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FMX Exclusive: Silver Contango Crushed – Short Squeeze Imminent Or Position Limit Ruling Fall Out?

Tyler Durden's picture


Courtesy of our friends at FMX Connect.

Silver Contango Crushed – Short Squeeze Imminent or Position Limit Ruling Fall Out?

In silver, the contango was hit hard about 3 AM this morning  with 2 year futures coming in as much as 15 cents relative to spot. The Z11/Z12 futures spread settled 21.40 yesterday and the market today is 13/15. The H/Z futures spread settled 19.2 The market today is 9/11.

What could cause this?

Factually speaking, 2 reasons cause contango to collapse. The first is interest rates and interest rates would have to decrease a large amount for this type of move in the spreads. The second is delivery concerns. When a producer, bullion dealer, or speculator is short the front month, come expiration, it has a a choice: make delivery or don’t make delivery. There are 2 ways to avoid making delivery, Reissuing, which is essential covering shorts, and deferment. Deferment involves leasing the metal from someone else or rolling your short to a back month.

Last time we saw a contango move this significant was in 1997 before Warren Buffet took delivery. While more information is needed, and this could be a fake out we think the spread’s move is important. It happened during Asian hours and the Asian market has shown strong physical demand. If this continues in conjunction with higher lease rates you will more than likely see a short squeeze. There is another less exciting reason it could be happening. Additionally, it could be related to the CFTC position limit ruling. Silver position limits will be implemented in 2 tiers. The first tier is a limit on front month contracts. The 2nd tier limits the aggregate number of contacts for all back months combined. Someone could just be moving their position around to deal with the new regulatory structure. Our conclusion is that we are going to have a short squeeze or increased volatility in the spread market as major players shuffle their open interest around. Stay tuned..



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Wed, 01/19/2011 - 12:07 | 887127 Turd Ferguson
Turd Ferguson's picture

Very helpful and interesting post, Tyler. Thanks.

Wed, 01/19/2011 - 13:42 | 887506 nope-1004
nope-1004's picture

Looks like the JP Morgue's are junking like crazy.

I found Franklin Saunders' analysis very informative, in addition to you Turd.

I don't really care if silver corrects downward $2, $4, or $8.... in the long term, buying is the only protection against this corrupt banking cartel and the only empowering way I can contribute to bring the bastards down.

I've been buying over the last week and will continue.


Wed, 01/19/2011 - 15:46 | 887889 Triggernometry
Triggernometry's picture

Agreed, I've been buying since september, and I see no advantage in slowing down for corrections any time soon.

Wed, 01/19/2011 - 12:08 | 887129 SheepDog-One
SheepDog-One's picture

Max Keiser knocking on JP Morgue's front door with a tank.

Wed, 01/19/2011 - 12:29 | 887199 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Buy silver.

Wed, 01/19/2011 - 12:43 | 887253 Turd Ferguson
Turd Ferguson's picture

Trolls are getting thick here, Jimi.

Wed, 01/19/2011 - 13:02 | 887338 Mr Lennon Hendrix
Wed, 01/19/2011 - 13:08 | 887372 tmosley
tmosley's picture

Honestly, there are only a few.  It's just that they work very hard at it.

Wed, 01/19/2011 - 13:18 | 887423 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

So go trolls and strippers...

Wed, 01/19/2011 - 14:29 | 887661 Hephasteus
Hephasteus's picture

Yep it's not the number that is telling. It's the deperation level.

Wed, 01/19/2011 - 13:15 | 887409 tallystick
tallystick's picture

Need a decent photo of Ms. Blythe Masters to create her character for the movie.  Ya got anything turd?

Wed, 01/19/2011 - 14:06 | 887587 Turd Ferguson
Turd Ferguson's picture

Nice vid, tally. I'm picturing our "tyler durden" kicking his ass all over the parking lot.

Wed, 01/19/2011 - 13:45 | 887515 Sean7k
Sean7k's picture

Them and the serial pasters. Whatever happened to citations? I'll read if if I'm interested.

Wed, 01/19/2011 - 12:44 | 887257 Richard Head
Richard Head's picture

Max keiser should cease being promoted until he answers up regarding those silver coins he shilled for.

Wed, 01/19/2011 - 13:32 | 887475 SheepDog-One
SheepDog-One's picture

'Answer up' for them? He got no proceeds from any sales, good enough for ya?

