Edit: Since writing this early this morning, I just hit refresh and saw the cliff dive of the metals again. Looks like 2% pull back in the markets is too much to handle in a day before the Invisible Hand steps in and buys.
Despite the name of this, I don’t think this one will be short. I plan to collect a lot of thoughts here to assist many of you during these take downs. Some of you just recently saw the billboard, went out and bought silver, now you see “spot” price sink. To you, I say, “welcome aboard the party train of silver investing” where you see paper prices like this get smashed, but no one really actually sells their physical. Hence why we now have a nation of perhaps 125k crazy apes ready to stick it to the man.
What we are actually seeing here is on price dips, coin shops are getting cleaned the hell out. On price rises, coin shops getting cleaned the hell out.
Takedown of silver
In a recent David Morgan interview, he said something like (paraphrase), “on silver smashes, I have a three day rule. I will wait 3 days and buy then”. He said he might take a small position on day 2 I believe, but the point was, he said, “trying to call the bottom is an amateur’s game”.
And “call the bottom” is what I tried to do with gold/silver on June 17th or so. For about a millisecond, I was offended by his comment, and then I realized, “oh yeah, I am an amateur”. So no offense taken, and there’s a lesson in there from him. Be patient.
What I did was look at the daily RSI of gold, and saw a 28 flashing. What is of interest is I kind of did catch the bottom of gold. Really. Got it good. What I did NOT see coming has been the continual thrashing of the miners.
It looks like complete capitulation. And I can tell you, the David Morgans of the world weren’t buying when I was, as they have seen this for 30+ years and most likely had a suspicion that miners might get worse. And worse, they got.
What you need to REALLY see is that gold then recovered and then, when flushed, didn’t really go below $1800 for more than a minute. On the dow move yesterday, we saw gold hold steady as it seemed everything else around it crashed. Including silver.
Silver is of course an industrial metal like copper, but a monetary metal like gold. So on a day like yesterday, it appeared to put on its industrial hat and got pummeled with everything else.
The good news in all of this is gold’s strength. From what everyone is telling us, gold needs to kick in the door for silver to then follow and clear the room.
With BASEL 3 in effect, I can sort of look at the forest through the trees and this all smells like take downs as the bigs are trying to go long. You could see gold climbing a wall of worry over a few weeks, and it looked at face value like a bear flag.
Example of a bear flag….
Honestly, I thought gold would go much deeper in the red yesterday, but to my surprise, it held up extremely well. This was also as the 10 year had hit 1.2%. It doesn’t mean gold is done falling, but it seemed to hold up well.
One would think this environment is PERFECT for gold and silver. I believe we are at -4% interest at the moment, which should have gold sailing to $2500. What you are instead seeing APPEARS at face value as a short term suppression on the price. While this is all going on, you are having significant buying pressures of the physical by central banks and the East at the moment. Likewise, the LBMA sort of/kind of exempted themselves from BASEL 3 for awhile, but nowhere does this look like the BIS approved of this.
Big picture: all of this is like watching glaciers move, but when they do, they are cataclysmic in nature. All of this smells like the London Gold Pool part 2, and if/when this catches up to them, justice will be swift, violent, and legendary.
What many don’t realize is that when an entity like the LBMA doesn’t ratify certain items that YOU ratify, they then become too risky for your bank to do dealings with. So, they want to try and go it alone for now – great! Ummm…not so great. Right now, I believe everyone is witnessing the complete and utter unraveling of the paper games. And they are fighting back, which is why you have these massive paper attacks. They try and run the stops to get weak hands out, then buy back – idea is to then go net long.
Another big picture concept here was that there were rumors the BIS was being pressured by Russia and China for these changes to happen. If not, they threatened to back their currencies with gold. One cannot underestimate how this can be an important sea change.
I like to call many of you squirrels and goldfish. I don’t mean to be MEAN about it, but all of you get involved in this, and then a week later are asking “where lambo?”. This has been a 50 year war of metals price suppression and the Krakatoa is rumbling. And gurgling. In fact, this might be the 600,000 year Yellowstone super volcano about to unleash hell on earth.
I think many of you now are combating this with a level head. Price moves up: buy more physical. Price moves down: buy more physical.
