The Miles Franklin Newsletter
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From The Desk Of David Schectman
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David's Commentary (In Blue):
The futures traders are playing for big dollars - on small moves. One futures contract for gold controls 100 troy ounces. The dollar value of this contract in 100 times the market price for one ounce of gold. One futures contract for silver controls 5,000 ounces (there is also a “mini” contract that controls 1,000 ounces). The trader lives in the moment and makes or loses money because of the
leverage
. Small moves times large leverage equals large profits, or loses. Those of us who own physical gold or silver think long-term and are affected by moves of tens of dollars (for silver) or hundreds of dollars (for gold). The typical daily ups and downs of gold and silver are small, almost always amounting to one percent or less of the price.
The daily moves for us are small. They amount to little more than “noise.” Trends are important but daily moves aren’t. Since there are no shortages (yet), the traders of the futures contracts control the price. They don’t think about the big picture or the long term. To the trader, gold and silver are just “things,” like orange juice or copper. They are not emotionally involved with precious metals the way that we are. To us, gold and silver are not just “things,” they represent money, or financial insurance. They are emotional investments and even though we own them for the long-term, we do experience highs and lows based on their short term price movements.
Are gold and silver going to move up or down? All you have to do is to check out Kitco and you will find dozens of opinions. Almost all of them use moving averages and graphs and charts to make their predictions. But the moves they write about are short term by nature and have nothing to do with long term investing. Their information is not terribly important to me. There are two people that I follow who do offer meaningful advice. Ted Butler and Ed Steer have figured it out. They say gold and silver will move up when JPMorgan decides they should go up. When JPMorgan pulls back and does not sell (contracts) into a rally, the moves are large. Usually, they cap the moves by dumping enough contracts to stop the gains and turn the price down. The managed money traders then start to sell their contracts too and the price falls. This happens every day and the price moves up or down, by small increments, that have no real affect on us, but that’s how they make their living.
There are other factors that are meaningful for us, such as interest rates, the US dollar and even the stock market. Their fundamentals usually determine how the trend will play out. When the dollar is strong and rising, and when the stock market is strong and rising, gold and silver stagnate or move down. When interest rates are low, the stock market is usually doing well and the opposite is true for precious metals. But these are slow moving trends and subject to change, but the change takes time – like an ocean liner trying to turn around.
There is one thing that I have been watching closely. The Donald has promised to shut down Iran’s oil trade. Predictably, Iran has stated that if he does, they will shut down the Strait of Hormuz, which is the world’s most important oil artery. It is a “choke point” and it would not be difficult to stop all oil traffic heading out to the markets.
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The question is – are the Iranians blowing hot air again, or are they serious? Are they willing to risk a war with the US, which is exactly what would happen if they do block the Strait of Hormuz. They are very good at making threats and issuing warnings and they could back them up, but will they? This is the type of event that will have an immediate impact on the price of precious metals. This goes beyond war – it affects the world’s economies and stock markets. If the price of oil were to spike dramatically, which is an “inflationary” event, gold and silver would be on the move. If you want to follow something that will have an immediate affect on the price of the precious metals, follow this story. See who blinks first – Trump or the Iranians. This is serious on many levels. As this plays out, it will determine the moves in the stock market, the dollar and gold and silver. I have a feeling that this time, the Iranians are not just blowing smoke, they are serious. We have them backed up against the wall and that’s when an animal is most dangerous. The choice is always fight or flight and we are not leaving them any choice.
The following is a short and clear-cut explanation of the dollar index. When we talk about the dollar going up or down it’s this index that we are referring to.
Dollar Index
I'd simply like to share one thing I've come up with for myself in understanding the dollar index.
The dollar index is defined by:
The US Dollar Index is used to measure the value of the dollar against a basket of six world currencies.
The six currencies are the euro, Swiss Franc, Japanese Yen, Canadian dollar, British pound, and Swedish Krona. The value of the index is indicative of the dollar’s value in global markets.
