silver-overnight fall and ted butler comment

  1. 5,382 Posts.
    Following last nights fall in the pos I've been having a look around for some info. CBS market watch had an article, here's a quote
    "Metals futures trading closed about 45 minutes before the Fed announcement at 1415 EDT. Silver suffered the most as funds dumped futures before the Fed said its benchmark federal funds target rate for overnight loans among banks would stay at a 45-year low of 1 percent, where it has been since the U.S. central bank eased in June for the 13th time since early 2001."

    Not sure why that would be, any clues?

    Anyway here's Ted's latest


    By Theodore Butler

    (The following essay was written by silver analyst Theodore Butler. Investment Rarities does not necessarily endorse these views, which may or may not prove to be correct.)

    This is the third piece I've written since the one-day breakout above $5. As I indicated in my two previous pieces, I don't know if this was the start of the real move sharply higher. Well, I still don't know. The silver market is conflicted with two very powerful forces - the real supply/demand equation and the ongoing manipulation.

    Nothing I say here should be interpreted as detracting from the future certainty of sharply higher prices, brought about by the law of supply and demand. A deficit guarantees higher prices. A long term, structural deficit, lasting decades, guarantees dramatically higher prices. This is what matters most. Buying and holding real silver at current prices is the best, and surest, long-term investment that I am aware of. There are no crosswinds in the long term.

    But we live in a short term world, questioning and analyzing on a day to day basis. Even if we're in something for the long haul, it's hard not to think about it on a daily basis. Because of the computer and the Internet, we are overloaded with news, and charts and graphs, and opinions galore. The problem, of course, is that by relying on the daily information overload, we become short term oriented. Some people can thrive in a short term trading environment, but the majority can't do that for long. Most investors can't be bullish one day or week, and bearish the next, based upon short term price movements. The best hope for the vast majority of investors is a long term approach. That's why I publicly advocate real silver on a fully-paid for basis.

    I'm a commodity analyst, studying supply and demand and judging whether the current price reflects value. This is what has led me to write about silver. There is one other thing I study and write about that is not directly related to supply and demand, and that is the Commitment of Traders Report (COT). I've studied the COT for years. They tell who is buying or selling and they give proof of the silver manipulation. The COTs explain perfectly why we have the regular 50 and 60 cent price moves, up and down. Over and over. The mechanical technical hedge funds buy and drive prices higher, and sell driving prices lower. The dealers take the other side of the tech funds' trades and milk them dry. I can't imagine anyone believes that these repeated rallies and declines are because of what’s happening with silver supply and demand. I claim this is pure manipulation because it's obvious that speculators, both the funds and dealers, are setting the price. This is expressly against commodity law.

    Manipulation aside, the rhythm of the changing COTs helps explain the short term price moves. Right now, the funds are long and the dealers are short. In fact, while I have written that I see signs of tightening developing in the industrial physical market, the COTs suggest that the recent price rise has been mainly because of technical fund buying. This is not good for higher prices short term. While technical fund buying causes prices to rise, when they are done buying, the price lift ends. At some point, the tech funds liquidate their longs and sell, causing prices to fall. When the tech funds are done selling or going short, the COTs tell you we are set for a rally. I've tried to highlight these times in the past.

    The latest COT shows the commercial net short over 70,000 futures contracts, or over 350 million ounces. This is up over 40,000 contracts (200 million ounces) from their net short position six weeks ago. In addition, more than 25,000 new call options were sold (mainly by the dealers. Combining futures and options, the gross total short position on the COMEX increased by more than 300 million ounces to almost 900 million ounces. If you are looking for the reason why the silver rally stalled and has headed into reverse, look no further. Needless to say, the amounts of the paper shorts are so massive, that there is no way real silver, or real hedging, backs the shorts. Talk about manipulation. When will the CFTC enforce legitimate speculative position limits and stop this nonsense?

    As I wrote last week, if we do drop 20, 30, or 40 cents, everyone should know why. There is no other reason than the tech funds were tricked by the dealers into selling. As I write this report, the sell-off is under way. The good news is that if the dealers succeed in getting the tech funds to liquidate (and even go short), we could be setting up for the mother of all buy points in silver. I don't want to sound so certain as to what's going to happen short term, because something could come out of the blue to upset the COT-programmed apple cart. (Let's face it - attempting to break the usual COT pattern of manipulation has been my active goal for almost 20 years. It could happen soon.) But, if the past pattern remains intact, we need to go lower, with volume, to liquidate the tech longs. My guess is that we finish this tech fund liquidation cycle by the end of the month, just as options expire and first notice day arrives. But remember, this is a guess. No one should be making long term investment decisions based upon my short-term guesses.

    Long term investors in real silver should not be swayed by the manipulative COT sell-offs. Certainly, no one should disturb long term positions. The silver market is a swimming pool full of gasoline, waiting for a match. Besides, I don't see big downside in terms of price, only dimes. It's more a case of getting sufficient volume to liquidate the funds. I would expect that a move below the 50 day moving average (now around 4.76), should be enough, provided we get the requisite volume. For what it's worth, the COTs on the other COMEX metals, gold and copper, aren't so hot either.

    We must be prepared in any event, whether the COTs play out as usual, or we get a jolt to the upside out of the blue. The real fundamentals have never been better for silver. It's now been over two and a half months since I (and many of you) wrote to the CFTC asking about the suspicious COMEX inventory movements and how could silver even be considered free since it was in a deficit without rising prices. That's the central question that proves silver is a manipulated market. With more people recognizing that, and the manipulative pattern of the COTs, the scam can't last forever. Or maybe even for long.

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