None of us are spiking the football yet with gold. We broke above the triangle, and so far, have held….
We have a few things going on here…
- We had a nice strong move above the triangle and are back testing. FOMC minutes are today and retail numbers are today. Historically, they try and smash on each.
- Metals options expiration a week from today with President’s Day on Monday. So we are down to about 5 trading days for trying to shake out week hands
- Goldman JUST came out with an article on Monday calling for 2150 gold this year. This to me is to get some weak hands in for a rug pull.
- There’s a converging 400/200 dma that is going to be crossed in a few weeks. To me, this confirms in cement gold at the price shelf above the pink line – which is where it failed to hold in 2011.
- This arc line is holding pretty decent. Some of these days it’s like the machine is trying to paint the line with the candles. If you squint – you can see we are well above the wall. If we were to go down to the wall line, we’d be around the $1830 line. Which is the 400dma.
- We had a higher high – if you look really closely. However, it is so close you can also say we have a double top. I believe that – IF true – could take us to the pink bank of support.
I believe this triangle is now done and over with. However, the true technical guys may point you to a weekly or a monthly. So maybe if we hold this price this week over $1849, it invalidates the triangle. Now that I’m saying that out loud with options coming, maybe $1849 won’t hold.
Russia tensions are dropping a bit as well, showing $1830 could be back in play. The 200dma is around $1807, so I don’t see $1800 being breached for more than a short period of time. We have seen some weakness bought into hard the last few weeks. This takes me to my second story.
Metals options expiration
While I did that study for 16 months showing the price was murdered every month, I showed trepidation this past month with calling the bomb down. The main reason was FOMC was right after options expiration, and if you went and sold paper and Old Man Dove showed up for the minutes, you could have been blown out of the water. So I called silver in a range from $23.60-$23.80, and it finished at like $23.75. I did a video with Arcadia last month kind of unpacking how I arrived at there. In fairness, I don’t think I called that range on the video, but I had tweets out with the range. Chris was calling for $23. Right after FOMC, the price was then bludgeoned as the LBMA options had yet to expire so they were murdered for that then. So Chris was right for the LBMA options 🙂
But in my review of how this all played out, it came to mind that this was happening during a consolidation. How dumb would you have to be to short paper into a crazy bull run? Well, I went and took a look at silver – and gold – on the run up from 2009 to 2011. I was not a participant during that time – and am only now looking deeply at it. Let’s first look at gold.
With this, you learn something interesting. First, we were always above the 200dma and gold would approach that at troughs. You can see the gold move ended essentially when the 200dma was breached down. Each higher high is circled in green and its corresponding RSI below is over 70. You can see the pullbacks with the saw tooth pattern in red – formed higher lows and the RSI would bottom around 35 before people bought back in.
At the peak of this, you could see almost a blow off top type of move with a higher high, then a higher low. But the next move up didn’t make a higher high, and the RSI didn’t touch 70. This tells me all who wanted it, bought it. And, to me, the smart people recognized this lower high was the end game and this is the point they started exiting their positions.
Silver is similar – but slightly different…
With silver, you see the bull moving ahead, but gold performance seemed stronger relative to silver. I’m more focused on Fortuna Silver Mines as a gold play to capitalize on the strong gold move I’m expecting any week now to take hold. Just like gold, the “bull” wasn’t over until the 200dma was breached. But this seemed to happen a few months before gold. And, the RSI was far below 30.
What you can glean from the above?
In a nice bull move for years, gold leads. At some point, silver comes to life and overtakes gold. Silver then has a wild move up where everyone piles in, and RSI goes bananas. Many may then sell physical into this market – at $50 you may have a lot of tea sets come around. When the lower low is made, it starts to signal the end. You then see a lower high followed by a capitulation sell off. This put RSI at like 25 – but this was a few months BEFORE gold crossed below the 200dma. So silver could be seen as late to the party, has 10 shots, dances naked, then hurls itself off the balcony down 40 floors to tell gold the party is over.
Using this, it’s hard to say the “beat downs” will exist every month – and why would banks short into a bull? I think the better answer here is production is ramping up from silver primaries and more physical is being sold into the markets – and this is reflected by banks buying silver from them and then paper shorting on the COMEX to hedge the value. It’s a market signal telling the market that more silver is here. This price information can then be bought into with a strong demand for silver – OR if they feel the market is saturated, it can be sold into. This is why I don’t think the COMEX is a complete sham. What it has become at times can mimic a sham, but I get the principles behind it with hedging. The major issue, however, is those who manipulate the markets short term to make a buck.
That being said, I believe we are at a place in history many of you haven’t seen. I firmly believe the silver supply deficit for 2021 was 200-350m oz, and this is part of the BoA short position Butler writes about. He went all in at 800m oz, but it’s hard to see evidence of that metal being sold into the markets. In my writings, I have shown with EFPs, ETF mysterious buys, and December COMEX deliveries there was evidence of perhaps 200-300m oz sold into the market in 2021 that wasn’t sources as part of the Silver Institute numbers.
Why is this a big deal?
// My HYPOTHESIS:
was that JPM getting busted for the 800th time resulted in them having to sell their gold and silver hoards. And anything else, like Palladium and Platinum. I think the most recent $920m fine and threats of racketeering was the final straw. It is ALLEGED that JPM amassed massive piles of silver/etc by strategically shorting into the markets to push down price, then buy up the physical at this price. Those of us silver/gold bugs see this as fact, and there is a lot of evidence of this. However, I never saw evidence of them having hundreds of millions of ounces. We know Bart Chilton had come out and said the CFTC wanted them to draw down their positions.
