Silver Reaches New 31 Year High At $38.50/oz - Backwardation Ends But COT Data Is Bullish

Tyler Durden's picture

From GoldCore

The positive momentum of gold and silver continue with both higher in European trade as oil prices have risen due to geopolitical tensions in oil rich nations and the euro has fallen on Eurozone debt concerns.

Focus will be on interest rates this week with the ECB likely to increase interest rates and renewed speculation as to whether the Federal Reserve will attempt to increase interest rates or embark on QE3. Contrary to some misinformed analysis, rising interest rates will be bullish for gold and silver as they were in the 1970’s.

Silver for immediate delivery has gained another 1.7% to $38.50 an ounce, the highest level since February 1980, the year silver reached a record of $50.35/oz. An ounce of gold bought as little as 37.32 ounces of silver in London today, the lowest level since September 1983.

Silver has come out of backwardation and returned to contango with longer dated future prices again higher than nearer month contracts and spot for delivery (see table below). This suggests that default on the COMEX, as warned of by some analysts, is not imminent and the tightness seen in the physical silver market may have abated somewhat. 

However, the Dec12 contract trading at only cents over spot for delivery (less than 10 cents) suggests that tightness remains. Given the degree of tightness in the physical silver market, silver may return to backwardation  sooner rather than later.

While silver is overbought in the very short term, silver’s outlook remains bullish.

Momentum remains very strong with a series of higher weekly, monthly, quarterly and annual price gains. Silver remains the preserve of a handful of contrarian and hard money advocates and is only beginning to enter the consciousness of the mainstream. Allocations remain tiny compared to allocations to conventional investments.

Finally, speculative fever is not only missing from the mainstream public (most of whom would not even know the price of an ounce of silver) but it also remains subdued on the COMEX on Wall Street. Little or no irrational exuberance or “piling in” being seen in the trading pits. The latest COT report shows speculative long positions, or bets prices will rise, outnumbered short positions by 37,139 contracts (see news and chart below). This is a level of net longs by hedge fund managers and other large speculators that was seen as long ago as 2002.

Silver Large Speculators, Futures

Thus, despite silver’s sharp gains in recent months, speculative fever remains very tame. This suggests that much of silver’s gains in recent weeks may have been short covering by Wall Street banks being investigated by the CFTC for holding massive concentrated short positions.

There is also evidence that some hedge fund managers are choosing to bypass the COMEX and buy actual physical silver bullion in allocated accounts.

NEWS

(Bloomberg) -- Silver Climbs to $38.23 An Ounce, Highest Since February 1980
Silver for immediate delivery rose 1.1 percent to $38.23 an ounce by 7:52 a.m. in London, the highest price since Feb. 13, 1980.

(Bloomberg) -- Gold May Advance on Geopolitical Risks, Outlook for Inflation

Gold, trading little changed, may advance as investors buy the precious metal to shield their wealth from geopolitical risks and rising inflation.

Immediate-delivery bullion traded at $1,430.95 an ounce at 1:57 p.m. in Singapore compared with last week’s close of $1,428.80. Gold for June delivery in New York rose 0.2 percent to $1,431.80 an ounce.

“Geopolitical risks linked to the Middle East and Japan, as well as the European debt crisis, have yet to show an improvement,” said Hwang Il Doo, a Seoul-based senior trader at KEB Futures Co. “These, coupled with the inflation outlook, will continue to power gold.”

Libyan leader Muammar Qaddafi’s acting foreign minister, Abdul Ati al-Obeidi, met with Greece’s prime minister yesterday to seek a political solution to the nation’s crisis, Greek Foreign Minister Dimitris Droutsas said. The U.S., Britain and France have been enforcing a United Nations-backed no-fly zone over the country as rebels battle Qaddafi’s forces for control.

In Japan, Tokyo Electric Power Co.’s attempt to clog a cracked pit with sawdust, newspaper and plastic failed to stop radioactive water leaking into the sea from a crippled power plant, which was damaged in the March 11 quake and tsunami.

Marc Faber, publisher of the Gloom, Boom & Doom report, said last week investors should have 10 to 20 percent of their portfolio in gold as an inflation hedge. The unemployment rate in the U.S. unexpectedly fell to a two-year low of 8.8 percent in March, adding to evidence that a recovery in the world’s largest economy is gaining traction.

Survey Outlook

Eleven of 25 traders, investors and analysts surveyed by Bloomberg, or 44 percent, said that bullion will rise this week. Nine predicted lower prices and five were neutral. Spot gold reached an all-time high of $1,447.82 an ounce on March 24.

Hedge-fund managers and other large speculators increased their net-long position in New York gold futures in the week ended March 29, according to U.S. Commodity Futures Trading Commission data.