Okay, fine. But we also know that there is nothing "solid" backing any of these currencies.
So it hit me one day that the dollar index is like a snapshot of where seven skydivers are as they fall from their highest point of leaving the airplane. When currency is first released.
None of them go up, but in relationship to the others, they fall at different speeds toward the ground (zero value).
You've seen videos of skydivers leaving the plane.
The dollar index is simply where the dollar is relative to other currencies while they are all falling.
Despite manipulations, they are all still heading down. If the dollar is "stronger,"
it simply means the others are falling faster than the dollar. If the dollar goes "down" the others are not falling as fast.
The value of gold and silver increases (without manipulations of the markets),
simply because the values of other currencies are always decreasing.
The manipulators can lie in order to steal all they want, but that's not reality.
Edward Ulysses Cate
LeMetropole Café points out what I have been talking about, above. The Commercials (JPMorgan and friends) are going long as the large specs go short. This happens over and over again. It is pretty meaningless – until it isn’t.
“
The end of the latest tedious cycle will all depend on the physical market. It needs to be strong enough to force a lasting cartel retreat.”
LeMetropole Café
What is intriguing to start the week off was the Commitment of Traders Report released on Friday afternoon…
Silver
*The large specs reduced their long positions by 377 contracts and increased their shorts by 10,156 contracts.
*The commercials increased their longs by 15,451 contracts and increased their longs by 2,654 contracts.
*The small specs decreased their longs by 903 contracts and increased their shorts by 2,654 contracts.
The commercials net short position has been reduced to 24,000 contracts.
Gold
*The large specs reduced their long positions by 16,294 contracts and increased their shorts by 32,797 contracts.
*The commercials increased their longs by 13,224 contracts and decreased their shorts by 41,155 contracts.
*The small specs reduced their longs by 1,227 contracts and increased their shorts by 4,061 contracts.
The commercials net short position has been reduced to 80,000 contracts.
The gold/silver markets are going through a process seen so often in the past. The specs go long based on the technicals. The Gold Cartel does all they can to halt major price advances by selling and selling in the paper market. That selling eventually forces numerous spec longs to sell out and some to go short. The commercials cover their shorts and some go long. Round and round we go.
These changes are as of 4 trading days ago, so the likelihood is the real changes to-date have been even more dramatic. The length of these cycles vary from time to time. However, when the technicals turn back from bearish to bullish the specs will go long again, with the commercials (Gold Cartel) going back to the short side.
What has changed is the cabal forces changed their overall plans. Basically, for 12 years in a row they let the gold price gradually rise. However, since 2011 all rallies have been stopped cold. Yes, the precious metals have come off their bottoms, but all upside traction has been halted. As noted here so often, JPM let the silver price soar to $50 in 2011, as its open interest was around 135,000 contracts all the way up until the end of the move. After gold and silver made their moves in 2011, it has been all about lockdown.
The end of the latest tedious cycle will all depend on the physical market. It needs to be strong enough to force a lasting cartel retreat.
It’s been a long time since I’ve talked about how the banks create money. You can sum it up in just four words:
Out Of Thin Air
. If you don’t understand the process, check this out.
How Banks Create Money Out Of Thin Air
“The credit creation theory was something I intuitively grasped before from other alt-media sites, John nailed it down.” – Comment from someone who watched the podcast below
The “money supply” number as provided by official Federal Reserve statistics, it turns out, is not the true money supply. The fractional banking system allows banks to lend money on its reserve capital at a rate of 90 cents for every $1 of reserve capital. Technically, a loan is not considered “money creation” because of the legal provision that a loan has to be paid back. Because of this legal “glitch,” the creation of credit is not considered to be part of the money supply.
Yet, borrowed money behaves in the economy exactly like printed money until that point in time at which the borrow must pay back the loan. The spending power created by the creation of credit is identical to the spending power of printed money. The person or entity doing the spending does not know the difference.