Wed, 01/19/2011 - 23:40 | 889181 Botox4U2
Botox4U2's picture

Again, Max Keiser might like to explain why he is taking advertising dollars from James Turk who does not support the Crash JPMorgan campaign (see below). Is this because GoldMoney is just another bank type account in a tax haven?  Maybe they have physical gold and silver, maybe not as much as they say who knows? What is more important is that Americans caught having this account in Jersey, Channel Islands without filling out the critically important FBAR reports on foreign bank accounts risk jail and huge fines. Funny that Max or James don't mention this. Here is a link to this information. BTW this is NOT the IRS, this is The Office of Homeland Stupidity. PLEASE NOTE THE DEFINITION OF "U.S. PERSON"

So.......US persons beware owning offshore accounts. If you need to open an account anywhere to buy precious metals in, including ETF's, THEN YOU DON'T UNDERSTAND GOLD AND SILVER. To those who think they are sheltering their gold and silver from the IRS, forget about them, it's DHS you are dealing with and if for some reason the US government wants to outlaw owning PMs and closes down access to vehicles such as GoldMoney you will lose your claim to the metals and risk fines and jail. So, buy physical and bury it in your yard


From James in an email

"I am in agreement with the importance of buying physical silver, but I don't agree that people's ire should be directed toward any one institution (he's referring to JPM), regardless of how flagrant it has become.  There is a bigger issue here in my view, namely, that the US gov't is running amok.  Therefore, the bullion bank actions are simply the result of an out of control gov't.  Blaming any bank is like blaming wet streets for rainy weather. I am by the way a big fan of Max.  He has done wonders in educating people around the world about the problems faced today.  But I cannot in good conscience support this particular effort. Regards James" Uh James, JPMorgan IS the government.


Wed, 01/19/2011 - 13:48 | 887529 MGA_1
MGA_1's picture

You know, JPM might actually be the front for someone else...

Wed, 01/19/2011 - 18:25 | 888532 fmxconnect
fmxconnect's picture

they are long

Wed, 01/19/2011 - 12:09 | 887130 Sean7k
Sean7k's picture

Tough market when you can feel fraud, but not see it or determine it's purpose.

Wed, 01/19/2011 - 12:19 | 887160 rich_maverick
rich_maverick's picture

You know the purpose of the fraud.  Just not how much longer can the bankster keep playing their shell game with silver.  Leasing from one sucker to pay off another can only last so long.  Who is stupid enough to lend silver right now?  If they do lend, at what rates?

Wed, 01/19/2011 - 12:36 | 887226 Sean7k
Sean7k's picture

I honestly only have suspicions. The problem is just how long they have played this game. Just as todays POMO auction demonstrates, they can steal money in broad daylight and only a few people are aware. The MSM won't report it-they can depend on it.

The movements out of Comex are bizarre. The transfers of physical to foreign countries. The CB's attempting to cheat each other by promising to store gold for junior holders. The leases are fast and furious, yet Blythe can still do the 10:00 am dump whenever she wants.

There is zero transparency, the CFTB is complicit. The creation of credit on a global scale is off the galactic charts- not only does it not bleed through to be seen, the only obvious purpose is a complete failure of all major currencies and the creation of an international one.

However, the endgame is not that simple. Wars start over things much less than this. What is the role of PM's in all of this? Will they find a way to exclude them? They have been successful in excluding them through legal tender laws. Will the real squeeze happen in a way we never considered?

Wed, 01/19/2011 - 12:45 | 887262 Oh regional Indian
Oh regional Indian's picture

Excellent observations Sean7K.


Wed, 01/19/2011 - 13:48 | 887530 bigdumbnugly
bigdumbnugly's picture

ditto that.

i have been asking the same questions without getting satisfactory answers - because there probably aren't any satisfactory answers.

the only certainty is that a jpm. hsbc, gs, sovereign, whatever ptb, is not going to take it in the ass without doing whatever is necessary to transfer the deep plunging onto some lesser being's keyster.

i don't think anyone can really know exactly what they are capable of pulling off.


Wed, 01/19/2011 - 12:11 | 887140 Ragnarok
Wed, 01/19/2011 - 12:21 | 887164 jmac2013
jmac2013's picture

"Bring out your dead!" Bernanke yells on POMO days to the primary dealers, referring of course to their government debt.


Wed, 01/19/2011 - 12:53 | 887279 Mr Lennon Hendrix
Mr Lennon Hendrix's picture


Bring out your dead!

My nomination for quote of the day.  You win a 'F*** your couch, Bernanke!' t-shirt.

Wed, 01/19/2011 - 12:14 | 887146 cruxx
cruxx's picture


Wed, 01/19/2011 - 12:18 | 887159 Lieutenant Dan
Lieutenant Dan's picture

Bang Dae Morgue!