This is how this game is won:
David Hunter’s crystal ball
I received some Twitter flack for listening to a lot of what David Hunter says. I found I independently came to a lot of his same conclusions, and both of us were wrong on timing. In my blog, before any of you ever heard of me, I wrote last May or so that all kinds of hell would rein fire on us when Q2 financials were reported in 2020. It never happened, because no one could possibly think of the amount of liquidity they could print. Likewise, they then shut off student loan payments as well as made it illegal to evict renters or have mortgages default.
Essentially, the government printed…at all costs. This “phase shifted” any predictions to the right.
Likewise, my predictions in February with the futures and the like. That was “phase shifted” to the right when two things happened:
- It appears that one member bank “mis-reported” their holdings by 110 million ounces.
- It appears one member said they received 110 million ounces in 3 days, and everyone called bullshit. It was then found out that in the cover of darkness, they updated their prospectus to state…”meh, all the metal might not be here”.
So I ask you this. IF this member bank did not change their prospectus, and then had to acquire 110m oz in 3 days in the open spot market, would silver have shot over $30 to perhaps $35 and the game would be on? Would 900m oz of shorts be blown out with margin calls? Yup.
In the prediction business, you see events that need to take place in order for other things to happen. What you cannot bank on is entities doing illegal things or re-writing the laws instantly to prevent these things from occurring.
Meaning, we should have seen $50 silver in February, easily. It didn’t happen because it appears a bank lied. Then, apparently, the person running that trust refused to sign their name to the Q2 financials and resigned. This is the type of thing you find out 1-2 years later about on page 46 of the WSJ and they pay a fine of a few million. Meanwhile, had they NOT lied, and actually went to source the metal, we could have seen $50 silver inside of days.
With Hunter, he now has correctly predicted $75 oil and 1.2% interest rates.
His calls for gold, silver, GDX, GDXJ, SILJ, etc are LOFTY goals by the end of the year. IF these bode to be true, I retire. I played his picks for these. Am I a fool for doing so? Perhaps. Why? Because they can continue to push things to the right. His lofty goals may be met, but perhaps 2024?
I can see where all of these come from. I can also see how metals are manipulated, perhaps even by our own governments, to prevent the loss of confidence in our currencies. So he might be correct, but also incorrect at the same time.
I feel like in the “predictions” business, it might make sense to lay out what happens IF, and let it at that. Timing can move to the right on anyone, and most likely does, when actors in said scenario break the law and choose to pay a fine years down the road rather than face the music and get racked up for billions. Their fine line item is probably the next line down from their stapler budget line item.
I had a call with futures trader Jim Hunter last week, who you saw on Palisades Gold Radio. Jim is a WEALTH of futures knowledge, and it was fun talking with someone who also knew how much silver was in a cruise missile. We had a talk of nearly two hours. Once you get Jim going, he can really lay out the futures markets for you. I wanted to take some time to perhaps do a video with Jim as a follow up, but I think I have what I need for the moment to present to you.
First and foremost, many of us talk about silver ounces in contracts. Futures guys talk about contracts. We are the ones who talk about ounces. Meaning, I mentioned that just 6 weeks ago we were over 900m oz short on the futures, and he mentioned the comparable contracts. They don’t think in ounces. To futures people, there are two phases:
- Prior to delivery month – doesn’t matter if you have silver or want silver. None of this matters. I said it seems like you are “betting” on silver going up or down, and Jim corrected me that it is a “trade” where you feel price will go up or down and you can buy or sell these contracts.
- At delivery month – if you don’t have the silver, you either get out of your contract by paying up the difference in cash, roll over (close out your position like previous and create new short position), or deliver. The same is true for those long. Close out, rollover, or take delivery. Essentially, no one would then really choose to go past this stage unless they had/wanted metals.
This was known to me, but not to many of you. The idea here is I wanted to try and bridge the gap between those who trade futures and those who think the COMEX may explode at any time. Make no mistake, I feel silver can blow at any time, and there’s a scenario I point out below with the metrics that I’ll discuss.
So BEFORE delivery month, it makes zero difference if you have/want silver – you have/want contracts. THIS is the area where many of us silver apes get hair on fire. What I WANT, and what many of you WANT, is true price discovery of SILVER – and this is a physical supply/demand driven market. The price, however, is DERIVED from LEVERAGED contract TRADING by many who do not have the silver to those who don’t want the silver.
This was something Jim and I probably burned a half hour on going back and forth. This is the difference between what we WANT and what is REALITY.