Speculative long positions, or bets prices will rise, outnumbered short positions by 193,121 contracts on the Comex division of the New York Mercantile Exchange, the commission said in its Commitments of Traders report. Net-long positions rose by 18,284 contracts, or 10 percent, from a week earlier.

“We believe prices will remain supported as long as real interest rates stay low and trepidation over global growth prevails,” Hussein Allidina, head of commodity research with Morgan Stanley Research, wrote in a note to clients.

Cash silver rose 0.6 percent to $38.025 an ounce, approaching the highest level since 1980. The metal last touched $38.165 an ounce on March 24.

Palladium for immediate delivery increased 0.3 percent to $775.75 an ounce, while platinum was little changed at $1,763.13 an ounce.

(PTI) -- India's gold demand to rise over 1,200 tonnes by 2020: WGC

Gold demand in India will continue to grow  and is likely to reach 1,200 tonnes or approximately Rs 2.5  trillion by 2020, at current price levels, according to a  research by World Gold Council (WGC).

"The rise of India as an economic power will continue to  have gold at its heart. India already occupies a unique position  in the world gold market and, as private wealth in India surges  over the next ten years, so will Indian demand for gold", WGC  Managing Director for India and the Middle East Ajay Mitra said  in a statement here.

Indian gold demand has grown 25 per cent despite 400 per  cent price rise of the rupee in the last decade, making the  country a key driver of global gold demand, the research said.  Gold purchases in India accounted for 32 percent of the global  total in 2010.

Further, the council expects an increase by over 30 per  cent in real terms.

"India's continued rapid growth which will have significant  impact on income and savings, will increase gold purchasing by  almost 3 percent per annum over the next decade," the council  said in a statement.

It added, "In gold terms, India is a market with  significant scale. In 2010, total annual consumer demand reached  963.1 tonnes. As seen in the last decade, Indian demand for gold  will be driven by savings and real income levels, not by price".

According to Mitra, in parallel to growth, socio and  demographic challenges will need to be addressed given its  immense diversity.

"This also applies to the gold market. Nevertheless, gold purchasing will continue, underpinned by India's long-standing and deep cultural affinity for gold; a love affair which  transcends generations and makes India unlike any other gold  market," he said.

At more than 18,000 tonnes, Indian households hold the  largest stock of gold in the world.

'India: Heart of Gold' is the second in a series of WGC  research with focus on India.

The first paper, 'India Heart of Gold: Revival' was released in November 2010, and focused on the historical demand of the past 10 years and the revival in 2010.

Together they form a compendium, with the latest research  including forecasts from the Centre for Monitoring the Indian  Economy (CMIE), as well as contributions from leading academics  and industry experts, Dr. D. Pattanaik and Dr. R. Kannan, which have been specially commissioned for the World Gold Council.

(Bloomberg) -- Silver Traders Increase Bets on Price Rise, CFTC Data Shows
Hedge-fund managers and other large speculators increased their net-long position in New York silver futures in the week ended March 29, according to U.S. Commodity Futures Trading Commission data.

Speculative long positions, or bets prices will rise, outnumbered short positions by 37,139 contracts on the Comex division of the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-long positions rose by 364 contracts, or 1 percent, from a week earlier.

Silver futures rose this week, gaining 1.8 percent to $37.73 a troy ounce at today's close.

Miners, producers, jewelers and other commercial users were net-short 55,295 contracts, an increase of 113 contracts from the previous week.

Each Friday the CFTC publishes aggregate numbers for long and short positions for speculators such as hedge funds and institutional investors, as well as commercial companies that buy or sell futures to protect against price moves. Analysts and investors follow changes in speculators' positions because such transactions can reflect an expectation of a change in prices.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
aVian's picture

wow that was fast...bullish for sure

Snidley Whipsnae's picture

LOL... Good one Turd! The Witch and Warlock to Venesuela... sounds right.

bankrupt JPM buy silver's picture

I am looking into this backwardation ending...according to my observations about whats going on in the vaults, I cannot see how this is possible.  Actually, I have NO idea how they are settling either with metal.  This is fishy.

 

www.silvergoldsilver.blogspot.com

FLUSA.com's picture

I am long on silver but I think it may be time for some profit taking.....

Pants McPants's picture

I know....reading is a pain.

yabyum's picture

Went to the coin guy for my payday junk silver purchase. A kindly older couple were walking out with some very heavy white bags. TOO LATE! they got it all! first time in three years I've been skunked! Bought generic rounds instead;)

RockyRacoon's picture

The Mint is back selling the 2010 silver quarter sets after taking them down from the website.  (Mint product: SV2)  The previous price was $32.99 as I recall.

