With the ongoing Cyprus situation and gold option expiry, next week promises to be a doozy.
I mean, seriously. Who knows what this next week will bring? Cyprus isn’t getting easily “fixed” and that ship has sailed anyway. Going forward, why on earth would any sensible person keep funds in a bank in Greece? Or Spain? Or Portugal? Or Italy? Or anywhere, for that matter? With strict capital controls coming over the horizon, the already-robust demand for physical precious metal is only going to get stronger and, as you know, physical demand and delivery is what will finally break the collective backs of The Cartels.
But that most certainly does not mean that The Forces of Darkness won’t be in charge this upcoming week. Option expiration for the April13 gold contract is Monday so you can expect some volatility as we get the week started. Probably more significant is First Notice Day on Thursday. Recall that nearly 14,000 contracts stood for delivery back in February and this was a threefold increase over the delivery notices for either the Dec12, the Oct12 or the Aug12. In fact, if you add up the deliveries for those previous three months, they just about equal the total demand in February alone. This is astonishing and, at this critical time, you can rightly imagine that this is the last thing that The Gold Cartel wants to see happen again this week. Therefore, be on the lookout for some serious volatility and downside pressure through Thursday as The Cartel attempts to dissuade as many as possible from standing for delivery in April.
Finally today, just a few words about yesterday’s CoT. Recall that we knew it was going to be interesting because of the dichotomy. For the reporting week, gold was UP $19 but its OI fell 5,000. At the same time, silver was down 33¢ and its OI rose by 3,300. I was looking forward to seeing the report and it didn’t disappoint…at least in silver. WOW!
First let’s look at gold. The reporting week was all about rotation in preparation for this week. The LargeSpecs bought 7,300 new longs and covered almost 14,000 of their shorts. All of this buying was, of course, absorbed by The Gold Cartel as they sold nearly 13,000 longs and added about 7,400 new shorts. <Yawn> Same old, same old. What else is new? The net effect was to raise The Cartel net short ratio back above 2, all the way to 2.19:1. Still bullish but clearly not as bullish as it was last week.
Contrast the action in gold with the movement in silver and you’ll be astonished. For the week, the LargeSpecs added another 3,100 shorts! This brings their gross total to 23,656 and their net long ratio down to 1.64:1. Just six, short weeks ago, the LargeSpecs were only short 6,588 contracts and the ratio was 6.44:1. Incredible!
The other amazing part of the report was once again in the “commercial” category. Recall that I have been pounding the table regarding the historically high commercial gross long position. For what seems like forever, the commercial long position has fluctuated around the 35,000 level but, for the last 4 months it’s been growing. It moved through 40,000. And then 45,000. And then 50,000 contracts. And now this week, the commercials…the nearly everybody but JPM crowd…added another 3,100 longs, bringing their gross total to 55,014! Let me state that again, with emphasis: 55,014!!
And now, dig this: Even though The Silver Cartel short position is still high at over 81,000 contracts, the extraordinarily high gross long position has brought the net short ratio down to just 1.48:1.
So, there are two important things that you have to understand:
- Any Silver Cartel net short ratio of less than 1.5:1 has consistently been followed by a significant rally. On 8/14/12, with price about to move from $27 to $35, the ratio was 1.49:1 and on 12/27/11, with price about to move from $26 to $37, the ratio was 1.34:1.
- Knowing that the silver market is the single most controlled, manipulated and managed on the face of the earth, with whom would you like to side? The brainless hedge funds, algos and HFTs who have nearly quadrupled their short position over the past 6 weeks OR the silver commercials who have built a gross long position that is now nearly double its historical norm?
Look, this week is going to be crazy and even I’m not foolish enough to try to predict how it will play out. What I do know is this: Silver is not poised for s steep selloff here…not from this CoT structure. And if it does drop back toward $28 or even $27, the CoT structure will get even more extreme.
Hold your nose, close your eyes and add to your stack. You won’t be disappointed.
Saturday, March 23, 2013 – TF Metals Report