Wed, 01/19/2011 - 12:51 | 887289 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Bernanke is a necrophiliac.

Wed, 01/19/2011 - 12:20 | 887163 RockyRacoon
RockyRacoon's picture

Interesting stuff.  With all the volatility I find solace in flipping the silver Eagle pocket-piece that I carry.  It sure is stable and doesn't seem to change a bit over time.

Wed, 01/19/2011 - 12:26 | 887180 Sean7k
Sean7k's picture

I've been trying to get my son to buy some silver, so I finally tossed him an ounce. His first remark? Wow, this really feels like money. Hopefully, he'll be tossing a few more soon.

Wed, 01/19/2011 - 13:20 | 887437 TheDriver
TheDriver's picture

My daughters get 1/2 oz rounds each month as their allowance. Our agreement is that they may convert it to fiat at any time based on current the spot price. For the last three years, they've yet to trade it for cash.

Wed, 01/19/2011 - 13:28 | 887461 quasimodo
quasimodo's picture

I do the same thing, pissed my wife off. The other day I told her we need to quit her 401k and she went into a hissy fit about her losing out of "free money"

I give up


Wed, 01/19/2011 - 13:28 | 887464 quasimodo
quasimodo's picture

I do the same thing, pissed my wife off. The other day I told her we need to quit her 401k and she went into a hissy fit about her losing out of "free money"

I give up


Wed, 01/19/2011 - 17:07 | 888192 ColonelCooper
ColonelCooper's picture

I thought you gave up.

Wed, 01/19/2011 - 19:03 | 888669 e_goldstein
e_goldstein's picture


Wed, 01/19/2011 - 14:20 | 887633 Drachma
Drachma's picture

Nothing wrong with a healthy balance of tossing and hoarding.

Wed, 01/19/2011 - 23:48 | 889203 Botox4U2
Botox4U2's picture

My coin dealer reports kids as young as 9 coming in to buy silver coins. One 9 year old girl comes in his shop every Friday to see him. May I should re-phrase that LOL. To buy silver that is.






Apparently collecting silver is similar to collecting trading cards years ago.


Wed, 01/19/2011 - 12:28 | 887196 Pants McPants
Pants McPants's picture

That's funny, RR - I do the same thing.  My brother bought me a one ounce silver ingot; shaped like a domino.  I call it my totem.

Wed, 01/19/2011 - 12:48 | 887276 outamyeffinway
outamyeffinway's picture

I do the same thing. I rely on the principles of Entanglement to get people interested in silver. Once they hold it and actually own it, they seem to naturally want to multiply it. It's quite interesting to observe.

Wed, 01/19/2011 - 13:00 | 887329 viahj
viahj's picture

funny stuff because i do the same thing but with a Maple.  i go around the office flipping that thing over and over.

Wed, 01/19/2011 - 15:17 | 887814 SilverRhino
SilverRhino's picture

I use a buffalo nickel round and a mercury dime replica round here.    

Wed, 01/19/2011 - 17:36 | 888343 Vagabond
Vagabond's picture

I rock a peace dollar.  I like to show people what real money feels like.

Wed, 01/19/2011 - 13:33 | 887479 flacon
flacon's picture

I do the same thing too! Glad to hear here are more people like me in the world. Today I have a gold eagle in my pocket. 

Wed, 01/19/2011 - 15:20 | 887828 A Nanny Moose
A Nanny Moose's picture

I tend to lose stuff, so I keep a 1964 Kennedy Half on me. I can demonstrate value with something that is still recognized as legal tender, and not accidentally spend it like I might, with a quarter, or dime.

Wed, 01/19/2011 - 12:22 | 887169 lunaticfringe
lunaticfringe's picture

Oh. So people in other countries can buy gold and silver and they take physical delivery, huh? Interesting.

Wed, 01/19/2011 - 12:25 | 887178 goldenboy
goldenboy's picture

The day of reckoning draws closer.... and closer...

Wed, 01/19/2011 - 12:26 | 887183 johnnymustardseed
johnnymustardseed's picture

All markets will stay rigged until the dollar is denied reserve currency status. Then complete collapse.

Wed, 01/19/2011 - 12:28 | 887195 Hephasteus
Hephasteus's picture

Don't fight the tape. It can't take it.

Wed, 01/19/2011 - 12:28 | 887187 goldmiddelfinger
goldmiddelfinger's picture

A fat finger at a 3rd tier Bali bank, a HFT robo in Hyderabad or someone's trying to scare up a squeeze. No metal has been more manipulated over the years than silver. Just sayin.