The pricing is still very attractive for several reasons.  You all can figure out most of them, but for the tin-foil-hat crowd these are numismatic coins.   The possibility that they would become illegal to own is very slim to nonexistent.  

There is a tad  over 0.90 ounce of silver in the set (regular content of silver for pre-1965 coinage).   The Mint charges $4.95 for any purchase so that is all the charge for any size order. At $39.95 per set there isn't much downside.

I've got mine, so get what you want:

2010 United States Mint America the Beautiful Quarters Silver Proof Set

Temporalist's picture

Whoops my bad I thought the date was forward dated...

Calmyourself's picture

Long on foreclosures "bought 35" and now long silver but about time to sell.  Your positioning is about perfect..

tsx500's picture

FLUSA : don't be stupid

 

Snidley Whipsnae's picture

Bens jawboning isn't working on silver.

FLUSA... You are going to 'take profits' in silver and invest in what?

FLUSA.com's picture

I need a Prius...seriously...that is my thinking anyway

Snidley Whipsnae's picture

If you need one you need one. Makes sense to me.

Wife and I have 5 vehicles, which makes little sense, but two are big old Harleys, one is a 72 Chevy pickup frame of restoration with big block, etc, two are ten years old with less than 40K miles and maintained perfectly. One thing I don't need is more stuff in need of oil changes. Prius? is that an electric or hybrid?

velobabe's picture

both.

a boulder cab company, has a prius vehicle.

fiftybagger's picture

Snidely, I'm with you.  I'd rather walk right now than sell an ounce.

Silver for the people!

http://www.youtube.com/user/BrotherJohnF?feature=mhum

Snidley Whipsnae's picture

I don't work steady anymore...retired some time ago and work part time at what I enjoy now.

If a person needs a vehicle to get to work and selling a little PM is their only option I understand. People do what people have to do.

Besides, one American selling a little silver is not going to effect the market a lot. It's the Chinese/East Asians and Mid East that are really making waves in the PM markets.

China is hedging their US Ts with PMs and they are not going to stop. If Ben raises rates and PMs fall along with everything else except the dollar you can bet the Chinese will continue to buy at new low prices... but PM prices will not stay down for long.

Get popcorn and PMs... enjoy the show. 

FLUSA.com's picture

Not very realistic...how would one walk 50 to 100 miles a day?

FLUSA.com's picture

it is a hybrid...I already have one but my wife always takes it and Im stuck with the gas guzzeling Durango....I guess the question is what will go up faster...gas or silver?  I really don't know....I just hate ploping 80 bucks into the tank each week..I guess when the system completely collapses....someday...gas will fall like a rock...and silver will be even in more demand...

Tejano's picture

Trade silver for a Prius - that's a good one! So, its off to work I go, laughing all the way.

Calmyourself's picture

You can buy a Ford Msutang with 305 HP that gets 31 MPG and you would buy a Prius full of heavily polluting nickel cadmium batteries to get 45, why?

JoeSexPack's picture

Many Prius faithful believe in feelings, not facts.

An extra $20K over a used VW diesel to save maybe 20% in fuel?

& don't forget higher repair costs for the duplicate power-train.

Might pay for itself in 10+ years, maybe.

No thanks.

 

luk427's picture

Buying Prius in developmental stage means they are using your money for R&d. Bmw deisel got better fuel milage.   http://www.timesonline.co.uk/tol/driving/used_car_reviews/article3552994.ece

Acidtest Dummy's picture

Silver, use it and it won't tarnish.

LoneStarHog's picture

Hey, GoldCore...Get a friggin' clue...many, many contracts were settled at HUGE cash premiums...NOT PHYSICAL, since the amount required COULD NOT BE OBTAINED AT PRESENT PRICES...cash settlements - many times under threat - IS A FRIGGIN' DEFAULT and it SCREWS THE PHYSICAL HOLDERS...pull your damn head out of your worthless ass!!!!!!!!!!!!!!!!!!!

Pumpkin's picture

Yes, but is a gift to the buyers.

Dr. Impossible's picture

danm..now i gotta reclassify my gold mine to a silver mine......again...

gordengeko's picture

Notice the nice little compression wedge buildup in the futures chart?

gordengeko's picture

Actually was referring to the blue yearly futures chart TD posted above.  If you mentally draw the trendlines over the last 10 years or so, there is a real nice looking wedge there.  All of the built up energy is going to release soon, I would not want to be caught short when this puppy pops.