This means that the amount of debt issued and outstanding by the U.S. Treasury should be added to the “official” money supply number (for example, M2) in order to calculate the true supply of money circulating in the system. This especially true because the amount of debt issued by the U.S. Government increases in quantity on a daily basis – it’s never repaid (anything considered “repaid” has been repaid with new debt).
In this podcast, which is the latest segment of John Titus’ “Mafiacracy” series, Titus explains how and why it is that banks create money out of thin air. Once you understand the principles reviewed in this podcast, you’ll understand how the U.S. became a giant Ponzi Scheme:
The new cover of Bloomberg/Newsweek ask the question “Is inflation dead?” Chris Powell says, “This is worse than a prediction, it is a delusion.” Yes, inflation is all around us. This is a worthwhile interview. Check it out.
Greg Hunter interviews Chris Powell
This Is Bigger than Gold & Silver Manipulation – Chris Powell
Chris Powell, Treasurer and Secretary of the Gold Anti-Trust Action Committee (GATA), says price manipulation of all markets is a major problem the world faces. Powell explains, “This is an issue far bigger than gold and silver. Gold and silver are just minerals, atomic elements. The issue for us is much bigger than that. The issue is free and transparent markets and having an accountable government. You cannot have those things unless you have freely traded monetary metals markets and freely trading currency markets as well. We don’t worship the golden calf or the silver bull. We are pursuing a much more justice-oriented agenda here. We want government to tell us what they are doing in the markets. We want them to be open and accountable, and that requires a free and transparent monetary metals market.”
No matter how much financial manipulation is occurring on a global scale, you cannot suppress the outcome of those policies. One of the outcomes is inflation, and yet the new cover of Bloomberg/Newsweek asks the question “Is Inflation Dead?” Powell says, “This is worse than a prediction. It’s a delusion. Inflation is all around us. I don’t know what world the government is living in where they put out monthly reports saying inflation is tame. These people are not paying medical insurance premiums. They are not paying college tuition. They are not paying state taxes. They are not going to the grocery store and seeing prices rise monthly and, of course, they are not noticing the inflation that has manifested itself in the stock market. . . . Inflation is not dead. It’s all around us, and it has been all around us.”
GATA has been trying to get the U.S. government to come clean about massive market manipulations. GATA says they have hit a stonewall of silence. Powell concludes, “Presumably, the U.S. Treasury is secretly trading in any number of markets and refuses to say which markets they are. . . . I heard a U.S. Assistant Attorney move for a Summary Judgment dismissal of our lawsuit saying, without admitting the U.S. government was rigging the markets as we complained in our lawsuit, the U.S. government does claim the power to do what our lawsuit complained of, and that was to secretly rig the markets. I think we have established this now to the satisfaction of any reasonable person . . . . Especially since the CME Group, which operates the major futures exchanges in the United States, has just renewed what it calls its central bank incentive program, which gives enormous volume trading discounts to governments and central banks for surreptitiously trading all the futures markets. . . . So, we know the CME group has created mechanisms for secret trading by the U.S. government and other governments to get discounts in all of the futures trading in the United States.”
In closing, Powell reminds us, “At some point, manipulations do fail . . . . Manipulations only work because of deception.”
Powell contends that global financial powers are trying to suppress inflation through the manipulation of all futures and commodities, but it’s not working.
Join Greg Hunter of USAWatchdog.com as he goes One-on-One with Chris Powell of
GATA
.
Craig Hemke says that the situation in 2019 is reminiscent of 2010. He writes, “
So, watch to see if The Banks are successful in this latest operation. While we have no doubt that our macroeconomic forecast for 2019 is correct... and this SHOULD lead to the best gains in gold and silver since 2010... crushing sentiment through a counter-intuitive price move would clearly have an impact on WHEN these gains are finally realized.”