In Tom’s interview, he made mention of the Hunt brothers with the futures market, and I discussed how this is potentially a LOT different due to the supply/demand of physical silver. This was another impasse we had, but I want to be fair and show you what a futures person sees, perhaps rightfully so.
Futures guy: He sees that current delivery will be perhaps 35m oz this month, and much of this won’t leave the COMEX. He sees 350m oz in the COMEX and no need to worry. If the registered gets low, they just move items from the eligible to the registered.
Silver guy: I see 35m oz this month and 110m in registered. I do NOT count the 250m in eligible because it may not belong to the banks and may NOT be for sale AT THIS PRICE. Make no mistake, as price increases, some or most of this supply could become available for sale. What I SEE is that any day some unflattering news articles could come out, and with disrupted supply chains and the macro environment SUPER bullish for metals, could see MASSIVE interest in longs driven for silver on the futures that WANT delivery. This PRESSURE could move the price of silver up several dollar, and the 775m SHORT at the moment would then have to start coughing up on margin. Many could get out of the paper game and close out their shorts and not double down. What this COULD then see is 100-200m in Sept who WANT the metals and only 90m in REGISTERED. The event I mention could unfold in a week. Any week.
This is a matter of perspective. Jim is CORRECT in how the futures operate. However, in my “what if” scenario below, I am also correct in a situation how a SHORT SQUEEZE can decimate this market in short order. I do not pretend this is something that will happen today or tomorrow, but anyone who trades futures needs to understand of that glacier I mentioned. They need to understand Krakatoa is rumbling. Yellowstone is agitated.
Jim educated me a bit more on futures contracts and margin and the like. Much I knew, but this piece I did not. Daily margin calls? In a sense…
So if you want to operate a margins contract, let’s use the idea that you need $15k in a futures account for one contract, whether you are buying or selling. Now, assuming $25 silver, that’s 5,000 ounces. Meaning, each contract is worth $125,000.
Scenario: You SOLD a futures contract for September for $25. Meaning, you pledge to deliver 5,000 oz in September. You used your $15k of margin to do this. IF price of silver goes up a dollar, the value of this contract is then $130,000. you would be asked to deposit $5,000 in your account. Why? Most likely, you are using this as a financial “bet” and not physically delivering silver. The guy who was LONG who bought the contract from you at $25 expects to PAY $25 and you get him the equivalent of 5000 oz. So at the end of the day, that $5,000 goes into the LONG’s account. Why? Again – money.
I had assumed that $15k would be good for a $3 move until it is exhausted. No. You need to maintain that margin in the account. So a $1 move would require $5,000 more dollars.
Now, we go to a scenario where a shortage in silver is reported – AT THIS PRICE. No one can actually get the bars for $25. Now, the assumption is the PHYSICAL SUPPLY at THIS PRICE is known to NOT EXIST. This would then trigger longs to bet the price will rise, in this scenario.
Is there an ACTUAL shortage? No. Look at the 110m in registered and 250m in eligible. What I try to convey is SHORTAGE AT THIS PRICE.
Not a ton has changed lately other than the REAL RATES are now DEEPLY negative. However, this has been offset by the DXY rising. One thing with my Feb prediction, I also didn’t see the 10yr running that hot, which stalled metals. This was going on the exact same time as silver squeeze, and with this, it allowed said bank to recover within a month, unscathed.
The idea now is the scenario I pitched to Jim. He didn’t see it happening. Here’s the scenario I had set up….
- If silver shortages are predicted, and inflation is HERE, it now sets the scenario where those buying silver may worry about supply 3-6 months from now. They then buy what they need, and ALSO buy what they might need 6-12 months after that. Most don’t understand a key difference with inventories today is a concept called “Just in Time”. No one has stock yards of silver. They buy what they need and get it delivered “Just in Time” for usage. Additionally, inflation mindset has people not only buying what they need now, but anticipating higher prices in the future and buying more now than they normally would.
- Silver institute projects 250m oz shortage, and that’s with only 130m oz estimated for investment demand this year. As anyone can guess, I feel there’s a LOT more investment in silver going on this year than 130m oz. This exacerbates that shortage, by a LOT.
- While registered is at 110m oz, eligible may NOT be as readily moved as thought in that entities may own that and it may not be for sale in this environment.
