PRECIOUS METALS HAVE BOTTOMED, SILVER SHORTAGE INTENSIFYING!

MAY 5, 2013

On today’s show, the Doc and Eric Dubin discuss trends in the physical market, which remains strong worldwide as the silver shortage has intensified and spread from 1 oz coins to 10 oz and100 oz bars. Last week we underscored the likelihood that the wholesale supply chain would begin to show signs of true physical shortage once the restocking cycle got underway to replenish April’s demand spike. That appears to be what we saw begin to unfold this week, which speaks to higher prices in the weeks ahead.

To summarize, let’s place the last few weeks into context. The following is by no means exposition of everything causal, but some key market moving dynamics include:

April 15th Awakens Physical Demand: BOTH Fear and Greed Buying (highly unusual for North America during this bull cycle)

April 24th marked the clear transition towards bargain hunting buying (and the setting of a floor) by “big money” in both precious metals stocks and bullion outside the paper bullion ponzi; mining shares have bounced strongly off their bottom; e.g., HUI at 256.20; the HUI is having a hard time registering a firm close above 280 and a retest of 300, but that should change later this month and “confirm” the continued accumulation of bargain hunters in the physical bullion market and growing awareness of the problems of “fractional reserve” paper markets like the COMEX and the LBMA

JP Morgue, managing a silver short position book that likely remains “in the money above $22/ounce has little incentive to risk even higher physical demand from further enticed bargain hunters; the Morgue’s best interests are facilitated by a continuation of range trade maintenance of $23 to $25, as discussed in a previous SD article, however…

As discussed during SD Weekly Wrap weeks ago, May would prove to be the inflection point for the return of the “inflation trade” (global “hot money” starting to position once again for continued Western and Japanese central bank monetary expansion); it appears the cycle has started, as seen with the reaction to the 25 basis point ECB interest rate cut, set against the context of economic leading indicators rolling over worldwide (never mind the rear-view mirror snapshot of a flawed US April unemployment report). Even Germans are starting to get grumpy in the wake of their weakening economy. Meanwhile, our forecasted increased level of “jawboning” from the Fed talking down the prospect of curtailing QE early is well underway;

Friday’s trading – as but one example — was an expression of this shift in sentiment translating into nearly all asset classes across the board; e.g., copper’s large jump to $3.30 wasn’t just short covering; oil and equities leaped higher, and precious metals more than recovered from the typical cartel pre-employment report bombing, closing the week on a strong footing with a test of $25 silver setting-up next week as “the tell”

Bottom-line: The sell in May and go away until Labor Day thesis isn’t going to play out for the monetary-infused general equity market, surprising many as US-based equities in particular rise on the back of continued liquidity infusion and the added boost of global capital flight towards the illusion of US safety and attractive dividend yields. Meanwhile, the traditional weak seasonal period for precious metals will not happen this year as we continue to repair cartel carnage. By the end of May, $26 on silver should easily return, as “support” and testing $28+ should be in the cards. There will be considerable periods of selling into strength and lots of volatility, but the bottom was clearly in April.