Written by Craig Hemke, Sprott Money News
Shades of 2013
Six years ago this week, COMEX gold and silver prices were deliberately smashed in order to take out critical support levels that had held since 2011. The parallels to present day circumstances are obvious and must be fully considered.
The key to understanding this is to recognize that the situation in 2019 is reminiscent of 2010. We've been writing about this for months, and below is the easiest link for you to review if you need to be brought up to speed.
We could lay all of this out for you again, but let's just cut to the chase...
Ultimately, the dollar price of gold is an inverse reflection of confidence in U.S. monetary authorities and the dollar itself. This paradigm is regularly on display in other currencies, where structural issues lead to a crisis in confidence and the price of gold as expressed in those currencies moves higher. Two examples are shown below. Note that gold priced in Australian dollars and Indian rupee is currently near all-time highs.
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As you no doubt recall, gold priced in American dollars saw all-time highs under similar conditions in 2011. The advent of QE2 and political discord led to a crisis in confidence in the dollar, and the dollar price of gold hit $1920 in early September of 2011.
Price soon fell dramatically but was still near $1800 when QE3 was announced in October of 2012. Many analysts,
myself included
, assumed that this further debasement of the dollar through $1T in additional currency printing would send gold to new all-time highs in 2013.
Instead, in a counter-intuitive move designed to retain confidence in the US$, the dollar price of gold began to fall, and by April of 2013 it sat perched upon extremely important support near $1525. This level had held as support on multiple occasions over the previous nineteen months, and many were watching to see if this level would hold again. And it did... until it didn't.
Friday, April 12, 2013 saw the beginning of a historic price raid designed to break the $1525 level and send the dollar price of gold cascading lower. Price fell $63.50 on Friday, April 12, taking out and closing below the key $1525 level. It then fell $140.30 on Monday, April 15, bringing the two-day loss to over $200 and sending price all the way to $1318 at its low. This event is one from which price has yet to recover, six full years later.
With the gold price trampled and global sentiment crushed,
this drop in the dollar price of gold helped to maintain an illusion of confidence in the dollar and the central bankers who control it
... even while global QE continued with fiat currency debasement accelerating at an unprecedented rate.
And now here we are in 2019, price remains in the same $200 range that has mostly contained it since the events of April 2013.
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Fast forward to today, and with The Fed and other central bankers capitulating to the extremes their policies have created in the ten years since The Great Financial Crisis, these Bankers face another crisis in confidence in their fiat currency. And what has been their response? Clearly it is to create a similar environment of counter-intuitive gold selloffs. All of these being staged in order to control sentiment and, by extension, create and maintain the illusion of confidence in their policies and their dollar
.
Note, below, the price action of COMEX gold since December 2018 and the last rate hike of this cycle. Each subsequent FOMC meeting and the release three week later of those meeting minutes has been greeted with a smash in the dollar gold price. This despite the fundamentally positive news of rate hike and balance sheet reduction halts.
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What you see above is a clear and obvious strategy being employed by The Bullion Banks, which seek to dominate and control price for the BIS and the Central Banks... and it's nearly identical to the events of 2012 and 2013.
Where the introduction of QE3 should have been extraordinarily positive for the dollar price of gold (and, by extension, extraordinarily negative for the U.S. dollar), direct Bank intervention led to a break of support and a crushing of sentiment.
Where the reversal of QT and resumption of QE with negative interest rates and "every tool in the toolbox" should be extraordinarily positive for the dollar price of gold (and, by extension, extraordinarily negative for the U.S. dollar), direct Bank intervention in 2019 is leading to a drain of support and a depression of sentiment.
Unlike 2013, the current target is not a long-standing and vital support level like $1525. Instead, The Banks are clearly gunning for a break of the 200-day moving average in the hope of engendering a wave of Spec HFT selling that would be used to further depress price in the weeks ahead.