Wed, 01/19/2011 - 12:27 | 887189 Quintus
Quintus's picture

Anyone who thinks that the CFTC's feeble and pointless position limits rules are even considered by the big manipulators has rocks in their head.

This whole sorry episode will be brought to a sudden and violent end in the very near future by simple supply and demand realities.  JPM has sold lots of silver they don't have -> JPM Can no longer scare away/bribe buyers wanting physical delivery -> JPM defaults.  Simple.

The bought and paid for regulators will remain, to the end, like Admiral Nelson holding the telescope to his blind eye and declaring 'I see no manipulation!'

Wed, 01/19/2011 - 12:46 | 887267 gorillaonyourback
gorillaonyourback's picture

lololo funny

Wed, 01/19/2011 - 12:49 | 887280 EscapeKey
EscapeKey's picture

That's not how it will play out. Some major, somewhat connected (fabricated) disaster will take place, and TPTB will announce a "temporary" relaxation of the delivery requirements (i.e. delivery in cash will be strictly enforced), "until the situation has reverted to normal".

Don't underestimate the level of corruption throughout the system.

Wed, 01/19/2011 - 13:03 | 887350 Quintus
Quintus's picture

That's just about the same thing as a Comex default.  Why would anyone want to deal with a 'Commodity Exchange' that doesn't have any 'Commodity'?

If they try that, Comex will just cease to be a price discovery mechanism.  Something that should have happened long ago.  Physical markets will then set the price, and it'll be a lot higher once the paper tail is no longer wagging the physical dog.

Wed, 01/19/2011 - 13:14 | 887404 EscapeKey
EscapeKey's picture

Yep, but with one major difference - JPM will worm their way out of the situation.

Wed, 01/19/2011 - 13:31 | 887471 Quintus
Quintus's picture

That is about the only thing we can be 100% certain of.  The insiders will get out scott-free or, most likely, with a tidy profit.

Wed, 01/19/2011 - 13:54 | 887549 bigdumbnugly
bigdumbnugly's picture

sadly, i agree and agree.

Wed, 01/19/2011 - 14:52 | 887747 breezer1
breezer1's picture

the cftc will step in to protect the ' small investor'.

Wed, 01/19/2011 - 13:13 | 887401 barkster
barkster's picture

i agree. it's called force majeure.

Wed, 01/19/2011 - 13:14 | 887407 JLee2027
JLee2027's picture

Maybe. But the general public is not the Hunt Brothers, who could be taken down.

Don't underestimate the resolve of the people.

Wed, 01/19/2011 - 17:13 | 888223 ColonelCooper
ColonelCooper's picture

I sure don't.  Their resolve to remain fat and lazy while they ignore the world around them and watch American Idol is Rock Solid.

I just wonder what it will take to get their attention focused on the real world rather than the world of reality (tv).  When there aren't anymore Jeno's Pizza Rolls to microwave before Idol?  When they cannot afford to drink beer when they watch Idol?  Or will they have to be watching Idol and have the fucking lights go out for good?  My guess is sometime between running out of beer and sitting in the dark.

Wed, 01/19/2011 - 18:30 | 888551 Nine Pies
Nine Pies's picture

You been peeking in my windows?

Thu, 01/20/2011 - 00:10 | 889222 JLee2027
JLee2027's picture

A TV show has not changed human nature. Now, be quiet.

Wed, 01/19/2011 - 12:50 | 887286 scatterbrains
scatterbrains's picture

I disagree, at least at first. Before they allow JPM to collapse they will trigger a stock market flash crash, enough to force margin calls dragging the pm's down with them and allowing JPM to cover some.  At that point, maybe about 22ish spot silver, it will be a good buy again.

Wed, 01/19/2011 - 13:01 | 887333 Quintus
Quintus's picture

They can, of course, do what they like with paper metal, but will holders of real physical be inclined to sell at $22 when the stock market is collapsing and the sky looks like falling?  I won't be selling.

Wed, 01/19/2011 - 13:18 | 887430 scatterbrains
scatterbrains's picture

nor will I, 22ish is where my paper hedge comes off my physical holdings.

