Tuesday, November 16, 2010

Sunday GGR Now Public

On Sunday, November 14 we sent to Vultures (Got Gold Report subscribers) this week’s full Got Gold Report.  This particular report focuses on the unusual happenings in the CFTC commitments of traders (COT) reports in the small silver market. 

Since then one of our colleagues, for whom we have the highest respect and if we were to mention his name most would recognize it, wrote to say that this particular report is “too important not to share with the public.”  

We humbly agree and so we beg our paid subscriber’s indulgence this one time to share the full Got Gold Report, well, most of it, but on a delayed basis.  Below is a public version of that GGR, slightly condensed.  

With no further introduction, here was the GGR from Sunday, two days ago.  As always, a small portion of the report was posted on this web log on Sunday.  To skip the part that was already posted, scroll down to the three asterisks (***) just above the section titled "Gold" (our short-term gold positioning). 

Got Gold Report – Pullback or Pinnacle?  

Late week reduction in silver futures open interest “says” the Big Sellers are not piling on – yet.  HUI “says” Big Money expects higher PMs ahead.  

HOUSTON (Got Gold Report) – The over-heated markets for gold and especially silver had some cold water thrown on them this week – twice.  This time, instead of shrugging off the bearish news the high-flying metals nose dived in two sell-stop triggering high percentage wallops.  The thing is that the down moves started from very high levels.  Which means that the week-on-week damage comes out looking fairly mundane in the weekly re-cap just below.  But, really, the action this week was anything but mundane.  

Near panic buying in silver Monday and Tuesday, seemed to be feeding on itself and threatened to ignite a disorderly short-covering stampede.  That’s dangerous for an exchange and on Tuesday the Chicago Mercantile Exchange (CME) brain trust had seen enough. During the after-market electronic session, after the market in London had closed and while some number of the N.Y. floor traders were heading for their local watering holes, the CME issued a “surprise” up to 30% margin rate hike for silver futures.  

The only real surprise was the timing and it was a perfectly timed shot across the bows of the long-specs who, up till then, had the ball on the Big Seller’s goal line.

More in a moment, but first here’s this week’s closing table: 

20101112Table

Table comments:  Note that this week the COT data is delayed until Monday, thus the data points that say “Pending.”  Believe it or not, both gold and silver turned in higher highs and lows for the trading week.  Quite a bit higher too.  That underscores just how “hot” the market had become going into the week.  Note the very large increase for silver on the COT reporting date.  If not for the CME surprise margin news, it likely would have been as much as $2.50 higher still or maybe up $4.50 for the COT week.  Note the huge inflow of metal into SLV.  We will have more to say about that a little later in this report. 

In short, we don’t have the most important component of our data set, the COT reports, but the rest of the signs are arguing with each other.  It reminds us of why we trade short-term using stops instead of trying to guess what today’s news means while the market is trying to discount what the news will be in six to nine months.  It pays to remember that today’s news is more of a short-term distraction to the market – most of the time.  As we mention in the conclusion section of this report, we suspect that the news-related movement of this week is more likely than not a temporary animal in the precious metals circus, but just in case we will be strictly focused on our trading stops, as always. Vultures, (Got Gold Report subscribers) please see the commentary and the more than one-dozen technical charts below for the details of our own positioning ahead of this coming trading week.    

This Week’s Radar Screen   

More in a moment, but first things first, the Got Gold Report – the full report – is published biweekly at least 24 times per year.  Between reports we communicate more regularly on the GGR web log, which is open to the public, or in our COT Flash reports and Vulture Bargain Hunter reports reserved exclusively for subscribers.  COT Flash reports appear on off weeks for the Got Gold Report when there are what we consider important changes in the commitments of traders reports.  Vulture Bargain offerings appear ad hoc as there are developments we feel merit comment for and in the issues we track closely.  

The purpose of the Radar Screen is to briefly summarize our positioning for the gold and silver markets, and also to highlight a few of the dozens of indicators, ratios and graphs we keep in constant touch with at Got Gold Report.  Long-time readers know we update most of the Got Gold Report linked charts each week, even the weekends when we don’t publish the full report.

Changes to the linked charts are almost always completed by 6:00 pm ET on Sunday evening (except when Monday is a holiday) and occasionally during the week itself as events unfold.  The chart links are always at or near the bottom of the reports.   

