Silver Spreads: Contango Crush Update

Tyler Durden's picture

A Continuation from Yesterday’s Story: Silver Contango Crushed – Short Squeeze Imminent or Position Limit Ruling Fall Out?

Courtesy of FMX Connect

Silver spreads continue to sell off on Thursday. So far, any theories that weaker spreads are ultimately bullish for the physical metal have to be viewed suspiciously. We spoke with a couple of traders on the topic and our revised possibilities list is as follows:

Points

Silver spreads are being sold because..

  1. There is a physical short squeeze coming.
  2. The appearance of a short squeeze was manufactured as an exit strategy for a long to get out.
  3. Spreads are being messed with in light of the CFTC position limit ruling.
  4. Two-year silver rusts and spot silver doesn’t.

Counterpoints

  1. Why is the market lower?
  2. It’s an awful lot of money to spend to camouflage your selling. Millions,upon millions of dollars.
  3. This theory remains entirely possible but the kind of sophisticated funds affected by the new regulation probably wouldn’t puke that way unless they were blowing out.
  4. We’re no chemists, but we suspect this statement is somehow inaccurate.

For the time being, we can not discount that there is a short squeeze coming but more information is needed before we can know for certain. If a bullion dealer is selling spreads because they anticipate making delivery we think we’d probably be the last to know, that’s why we are think it is more likely than not that this  a charade. Whatever the message may mean, it is  certainly expensive to send.

There is one other theory worth mentioning. The most important thing to know is that history does not repeat itself but it sometimes hums a similar tune. What happened in 1997 we do not think will happen again, exactly the same way. In 97 spreads collapses and the market screamed higher, there was no misinterpretation of the signal. We think someone is being fooled or making a mistake, we just don’t know exactly how yet. There may be a sap at the table, but  his identity is unclear for the time being.

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Spalding_Smailes's picture

Monkey hammer meets bubble ....

Richard Head's picture

Stick to using "blowtorch."  It's the only thing you're good at.

goldmiddelfinger's picture

You tend to grope when you're losing

Mr Lennon Hendrix's picture

You tend to lose when you're groping.

tmosley's picture

Most women don't have an adam's apple.

Bay of Pigs's picture

Treat Blythe like a farm animal.

Spalding_Smailes's picture

 

http://www.cmegroup.com/tools-information/lookups/advisories/clearing/fi...

 

Clearing Member Firms 

Chief Financial Officers 

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CME Clearing 

SUBJECT: 

DATE: Thursday, January 20, 2011 

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As per the normal review of market volatility to ensure adequate collateral coverage, the Chicago Mercantile 

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following products listed below.  

 

The rates will be effective after the close of business on Friday, January 21, 2011. 

 

Current rates as of: 

Thursday, January 20, 2011. 

 

Freddie's picture

+1

 

Where is this Tyler Durden? I am losing my ass in Blue Star Airline, Teldar Paper, Anacott Steel, SLW and GLD! 

You get me in at a 45-degree angle. All the way in. You slash and burn, you buy everything in sight up to 22.

Turd Ferguson's picture

I'll have a VERY IMPORTANT gold update later tonight. Will be sure to spam ZH when ready.

RockyRacoon's picture

I'm on the edge of my seat in anticipation.  Thanks, Turd.

Turd Ferguson's picture

You got it, Rock.

Give me till about midnight eastern, though. Maybe sooner but lots to do before then.

Freddie's picture

Yes yes!  Tell us more. 

I am losing my ass in Anacott Steel, Blue Star Airlines, TelDar Paper, SLW and GOLD.

"Tell China that Blue Horse Shoe loves PM."

"Get Bud Fox on the phone! "

 

kentfinance's picture

you guys are backwards. spreads went wider today. the carry is going up isn't it

kentfinance's picture

could you post the curve? would be helpful if i am bass ackwards which it sounds like i am

SwingForce's picture

I have my helmet on, go for it!

fmxconnect's picture

All that said, it's ridiculous for spreads to do this without a rally at some point.

prudentbear's picture

What is the most the spread has been in contango between the first two liquid months for silver?

