This is a long but interesting comment on silver from Bill at Midas.

Gold held $1185 support several times, eventually falling to a low of $1185.50 before recovering somewhat. Silver held $18 support and acted like a champ, going back up on the day for most of the session until late when gold was sent into new low ground.

The AM Fix was firmer at $1198.75, but the PM Fix was affected by the waterfall rout on the Comex and fell to $1190.50.

The gold open interest fell 6485 contracts to 552,377, while the silver open interest rose 1568 contracts to 117,862.

It would not take much next week to send silver into the second highest monthly close in decades…

From a technical standpoint silver is in the process of completing a massive base, one which can support MUCH, MUCH higher prices.

Predicting what commodity markets are going to do in the future is never easy, but there are times when, by paying attention, you can come up with clues that have greater predictability than others … and then tie them into other factors which can bolster a particular scenario … which is what I am going to do with silver.

To start with…

*From what I can tell from others who do the visible supply/demand work for silver, they are constructive.

*The US is supposed to have 8134 tonnes of gold in reserve, which may, or may not, all be there. We used to have a zillion ounces of silver, but it was all sold, leaving nothing in the cupboard.

*Silver has been trading weakly for some time compared to gold and to other commodities.

*The silver inventories on the Comex have been gradually coming down of late and are a relatively light 111 million ounces.

That’s very simplistic, of course, but what I am leading to is an understanding why silver could explode because of what is going on behind the scenes that is not visible and easy to analyze. One of the clues to that behind the scene activity can be directly related to the silver open interest on the Comex, which has been disappearing of late, leading me to comment that the market is washed out, or sold out.

To get a better relative handle on the situation, I did some homework on where that open interest stands today vis-à-vis where it has been in the recent past with silver around $18+ per ounce…

July 23

*The silver OI: 117,862

*The gold OI: 552,377

May 7, 2010 - Gold $1210 up $13.10 - Silver $18.43 up 94 cents

The silver OI: 121,649 contracts

The gold OI: 562,229

April 14, 2010 - Gold $1159 up $6.20 - Silver $18.40 up 16 cents

The silver OI: 123,661

The gold OI: 528,856

November 19, 2008 – Gold $1141.40 up 70 cents - Silver $18.45 up 4 cents

*The silver OI: 139,738

*The gold OI: 526,959

February 22, 2008 – Gold $944.70 down $1 – Silver $17.98 up 10 cents

*The gold OI: 493,758

*The silver OI: 186,629

February 25, 2008 – Gold $937.40 down $7.30 – Silver $18.08 up 10 cents 181,296

*The silver OI: 181,296

*The gold OI: 493,219

What hit me over the head was:

*How much the price of gold has risen the past 30 months compared to silver.

*How low the silver open interest is compared to gold in a relative sense, but more importantly, how low it is compared to other times when it was at the same price.

*The gold open interest has risen as the price has gone up, but the silver OI is 1/3 less than where it was at its highest levels, with the price the same.

*That very high silver OI level north of 180,000 contracts was right before JP Morgan took the price of silver down from a high of $21.50 to $8 an ounce, raping speculators in the process. No doubt in my mind a huge hunk of that short position was JPM. Think of the money they made on that kind of move.

What is so wrong and fraudulent about that is what we learned from Andrew Maguire at the CFTC hearing on March 25 of this year. Morgan set up an orchestrated attack, which is illegal, with numerous trading partners and then went after the market with a vengeance. This is exactly what Maguire conveyed to the CFTC by telling them in advance of raids from November through last March were going to occur … and THEY DID!

*The low silver OI tells us that a number of commercial shorts are not comfortable being short at these price levels. The risk is too high for them. However, a low OI does not, in and of itself, mean the market is set up for a substantial move to the upside. On February 15, 2005 the OI was 96,021 contracts, but the price was only $7.34. Higher prices naturally attract more interest.

What also has my attention…

*The OI has come down to relatively very low levels as the Comex inventories are dwindling.

*Over the past many months we have heard of delays in taking delivery of Comex futures positions.

*The panicky way the Bank of Nova Scocia is handling clients who want to take possession of the silver they own, such as were tje cases with Toronto’s Harvey Organ and the Toronto cancer victim. The bank is petrified of losing any of the physical silver it has on hand.

*The likelihood is that JP Morgan’s silver short positions are naked and not backed by physical silver in London. As far as I know, Morgan has never produced proof to the CFTC their massive short positions are hedged …except maybe Texas hedges (shorts backed by more shorts). This tells me they are very vulnerable should a flurry of physical buyers decide to take them on.

*The coming Sprott silver EFT could be just the vehicle which sends JP Morgan scurrying before they have to declare force majeure, or default. But Morgan has a big problem should that occur because of all the flap over their monstrous short positions by the GATA and Ted Butler camps. How can they say all has been kosher with their operations and then default? Can you imagine the lawsuits?

*With the silver shorts in such a vulnerable position, the bombshell I keep waiting for could eventually be a market mover and deal breaker for them. It has been delayed for good reasons, but is still in the works, frustrating as that is to hear.

*We know the gold market is under stress as pointed out so aptly by Adrian via his analysis of the BIS swap, the low or negative gold lease rates, the lack of any selling of gold by the European central banks, etc. That said, there still has been some gold around to handle emergency situations, as per the BIS swap. While growing scarcer, it’s still there. Silver is a different story. There just isn’t any excess visible supply around as in gold.

*Commodity prices are on the move with QE right around the corner. Silver has been a noticeable laggard and has a long way to go to catch up.

A market does what it does until it doesn’t, as Yogi Berra might like to say. Silver has been held in check for what seems like eons by JP Morgan and other Gold Cartel thugs. It seems to me numerous constructive market factors are gradually coming together which are going to send the price of silver SHARPLY higher, perhaps in nuclear fashion. Silver is a ticking time bomb waiting to go off … a tinder box waiting to be lit. Match please!