Now on to this week’s gold and silver Radar Screen.

***

Gold 

We reentered gold on the long side July 27-29 with a full position at an average of $1,159.00 as we noted on the web log.  On August 22, with gold then testing the $1,220s we moved our trading stop up to $1,191, wishing then to allow for moderate volatility while protecting some measure of profits.  Eight weeks ago we raised our trading stops up to the $1,223 region.  Seven weeks ago with gold breaking out into uncharted waters technically, and with the COMEX open interest nearing previous limits of speculative “firepower,” we moved our trading stop up to $1,240.  Six weeks ago, with gold having tested as high as $1,320, we raised our trading stops up to the $1,272 level.  Five weeks ago (October 10) with gold then having challenged $1,350 and being strongly overbought, but not yet seeing significant “opposition” from the largest sellers of gold futures, we upped our stops to the $1,292 level, which was about $20 under that week’s low print. Four weeks ago (October 17), with a troubling large increase in the COMEX open interest (to over 638,000 contracts – then a new record), we opted to raise our trading stops to the $1,319 level as we reported then. Two weeks ago, with the flag consolidation resolving to the upside, as expected, we stood pat, having just barely survived the expected pullback as we reported on the web log (October 31).  Last week, with gold on a sharp rise to as high as $1,397, the gold/silver ratio plunging and still no material “opposition” showing from the Big Sellers, but with a worrisome large increase in the COMEX open interest, we moved our trading stop up to $1,337 as we noted in our linked charts for subscribers (November 6).  

Here is this week’s short-term trading chart for gold: 

20101114GoldSmallTrade 
If any of the images are too small click on them for a larger version. 

This week (November 14), with gold having tested as high as $1,424 but currently in another steep pullback and the COMEX open interest once again worryingly high (more than 644,000 contracts), we shall being the trading week right where we are with our trading stop at $1,337, which is more than 6% below the recent pinnacle, but below where we think we saw support trying to form three weeks ago in the $1,340s.  Should gold continue to sell off this coming week and take us out, then we will take the “payday,” haul to the sidelines and reassess then.  

We want very much to remain in the game if gold is not done with this historic rise and that is the primary reason we have not raised our stops up to a tighter level. We are willing to allow for a great deal more volatility when we do not see the “usual suspects” really piling on the short side in the futures markets. Other reasoning will be apparent a little later on.      

Silver  

As we noted on the web log, when silver broke out of its wide triangular consolidation we reentered with a one-half normal sized breakout position at an average of $18.71 equivalent.  As we also noted on the web log, once we were convinced this current breakout “meant business” we took the other half of the position at an average $20.30 equivalent. 

As is our habit with breakout trades, we simultaneously raised our trading stop up then to a no-loss $19.50 equivalent.  Seven weeks ago we upped our stop for silver to a $19.90 equivalent so as to protect at least a tiny profit.  Six weeks ago, with silver having tested $22.15, but also then showing overbought on short term charts, we raised our trading stops to the $20.50 level. Five weeks ago (the weekend of Oct 10), with silver then having tested $23.50, but with the largest sellers of silver futures in retreat, we raised our trading stops up to the $21.50 level (then about 33-cents under that week’s low print).  

Four weeks ago, with silver having come within a dime of USD $25 in remarkably linear fashion, but with the largest COMEX commercial sellers of silver futures still showing more “retreat” than “opposition,” we raised our trading stops up to the $22.50 level which was then 56-cents UNDER that week’s low print.  (Note please the wide tolerance for volatility in these stops.)  

Two weeks ago (October 31), with a flag consolidation apparently attempting to resolve to the upside, with the largest commercial hedgers and short sellers having shown no “aggressive opposition;” with obvious and material short covering showing on that Friday, October 29, we stood pat going into the election week for the U.S and the FOMC announcement of Q.E. II.  

Last week (November 6), with silver having tested as high as $26.89 and having closed the week strongly, on a run, and with the strange COT action of the Large Commercials actually reducing their net short positions on higher silver prices, we moved our trading stops up to the $24.49 level as we reported in our linked charts for subscribers, saying then that we wished to allow for higher than normal volatility while protecting a large fraction of our now very substantial trading profits.  

