Last week, Silver Eagles sold for $4.29 over spot. Eagles were available last year at $1.49 over spot (this is a normal premium at apmex.com). After Friday, they have no more to sell again. I have never seen the price of anything fall 45% in the span of two weeks and not be available for purchase. It defies the laws of supply and demand. Unless there is paper manipulation (futures market).
Take the time to examine the following three Bank Participation Reports in Futures trading. Go back and look at the price charts of Gold and Silver during this time period. I will illustrate Silver below and you can then do the same for Gold.
The main page is here ... Bank Participation in the Futures and Options Markets
Bank Participation Report - Futures Only
The above is the July Bank Participation Report (7/1/08). As you can see, there were two US Banks holding 6199 short contacts on Silver, nearly 4.8% of the total open interest. That is all well and good. Note that we get the number of US Banks taking out these positions, but not the names of the banks. Silver closed at about $18.40 at the end of June.
Bank Participation Report - Futures Only
Let's now move to the August Bank Participation Report (8/5/08). Suddenly, there were two US Banks holding 33,805 short Contracts on Silver, over 25% of the open interest (with spread transactions netted out, this number would be even higher) and an increase of 27,606 contracts in one month. This is nearly 170 million ounces or about 25% of world mine supply in a year. By one or two US banks??? Silver was making its descent at this point, having dropped about 15% (in one month) to about $16.50. This set the wheels in motion and prompted the longs (many of them technical hedge funds) to sell. Once the selloff gains real momentum, the shorts then begin covering on the way down (but not enough to stop the momentum). This happened in Gold, but it looks as if there were not many Silver shorts covered thus far.
Bank Participation Report - Futures Only
The price continued to fall in August but the short positions remained high. August Silver closed around $13.00. The September Bank Participation Report (9/2/08) shows two US Banks short 32,692 contracts, a slight decrease of 1113 contracts, but an increase to 28% of the open interest.
We will not have the next Bank Participation Report in Futures until early October. But Silver reached a low of just below $10.50 in September. I am expecting that considerably more of these shorts were covered in this time frame, but we will see. I am also waiting for the day when these shorts get overrun.
While the reports say that two US Banks hold these significant short positions in Silver, it could be that one of the banks has 99% or at least a dominant portion of that position. I am confident that the dominant position is held by JP Morgan Chase (for reasons I will not get into here).
Another interesting thing about the recent sell-off ... I spoke about the retail Silver shortage. But during this rapid and deep price drop in Silver, there was also a net increase in the metal holdings of the Silver ETF!
It will be interesting to see how this financial crisis changes (for good or for bad) the big financial banks/investment banks participation in the precious metals futures markets. I would also like to see their books open if we are providing bailout money. I want them and the CFTC scrutinized on these matters. Either these firms (probably at the behest of the Fed and Treasury) will increase their short bets in order to make the Dollar look healthier than it is ... or they simply are not healthy enough to do so and are forced to deal with other matters.
Brian
