Battle for the Silver Market on December Expiration
Commodities / Gold and Silver 2010 Nov 18, 2010 - 12:13 PM GMTBy: Dr_Jeff_Lewis
There's a war waging for the silver market, and the war will soon break out over the course of the next week. Each month, as options and futures in the silver markets reach expiration, the bankers, investors and world interests plow into the market with shorts, pushing prices down and stymieing the total amount of delivery off the exchange.
This month, though, is of much greater interest for two simple reasons. First, those who have an interest in maintaining the paper silver trade cannot allow silver futures orders to be redeemed, either due to the fact that not enough silver is stored at the COMEX vaults or because they cannot allow the world to see how much real silver interest exists.
If the world were to see armored truck after armored truck pull into storage to pick up millions in metals, the pictures would spread faster than the tragedy at Tiananmen Square. Whole nations would shove even more money into metals, and prices would climb even higher. Investors would demand even more physical delivery of silver that probably doesn't even exist. They simply can't allow these scenarios to happen after the highly debated second round of quantitative easing.
However, most importantly, if the silver is not there, those who are massively short and behind the scheme cannot allow so many different contracts to be exercised all at the same time. Since last expiration, silver is up modestly at 10% in one month, but at one time was up nearly 25%, putting hundreds of thousands more ounces in futures contracts in the money. In the money contracts, after all, have to be exercised by someone to lock in profits.
The War is On
Going into next week, the recent downtrend from $29 to $23 will persist until the metal masters not only push silver back to parity with last month's value, but into negative territory as they seek to exercise damage control on a market that has already become wise to their games.
We know already that these institutions were massively short all the way from the early 2000s when silver traded under $5 per ounce. Today, they're still holding massive paper losses on their short positions, and unfortunately (for them), they are caught between a rock and a hard place. They could, after all, bid to cover (as they have been in the first two weeks of the run up) and allow silver to surge into the $30s, but they would risk a total shakedown when the COMEX fails to deliver enough silver. Or they could continue to chase bad money with good money, pushing down prices just before expiration and keeping the system alive. Based on history, it's pretty clear which side they'll land.
Take the Buying Opportunity
The week before options expiration has been, for a long time, an excellent time to add to your positions. While the powers that reside behind the curtains at the all-paper futures exchanges pile on their shorts to prevent collapse of the system, precious metals investors have artificially low prices from which to add to their position.
Don't let a crisis go to waste. As the bankers panic to keep the system in check, you're going to get an excellent buying opportunity. Never miss a buying opportunity in a bull market.
By Dr. Jeff Lewis
Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com and Hard-Money-Newsletter-Review.com
Copyright © 2010 Dr. Jeff Lewis- 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.
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