Well, friends, the extreme volatility has arrived – in spades.  This week, with silver having tested as high as $29.33 in near-panic buying Tuesday but now on a news-inspired pullback (we think); with the Big Sellers still likely not aggressively selling into this historic rise – meaning they are not yet confident in lower silver prices, we wish to continue to allow for much higher than normal volatility and so we shall stay put to begin this trading week with our stops at $24.49 equivalent.  

Yes, that “leaves a good deal of our paper profits on the table,” but we get the sense there is something very historic and unusual about this current silver market.  We sense that something has prevented the “usual suspects” from selling hard into this advance.  Thus, the stakes are potentially very high.  So then must be our tolerance for volatility.  

Here is this week’s short-term trading graph for silver.  

20101114SilverSmallTrade 
 

Think People Are Interested in Silver Now?  

Wow, would you look at this 5-year graph for the biggest exchange traded fund for silver:

 

20101114SLV5YsmallDMs  

There are just a couple of points we would like to note this time. First of all look at the fantastic volume this past week!  We say wow again!  And, the trust reported adding a stunning 523 tonnes of new silver this week, which means that people were buying the heck out of the dip for silver.  

Nota Bene:  The following account may seem tedious to some, but we urge Vultures to “own” the important trading history below. Professionals will absolutely dig in and grasp the essence of it, pretenders will not. We do indeed believe it to be significant enough to describe in detail and to make it the focus of this week’s offering.     

Next, the two previous definition moves (DMs) for silver are shown in the chart above. The first one shown was in 2005-2006 and it was actually the front-running of the launch of the silver ETF which sparked that move up to $15.  One can see the volume for SLV beginning around the time of the peak of that DM.  

The second one was the 2007-2008 event which occurred just prior to the horrible 2008 panic and it defined upper resistance for silver for more than two years.  Silver is currently in another definition move right now, but do you know what the previous two DMs had in common?  

Both of the previous two definition moves for silver saw the largest of the largest commercial traders on the COMEX, the bullion banks and the more mercenary swap dealers combined selling heavily into them.  No so for the current DM so far. 

For example, we would argue that the 2005-2006 DM began in early September of 2005 with silver then trading in the $7.00 range.  The open interest on the COMEX was then, on September 6 at 112,175 contracts open.  The combined commercial traders then were net short 35,112 contracts (LCNS) and the relative net short positioning (the commercial net short position compared to the total open interest or LCNS:TO) was then 31.3% (quite low and very bullish).  

From September through late November, the silver price struggled and clawed its way higher and by November 22 it had cracked the $8.00 battle lines, but that was against very staunch “opposition” by the Big Sellers.  On November 22 the LCNS was 78,324 contracts or 43,212 contracts higher than in August.  The open interest had increased then to 149,698 contracts open. 

So with silver having only added about $1.00, the biggest commercial sellers of futures were so confident that silver would fall back lower they had increased their net short positioning by 123% in 10 reporting weeks!  The Big Sellers had so much confidence that silver was overpriced, that they had sold the equivalent of an additional 216 million ounces during that $1.00 rise in price.  As of November 22, ‘05 the combined commercial traders were collectively net short paper silver contracts covering 391 million ounces.  The relative net short positioning jumped up to 52.3%.    

We already know how this story ends, but recall that at the time there was a great deal of doubt that the new silver ETF would actually get launched. 

By December 6, with silver then trading at $8.60 and driving hard north, the Big Sellers threw everything they had at the short side.  In for a penny, in for a pound apparently. The LCNS was then a whopping 87,195 contracts with the open interest then 141,571 open, meaning that the commercial traders held a net short position equal to a staggering 61.6% of all the COMEX silver futures action.  (The highest LCNS:TO in our records occurred March 8, 2005 at 65.2% with silver at $7.40.)  

So by December 6, three months and just $1.60 higher in price in this DM event, the largest hedgers and short sellers had increased their net short positioning by 52,083 contracts (148%).  The commercials were so supremely confident in lower silver prices, that just from September to December they had sold paper silver contracts representing an additional 260 million ounces and a total net short position of a whopping 436 million ounces! (Highest total commercial net short position in our records.) 

With that much firepower expended, one would have expected the price of silver to wither, but wither it did not.  We will spare all the blow-by-blow details, but suffice it to say that in late 2005 and early 2006 the commercials were on the wrong side of a new silver definition move.   