Snidley Whipsnae's picture

Agreed. Lots of pressure built up after recent expiry and this might be the week that it pops. I'm looking for a few days of sustained close above $1450. What line will the BBs defend next... $1500?

gordengeko's picture

Judging from past silver price movements in relation to the futures contract chart above, I'm guessing the move in silver will by far outmove the rise in gold.  We haven't hit the levels of speculative calls as in '04-'06 (which silver spot hit a roughly 55% fiat gain shortly after the move in calls in late '05) and with the compression wedge formation (strictly chart speaking) 40's will be a lock and 50's an extreme possibility maybe this year one this wedge breaks.  Just because the backwardation might have currently subsided, no way do I see silver spot retreating to low 30's again.

Snidley Whipsnae's picture

I hope you're right. We bought large physical quantity at $7, 12 and 17... no paper. Also mostly gold... no paper.

If Ben has the nads to jack rates we might see a temporary pull back, imo. We will back up the truck but will be bidding against the Chiness/SE Asians, Mid East and India. Of course we are not in their league but will give it a whirl... if any physical is to be had at anywhere near spot.

BTW, looks like war broke out in the oil pits this am about the time London opened...

http://finviz.com/futures_charts.ashx?t=CL&p=m5

gordengeko's picture

That's a tough one.  If they do raise rates it will crush the fake recovery and possibly push PM's even higher do to the safe haven since the market is sure to correct but given the extreme amount of leverage in the market (all time highs) it could pull everything down temporarily.  Should that happen we wll have major problems, imo.  That will present a huge buying op in the PM physical market which many will take advantage of no doubt.  Going to be an interesting ride this year for sure.  Oil, I'm betting 120 crude.

Snidley Whipsnae's picture

Yeah, I see it the same way in PMs. I like oil at 120 or above. Oil is the only commodity that I play paper games with.

That frickin Ben has us guessing again and there is nothing he likes more. I'm betting that he doesn't jack rates. He has spent too much effort and dollars buoying equities and crashing those markets would be difficult for him to explain. He would catch major heat from all directions. He might be asked to 'return to teaching to spend more time with family'.

Yardfarmer's picture

beware (and prepare) the ides of June.

firstdivision's picture

Financials are going to start cracking soon. 

Snidley Whipsnae's picture

Blythe's team need to order their coffee to go on Monday mornings... laggards!

 

camoes's picture

PARABOLIC, BITCHEZ

Lone Mad Minute Medic's picture

Time to raise at the table on the open!

Lone Mad Minute Medic's picture

Any opinions on solid silver mines?

Snidley Whipsnae's picture

Opinions?... I wish I owned one... Or more... Literally owned, that is...

Dagny Taggart's picture

...as opposed to liquid or gaseous miners? I highly recommend you power read the past month of posts and comments at http://tfmetalsreport.blogspot.com/ and then do your own due diligence.

Snidley Whipsnae's picture

lol... thanks, I've been reading Turd's site for a while. I have also been long gold since 1968, probably before you were born...seen about everything but a total, permanent collapse of the dollar as currency most world trade is settled in...Waiting for that one if Ben doesn't wriggle out somehow.

Crude? The one commodity that I play paper games with. Hey, isn't the internet great?

 

Long-John-Silver's picture

Mines where Silver is produced is about to undergo a period of strikes by the workers even if they are not in unions. Their wages have been stagnant even as Silver has increased in price. Miners do not care that the mine owners sold forward at too low future prices. The Miners want a substantial increase in pay and  are willing to strike until their demands are met. 

Jreb's picture

First Majestic is pretty solid. Steady gainer and up about 7.9% today on silver's spot rise.

Will liquidate some once spot get's over $39.00 take some profits then wait for the dip... the inevitable dip....

Johnny Lawrence's picture

I don't see how the COT data is bullish.  When sentiment moves to the extreme in either direction, the opposite usually happens.

Captain Benny's picture

Silver miners striking in Bolivia and Mexico.... industrial demand far outpacing the rate which its pulled from ground and recycled combined.  Nothing to see here, please move along.... while I go out and buy a little more silver.

Oh regional Indian's picture

This is how India will be screwed over. The more they tell people India is gold crazy, the more people believe it. And the more they buy. Many large Gold only retailers. That is a tell for me. Silver is being saved, for what? Quite a severe shortage of physical silver here.

Blinded by the golden light.

ORI

http://aadivaahan.wordpress.com/2011/04/03/re-fine-ment/

equity_momo's picture

"Wealth" still has to "hide" somewhere Ori. I expect more deleveraging - housing is dead but its taken its lumps  , deleveraging is largely going to focus on stocks now.  Where does that money run to? Sov debt --> US Govvies? EM? Its a crap shoot. Cash in the bank? Theres huge tail risk with that.

I think gold , silver and to an extent , other finite assets (land, fine art) will outperform handily in the next deleveraging wave. The rich will sell stocks to meet margin calls. They wont be selling Gold and nor will Central Banks. Any retail selling gold to pay the monthly bills will be irrelevant.