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So, watch to see if The Banks are successful in this latest operation. While we have no doubt that our macroeconomic forecast for 2019 is correct... and this SHOULD lead to the best gains in gold and silver since 2010... crushing sentiment through a counter-intuitive price move would clearly have an impact on WHEN these gains are finally realized.
Therefore,
1. MONITOR the 200-day moving average
2. ANTICIPATE the Bank desire to break it
3. UNDERSTAND why this is their strategy
4. WATCH the price action that follow
5. ACT accordingly
As you'd expect, we'll be watching this at TFMR, too, and we'll keep you updated in the weeks ahead.
In the following essay, Ted Butler goes into detail how JPMorgan controls the price of silver and gold. It is the basics behind the pricing of the metals.
Ted Butler
The Annual Silver Surveys
This past week, the Silver Institute released the annual supply/demand report it commissions each year by GFMS from London. In about a month, the annual silver report compiled by CPM Group should be released. Over time, these two reports have become the prime source material for silver supply/demand fundamentals. First, some general comments about the reports, followed by what the Silver Institute report includes and doesn’t include. As always, data and statistics on their own are fairly meaningless, compared to interpreting and understanding the message of the data.
One thing that always struck me as odd about both reports is the absolute precision implied about silver production and consumption in that there is hardly any rounding off (as I suppose I am inclined to do) – all data are reported to within 100,000 ounces or less. This strikes me as a bit odd for a market in which total production and consumption amount to one billion ounces annually. It gives the impression of precision almost to the point of infallibility. Yet in the category where one would assume the greater precision, annual mine production (as opposed to consumption), the difference between the two reports is quite wide.
Last year, for example, there was a difference of 80 million oz between the two reports for world annual mine production – a 10% difference. And that’s usually the case each year. We’ll see what the difference is this year in about a month when the CPM report is issued, but the first lesson to be learned is not to take the statistics offered in either report too literally, but as estimates (despite the implied precision).
Another curious aspect to the Silver Institute report is the regular use of the word "deficit". I’m not sure why this word even appears, as there has been no real deficit in silver for years. A deficit occurs when all the silver currently produced is insufficient to meet industrial and other demand (jewelry and silverware and coins) apart from pure investment demand and world silver inventories are drawn down and depleted to meet the current demand. We did have such a structural deficit in silver for 65 years running, from the start of World War II to 2006, in which close to 10 billion ounces of world silver inventory, basically, went up in smoke. But since 2006, there has been no true structural silver deficit in silver in which total world silver inventories have been reduced. This is perhaps the most confusing feature of the survey.
I don’t have much argument with the report’s depiction of total world silver inventories (in 1000 oz bar form) as 2.4 billion oz, although I believe it is overstated by half a billion oz. Either amount is much less than all the gold throughout the world (a long-held opinion of mine), but I do object to the characterization that the silver inventories held by investors throughout the world are readily available at anywhere near current prices (as is implied in the report).
My main observation with the Silver Institute’s report is that total silver production (mine plus recycling) as well as total demand, have remained largely around 1 billion oz for the past decade (the amount I use with frequency). After all "hard" demand (industrial, jewelry/ silverware, and coin demand) is accounted for, at most only 100 million oz or less are available for pure investment annually. This is the amount scarfed up by JPMorgan over the past eight years. While silver production and consumption have largely remained unchanged over the past decade, the same can hardly be said about price, given the large price swings over the past ten years. What this indicates to me is that actual supply and demand have little to do with price change, a theme I’m sure you’ll recognize.
In fact, I’m convinced the Silver Institute’s report demonstrates this clearly and underscores the fact that COMEX futures contract positioning sets the price. To that end, the SI’s survey does include reference to managed money positioning on the COMEX, but falls far short of concluding that this is what sets price. Certainly, and as is customary, the word "manipulation" is not mentioned once in the 104 page document.