In April of 2006 silver would test the $15 level just ahead of the launch of SLV, more than $8 (115%) higher than where we picked up the story and, believe it or not, more than $6.50 (76%) higher than where the commercials took their enormous, record net short goal line stand in December.  

That was the first of the two DMs on that chart above.  We will make quicker work of the second and somewhat similar 2007-2008 DM.  That event began in August of 2007 with a wicked head-fake lower to nearly $11.00.  However, silver quickly snapped back up to around $12 by the September 4, 2007 COT report.   Let’s begin there with the large commercial hedgers and short sellers then net short 24,833 contracts with the open interest then 107,814 open, so the LCNS:TO was a very low and very bullish 23%.  

By February 19 of 2008 (about 5 months later, silver $17.25, open interest 189,151, LCNS:TO 40.1%), as silver was challenging the $15 - $16 resistance for the third time, and had actually printed more than $17, the Big Sellers had upped their net short positioning to a very high 75,790 contracts (the highest net short level of this DM).  The Big Sellers were confident in lower silver prices enough to have increased their net short positioning by 50,957 contracts or 205% as the metal had increased about $6.00 (50%+) in five months or so.  

Between September and February the commercials had sold the equivalent of 255 million ounces worth of additional “opposition.” As everyone knows by now silver would not peak in that DM until April at $21.44 or about $4 (23%+) higher than where the large commercial traders fired their strongest opposition guns.  

The point of these two reviews of the previous DMs is that the largest commercial hedgers and short sellers sold paper silver futures into the market in very large numbers as the price of silver broke out of previous resistance.  In both cases the commercials reached a point where the LCNS quit going higher even though the price of silver continued higher.  These are the “rolling fallback” events we refer to from time to time.  Where the commercials are covering losing hedges and redeploying them at higher prices in a continuous rear guard action until the strategy “works,” which explains when the price of silver increases but the LCNS stays steady or even falls.

Just below is a long-term chart of the nominal net-short positioning of the combined commercial traders from 2005 to the present.  (Updated to reflect the November 9 COT data, which was not available when this report was originally filed.)

 20101116silverLCNSlongTerm 

Source CFTC for COT data, Cash Market for silver. If the image is too small click on it for a larger version.

If you have made it with us this far and have a good grasp on the important data we have just shared with you, then you will understand just how much firepower the Big Sellers of silver futures expended in the last two definition moves higher for silver metal and how both times the price of silver continued considerably higher even after they had taken their very largest short sales.  The part we haven’t yet acknowledged is that in both cases silver did indeed correct very harshly once the new DM had peaked.  But instead of increasing their net short positioning as the price fell, the commercials reduced their net short positioning more or less in proportion with the fall in the silver price.  

Now for the Big Difference and the reason we have gone to the trouble of relating those two previous DM events in detail. It’s also why we have been reluctant to run very tight stops up to now, preferring to allow for plenty of volatility in our short-term positioning.    

We argue that this particular DM began in July of 2010 with silver then confined in a consolidation triangle in the $17s.  In the July 27 COT report the COMEX combined commercials reported a net short position of 46,786 contracts with the open interest then a subdued 117,370 open, so the relative net short position was then 47.3%.  

We find it startling that this time, in the September 21, 2010 COT report (silver $20.95, open interest then 146,767 and the relative net short position 44.5%), as silver broke out of that consolidation and was challenging the previous high water mark of $21 the big commercial traders had only increased their net short position by 18,535 contracts to 65,303 contracts net short. 

The Big Sellers were apparently NOT all that confident that silver would fall this time as it challenged its old highs because they only increased their “opposition” by 40% or a “smallish” 93 million ounces of silver!   

Remember that in the 2005-2006 DM event the Big Sellers increased their net short position 148%; by as much as an additional 260 million ounces.  In the 2007-2008 DM event the Big Sellers sold hard again, increasing the LCNS by 205%; by as much as an additional 255 million ounces worth of COMEX paper promises to deliver silver. 

What is different this time?  Why haven’t the Big Sellers of COMEX futures taken a much larger net short stand as silver has made a historic breakout to new 30-year highs?   What is holding back these veteran pro hedgers and short sellers?  What is keeping the “price police” from capping the price of silver?  