Or where can i find out?

Anyone here buying the spread in anticipation of a delivery squeeze?

TWORIVER's picture

Stakes are getting high as Gold's (1345) up trend from 2008 lows is at 1296 today. Very big decisions are going to be made soon.

fmxconnect's picture

indeed, the200 day moving average is next up in the 1280 area if we dont stabilize soon.

TWORIVER's picture

Silver already has Head and Shoulders top in as we broke 28, looking for 26.5 then 25 there.

JLee2027's picture

Or 5000. Just as plausible as those Ouija boards you use on something that is manipulated.

TWORIVER's picture

Not really using a Ouija Board, just looking at the supply demand picture represented on by a bar chart. I don't know what you use.

TWORIVER's picture

So then you see the Head and Shoulders top from 28 - 31, right? Thats what common sense would tell you.

JLee2027's picture

I pay no attention to the men pulling the puppet strings, and you shouldn't either.  Stalin would call someone like you a "Useful idiot".

Bay of Pigs's picture

Common sense would also tell you to cost average in all the ay down to 26 if you think it's going that low. I don't. BTFD.

Catullus's picture

Don't bother. The bugs think they're the only ones buying or selling. They don't think someone else may be managing a P&L and have been late to the party in the recent rally. "what's consolidation? The fed could hyperinflate silver to 5000 in nanoseconds!!!"

NOTW777's picture

why is this a surprise when we know who controls silver with the help of the fed government

fmxconnect's picture

it's a suprise because you don't need to sell spreads to fool the market. they are very illiquid. it's entirely possible that a bullion dealer is frontrunning someone who had spreads to sell.

goldmiddelfinger's picture

Can't recall any widely heralded short squeeze "warnings" that actually played out.

fmxconnect's picture

1997:  silver trading 4.50... spreads g ofrom contango to backwardation. mkt moves higher 3.00 in a few days. spreads go backwardated at a 40% negative costofcarry. Buffet locks it in, essentially lending the silver he took deliver of back to the miners he duped. i traded it.

 

footnote: he lent it back to them at a 40% negative carry on it because the govt asked. his intentions were to squeeze the industry. there are many other examples. But this should do.

goldmiddelfinger's picture

Touche. Guess I'm thinking more about equities patterns but was there wide knowledge of the setup?

fmxconnect's picture

Didn't mean to be so snarky. to answer: widely understood? No. Widely known what was going on in terms of spreads adn metal coming out of the warehouse, yes. Spreads are coming in, why " I dont know that is weird, probably bullshit. Lets get a beer."

6 String's picture

I can think of a few goldmiddlefinger in the equity markets. But, yeah, I tend to agree with you: the short squeeze theory is totally ridiculous and stupid to say the least. JPM isn't going to get "short squezzed" out of paper when the CFTC just confirmed the go ahead for them in the ongoing silver manipulation scheme....

This isn't a short squeeze. It's a classic hammer down. And they are going to keep hammering away. Seriously, short squeeze? Won't happen until the COMEX is wiped out which doesn't appear immediately immiment.

I'm long siver, but i expect to see the Chinese continue to push the price down thru JPM as they accumulate the phyiscal stuff. The spot price is a fucked up barometer for what the true price will probably be....

But patience is the name....which is what they are trying to hammer down on. Get the investment demand to wane; shore up physical.

It's a damn tug-o-war like everything else right now. But an immenent short squeeze theory is plain wrong-headed.

Yen Cross's picture

  Yes you are correct! xag is a buy intrest in my book. 100sma-200sma. Silver is a much better value than gold! 25.73-22.02. I enjoy the larger contract size. I can trade a 4 pip spread on the spot market. It has real value. Not perceived value. I like it!

tellsometruth's picture

called my local dealer, only sterling available today....

cat2's picture

If you don't know who the chump at the table is...it's you.

fmxconnect's picture

exactly. but we are flat.

downrodeo's picture

damn, beat me to it...