Wed, 01/19/2011 - 13:22 | 887445 treasurefish
treasurefish's picture

There was a flash crash early this morning to report:

Wed, 01/19/2011 - 13:38 | 887490 treasurefish
Wed, 01/19/2011 - 13:11 | 887385 trav7777
trav7777's picture

JPM won't be making delivery, assuming they really are as short as everyone surmises.  The exchanges will change the rules to protect shorts, as the LME did with nickel a few years ago

Wed, 01/19/2011 - 16:57 | 888147 Lord Koos
Lord Koos's picture

If JPM gets in trouble, look for a bailout or rule change in their favor.

Wed, 01/19/2011 - 12:28 | 887192 Cdad
Cdad's picture

Ummmm....the negative spot silver action could have something to do with this chart in the last half hour....L. Blankfein doing God's work yet again.  What a man.

This entire nation has become a joke...and is standing on the brink of utter failure.  And as far as I can tell, there is no way to avoid our failure while our markets continue to function in completely dysfunctional ways due to the fact that, from one end to the other, the entire system if filled with criminal syndicate Wall Street bankers that live to scalp Average Joe no matter the cost to the nation.

So, per this comment, today's destructive action is to naked short sell silver [Average Joe's new currency currently at near zero in supply] into oblivion while pumping up the oil futures [even though there is oil everywhere pouring out the ying yang] so that the OIH can hold up the false S&P.  Never mind about how this oil move will continue to be a body blow to the actual staggering economy...which is staggering, of course, because of the behaviors of criminal syndicate Wall Street bankers.

Great!  Recovery brought to you by Ben Bernanke.


Wed, 01/19/2011 - 12:28 | 887193 Silverite
Silverite's picture

While Obama lectures Hu Jintao on human rights, Chinese agents visit every bullion dealer in the country and buy the entire Silver Eagle inventory with their pocket change. They laugh and say 'Don't worry, we'll be hungry for gold in an hour or so...'

Wed, 01/19/2011 - 12:34 | 887219 goldmiddelfinger
goldmiddelfinger's picture

"While Obama lectures Hu Jintao on human rights"

That's hilarious, really, I'm chocking up last night's mongolian beef on that one, it's a hoot!

Wed, 01/19/2011 - 12:39 | 887239 gdogus erectus
gdogus erectus's picture

I had a Pavlovian response to your post to go watch that SNL vid of Jintao and Obama from last year....  Damn, I laugh every freakin' time I watch that.

Wed, 01/19/2011 - 12:41 | 887248 johnnymustardseed
johnnymustardseed's picture

We have no high ground left to discuss human rights after Iraq and Gitmo. I have not noticed anything about the Chinese killing about a million people for no apparent reason. Wouldn't it be great if HU came out and denounced us as the worst on human rights...which we are

Wed, 01/19/2011 - 13:14 | 887403 unky
unky's picture

At least chinese didnt kill 1 million people of other nationalities like the U.S. did.

Wed, 01/19/2011 - 22:04 | 889031 Bicycle Repairman
Bicycle Repairman's picture

"While Obama lectures Hu Jintao on human rights"

Pot, kettle.

Will we ever wake up from this nightmare?

Wed, 01/19/2011 - 12:35 | 887221 lsbumblebee
lsbumblebee's picture

Eastern markets are paying very high premiums for physical, which means they have backed up the trucks and are loading up.

Wed, 01/19/2011 - 12:54 | 887300 Non Passaran
Non Passaran's picture

Uhm, no.

Premium on physical silver is usually around 10%.

Wed, 01/19/2011 - 13:07 | 887366 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

The higher price is reducing the premium as a percentage of the cost.  Kinda cool.

Wed, 01/19/2011 - 16:37 | 888044 Non Passaran
Non Passaran's picture

Perhaps, I didn't follow "physical physical" (I followed only physical ETFs) before.

These days I compare the premium vs. PSLV, if it's lower then I find that to be a good deal.


Wed, 01/19/2011 - 12:40 | 887241 buzlightening
buzlightening's picture

Like a steady drip upon granite over time the erosion will penetrate granite!  Just keep accumulating silver and the banksters will bust wide open in the silver price suppression  fraud!! I see nothing but empty bullion vaults coming to a neighborhood near every bankster gangster!

Wed, 01/19/2011 - 12:47 | 887274 youngman
youngman's picture

Wierd flash crash on SLV today....

Wed, 01/19/2011 - 12:52 | 887293 Waffen
Waffen's picture

honestly I wish there could be a laymens run down at the end of these posts.  I am a fairly intelligent and educated person and after reading that i really have no idea what it means. Someone cant cover their short positions because of lack of physical silver so the contango was crushed?

Wed, 01/19/2011 - 16:32 | 888032 Clycntct
Clycntct's picture


Thanks for that.


