Posted on 02/25/2011 3:27:38 PM PST by DeaconBenjamin
As the December 2010 COMEX silver contracts approached maturity, a higher than normal number of contracts were not closed out before the first day of notice for delivery. In theory, potentially all of these open contracts could have ended up being called for delivery. While a number of short sellers absorbed their losses by purchasing an offsetting long contract, the amount of silver that was needed for physical delivery did stress available COMEX inventories.
As a result, in November and December 2010 the price of silver jumped more than 30%.
This same pattern looks like it will repeat for the maturing March 2011 COMEX silver contracts. This time, however, the potential supply squeeze is much larger.
February 28 is the first day of notice for delivery of the March contracts. Normally, parties not wanting delivery would have closed out their contract long before then. At the COMEX close on February 22, there were still 50,848 open March 2011 silver contracts, representing a potential liability to deliver 254.24 million ounces of silver by the end of March. The COMEX registered silver inventories available to cover deliveries totaled only 41.91 million ounces. Even including customer inventories that are stored at the COMEX, which are only eligible to deliver against COMEX contracts if the owners so choose (and most do not), the total is only 102.35 million ounces.
During COMEX trading hours on February 22, there were 124,000 March 2011 silver contracts traded—almost 2-1/2 times the number of open contracts! This is almost unprecedented volatility!
Here’s what I suspect happened to cause such a huge trading volume that day. The price of silver had been rising significantly for the past several trading days, reaching successive 31-year high price records (ignoring inflation). The US markets were closed on February 21 for Presidents’ Day. In trading in Asian and European markets early on February 22, the price of silver passed $34.00. If this price were maintained, then a large number of short sellers would get margin calls when the COMEX market opened on February 22. That could have forced leveraged short sellers to put up additional cash, physical silver, or to buy long contracts to close out their short positions. Any of these actions would likely have the effect of pushing silver prices up even higher.
It appears that a massive effort was mounted to drive drown COMEX silver prices on February 22 in order to avoid or reduce the margin calls to leveraged short sellers. This strategy was successful to a degree in that the price of silver dropped to just below $33.00 at one point on the COMEX. The temporary drop encouraged some owners of long positions to liquidate and take profits, further helping to push the price down.
However, the price suppression effort was not successful at pushing down the silver price below the February 18 COMEX close. Once it became clear that the manipulation was losing steam, buyers jumped back into the market on February 23. During COMEX trading hours, the price of silver reached as high as $33.75. Trading was extremely volatile, with 1% swings up and down occurring within a matter of minutes.
Several hedge funds, seeing how easy it was to make a short-term profit in silver squeezing COMEX short sellers last November and December, are likely to repeat the tactic with the maturing March contracts—but on a greater scale.
If the price of silver from now through the end of March were to rise by 30% again, that would put the price around $43. But, if there is a larger supply squeeze underway, the price could go much higher.
Already we are seeing several physical silver wholesalers using a two-tier silver spot price system. If you want to sell to them, they are using spot prices derived from COMEX and other markets. On the other side, if you wish to purchase physical metals from them, they are quoting a selling spot price that is 5-10 cents higher than their buying spot price.
The mainstream media is reporting that stock market prices and most commodities (with the exception of gold) fell on February 22 as a result of concerns about unrest in countries in the Middle East and North Africa that could lead to reduced supplies of petroleum. The unrest is sparked in part by soaring food prices (which the US government pretends is not occurring) in addition to political factors. But this news does not give you a clear picture of what is really going on in the silver (and gold) markets.
Expect both gold and silver prices to become much more volatile in the coming weeks. Don’t be surprised if silver prices move across a $2-3 range within a 24-hour period. In the past week, our company has enjoyed a significant increase in demand for physical silver. Thus far we have been able to make immediate or short-term delivery of most forms of silver. That could change quickly. At last report, the Perth Mint was telling buyers that they would have to wait until at least April to receive delivery of newly manufactured silver ingots.
