by Ted Butler, Silver Seek:
(Special note – I hadn’t planned to publish this article to subscribers I sent as part of my twice-weekly subscription service ($34.95 per month), but a most trusted advisor, Jim Cook from Investment Rarities, Inc., strongly suggested I do so. Since Cook has never failed to provide solid advice for more than 20 years, I can’t cast his advice aside).
For the first holiday-shortened trading week of the New Year, gold turned in a very strong performance, ending higher by $40 (2.2%), while a late day rally yesterday only resulted in silver narrowing its losses for the week to 18 cents (-0.7%). As a result of silver’s extreme relative underperformance, the silver/gold price ratio widened out by just over two full points to 78 to 1.
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As far as trying to explain the surge in gold prices and silver’s failure to keep up over these past few days, let’s start with the obvious, namely, no one was selling long-tern physical silver to convert to gold. Gold and silver prices are set by manipulative paper positioning on the COMEX, so look no further for explanations. As I have warned of late, we must gird ourselves for deliberate manipulative smack downs, such as seen this week in silver (complete with middle-of-the-night non-economic price stabs to the downside).
However, this takes nothing away from the surge in gold prices, where the recent changes in COMEX market structure and the still-extraordinary developments in the Bank Participation report, now including yesterday’s new release for positions held through Jan 3, still point to a “sea change” in the positioning of the banks. The fact is that the positioning on the COMEX was more bullish in gold than in silver.
Importantly, even though gold closed at six-month price highs on first day of trading of the new year and the cutoff day for yesterday’s COT and Bank Participation reports, the deterioration (managed money buying and commercial selling) feared failed to materialize and, essentially, didn’t exist at all in silver. Gold is now higher by $250 from the lows of early November and another $200 from here will put us at all-time highs and it’s still my impression that many don’t trust the current move higher (climbing a wall of worry). Same with silver. That’s music to a contrarian’s ears.
Let me run through the usual weekly format before turning attention to yesterday’s COT and Bank Participation reports. I did get an email from a subscriber shortly after the reports were published who asked, not about the details of the Bank Participation report, which he knew I would cover today, but just to give him a “thumbs up” or “thumbs down” on whether the report coincided with my recent conclusion of a serious and highly encouraging change in bank shorting. My answer to Greg was “thumbs up”.
The turnover or physical movement of metal either brought into or removed from the COMEX-approved silver warehouses snapped back sharply from last week’s subdued movement, despite this being another 4-day work week. This week, some 7.8 million oz were physically moved and total COMEX silver warehouse holdings rose by 1.6 million oz to 300.6 million oz. Holdings in the JPMorgan COMEX warehouse rose by a much-sharper 3.4 million oz to 152.8 million oz.
I know I have devoted much time discussing the extraordinary physical movement of silver in the COMEX warehouses, both recently and over the past near 12 years, but I also know this is an issue not widely appreciated. Truth be told, I count that as a personal failure of me not being able to communicate an issue that I have come to believe is every bit as important as to whether the big banks step aside in adding aggressively to short positions should this rally continue.
One thing that I believe is near universally-accepted by most proponents of silver is that when the physical shortage reaches the point where its existence can no longer be hidden or managed, that will be the point at which prices can no longer be contained by manipulative paper positioning on the COMEX, as has occurred for 40 years. It has recently occurred to me that the extraordinarily large COMEX silver warehouse inventory turnover – a phenomenon that exists in no other commodity – is the purest sign possible that the physical shortage is very close at hand and it frustrates the heck out of me that I have been unable to convey that.
My dear departed friend and silver mentor, Izzy Friedman, always referred to this point as the “moment of true”, as the certainty of too low of a price not causing a physical shortage at some point was impossible. Yet, aside from that basic truth, there was little to go on as indicating how close we might be to that moment. The start of the highly unusual physical movement of silver into and out from the COMEX warehouses began close to 12 years ago, almost precisely at the time Izzy no longer followed silver, so I have been left to ponder the meaning of the physical movement without the benefit of my mentor’s wisdom and input.
That said, let me state it this way – I believe the extraordinary physical turnover in the COMEX silver warehouses is the surest possible sign anyone could ever get in advance that the physical shortage is close at hand. I know that it has been 12 years since this physical movement began, so who the heck am I to suggest it is signaling we are close to the point where the silver shortage will soon be highly visible and unmanageable? I’d answer that, taken together with all the extraordinary developments over this time, from JPMorgan accumulating a billion oz silver and 30 million oz (maybe more) gold physical position, to then settling with the DOJ and double crossing its fellow big COMEX shorts, to more things than I can recite here. It’s the totality of the issues.
