Archive - May 10, 2011 - Story

One of the most pronounced self-reinforcing features of the silver drop from the last two days, was the outright drop in silver holdings in the SLV ETF, which in the span of 5 days, from May 2 to May 6, lost 760 tonnes of silver. The sheer momentum of this move, as some claim, was the biggest factor facilitating the record rout in silver. Well, as of yesterday this trend has reversed itself, and as of close yesterday SLV has disclosed that it added 311 tonnes of silver, or nearly half the underlying amount lost in the selloff. Nonetheless, the overreaction within the SLV complex was massive, as while silver spot remained well above 2011 lows, the SLV ETF holdings actually plunged to a 2011 low level which had last been seen in November 2010. And with silver rising fast again this morning, printing at $38.50 as we type, look for the downward momentum, which so many eagerly pointed to to indicate the relentless nature of the rout, to reverse itself. Add to this the fact that non-commercial specs are at multi year lows, and very soon the only possible argument for the bubble claimants will be that all silver has merely rotated out of very weak hands into truly strong ones.

Import prices, wholesale inventories and a few speeches from Fed officials. Ceiling busting $32 billion 3 year auction in tow, and second to last POMO in current schedule also on deck.

This morning the news wires are filled with the now usual contradictory, and full of lies propaganda about a Greece imminent [restructuring|golden age]. Since very likely all are wrong, we will focus on what appear to be the most credible ones: we will start with the Dow Jones story which has been official refuted by Greece, thus giving its extra validity. As Reuters reports: "News agency Dow Jones, citing a senior Greek government official, reported that Athens expects to receive a new aid package totalling nearly 60 billion euros . Greece denied it was discussing a new package..."It's certainly positive for peripheral sentiment and is assisting in the unwinding of some yesterday's safe-haven flows into Bunds," said Rabobank rate strategist Richard McGuire. Senior euro zone policymakers acknowledged on Monday that Athens will need a second bailout package soon to avert a disorderly overhaul of its debt obligations but rating agencies said more drastic measures may be necessary." Of course, this news comes out strategically and just in time for Greece to auction off a fresh 26-week T-Bill for €1.625 BN at a new record yield of 4.88% (compared to 4.80%) before an an even lower bid to cover of 3.58 vs. 3.81 previously. One can only imagine what a flop the auction would have been without the latest rumor (and even China appears to have given up on Greece: "Foreign take up in Greek 6-month T-Bill sale 34.2% vs. Prev. 41%, according to debt agency chief.") Bottom line as some trader summarized it: "It's very difficult to trade as there are so many conflicting headlines about a restructuring being the only way forward or not. Something will have to give." Exactly - here is a hint: a restructuring, in the city square, with a Molotov Cocktail... and damn soon.

Gold and silver continue to rebound from their sell offs as Euro zone periphery worries intensify with real risks of defaults and possible contagion. Gold has risen from €1,010/oz to over €1,057/oz since Friday. The long period of correction and consolidation may soon see a break out above resistance at record nominal highs of €1,072/oz - less than 1.5% below the current price. The recent strength of the euro looks set to end as sovereign debt risks come to the fore again. This will likely see the euro fall versus most currencies and especially against gold. There has been the usual misinformed and non evidence based assertions that the gold and silver markets were ‘bubbles’ and that they have burst. The same simplistic assertions were made after the sharp price corrections seen in 2008 and were proven badly wrong.

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