To be sure, my main takeaway of the report is what it doesn’t mention. Remember, some hold this document to be the definitive final word on the silver market. But how could that be if there is no mention of the most controversial silver issues of the day? Most conspicuous is that JPMorgan was not mentioned once. The bank allegedly holds close to half of all the world silver inventories and has been the consistent big short seller on the COMEX while accumulating its massive physical silver (and gold) hoard; what could possibly be more important to the market? At the very least, the report should have sought to rebut the allegations, or at least tried querying JPMorgan.
If you think that’s a stretch on my part, then how about this – how could there be absolutely no mention of the indisputable fact that each year for the past 8 years close to 250 million ounces of silver have been physically moved in and out of the COMEX warehouses - a total physical movement of 2 billion ounces? That’s not conjecture on my part, that’s easy to verify hard data. If someone is going out of their way to purport to present every imaginable physical factoid relevant to silver, then how could there be no mention of this massive physical movement?
The annual COMEX warehouse movement represents 25% of total world production and consumption, far from a trivial amount. The Silver Institute proudly lists the mining companies and other sponsors, which have paid for the report – aren’t any of them curious about the exclusion of any mention of a physical inventory turnover that simply does not exist in any other commodity, just silver? Shouldn’t there be some explanation from the dozen or so analysts listed as having contributed to the report? How thorough and comprehensive can this survey be if it completely ignores what is perhaps the most salient feature of the physical silver market over the past 8 years? I doubt there will be any mention of the documented COMEX warehouse movement in the CPM report either. This is nuts.
Further, I’m convinced that the reason the Silver Institute and others avoid mention of the greatest physical inventory movement in history is because to acknowledge it would require even closer scrutiny. For instance, when and why did it start? The when is easy, April 2011, just as JPMorgan opened its own COMEX warehouse and began depositing metal, eventually with those deposits towering over all other COMEX warehouses. This is the date, after all, when JPMorgan began its epic accumulation of physical silver. The why is much more difficult, but I’ve offered my take (a means for JPM to acquire more metal) and others are free to offer their own take. If the Silver Institute or anyone else acknowledged the unprecedented COMEX physical silver turnover, how could it avoid looking closer? Better not look at all.
The reason I raise these issues is because there seems to be two very different takes on silver (and gold). One in which the current price appears normal and in line with actual supply/demand fundamentals; the take widely accepted by most, including main stream commentators and media, as well as regulators and producers and consumers of the metal. On the other hand, there are those like me that consider the current price contrived and manipulated and bearing absolutely no legitimate connection to the real supply/demand fundamentals. Of course, I go much deeper and try to explain why silver is manipulated, relying strictly on publicly available data, and why the price is contrived and artificial and as far from normal as possible.
I listen to the establishment perspective and consider it carefully, but remain unpersuaded that all is as described (or as should be). Unfortunately, I can’t say the same for those who disagree with my take, mainly because there is never a fair or full reciprocal consideration offered. I’ve yet to hear, for instance, any reasonable explanation for or even acknowledgement that the unprecedented physical turnover in COMEX silver inventories actually exists (despite it being published daily). It’s as if as long as my side of the debate isn’t acknowledged in the slightest, then that means it doesn’t exist.
The recent interview in which former CFTC Commissioner Bart Chilton confirmed that JPMorgan took over Bear Stearns’ short positions and dominated and controlled the short side of COMEX silver despite CFTC demands that it cease is a case in point. Everyone can listen to Chilton’s own words and hear him clearly confirm that which I’ve alleged for the past 12 years. Yet despite making the article public and knowing that it received fairly widespread attention, an associate commented to me that he was dumbfounded that there was no large outward public reaction, seeing what Chilton had admitted to. My associate was stunned that Chilton’s admission of JPMorgan’s role (which has continued to this day) didn’t come to dominate the conversation.
