-- Posted 17 March, 2010 | | Discuss This Article - Comments:

Largest silver futures traders sell paper silver strongly above $17.   

ATLANTA – We are going to let the charts do most of the “talking” in this offering of the Got Gold Report - in a new, much shorter format.

Pressure on the euro eased, the U.S. dollar index corrected lower, both gold and silver saw profit taking (especially in foreign currency terms), as money managers apparently believe the newest “Greek Tragedy” (the fiscal situation in Greece and E.U. anxiety) has gone into intermission – for now.

Meanwhile optimistic traders and investors, who can’t earn much of anything with savings these days, apparently decided owning stocks of American companies beats sitting in Treasuries or money market funds.  The Big Markets cut new highs for the year this past week on the back of the largest fiscal stimuli in the history of mankind.  All of it borrowed.

Does anyone else get the sense that the force feeding of the capital markets will continue until either the economy gets up a good, inflationary head of steam or until the bond vigilantes choke on all the newly issued debt?

Is that why both gold and silver futures in N.Y. finished the week in minor backwardation again?

Here’s this week’s closing table:

This Week’s Radar Screen  

We remain long gold and silver, currently with trading stops equivalent to the minor-profit low $1,080s for gold and the no-loss $15.90s-equivalent for silver. We are still of the mindset to allow for more than normal volatility with these fledgling trades, but we are unwilling to allow our “winners” to become losers and will step to the sidelines if stopped.     

We laid out the reasoning for reentry into the gold market in our February 15 update. 

Metals ETFs See Net Outflows

We still note only minimal reductions of metal holdings in gold ETFs (we have specifics in the linked charts below), but this week we have to take note of significant negative money flow from the largest silver ETF.  BlackRock’s iShares Silver Trust (NYSE:SLV) reported a reduction in metal holdings of 109.85 tonnes to 9,302.58 tonnes of allocated bar silver held in London.

Big Miners Hug Gold, Little Guys Shine

Once again, shares of large mining companies more or less tracked with gold, but we continue to see relative outperformance by smaller, less liquid and more speculative miners and explorers in the Canadian exchanges.  For the week the HUI gave back 2.9% but Canada’s CDNX eked out a 10.4-point or 0.7% gain, closing the week at 1,568.29 on good volume of about 1.4 billion shares.  Incidentally, the CDNX turned in a higher weekly high and low and actually closed very close (within 3 points) to its weekly high water mark.

Buck on Ice  

Pressure on the euro eased somewhat this week.  Some nervous, overly short speculative traders in euro-cross futures headed for the exits. The U.S. dollar index finally rolled over and put in a convincing red week as the euro (and even the pound sterling) caught a corrective bid (as shown and detailed in the U.S. dollar index chart below).  The euro index snapped 144 ticks higher, the pound index rose 83 basis points, with both closing at or very near their weekly highs.

We still note that ICE commercials remain uncommonly short the U.S. dollar index.  They did reduce their collective net short DX positioning by 2,004 contracts, to 39,131 contracts net short the greenback as we detail in the linked charts below.  However, that reduction in the net short positioning occurred by COT reporting Tuesday, prior to most all of the downward thrust of the buck.  That suggests that at least some of the short-euro speculative traders sniffed out the euro reversal just in time.

COMEX Commercials Short Stop Silver     

COMEX commercial futures traders, who have added heavily to their gold net short positioning over the past three weeks, jumped all over the short side in the silver futures market this week.  That follows four straight weeks of higher silver prices and a roughly $2.00 advance for the second most popular precious metal in U.S. dollar terms (measured on Fridays). 

As silver added 33 cents to $17.26 (measured on COT reporting Tuesdays), Commercial traders boosted their net short silver positioning by a big 4,859 contracts (11.9%) to show 45,799 contracts net short as the open interest only increased 3,882 to 112,130 contracts open.

So, apparently the largest silver futures traders felt that silver had advanced enough to fade the rally with silver metal in the USD $17s.  That increase in commercial net short positioning makes for a fairly large jump in the relative commercial net short positioning from 37.8% to 40.8%.   

See the chart just below which tracks the commercial net short positioning relative to all open contracts (LCNS:TO). 

Source for base data CFTC for LCNS, London Silver Fix for silver from LBMA until 2-26-08 then cash market

Interestingly, the increase in commercial silver net short positioning can be attributed about half to the producer/merchant (bullion bank) category of commercial traders, who reported an increase of 2,539 net short contracts and about half to the commercial traders the CFTC classes as swap dealers, who reported a decrease in their small net long positioning of 2,320 contracts as shown in the graphs just below.