Even though silver prices are now near 31-year highs and gold is near its highest prices ever, I still consider both of them to be at bargain levels compared to what I expect to see by the end of March. Silver will outperform gold, but both will do well versus the US dollar and all currencies.
This is a real all time high that we are in.
The ‘all time high’ was a few minutes on one day in the 80’s when the Hunt Brothers were attempting to corner the market. Spot price hit $50.00 plus per ounce. Then the attempted corner was discovered and kaflwey!
I used to trade commodities back then. Saw one guy who was actively trying to ‘buy’ his shot positions back. Market had been limit up for three days, and he could not ‘buy’ his positions back. Then the next day the market opened - under extended limits - at limit up. Then it traded at - keep in mind extended limits were in force - at limit down. His buy was at the market high. The guy lost a house on that one trade.
This is REAL and these prices are record.
Harvy Organ reported late yesterday that OI for March delivery settled at 28,275 contracts.
As always, that number may or may not go up or down, depending on what the Big Boys have up their sleeve and how big a premium they are willing to spend to get contract holders to roll over their contracts to the next delivery month. (May)
But 28,275 contracts means 141,375,000 ounces.
And I don’t think Comex got it. Or even can get it.
Fifty dollar silver is on the horizon.
Maybe more.
This is an important article. Thanks for posting it.
My understanding is that ‘our’ American government is able to pretend food prices are not changing in the way they are because the price of food is no longer included in the figures used to calculate inflation.
Silver and gold should be very interesting, even more so in the coming month, especially with the ‘day of rage’ scheduled in Saudi Arabia on the 11th of March, those and the price of oil.
These silver short shennanigans, of which J. P. Morgan seems to be the biggest player by far, have been going on for a long time.
People have warned that at some point their house of cards is going to come tumbling down. It hasn’t happened yet. But it’s hard to see how this game can go on much longer, even if they are insiders who are used to making the rules.
They raised the silver futures margin requirement a while back. That didn’t accomplish much. Maybe they’ll raise it again. But I agree. This game is a losing one for them.
The gold: silver ration was stretched unusually far toward gold. That corrected some recently, but silver still has a long way to go to catch up with gold.
I watched the prices over the long holiday weekend, and I think this analysis makes a lot of sense.
Aaargh. “gold: silver ration” should read “gold:silver ratio.”
So, what is your prediction as to how high it will go and what would cause it to crash?
FYI
Balancing the federal budget and sarting to pay down the debt would be the way to crash silver. Also, an industrial substitute that would take away the largest industrial uses, but then if the budget isn't fixed, any lack of industrial demand slack may be taken up by investors.
Then the COMEX managers shorted silver and changed the rules without warning and kaflwey!
My prediction how high it could go would be worth every penny you paid for it.
What would cause it to crash? Responsibility in Washington. No threat there.
I have found this website to be a very useful source of information on the economy, gold, and silver.
http://goldismoney.info/forums/
I’m holding on to my silver & turquoise jewelry as a
“hedge” fund. I have tons of it. LOL.
I recently picked up a silver/turquoise bracelet that had a lot of fine work and an odd signature: dots above mountains/serrated teeth. Have you ever seen it before?
For $1450 gold at 16:1 silver is $90.
Silver has a ways to run.
just my process
bought silver when the G2S was 65(ish). G2S is now 42.
holding
although news like this makes me consider getting more (physical). AGQ is around 170... may hit 250, 30-50% jump... hmmm
for your amusement:
Basically they saw that people were trying to crash the exchange and made sure they could not.
Here is an article about this, from Karl Denninger: Comex Rule Change
All that nasty ol’ tarnished silver tableware and serving pieces I’ve been scooping up at yard and estate sales for years just might pay off after all.
Yes, I think I may have seen that signature, but gee, it’s been so many long years since I bought that jewelry. I don’t remember the artists. Maybe you could find it online. I have some beautiful heavy pieces, but I haven’t wore it since 1989. Change of careers. LOL.
Just might be. Good luck.
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