I was less surprised, based upon what I said earlier, namely, that there is never a fair and full consideration given by many to any evidence that the price of silver is manipulated. Die-hard manipulation deniers aren’t interested in evidence at odds with preconceived opinions. To be sure, many do see the evidence, but it is remarkable what others will refuse to see even when in full view. But there is a practical side to this that bears examination. It seems to me that it is real hard to see silver moving sharply higher in price if you are convinced everything is currently on the up and up. Such a conviction would seem to imply prices lugging along, mostly as they have for past several years.
However, if you do believe that silver has been manipulated in price, principally by JPMorgan, then it’s real easy to see prices exploding higher at some point – particularly if you subscribe to my take that the bank has amassed around 850 million oz of physical silver. I know the downdraft in prices over the past 8 years has been demoralizing and draining to say the least, but the crooks at JPMorgan haven’t wasted a minute of that same time in acquiring every bit of physical silver as possible. And now that JPM has completely covered its COMEX short position, it has never been better positioned for a price liftoff. This isn’t about how you or I may feel about the long downward drift in price for the past 8 years; it’s about what JPM has done over that time
So the bottom line is this - if you believe that there is no manipulation at play in silver and that everything related to price is in accordance with the free law of supply and demand - then I can’t imagine why you would expect prices to climb sharply in price. After all, the supply and demand of silver hasn’t changed much in ten years or so, so why would the price rocket higher?
On the other hand, if you believe that someone has been screwing with the price, there is much more reason to expect sharply higher prices when the price screwing stops. We even pretty much know who the "someone" is that has been screwing with price – JPMorgan. No, not just because I have been fingering these crooks for the past ten years or that the Justice Department may be on their trail, but because you heard it with your own ears in the Bart Chilton interview.
But wait, you say – we may know that silver has been manipulated and who has been manipulating it, but we don’t know when the manipulation will end and prices will be set free. After all, it’s been 8 years since the price peak (a peak, by the way, that was up nearly tenfold from 8 years prior to that). And the 8-year wait has been made to seem much longer because so many other assets have climbed over that same time. So I guess it comes down to timing, or so it would seem. The only problem with that is that no one has a lock on timing – timing is the great universal unknown. I happen to believe that silver can explode in price at any moment, but I wouldn’t want anyone to rely on that.
Instead, I would look at what is known, namely, that JPMorgan is the big manipulator and that never in history has it been better positioned for the coming silver explosion by highly quantifiable measures. JPM has never owned more physical silver (and gold) than it does presently and it has never been less short on the COMEX than it is now. That doesn’t guarantee we are at the precise moment of liftoff, but neither does it rule out that prospect. Again, timing is the great unknown.
But we do (or should) know one other critical fact, namely, what JPMorgan does or doesn’t do on the next rally will determine if this is the big one or not. Specifically, if JPMorgan adds meaningfully (say, 10,000 contracts or more) to its COMEX silver futures short position on the next rally, then the odds of this coming rally being the big one are greatly reduced. If JPM refrains from adding shorts, it is hard for me to see how this won’t be the big one.
Yes, I know that we have been in this same setup on past occasions too numerous to count and each and every time JPMorgan has added to its silver short position, causing the rally to be capped and eventually unwound. And yes, I know I have repeated my refrain on each and every past setup. And I do so again today, knowing full well that it can go either way. But I also know it is what can be called an asymmetrical equation. That’s a fancy term for saying that on the next rally, silver can go up relatively little (as has always been the case these past several years) or it could shock people by going up a disproportionate amount. Of course, silver prices could also continue to drift lower, but that would only be temporarily, according to all that is known about market structure. But this isn’t about anything except what JPMorgan does or does not do.
Given the setup, there is only one way to play it as far as I’m concerned – as if JPMorgan won’t add to shorts and this is the big one, for the simple reason it will be easy to adjust to if it isn’t the big one and near- impossible to adjust to if it is.
Ted Butler
Lobo Tiggre says, “
Just look at the 1980 and 2010 spikes in the price of silver: gold leapt, but silver went stunningly vertical.