Source CFTC for COT data, London Silver Fix for silver from LBMA until 2-26-08 then cash market

Please note that as the producer/dealer net short positions increase the blue line in the graph above falls.  As we can easily see, the increase in the producer/merchant net short positioning is a relatively small one (above), but it does likely signal a change in their short-term thinking. 

As silver has advanced really quite strongly since February 5, traders classed as swap dealers have been gradually reducing their net long positioning as shown in the graph just below.

Ignoring spread trades, the swap dealers reported being net long 4,388 contracts as of Tuesday, March 9, with silver then $17.26.  That’s down from 10,423 contracts net long on February 9 (four reporting weeks ago) with silver then turning upward at $15.23 the ounce. 

Source CFTC for COT data, London Silver Fix for silver from LBMA until 2-26-08 then cash market

As the graph above shows clearly, except for most of 2009 (after silver had been crushed to unrealistically low prices during the crash), it is unusual for the commercial traders classed as swap dealers to show a net long position net of spreads.    

Notice, please, that even after four straight weeks of net long reductions, the swap dealers remain modestly net long of silver. 

Highlighting just one more of the indicators on the screen, the gold/silver ratio continued to come in over the past week.  Be sure to check out the chart of this important ratio.    

Once again we reiterate our longer-term view that the world will most likely continue down a path of fiat currency debasement, weakening confidence in all fiat currencies.  We see the setup as long-term very bullish for gold metal and extraordinarily bullish for silver looking well ahead – if the world “holds it more or less together.”    

***

We remain on the hunt for special situations and “vulture opportunities” via “stink bids” for obvious lack-of-liquidity, non-news-related, over-reaction sell-downs on the miners via our Vulture Bargain Hunter Method.  Companies we believe have been sold down too far with longer-term high-percentage recovery possibilities, like the candidates Brien Lundin covers in his highly acclaimed Gold Newsletter.

Our valued readers will find much more technical and fundamental commentary in the linked charts just below.

Got Gold Report Charts

Below are few samples of the Got Gold Report (GGR) technical charts.  Gold Newsletter subscribers enjoy access to all GGR charts and all the GGR reports, commentary and trading ideas.

·         2-year weekly gold

·         2-year weekly silver

·         3-year weekly HUI

·         2-year weekly HUI:gold ratio

·         2-year weekly U.S. dollar index

·         3-year weekly CDNX index 

That’s it from Atlanta this week.  Until next time, good luck, good trading and as always, MIND YOUR STOPS. 

The above contains opinion and commentary of the author.  Each person should study the issues carefully and, as always, make their own informed decisions. Disclosure:  The author and/or his family currently holds a long position in SPDR Gold Shares, net long  iShares Silver Trust, long the following “Vulture Bargain Hunter Stocks” mentioned in this report or within the last year: Timberline Resources (TLR), Paragon Minerals (PGR.V), Forum Uranium (FDC.V), Odyssey Resources (ODX.V), Terraco Gold (TEN.V), Hathor Uranium (HAT.V),  Gold Port Resources (GPO.V), Bravo Venture (BVG.V), Millrock Resources (MRO.V), Atna Resources (ATN.T), Riverstone Resources (RVS.V), Premium Exploration (PEM.V), Constantine Metal Resources (CEM.V), Canadian Shield Resources (EXP.V) (new), and currently holds various (approximately 15) other long and short positions in mining and exploration companies. The author receives no compensation from any company mentioned in this report.  To contact Gene use LLCCMAN (at) AOL (dotcom).  

A land developer, professional numismatist, self-taught bullion trader and investor since 1980, Gene Arensberg analyzes technical and fundamental developments in the precious metals markets.  In 2000 Gene started sharing his own market research with fellow traders and fund managers.  Those email reports evolved into his popular Got Gold Report, a biweekly look at important indicators for gold and silver published on the web.

Gene’s more in-depth market reports, insights and trading ideas are an added service for subscribers of the very popular Gold Newsletter (GNL).  GNL is edited and published by Jefferson, Louisiana based Jefferson Direct, Brien Lundin, President. Brien hosts the acclaimed New Orleans Investment Conference each year which has brought investors together with some of the best and most sought after financial experts and investment authorities in the world for over three decades.  For more information visit GoldNewsletter.com or New Orleans Investment Conferences.   

Please note:  This offering of the Got Gold Report was originally filed Sunday, March 14, and delivered to Gold Newsletter (GNL) subscribers shortly afterwards.  GNL subscribers enjoy access to all Got Gold Reports, technical charts, analysis and information, as well as Brien Lundin’s timely and actionable analysis of specific resource related companies.  For more information or to subscribe visit the Gold Newsletter home page.

Got Gold Report

Gene Arensberg