Silver is just being silver, relax says Jim Sinclair
Posted on 05 May 2011 with 20 comments from readers
Margins will continue to rise on the Comex until it reaches the cash price of silver. This works for the shorts as their hammer on the silver market reduced the equity of low cost positions.
The efficacy is short term and made no difference whatsoever in 1980 as the silver market made its highs. What broke silver in 1980 was a unilateral change (novation) of the silver contract which went to ’sellers only’.
Rule change
Under contract law that is simply not permitted. They got away with a violation in 1980, but the corporate changes in structure at the Comex that have occurred since 1980 makes the Comex less able to pull that trick off successfully in 2011.
Silver is simply being silver. Silver did help gold therefore the 25 per cent drop in value has to pressure the gold price.
The USDX is simply having a weak rally off a totally oversold on every internal indicator short side trade. The dollar has no future. The supply wishing to diversify is simply too big to allow any rally to have legs.
I have told you silver is a game. That being said, it it is a great game. Certainly as the silver price approached the 1980 high, you might have considered selling one third.
The high trade on silver was $54 in 1980. Silver’s round numbers are at $50 and $100. Both will function as such in trading.
Silver is not money. It is simply too bulky to be freely and universally fungible. After this short play, which had to follow the spike intermediary top, silver will rise as fast as it did again.
Hedge funds
The Hedgies are having their way with the gold shares, but logically this is coming to an end. When you can buy companies whose resources are three times the company’s present capitalization, the share is getting unreasonably cheap.
The ratio of GDX versus GDXJ is starting to favor the juniors which is a major heads up event.
What you have witnessed is not at all shocking. If you traded 1968 to 1980 you would know this is just silver being silver.
Relax. Put a french curve on silver and you will see the bottom change in trend event.
20 Comments posted by readers:
How much “less able” to pull that trick off successfully again in 2011?
Is it “almost impossible” for them to do it again or still “possible but less likely”?
What’s a “french curve” in the jargon?
Ed Note: Don’t worry about the jargon – just feel the message here!
Another excellent commentary, Peter!
Those who have had the good fortune and the common sense to invest in silver should take comfort.
If they raise the margin amount for Silver on Comex one more time we are looking at Silver dropping to around $28. This week has been a bloodbath for all those who got on board the Silver hype. The inverse of course has been doing wonderful this week with extreme gains. ZSL is close to doubling since last week.
Truly a good read this article. Agreed that silver is a game, a speculation, and it hurts no one in particular, except speculators, unlike sugar, wheat and esp. oil speculation. The fundamentals have not changed, except in terms of liquidity. The dollar is being trashed, and will continue to be.
Looking at the indicators, gold is not over-sold. China is slowing down, over international belt tightening. I’m sure the weeds are full of people like me, waiting on Monday, hoping perhaps for silver $27 or even $25 by the end of next week
The wild west tension, DXY is experiencing a pullback in a downtrend, and gold, not unnaturally, a pullback in an uptrend. It should be fun when it reverses. My silver powder bag’s full, finger on a hair trigger ready for game.
Today is Saturday, 07 May; it’s quite possible, as Andy indicated, that the JPM/CME/COMEX cartel could continue to drive silver down some more next week. But for a firm that already is massively short and hemorrhaging, to enter more massive short positions as they did last week is suicide.
So I believe they would be very foolish to do that, primarily because there are no more “tech longs” left to harvest, and JPM has little to gain by entering additional massive shorts. If they did that, their downside risk is too great, and that action would force China and global silver investors to double down quickly.
Reflection: JPM’s real goals:
a) to reduce their gargantuan silver shorts to a manageable level, as they have been doing for the past three weeks, and
b) to keep the silver price in check for as long as they can.
A more likely option for them over the next month or two would be to continue to hold silver “in check” by not allowing it to soar (i.e. enter some shorts in the Asian markets each trading day, then continue to follow the silver market throughout the trading day by doing some short, stealthy covering as they have been doing). A close look at yesterday’s action indicated that silver clearly wanted to soar, but JPM was spectacularly successful in stopping it. This action on Blythe Masters part will continue.
A “french curve” is a drawing aid. Before computer drawing programs with their curve tools, most people needed a stencil of some kind to draw a nice curve. “use of the french curve” http://www.tpub.com/content/engineering/14069/css/14069_92.htm
They are still available: http://www.draftingsteals.com/catalog-drafting—drawing-aides-curves-french-curve-sets.html
As for “bloodbath”… Silver still is 2.5x my average acquisition cost. I started raising some cash when it went over 3x but now I’m watching for opportunities to buy more without raising my average too much. What a fun game!