Wed, 01/19/2011 - 13:09 | 887375 plocequ1
plocequ1's picture

I will stick to $$. My Liquor store dosent accept silver.

Wed, 01/19/2011 - 13:35 | 887484 SheepDog-One
SheepDog-One's picture

Really, liquor stores here DO accept silver, and a large gun store does as well!

Wed, 01/19/2011 - 13:15 | 887408 trav7777
trav7777's picture

Don't hold your breath, guys.

Look, there are countries around the world even more corrupt than the US, and life goes on there.  There's no sudden collapse moment where everyone goes "ah ha!" and then heads roll.  People just move forward under the new rules.

Life in a corrupt country is like having a nonzero tail risk.  There's a slight chance that in any transaction you will get fucked and completely lose out.  But you can steal do deals, buy things, etc., even in places like Cuba or Venezuela or Africa.

Wed, 01/19/2011 - 13:25 | 887456 JLee2027
JLee2027's picture

Trav, they have a reserve currency - the DOLLAR - to use in a black market or not economy. So, yes, life goes on.

What happens when they have no reserve currency to fall back on? People may hate America, but we've brought a lot of stability to the world.

Wed, 01/19/2011 - 14:31 | 887670 stewie
stewie's picture

Yeah the US brought stability, joy and happiness to the world, pretty much like Saddam brought stability to Iraq!  LOL, your words are utter BS JLee.

You are self-centered and deluding yourself in thinking your demise will leave a big international void.  Killing and stealing are seldom missed, and promptly replaced by more killing and stealing by the next bully.  

That said, I'm not counting the US dead yet, by any stretch, but quit mind fucking yourself already.


Wed, 01/19/2011 - 14:37 | 887696 JLee2027
JLee2027's picture

Yeah the US brought stability, joy and happiness to the world, pretty much like Saddam brought stability to Iraq! 

You win the stupid post of the day award. Go back to living under Herr Hitler Old Europe.

Wed, 01/19/2011 - 14:44 | 887722 Hephasteus
Hephasteus's picture

Everytime I keep thinking you can't find a bigger moron for your award. You do. There is stiff competition for that thing. What the hell is it made out of? I might even try for it.

Wed, 01/19/2011 - 14:58 | 887760 stewie
stewie's picture

Yeah look who's talking. Mr Big Crash himself.  Keep hoping for that.  lol



Wed, 01/19/2011 - 14:51 | 887744 stewie
stewie's picture

No, actually YOU win the stupid poster of the year.  I've been reading your comments for a while and your intellectual contribution here is totally non-existent.  Try to say something constructive instead of being rude to everybody you don't agree with.  You strike me as a bully actually, intellectually weak and hiding behind your wire.  If you want to shut me up, say something smart.

PS:  I've been a member of ZH a little over a year now and you're the first person I junk.  That should tell you something. 



Wed, 01/19/2011 - 13:18 | 887421 VFR
VFR's picture

Heres my take.

History shows that the Germans want their physical gold back. China is now demanding their physical Silver. The US has refused as it doesn't have it. And is printing more and more dollars.
As the video earlier said, and also was highlighted by Harvey Organ, Sprott had problems getting all their physical silver. Although I understand that is now resolved.
The crunch in Physical silver still exists and some recent calculations I did showed there is no way except through mass money printing and hyper inflation that JPM can buy their way out of their leveraged short position, in fact buying would exasperate their position. I got to a figure of $105 trillion dollars that would be needed and gave up. By which time the price would be $2000 an ounce and world economies in turmoil.
The problem is JPM and HSBC bought paper silver (backed by 10% physical) not physical and leveraged it by about 100. Do the sums yourself.
It looks like JPM and HSBC have moved the short position offshore out of reach of the CFTC reach to avoid unwinding over short period a painful short position if the new 10% limits are set.
The Chinese meanwhile who purportedly own that short position but want the physical are prepared to play a long game and see the silver price trashed short term so that their physical can be delivered with no or little loss to the counter party (well they don't give a damn about the counter party . They just want the physical and not more dollars) . You could say all very confusing. Therefore over the next two months both parties want to see the Silver drop in price. This presents a buying opportunity as there are two things which make it near impossible for this to happen. One is the the price point needed and the other is a hedge-fund short term play. If it drops to 17$ an ounce this will allow the short position to be closed off as long as JPM and HSBC can accumulate enough physical silver on the way down to deliver. That's got to be hard and maybe impossible. The silver short position is worth 3.3 billion ounces which is 4 x global production. So they are stuffed. This has to be the worst trade in History.
There needs to be some middle ground agreed by all parties. In the meantime you can expect to see loopy things happening and possibly big sudden sell offs trying to drive the price lower to shake out the small holders. THEY WANT YOUR PHYSICAL SILVER BADLY. EXTREMELY BADLY.
I reckon end of March has been set for physical delivery. Can you imagine been owed 3.3 trillion dollars in physical silver and been told you can only have 1.75 trillion in dollars in cash (which legallly is not supposed to happen, but we are talking Banks/COMEX now, not individuals, Harvey Organ reckons this must 've already happened in December). Someone, somewhere is extremely pissed. If the short position gets anywhere near closed off then we can see the price rocket to plus $50 an ounce post March. I can't see the price dropping below $22.
At some stage Either JPM or HSBC or the Comex will default and once again we will see a crises that will be the next trigger to a new banking crisis. People will ask how/when, what happened. The Fed will call it unforeseeable and either need to bail out the banks or a new system will need to be created backed by Gold taking silver with it. Twice now someone senior in the Fed has said they would welcome a gold backed currency. These people are saying this to test the water. Each statement has been about six months apart.
Remember all of this is happening now , under the radar and slowly been exposed. It's so big it's almost unfathomable. The figures involved are mind boggling.
Secondly on top of all of this Hedge funds are now looking at an opportunity here which could make February the month of new highs as March 1st approaches. Madness. The Hedge fund play is a short term interlude to something much greater. If a cash settlement is accepted then we'll see an early March fall back. The then real fireworks will start. It's all going to end very badly.