Furthermore, with the most recent fine, they had been told they needed to sell off everything, or most of it. I never saw court records of this, but this could be HOW the BoA short positions are being handled. IF JPM bought this silver at $16 per ounce, they cannot profit or lose from this – but simply replace this $16. Now, if you tried to sell hundreds of millions of ounces of metals into the markets in a week, it would topple them. How do you accomplish this?
By leasing out the metals to banks – you can have them sell it off over time. Then, like when you buy a car, you can have a buyout price. To me, that buyout might be $16. Or $20. If there is a gap in the silver markets for premier players, BoA is there with millions of leased ounces to sell at $23, $25, $27 – whatever price. This shadow supply is what has kept the markets from exploding up. This was a hoard JPM had that they COULD at any time, legitimately hedge short using the COMEX to “preserve value”. They supposedly got out of their short position by March 2020, and with $11.50 silver prices, it was pretty damn cheap to buy back every short hedge they had.
Now, if BoA is selling this leased silver into the market at $23, they can also use this sold silver as a legit LONG hedge anytime they want on the COMEX. I believe I have seen evidence of this long hedge several times – and saw evidence of this in January with 2,000 long contracts. We have also seen both gold and silver bought in strong on weakness. My point here is there may be a technical line which may trigger BoA long hedging of physically sold short metals. While the lease agreement MAY have a buyout, it also makes sense to drive up price a bit to sell the rest of the hoard at higher prices.
// End hypothesis
Anyway – I bring this up now because IF we are out of the consolidation zone and into the bull zone, I don’t think smash downs will be as egregious as what we HAVE seen. Most months are $2-3 smashes, with a $5 smash in there for good measure.
I’m NOT saying we won’t have corrections. What I AM saying is that if a new bull is going, we will see higher lows and higher highs. We do NOT have a higher high yet in silver like gold – but remember, gold is leading this show here. A higher low may take this to $22.50 or $23 as this OpEx low – and part of me feels they are scared to go very short due to getting their faces blown off like twice earlier this month on the 3rd and 4th. At $22, strong buying ensued – which to me could have been that BoA long hedge. They could EASILY produce short squeezes at ANY time. Why? If they are legit hedging long hundreds of millions of ounces, they can literally out spend anyone who is paper shorting.
Now, all of these leases are derivatives on the OCC report listed in billions of dollars and can be silver, platinum, or palladium. If I’m correct and this is leased with buyouts, we may see these derivatives run lower. It COULD have been 800m oz leased, but Butler didn’t show evidence of that being sold short – just that it is possible it was 800m oz leased using math and silver price – not taking into account any of the other metals.
One thing Butler did NOT address was Citi. Take a look at the OCC report.
Basically, just using back of the napkin math here, you have JPMorgan at $27B and BoA at $18.2 B…but Citi at $9.7B. If you add BoA and Citi, you get about what the JPMorgan number is. So for argument sake, if JPM had 1.2B oz amassed, that could have been Citi with 400m oz and BoA with 800m. Ted doesn’t address what that Citi number is.
My point here is that IF my hypothesis is correct, we may start to see these numbers all shrink over the course of the next 6-12 months. And, IF my hypothesis is correct that all of this is being sold into a market as a relief valve, then the Silver Institute (SI) has incorrect supply and demand data which potentially means there are real deficits of 300m+ oz per year that this hoard has been plugging the gaps on. It’s no wonder why prices haven’t moved up – there is legit supply there at every pass to sell into stronger prices.
IF all of this selling is being done short, you can then hedge long on COMEX or LBMA OTC or what have you. IF that is the case, you can then see how this pile is being sold into higher prices…and withheld at lower. In fact, one can make the argument recently that long hedges could be what have been picking the market back up.
The questions are many….
- What are these lease agreements that Citi and BoA have? The math makes it look like the two of them combined as a lessee appear to be the same amount (or close) to JPM as a possible lessor.
- Are there buyouts of these leases, or do they have to return the metals? My suspicion is that the lessees are leasing this at a buyout price of like $16-$20, selling to major players when gaps are found, and selling large chunks into higher prices. At times, convenient to them, they can hedge long and drive up prices for the next round of physical selling.
- How much of this potential 1.2b oz hoard remains? Where is the remainder?
- Are BoA and Citi hedging long anywhere to use this to keep prices higher?
- Where did SLV source the 52m oz they took in a few weeks ago? Andrew Maguire says that physical in quantities no longer exists, and with smelters in Europe closing shop, little new supply is coming online.
- Could anyone who tries to short the price hard get slapped upside the face with a BoA/Citi long hedge?
- What are the conditions of this lease/sell arrangement? Do the books have to be closed in a year or can they use this sold short position to hedge long indefinitely?
- With the world running out of everything, low ore grades, silver primary miners hurting, how have no production lines shut down from lack of silver? Who is selling them this silver if it cannot be found on the OTC market by people like Maguire?
With that, this is a back drop to suggest metals options expiration now may be more drama and theater coming up.
I cannot rule out a mini smash of sorts, but if you are an entity that shorts – aren’t you slightly worried about the MOAH (mother of all hedges) that could blow you out at literally at time?
To me – IF the crazy shorting ends, this can build some steam up. And, if at some point in 2022 this leased pile is completely sold off, then where are they getting the rest of the metals? The 80m of registered COMEX isn’t even a month of supply, considering we might actually be consuming 1.4-1.5b oz now each year. So if that pile runs dry….can you imagine that move up in short time??