- With LBMA stockpiles nearly drained, and roughly 66m oz coming online per month from mines, we are looking at global available reserves at perhaps 200m oz in 1,000 oz bars. Perhaps another 250m in eligible, IF PRICE RISES? This is counting 110m in the registered – which seems like a “show room” as David Morgan called it. It IS there, but they don’t necessarily want to part with it.
When talking with Jim, my thoughts on this are that it is a BIG deal to me if banks are short metal they do not have. I have been discussing this for well over a year, and a few weeks ago I heard yet another Rick Rule conversation where HE also brought up this risk. Let me explain. My mother was one of 8 compliance officers for one of the big 5 banks out of NYC. With this, risk is a BIG deal.
If I’m a bullion bank, or perhaps one of the top 4 shorts, I probably have a good deal of metal to back my short contracts. While Jim said this didn’t matter for futures, I agree, but from a risk standpoint to a bank it matters a great deal. Assume you are one of the big 4 and you are short 100m oz. Maybe you have 50-100m oz in SLV/COMEX and CAN deliver. IF you are short going in to the delivery month, you can simply hand over your metals, IF need be.
However, IF you are short 100m oz and only have 20m oz, and price explodes, THIS is where a risk department would explode. Meaning, the BIG banks MAY NOT have all of the metals they short, but I can tell you, it’s a best practice to probably have a good portion of this.
When you looked at open interest in mid May, you saw 905m oz. Now, it’s about 775m oz. What this was telling me was that many that were short got out of these trades. You see this now daily with a lot of this stuff going to EFP in London every day. If you look at the SEP EFP column, you see 50m oz was offloaded from OI to EFP in London, just in the past 2 weeks. While you do see the 30m oz delivery, you see MASSIVE contracts being sent to the LBMA.
Compare the OI with the OI May 26th at 905m oz.
While BASEL 3 was not the wrecking ball on June 28th some thought it may be, what this is telling me is that over the course of June, and now, OI has been reduced to perhaps reduce the “naked” contracts.
Remember, BASEL 3 NSFR is ALL BALANCE SHEET ITEMS.
Now…I ask you this….
If Rick Rule was saying they cleaned 1,000 oz bars out of NA. And everyone is saying how hard 1,000 oz bars are to find (At this price), it would, in fact, stand to reason one of two things would happen.
- Those that are looking for 1,000 oz bars, AT THIS PRICE, give up. Production stops on the assembly lines.
- Those that are looking for 1,000 oz bars have to pay higher prices to keep production lines going.
I told Jim, “imagine the headlines that a Tesla or Sony ran out of silver”. Before I could finish my entire setup, he quipped back “will never happen”.
I’m aware of that.
So what this means is option 2 HAS to happen.
One other thing Jim let me know of is that the stuff in the “eligible” can be bought by entities directly from the warehouses, bypassing the futures exchanges. He surmised this might be where Sprott was buying some of their 1,000 oz bars. While they did not need a “futures” contract to take from the registered, they place a phone call to the warehouses to make offers on the eligible. The amount added to PSLV I thought has been around 70m oz and the amount taken off of the COMEX has been about 50m oz since silver squeeze.
Now I also ask you this…
If Mr. Rule’s people were having problems sourcing at $28 silver, and having problems shaking available supply from perhaps the eligible at $28, how the hell will they source it at $25?
This is where this whole shit show goes to hell in a hand basket.
If you are a futures trader, you are seeing this unfold. You realize that there literally is no physical supply of 1,000 oz bars in the world at $25. There are bars. BUT NOT AT THAT PRICE.
You also realize Rick Rule and PSLV could not source bars of size at $28.
You are also hearing that, this time it’s different, in that apes aren’t selling when price goes down. There’s no supply coming back on the market.
- When price go down, ape buy shiny
- When price go up, ape buy shiny
This constant drain on retail has a downstream effect on the refineries and mints. Where coin dealers may have been able to replenish supply with retail holder selling and capitulating, which dampens pressure on mints and refineries, quite the opposite has happened – it’s a constant pressure on coin dealers to the mints/refineries.
Remember, all of this stuff comes from mines, and these mints are competing against Sony for those 1,000 oz bars.
A few months ago, I believe it was Sunshine Mint paid a premium to jump in line OVER the industrials to get their bars?
