The important silver threshold line was broken briefly last week and
continues to bump up against it in early trading today. If the silver
price closes above this threshold line by a significant margin, it could mean
big trouble for the bullion banks who hold record silver short contracts.
I wrote about this in my article, WATCH OUT if Silver Breaks Through This Threshold
Next Week. The important silver threshold line is the
50 (MA), or what is known as in technical terms, the 50 month moving average
line. Because I used a 20 year monthly chart, the 50 (MA) line refers
to the moving average in monthly terms. If the chart is shown in weeks,
then its a weekly moving average… and if it is a daily chart, then it is a
daily moving average.
Here is an updated 20 year silver chart which now shows a 50 (MA) of
$20.35:
Let me explain this chart, especially for new folks to the site and the
industry. While I focus on the mid to long term fundamentals of the
silver market, professional traders look at these charts and trend lines very
carefully. Normally, I don’t spend much time looking at this
info, but because we have now punctured an important silver trend line, what
happens next could be very interesting.
There are two lines in this chart. The RED LINE is the 200
(MA). This is the average silver price based on a 200 month moving
average. What is important about this 200 (MA) trend line is that once
the silver price moved above it in 2004, it has not fallen below it, except
very briefly at the beginning of 2016, when it bounced off it.
Thus, the 200 (MA) in this monthly chart denotes a bottom that traders are
looking at. Because the silver price bounced off the 200 (MA) and is
now trading at $20, traders believe silver will not fall below $14.65.
Thus, $14.65 is a strong support level for silver on a long-term monthly
chart basis.
Now, there is the 50 (MA) BLUE LINE. Ever since the silver price
fell below the 50 (MA) line in the beginning of 2013, it has stayed below it
for nearly three years. However, it finally broke above it last week
when silver hit $21 briefly. Professional traders are looking very
carefully at how silver trades over the next few weeks. If
silver closes above $20.35, the 50 (MA) trend line at a significant margin by
the end of this month, we could see a lot more hedge funds and large traders
jump into the silver market bandwagon.
However, the bullion banks who hold record commercial silver short
contracts, will likely defend the $20.35 price at all costs. Here is a
Kitco 3-day silver chart:
Last night in early Asian trading (shown as a RED LINE), the silver price
once again broke above the 50 (MA) $20.35 threshold line. Then in London
and U.S. trading (GREEN LINE), silver continues to bounce up against the 50
(MA), which is shown as a yellow dotted line.
The reason the bullion banks will likely defend this $20.35 price is due
to the massive amount of commercial short contracts they hold. Here is
a Silver Cot Report Chart showing the massive increase in Commercial short
contracts:
The RED BARS at the bottom of the chart represent the increase in
Commercial Net Short positions. That figure is shown on the left part
of the chart. The Commercial Net Short position is calculated by taking
total Commercial Short contracts and subtracting total Commercial Long
contracts.
Commercial Shorts (154,486 contracts) – Commercial Longs (55,718
contracts) = 98,768 Commercial Net Short positions.
As we can see, the Commercials hold a record number of net short
contracts. However, if we go back to the end of 2015, the Commercial
Net Short silver contracts were about 24,000 contracts. This was at the
time the price of silver hit a low of $13.85.
Which means, since the end of 2015, the Commercials’ Net Short
positions have increased by a whopping 75,000 contracts. Those
new to the silver market need to understand that each contract represents
5,000 oz of silver. Thus, the Commercial Net short position in silver
is now 375 million oz.
Here is the big problem for the Commercials. As the
Commercials (bullion banks) have been adding to their net short silver
positions, they continue to be underwater as the silver price increases.
While there is no way to know how much underwater the Commercials are in
silver, we can make an estimate.
The Commercials have added 75,000 net short silver positions as the silver
price increased from $13.85 to $20.50. If the silver price moved up
about $6.50 during this time, we can assume that the Commercials average
price is half of that figure. But, let’s be more conservative and
just say the average price they are underwater is $2.50. Thus,
the Commercials are underwater $937 million, or nearly a $1 billion.
That could amount to one hell of a lot of losses if the price of silver
continues to rally higher.
Furthermore, if the price of silver does close above the 50 MA of $20.35
at say $21 by the end of the month, then we will likely see more hedge funds
and large traders move into the silver market as a leverage trend play.
This would cause the Commercials to be underwater at an even higher level.
This is why I call the breaking of the $20.35 Threshold line,
CONDITION RED for the Commercials.
Now, I don’t know what the short-term silver price outcome will be.
Although, as the Central Banks continue to add more QE to prop up the broader
markets. this added liquidity may also make its way into the precious metals.
At some point, the Commercials may finally experience the SHORT SQUEEZE
from hell as they will have to buy back their underwater positions as the
price of silver surges higher. This will cause an even more dramatic
move higher in the silver price as the Commercials try to exit a bad trade.
That being said, the Commercials have controlled the silver price and
market with their record short net positions in the past. But, there is
always a FIRST TIME for everything. While I only look at these
short-term trends for amusement, the mid to long term fundamentals point to a
silver price that is considerably higher than it is today.
For Those Investors Who Point The Blame At The Precious Metals’
Analysts & Dealers
I have read comments on my site and on others from investors who have
found a hobby or pastime in blaming precious metals analysts and dealers for
the ills of lower gold and silver prices since 2012. While this only
represents a small fraction of the precious metal community, I would like to
state a few logical points.
- Yes, we are guilty in the precious metals community of
not realizing the amount of corruption, fraud and funneling of QE into
bonds and stocks by the Central Banks since the end of 2012.
- Yes, precious metals dealers make a small commission on
selling precious metals. While some investors like to label the
precious metals dealer as “SATAN” because he or she makes money whether
the price of gold or silver goes up or down, I would like to remind you,
most brokers selling anything, such as Real Estate, do the same thing.
- Total U.S. Silver Bar & Coin demand in 2015 was
approximately 100 million oz. If precious metals dealers made an
average of 5%, at a spot price of $15.85 plus wholesaler premium, the
total for the 100 Moz would be $85 million for the total precious metals
dealer industry.
- How in the hell does an individual not understand that
the U.S. precious metals dealer industry making $85 million selling
silver is not such a crime when we consider the Big Banks dumped
trillions of Dollars of worthless Mortgage Backed Securities and other
assorted paper garbage on the Public’s back (Fed’s balance sheet).
Furthermore, the Big Banks get free money and charge their clients
interest on highly inflated Derivative garbage.
- The three large banks, JP Morgue’n, Blank Of
America & Citicorpse made a combined net income of $57.4 billion in
2015 on completely fraudulent accounting. However, total
precious metals retail silver commissions of $85 in 2015 is two-tenths
of one percent of these banks profits in 2015.
Maybe the individuals who enjoy berating precious metals analysts and
dealers as the “SATAN”, why don’t you wake up and look at where the REAL
FRAUD that is taking place in the Banking Industry. Wake up and smell
the FOUL MASSIVE DERIVATIVES MARKET.
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