-- Posted 20 April, 2007 | | Source: SilverSeek.com
'Tickee', yes, but we no got 'Washee'
I don't know about you, but my total precious metals stock portfolio saw a loss of 4.3% from the high on 4/16 thru yesterday, 4/19. I rode it thru. I hope most of you did likewise. Even a ten percent decline, although they can pull at your gut, are really not enough to trade for a profit. Think about it. A 5% loss is but 5 cents on a dollar. Think about it - could you liquidate your portfolio and buy them all back within that spread? Sure, maybe you had a couple that were peaking after starting their runs ahead of the pack, but have you bought them back yet? Unless they're dogs to begin with and heading for the basement, they're probably already back above where you sold them! That's known as a Whipsaw. Now you have to gut wrench yourself as to when to buy them back while you watch them go ever higher. For me, a 10% setback is not enough room.
I don't discuss this element often, but the Commitment of Traders (COT) can often give us some insight as to where we might be in the big picture. Most now know that this is the "paper silver" market, nearly naked at all times from having the physical silver in hand to deliver as promised if demanded. Nevertheless, those empty promises drive the physical market. There is no other traded commodity with distortion characteristics of this magnitude.
Looking at the COT chart for silver, the dark red bars are the large players (Commercials), controlled by just a handful of traders. They have held net short positions of varying degrees for years. The total number of net positions (long minus short) are indicated on the L/H Y axis. So, for this week the Commercials went to net short 55,791 contracts. That number of short positions of 5,000 ounces of silver for each contract are offsets to the Long positions held by the large speculators (blue) and the smalls (yellow). This is to say that the shorts promise they can deliver nearly 280 million ounces. The Silver Institute tells us that annual silver supply in 2005 was 911 million ounces which includes new mining production and scrap reclamation. So, these players are saying they can deliver at any time, like right now, close to 1/3 of the entire silver available.
Peculiarly, and you can see it on the chart, the greater number of total contracts (open interest), the more ounces the shorts (commercials) seem to be able to come up with - on paper. The Open Interest is the small wavy light green trend line which is indexed on the R/H axis.
When the commercials were able to crack the bull in February the open interest was up around 128,000. Now we're down around 118,000.
There is not enough of an extreme in the open interest to benefit heavy shorting at this level. As reference, the open interest had to go to 142,000 in April of last year before the May crash. You can view the entire
2006 action here.
The weekly COT reports are released on Friday afternoons for trading through the previous Tuesday, so this week's silver price crunch may only be partially apparent as the shorts went even shorter to take the other side of the trade from the longs (speculators). You can see by glancing at the whole year how the commercials have been required to go ever deeper into short territory. Those rising blue peaks on the topside of the speculators are the demands for silver that must be offset - even if it is with unbacked paper. The CFTC and SEC give this entire manipulation a wink and a blush, and deny anything's awry. Read Ted Butler's accounts and he'll explain it far more clearer than I'm able to.
So, while these mini-pullbacks in silver may be gut-wrenching at the time of their occurrence, the risk as I see it, is getting locked-out. You could try to stem your losses by selling, taking a 5% loss, and then buying the same stock back after it's not only gone back up, but is now 5% higher - whacking you with an overall loss of 10%!
The risk as I see it is that open interest grows (more investors), a greater number of those speculating longs will be demanding delivery of the real thing. In this case, not only will the commercials have to "cover", but covering in this panic situation means hiding under a rock and seeking shelter with a government bailout. The commercials will get the "tickee", but can't produce the "washee".
We do not regard the SLV claims of increasing physical silver purchases as credible, and furthermore should not be trusted.
-- Posted 20 April, 2007 | |
