Yesterday's gold and silver action

Back to the gold and silver markets. Sometimes you learn more in the long run from the bad days than the obvious good days. The Gold Cartel pounded away today and they did not get much bang for their buck. Gold finished way off its lows and so did silver which came back from a $36.53 low. No markets go straight up and stay that way. Corrections are normal and healthy. For gold and silver to close like they did is a big picture plus.

Here is a shocker. The gold open interest fell a stunning 17,262 contracts yesterday to 513, 918 as gold rallied a little more than $3 … which means certain spec longs wanted out and a number of the shorts wanted the same. This huge reduction of open interest comes ahead of first notice day for the June futures contract and is most bizarre considering the price action … and VERY bullish the way I see it as a former futures trader of size. It is normal for the OI to fall before first notice day, but not for the price to go up while this is being done. This suggests there is actually a reticence by the cartel to sell more futures. In fact they want to reduce their exposure. To entire selling, they had to raise their bid, even as the longs, who don't have the cash to take delivery, sold out. Some of these contracts may have been fully paid up and capable of taking delivery, which further suggests that under the table premiums were arranged to sell out.

The silver open interest went the other way, gaining 1567 contracts to 122,862, which is not that much considering the extent of the move in the silver price yesterday. Silver is acting peculiar but next month is not a major delivery month in silver... That OI in silver is getting pretty low, but should not be rising this late in the month, which is a surprise given the sky-high margins being charged to maintain a position. Some of these guys had to fork over 30% of the value of the silver in a contract to maintain their position, instead of the more normal 6%. Despite that, OI is still 122,862 contracts, or 600 Moz. This means the longs had to come up with over $5 billion in margin to hold on to these positions. You go back five years when silver was only $12, such an open interest could be maintained at a margin expense of less than $450. $5 billion vs $.45 billion for the same open interest, indicates that there is TEN TIMES the investment flowing into the silver market right now compared to five years ago. No wonder the cartel is having difficulty holding down the price, but holding down the price is what they are doing. Silver has tripled from five years ago, but it has taken ten times the investment flow to do that, and all of this at a time when silver was in severe deficit of supply. Meanwhile, copper has quadrupled and many of the other metals had far bigger runs, with far less bullish supply/demand fundamentals. So, the derivative markets continue to do their job in suppressing politically incorrect metals at the cost of building ever-greater derivative exposures. The trading volumes on CRIMEX are through the roof, and now exceed the volumes on the LBMA, which are down about a third from a decade ago. TWO exchanges selling silver (and gold) derivatives at two thirds LBMA former volumes equal 2 billion paper ounces of silver being sold every day on these two exchanges.... Total sales in a business year run 500 billion ounces, with the total available supply at 1 billion real ounces. Every real ounce is sold over 500 times.... These markets are not a fractional reserve market on a ratio of 100 paper ounces to 1 real ounce, they operate on a 500 to 1 ratio..... YIKES! Let us be clear here. The derivative silver markets are NOT being manipulated, they ARE the manipulation. If you have a real ounce in your pocket, better hang on to it. It may be worth 500 times more than you think it is.....
Regards, Rhody