Silver is frightening I will put my profit back in if it goes down to 25 27.
Silver has lots of industrial use the way that things are going it could fall with commodities in general?
sdb: “What a fun game!”
Yeah, it sure is! It’s especially rewarding to play this “game” with JPM, after we’ve studied their fraudulent tricks and shenanigans, and understand their tendencies!
Anyone have a PM prediction for the week? A nice brief ’spot-on’ playbook with generous footnotes for the metals trading week would be good!!
What i like most about this PM market is the volatility and prolonged uncertainty. Like the moment we are in with gold right now.
This week i sat there wanting to pull the trigger on $33.00 silver. It was a brief moment, then i walked away. Its going to cross 30.10 I told myself. (as if i actually know)
Every time i call oil, i get it wrong, that said, i think oil is going to $95 this week, and gold will break the $1,478.70 low (or whatever that low was last week) and head for $1,440. The DXY will continue to climb into its top, oil will continue to drop.
I want to buy silver at $$27.00, it could end as a fatal attraction. Its a question of where gold bottoms.
Any fundamental analysts? (I’m up to my neck in what the charts say)
Cheers!
Good trading
Ed Note: Trading in markets where you don’t have a clue about the direction is suicidal (is this not just so obvious if you stop and think for a moment?). You should just buy at a favorable level and hold until the markets do their work and gold and silver are very much higher. Traders just never seem to learn that they are doomed to die a painful death though a fatal combination of bad timing and commissions.
@ James M.:
I laughed after I read you latest post, primarily because your words were a reflection of my investment predicament many years ago.
The Ed. has given you excellent advice; reflect on his words for a moment. One of the greatest lessons I learned regarding “commodities investing” years ago is HOW the big “investment” banks make their money. In brief, it’s by:
a) being the biggest “bully” in the pit (e.g. JPM’s 180m short position in silver makes them the kingpin who can control the silver market globally), then
b) manipulating that commodity to deliberately create high volatility, then
c) deceiving the masses into believing that a commodity is going a certain way (GS predictions of $140 oil), when they’re betting the other way), then
d) stealing from those who don’t know what they know.
Remember, these guys make big money by volatility; in general, the greater the volatility, the more they make.
As I recall, both JPM and GS had a “perfect quarter” for first quarter 2011. That means they were very profitable (i.e. made millions every trading day!) on EVERY TRADING DAY in that quarter.
This is somewhat like a chess game, but they’re the big Kahuna. But don’t play “their game”; play your own game when you realize their moves.
Ponder that for a moment.
Thanks guys, your very kind Ed. (I sold silver at $48 and $49, and now i am waiting for the bottom in gold to re-enter. My call is $1,400. So we’ll see. )
Oil today 95.xx
Gold 1,470’s broke its previous low
I wouldn’t say i don’t have a clue, i’ve been trading PM since ‘82. Oil is always tricky due to the heavy speculation. Any insight from your personal expertise in energy is welcome, as it regards Au especially. (i currently am in Canadian juniors and very comfy with the returns i am getting).
typo = (should be) my call is $1,440 Au
@Ed.
Okay, let’s have a serious discussion on commissions. What do you personally think they should be? You too Obewon, please advise.
You are talking to a previously, once-was gold dealer, so you can speak the lingo where appropriate. I am building a trading floor as we speak. Your input can factor, and you are welcome to brainstorm it.
Cheers!
James
Ed Note: Glencore is the biggest trading floor and they are selling out. Of course, you want the cheapest commissions, so all those new trading floors will slit each others throats until they go bankrupt – that is why Glencore is cashing out now.
Qualifying the above, the question is not regarding buy premiums, assume the low-end market rate for bullion in any wt. The question is what trading-floor commission do you think is ‘reasonable’. Internally, we are considering a number, and it’s low. But i’d like to get your opinion just the same. Perhaps you’ve never considered this particular number before. Give it some thought.
Please everyone – the ‘physical’ Silver market no longer revolves around Comex and the US. It must surely be apparent by now that there is a growing groundswell of small funds, private investors, and even private individuals buying ’significant’ quantities of physical silver bulion in order to reduce thier exposure to currency devaluation or simply as a hedge against inflation. From China to India, and from the US to the UK, the holding of physical silver – not paper promises or shares, is growing in magnitude. The general population in many Eurozone countries are also beginning to see the logic of moving their savings and investments out of a weakening Fiat currency. Prices of physical silver bullion are significantly above ’spot’ in many countries around the world, indeed bullion coins here in the UK are selling for an average of £39 each – thats $63 US Dollars a troy ounce! Dig a bit deeper, do some more research and draw your own conclusions regarding the divergence of prices between Comex and Physical.