Wed, 01/19/2011 - 14:38 | 887703 Camtender
Camtender's picture

Good info.  Question, how do you get to 3.3 Billion ounce short position?  Where is this information from?

Wed, 01/19/2011 - 16:44 | 888070 Non Passaran
Non Passaran's picture

The number looks ridiculous. Maybe it's a mistake, but ever now and then one can find such unsubstantiated stuff in posts that otherwise look sane.

Maybe he was talking about US-T's in China's ownership (not about the leased silver), I don't know. I just know the original info said 300 million oz. (of silver) which takes just 10 keystrokes on Ben's colorful desktop.

Thu, 01/20/2011 - 09:56 | 889682 VFR
VFR's picture

the 3.3 billion ounces is correct.4 x world production

If you care to google it you'll find various sources.

Wed, 01/19/2011 - 13:18 | 887422 FranSix
FranSix's picture

Contangos don't collapse.  Backwardations do.  But then, you would have to compare backwardations in copper, oil, etc.  The only market that doesn't tolerate backwardations is the gold market if you believe Fekete.

And, in the silver lease rates scenario, it looks as if lease rates are jumping jack flash today:

Wed, 01/19/2011 - 14:49 | 887736 fmxconnect
fmxconnect's picture

contango continues in Gold because it is not destroyed or consumed. its spread value is theopportunity cost of money and storage cost only. that can change if producers are TOO hedged against future production and say, a strike happens, or somethingelse that prevens metal from getting to mkt for an extendedperiod oftime. but most likely lease rates will solve the problem

Wed, 01/19/2011 - 13:18 | 887426 campag
campag's picture

strange how ZH publishes bullish pm stories and the market comes off ?  this has to be the third or forth in a row. 

Wed, 01/19/2011 - 13:26 | 887459 lsbumblebee
lsbumblebee's picture

What's even funnier is how the PM's sell off when the USD takes a nose dive.

Wed, 01/19/2011 - 13:23 | 887450 TradingJoe
TradingJoe's picture

I am sticking to my physical pm's and don't give a shit about the paper story! For paper to go higher from here it needs a "correction", period! if prices in physical follow I simply buy more, from the very same ones they hope to "shake out"! that's all!

Wed, 01/19/2011 - 13:30 | 887469 Lone Mad Minute...
Lone Mad Minute Medic's picture

"strange how ZH publishes bullish pm stories and the market comes off ?  this has to be the third or forth in a row."



Feels like a set up. Many people here bite on the bait. 

Wed, 01/19/2011 - 13:36 | 887488 SheepDog-One
SheepDog-One's picture

Yea sure, everyone here is ust a bunch of suckers biting baits with no actual clue of whats actually going on.

Wed, 01/19/2011 - 13:44 | 887510 campag
campag's picture

spoken like a true sheep!

