Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Something Has Drastically Changed in the Silver Market

Commodities / Gold and Silver 2010 Oct 11, 2010 - 11:33 AM GMT

By: Lorimer_Wilson

Commodities

Best Financial Markets Analysis ArticleChris Mack writes: Something has drastically changed in the silver market. The banks that once controlled the price of silver are now closing positions at a loss. The commercial shorts have begun to bleed money – and when blood spills sharks will circle. Hedge funds and traders that never even thought of silver before will begin to squeeze the shorts. If the big banks don't quickly regain control of the silver market they may lose it forever.


Anyone following the futures market for silver knows that the large commercial traders, banks such as JPM, always win. That is until now. Let’s look at the history of short selling as it related to silver in the past, what has been occurring recently and what may unfold in the very near future, as follows.

Then
During the bull market in silver that began in 2001, a pattern of trading similar to the “Martingale Betting Strategy” emerged in which 8 trading institutions sold short increasingly larger amounts of contracts into rallies until their sales volumes overwhelmed the market into a freefall. After the freefall they then repurchased those short positions at a profit and the rally process began again. This process of taking money from precious metals investors has been well documented by analysts such as Ted Butler, David Morgan, and others. The strategy was so successful that some futures traders began to front run the banks on their own using tactics such as the COT report and other sentiment indicators. As a result of their actions it has been argued that these large short positions have suppressed the price of silver by a multiple of itself. This may be proven sooner than many expected.

Recently

Over the last 6 weeks all was going according to plan. Silver rallied and the commercial banks shorted an ever larger amount of contracts as the open interest swelled to the point at which most silver analysts were expecting a correction. In the last 2 weeks silver rose by nearly $2 dollars and most were expecting to see an even larger commercial short position reflected in the COT report. Instead, the commercials actually covered 2297 contracts, and bought an additional 989 long contracts during the week of September 28th to October 5th when the price of silver rose by $1. The covering was down at what appeared to be a short term top to many.





The Near Future
While it can be speculated on how short covering could impact the market, a short squeeze could feed upon itself as it attracts capital. In five trading days of buying a net 3286 contracts the price of silver rose by $1. However the commercial banks are still a net 62,127 contracts short so at that linear rate it would take them 94 trading days to cover with a silver price of roughly $117. The resulting losses would be around $15 billion. Of course markets aren't linear and after the second or third week of covering traders would begin to purposefully front run and squeeze the commercial shorts so it is unlikely that the positions could be covered that low or if at all.

Conclusion
Unfortunately, those of you who were hoping for a correction to accumulate more silver may not get it here as a price reset may be on the horizon.

Chris Mack is President of Trade Placer (tradeplacer.com) which brings the “Power of Wallstreet on Mainstreet” to its readers and can be contacted at info@tradeplacer.com.

Visit http://www.FinancialArticleSummariesToday.com, “A site/sight for sore eyes and inquisitive minds”,  and www.munKNEE.com, “It’s all about MONEY”,  where you can sign up for their FREE weekly "Top 100 Stock Market, Asset Ratio & Economic Indicators in Review."  

© 2010 Copyright Chris Mack - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in