@ Steve Andrews:
Very noteworthy remarks, Steve.
@ Steve Andrews
Nice to get prices from the UK street, thanks. Dealers like Kitco have premiums that reflect a world marketplace (i think), but the price of an oz is still the underlying market price (just mentioning). I liked Ira Epstein’s comment today, silver is experiencing a bout of schizophrenia. An identity crisis by not knowing if its a commodity or money.
A side comment on real estate which i think matters. The media is letting loose the reality, both barrels today (the gods have decided its time) that the RE market is continuing its crash (admitting that it was always crashing) and that America is indeed crashing with it. This signals, in my view, the big correction in mood, and perhaps the eve of the long awaited equities correction. If that happens, silver could be on the floor too. (shortage of physical notwithstanding)
Thanks again for the price report. Whew, London you haven’t changed, expensive as always!
Yes I am finding that physical silver here in the Northwest of England is getting expensive and hard to find at oz level. Bullion dealers still have some large bars but it looks like the ‘guy on the street’ has cleaned out most stores of 1oz coins and rounds. I have asked about stocks and although ‘on order’ no firm delivery dates have been given. List price at my local bullion dealer is £42 per ’silver eagle’. Even removing the 20% government tax on silver bullion thats still $55 US Dollars per coin. ‘Maple leaves’ and ‘philharmonics’ are at a premium of approx 10 to 12% above this (but thier are non in stock of these either!). I have been told that eBay is now the best way to buy Silver Bullion. As silver is becoming difficult to source at 1oz level price seems to be more of an academic exercise. Draw your own conclusions indeed!
@The Old Man:
In England, the silver maples and the phils are higher in price than the Eagles? Here in the US, it’s just the opposite; the Eagles sell for a bigger premium, though the premiums for all silver coins has almost doubled over the past 9 months. And the waiting time (between actual order date and delivery date) is approx. 2 months!
Jim Sinclair has a significant profile. However, compared to history and the markets, how does it compare? Yes, it pales. He states “silver is not money because it’s too heavy.” That is a monetary heresy I would expect that from a Keynesian or a child, not from an allegedly knowledgeable authority. It will not attract more investors to his favored metal because silver’s basics are now too well known. Again it demonstrates the stance of GATA to exclude others who have notable contributions, but who don’t meet Mr. Powell’s criteria for GATA’s personality popularity profile parade. Gold centric systems fail for lack of the other monetary metal—silver. It was big bankers who wrecked silver as money, not any issues with silver itself. What is called education in this sense is mere indoctrination, with banking sources having irrationally chirped for generations that silver isn’t money. Almost infinitely more transactions have been done in silver across the millennia than in gold. With the destruction of silver in industrial processes over the last century, we WILL inexorably see a time in which the ancient Egyptian scenario is repeated—silver will be more highly valued than gold. This time, there will be no Phoenicians from the north, so to speak, who will bring in more silver to make gold the scarcer metal! However, if he believes otherwise, and the ordinary currency fails, how does he propose to make purchases, as long as gold is bizarrely priced at dozens of multiples of silver? Most consumer goods cost far less than a new truck, Jim. The smallest gold coins are typically one-tenth ounce, and many have no gold smaller than 1oz. By what means will a cheaper cost per unit of consumer goods breakdown be accomplished, Jim? If offered change in silver for a 1oz gold coin if tendered for a load of groceries, will Jim decline the change, protesting that it’s too heavy? Folks, pay heed to Sinclair where he makes sense, disregard him when appropriate. Sinclair speaks of buying a truck with silver, it’s too heavy to be used as money. Mr. Sinclair, that truck can be bought with a pile of $100 bills which weigh less than the vehicle’s quote in gold. Does that make gold not money, because it’s heavier than the notes? Hugo Salinas-Price of Mexico, wealthier than Sinclair, feels that silver is money. That’s because he hasn’t disregarded history. I am THE professor on the monetary history of silver and challenge anyone to dispute it http://www.silverstealers.net and Archives http://www.silver-investor.com Jim, do you know anyone on Wall Street today, and what organizations are they members of? What is their anti-silver agenda?