Wed, 01/19/2011 - 13:51 | 887537 Voodoo-economist
Voodoo-economist's picture

cmon people, educate yourself, we just hit an oversold RSI on the weekly chart. Which means, based on the historical track record, that its now time for a longer consolidation. Of course, this time could be different, but i wouldnt bet on it. I personally think that above 1500 XAU/USD and above 33 XAG/USD, pms enter the ballistic area. Latter will only happen during the endgame. We are neither there yet nor are we entirely sure it will happen at all. The ZKB ETF (3. largest when i remember right) mentioned it had absolutely no problems getting hold of physical. The charts dont look too sexy either. Lots of leveraged accounts joined in late, these will be shaken out now imho.

Wed, 01/19/2011 - 14:02 | 887577 lsbumblebee
lsbumblebee's picture

It's hard to trust technical charts anymore when fundamentals are so out of whack.

Wed, 01/19/2011 - 14:14 | 887610 Voodoo-economist
Voodoo-economist's picture

technicals arent fundamentals :)

if you want to manipulate a market, you manipulate the technical key levels, so the message gets understood. So even a manipluated market usually provides meaningful insight from technicals. Bears and Bulls usually fight hard around key levels to be held or broken. At least thats my understanding. If you want to raid an asset on a thin market you still want others to join the ride, otherwise you wont achieve the goal to cover lower.


Wed, 01/19/2011 - 14:22 | 887638 lsbumblebee
lsbumblebee's picture

That's all fine and dandy, but if there is no regulation from the CFTC and JPM can do as they please you are taking a huge chance. I see the small speculators getting crushed all the time.

Wed, 01/19/2011 - 14:30 | 887664 Voodoo-economist
Voodoo-economist's picture

oh thats certainly true with the small specs. You always need to keep the sheeple in mind, never run with them :( Its an uneven playing field for sure. But thats hardly limited to PMs, similar things happen in futures, less liquid stocks and even FX imho.

Wed, 01/19/2011 - 14:37 | 887697 lsbumblebee
lsbumblebee's picture

Well anyway, best of luck to you.

Wed, 01/19/2011 - 14:02 | 887578 Lone Mad Minute...
Lone Mad Minute Medic's picture

100% in agreement with you VooDoo. Play the game and don't just sit on Physical.

Wed, 01/19/2011 - 14:31 | 887666 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

The game can be played with physical.  For example, while silver and gold are tied up, platinum has kicked Blythe in the balls.  So people that are dip buyers could have bought platinum over the last few weeks and made ample monie.  It is about knowing which one will move first, as the metals do not always move in tandom in the short run. 

Wed, 01/19/2011 - 14:16 | 887618 UnRealized Reality
UnRealized Reality's picture

I posted this in anther Article, but it also applies here with some added twist.

Yawn!! Any day now. How long has ZH been posting "The Crash". Well I guess you need two sides to make a market and if the MSM is the sell side, ZH is the Buy side.

Every body has an agenda and that applies to ZH, For someone who Hates GS with a passion, sure has a lot of references on them. And a lot of articles on PM's. Just the mind wondering if there are any back room deals going on.

Wed, 01/19/2011 - 14:19 | 887628 Voodoo-economist
Voodoo-economist's picture

you should read the disclaimer :)

Wed, 01/19/2011 - 14:22 | 887637 uno
uno's picture

seems like an all out defense of 29 in spot silver in the last month


Wed, 01/19/2011 - 15:59 | 887905 Duffminster
Duffminster's picture

Bix Weir tops my silver reading list.  He has a recent article out that puts some of this in perspective.  He discussed the delivery issues at Perth Mint and comments on delivery by the Sprott Physical Silver Trust.  These comments should factor into other global reports of physical shortages and the moves that the Ponzied Chess masters are contemplating.   Highly recommended reading.


Wed, 01/19/2011 - 16:05 | 887936 Kaiser Sousa
Kaiser Sousa's picture

another fraudulent day n the metal markets approaches its close...

same as it ever was.....

Wed, 01/19/2011 - 20:08 | 888809 twinshot
twinshot's picture

So collected my puny couple of kilos yesterday and got talking to the dealer. Dealer sees increasing demand for physical and the more prices rise the more people are demanding physical. Told me one customer took away, get this, 136 kilos of bars (44 x 100 oz) last week. Wish I had that kind of fiat...this is Asian demand.

Fri, 01/21/2011 - 10:35 | 893026 dcx135
dcx135's picture

Given that the far month contracts barely trades, how meaningful is it? If there was really a squeeze on physicals, a more useful and valid comparison would be to look at the spread between spot silver and the front month (and most active) futures. No drama happening in that spread. The silver lease rate did pop, so that's worth watching.

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