This will happen again—and we may not get much warning.”
Lobo Tiggre
Silver's Day Is Coming - And You Won't Want to Miss It
Silver bulls like to point out that silver prices are historically out of whack. As of last night’s close, you could buy 85.3 ounces of silver with one ounce of gold. Until recent years, the gold-silver ratio was in the range of 50–60:1, making silver look cheap and oversold.
Adding insult to injury, the naturally occurring ratio in the earth’s crust is said to be 17–19 ounces of silver for every ounce of gold. Romans used a ratio of 12:1. US law originally set the ratio in US coinage at 15:1. Interestingly enough, the latest gold and silver global reserve figures I could find clocked in at about 19:1.
With gold at $1,275, the price of an ounce of silver should therefore be at least $21.25 (60:1)… or better still, $25.50 (50:1). And by all rights, it should really be closer to $70.83 (18:1).
Armed with these numbers, many silver bulls argue that silver prices must rise. Their current oversold state is simply unnatural, and it can’t last.
The data tell us otherwise…
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Several things stand out for me on this chart:
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Silver moved closely in sync with gold in the 1970s, but then dragged along well below gold for 20 years. If silver remained stubbornly oversold for decades before, it can do it again.
•
When the gold-silver ratio was reduced in the past, it was either the result of short-lived silver spikes or longer-lasting gold slumps. Historically, the ratio was “improved” by gold falling more often than silver rising.
•
Silver’s famous higher volatility is on display here. Both metals rise sharply under the right conditions, but silver’s vertical leaps are much faster and reach higher than gold’s.
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Something new is afoot since 2011. Silver fell much harder—as it always does—but the “alligator jaws” on the chart keep opening. Instead of trailing along under gold, silver keeps getting cheaper and cheaper relative to gold.
This last point is particularly interesting, given that there are more and more industrial uses of silver every year. We know, for example, that even with reduced subsidies, solar cell production continues growing, and it uses a lot of silver. Despite this, silver prices are down—and there’s nothing on the chart that tells us this is about to change.
Why? What’s “wrong” with silver?
Nothing.
Silver is a precious metal traded by investors, but it’s also an industrial commodity consumed by many businesses. In a decelerating global economy, it makes sense for silver prices to lag increasingly below gold’s.
It’s also important to remember that silver is produced largely as a byproduct of copper, lead, and zinc mines. The prices of all those metals are doing relatively well, which tends to boost the supply of silver whether or not there’s enough demand for it. Zinc in particular has done well over the last five years. It’s on a tear again this quarter.
I also think that the advent of digital gold, gold pools, gold ETFs, and other products have changed the game between gold and silver. People who in the past didn’t have enough money to buy an ounce of gold—or even a tenth of an ounce of gold—need no longer turn to silver as a cheaper alternative. This makes industrial supply and demand factors more important than ever to the price of silver.
Does this mean we should give up on silver?
Absolutely not.
And despite industrial demand being more important than ever for silver, silver remains linked to gold, and remains much more volatile than gold.
Just look at the 1980 and 2010 spikes in the price of silver: gold leapt, but silver went stunningly vertical.
This will happen again—and we may not get much warning.
I can’t say when silver’s day will come, but I can say I don’t want to miss it when it does. That’s why I’m researching great silver plays while prices are down.
Caveat emptor,
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The Market Report 4/23/2019
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Private Safe Deposit Boxes
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Unencumbered / Segregated Storage
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About Miles Franklin
Miles Franklin was founded in January, 1990 by David MILES Schectman. David's son, Andy Schectman, our CEO, joined Miles Franklin in 1991. Miles Franklin's primary focus from 1990 through 1998 was the Swiss Annuity and we were one of the two top firms in the industry. In November, 2000, we decided to de-emphasize our focus on off-shore investing and moved primarily into gold and silver, which we felt were about to enter into a long-term bull market cycle. Our timing and our new direction proved to be the right thing to do.
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