That is a telling sign. Think about it. Consider you are a Samsung, and you get 1m oz a month delivered to your Chicago plant, and some mint pays higher premiums to jump you in line at the refinery. Does your line shut down? Or, do you then open up the wallet and pay more to secure your silver – AND while you’re at it, why wouldn’t you buy a lot more?
This is where we are at folks.
What I’m seeing with the paper price is that BB and big players are about to go super long. It’s like that scene in the big short where Burry tells off the bankers that “no, now you recognize my position because you are long and can let it run”.
If you are a futures trader that actually follows the silver market, you have to see Yellowstone about to go kablooey.
Gold needs to move first.
And gold showed us it’s hanging in there.
Here’s where we are. The metrics dashboard I’m showing below shows ALL conditions are met for a run. Now, it’s just time. And that sucks, but it’s where we are at. The pin on the grenade has been pulled, and now we watch. Some items are a little outdated, but the concept is the backend issues are in motion for full-scale meltdown.
So while one COULD say, “look at all of the shiny in the COMEX” with the 350m oz. One has to legitimately split them into two piles. One for sale, and one not for sale. Period.
In the “for sale” pile, that pile has dropped about 17m in 5 months. Remember that whole risk thing? These banks NEED this pile in order to then print the paper. Assume you are one of the big 4 shorts and are 50m short. Perhaps you have 25m in the registered. You do NOT want to give up your 25m as if you do, you can no longer short 50m according to your risk department. So you need to do EVERYTHING you can to shake those longs out.
Which is where we are. Paper games.
With a dwindling physical supply, AT THIS PRICE.
What does Rick Rule say?
- The solution to low prices, is low prices
- (On uranium) If the price is too low, the lights go out. I’m betting the lights won’t go out. Price will have to increase.
The latter is where I am with silver. You may NOT see the silver headlines of lack of supply due to forced price going up to tap some of that eligible more.
This also tells me that when the time is right, you will see an explosion of longs on futures. I’m guessing it may be around $1950 gold is when silver launches into orbit. Gold will kick in that door, and this time around, a year later, silver supplies are significantly more fragile.
I’m watching for $1950 gold now. I pulled that number out of my ass, as I think that number is around where we confirm we are on the way up for the handle. Once that is confirmed, I believe that signals to the world $2500 gold is next stop and this implies silver, at 50:1 GSR, will be $50.
So, game of patience. Table is set. Kick your feet up and watch the fireworks.
Getting to $1950 might be ugly. Jawboning, short games, media campaigns against gold…will be ugly. Might even sacrifice the stock market to keep gold down because if gold runs hot, could be the end of the dollar. If you crash the stock market by jawboning and threatening rates increases (without doing rates increases), you could send the DXY to 110 and thwart gold another 6 months.
So..I’m not calling July. Or August. Not going to do that shit again. But if we see $1950 gold, I think that sets the table for silver.
I’m not going to go TOO much into this here, but Jeff Clark put out this chart recently which shows how gold usually has a pretty good second half of the year.
What this tells me is that while we have been down in gold the beginning of this year, we could have a hell of a second half.
What you can potentially see on the gold chart is an inverse head and shoulders forming.
Apparently, for that to be “valid”, you need gold sniffing around $1900. Not out of the realm of possibility in the next 30 days, with that Clark chart. Once it then gets to the other side of that, it confirms this pattern and perhaps pushes over $2000. This again is bullish to take silver along with it.
On Saturday, I saw a Gary Savage video which projected gold to touch oversold (on the hourly) before recovering, and it did just that. This was a pretty good call.
The gold sentiment index for July ACTUALLY has the bulls winning. You may not realize this, but the low on July 1st was $1765. We are at $1820, so $55 higher in the first 3 weeks of the month. You might not realize this because the miners have been decimated in that time. Gold has outperformed silver in that time, as silver recently touched in to $24.90 territory.
So at the end of July, if the price of gold is higher than the beginning, the bulls will get a score of 1, if not, 0. The bears will get the reverse treatment.
Now the question is, is a reversal underway or are we seeing below $1765 on July 1st? Evidence might suggest we will go higher through the end of July into August. Many have said, “as long as gold holds $1800” – which it did yesterday under tremendous pressure and is recovering today a bit.
Mining stocks might be in the waste can for days or weeks, and when that roars back up, that could be violently nice for us.
July 21, 2021 at 12:20 am
Love the analysis Nate. Thoughts on Crypto crashing to lows, people running to PMs as Equities volatile or crashing?