Consider, please, that in the six reporting weeks since September 28 (to last week’s report as of November 2), as the price of silver rose $5.19 or 24% from $21.74 to $26.93 (on COT reporting days) the “usual suspects,” the largest of the largest commercial hedgers and short sellers of silver futures on the COMEX, actually REDUCED their net short bets by 9,365 contracts or 14%.  Something is indeed different.  SOMETHING HAS CHANGED.

(Ed. Note: On Monday we received the November 9 COT data which showed a further very large reduction in the commercial net short position of 5,563 contracts to 50,485 contracts net short, which is only 3,717 contracts above the LCNS in the July 27 report where we began this DM review, with silver $9.26 higher. Nearly all of the "additional opposition" fired by the commercials has been covered or offset.)   

This time, as silver is on a major breakout to new 30-year highs, the Big Sellers have NOT been confident in lower silver prices.  If they had been, or rather, when they become confident in lower silver prices we can bet they will indeed be willing to increase their net short positioning.  

Perhaps now one can understand why we have been saying that it appears that the Big Sellers of silver futures seem to be in retreat.  

This is not what we COT wonks have come to consider as “normal” and it hints that there has been a material, possibly structural or fundamental change in the tiny silver market. The biggest, best-funded and presumably the best informed commercial traders are unwilling to hammer the silver market on the short side, even on a $5 (or even a $9) increase.  

Late this past week, the COMEX open interest for silver actually fell quite a bit from around 160,000 to about 147,000 open as the price got knocked $3 lower by the two big news events for silver this week (CME margin hike and China inflation).   That is inconsistent with a rising commercial net short position. 

When we add the rapidly falling gold/silver ratio, the reported lawsuits against the commercial bullion banks alleging conspiracy and manipulation, multiple reports of large Asian and Middle Eastern buyers demanding physical metal, the huge dip buying by the public into SLV this past week (523 tonnes of silver), et al, can we speculate that the tectonic forces of overwhelming popular demand into static and quite limited supply of commercial silver bars are now, finally, fully and completely in charge of the silver market?  

Is the reason that the Big Sellers are basically AWOL because they feel the risk of selling silver short is just plain too high?  Is that why the relative commercial net short position (the most important graph we track for silver) has actually fallen in the past six reporting weeks from 44.5% to a low 35.3% on a $5 rise in silver?  That is astounding and very strange, fellow Vultures, and here’s the long-term LCNS:TO graph for reference: 

(Ed. Note: In the November 9 data, released after this report was filed, the LCNS:TO fell even further, to a very low and potentially bullish 32.3%. See the web log post immediately prior to this one for more detail. The LCNS:TO graph below is updated to show the November 9 data.) 

20101116SilverLCNSto 

Source CFTC for COT, Cash Market for silver.  Click on the image for a larger version. 

Let’s zoom in on just the past year for the relative commercial net short position for silver.  Remember this is the best gauge of the confidence of the hedgers and short sellers that silver will fall in price.  As the blue line in the graph rises it means that the Big Sellers are more confident in lower prices and vice versa. (Graph updated to show the November 9 data.)  

20101116silverLCNSTOshortTerm 

Remember also that the LCNS:TO gauge of the commercial confidence does not necessarily mean that the commercials are “right,” but it certainly does speak to the willingness of the largest commercial traders to bet on the down side of silver futures.  

The price of silver has been exploding higher but the relative commercial net short position is falling!  We have added trend lines to the graph which help to confirm that over the past year the propensity of the Big Sellers to take the short side of silver has been falling as the price of silver has been rising and that is completely contrary to the historic COT action in our database.  Again SOMETHING HAS CHANGED.  

This is about as interesting an intriguing as the COT world gets. We are witnessing a major change in the silver market.  We believe it is indicating that the usual sellers are likely  unsure of their ability to source enough silver to avoid a short squeeze and thus are unwilling to chance being “caught short.”

We believe that the primary reason the Big Sellers have not been willing to sell into this silver definition move higher is that they see exploding demand for the limited supplies of available commercial silver bar stock.  

We believe that if that was not the case, if the commercials believed there was ample bar silver available they would have ramped up their “opposition” to the Silver Express well before now, like they did in the previous two DM examples above, confident that sooner or later silver would harshly correct enough later to make their position-taking profitable.  Instead, they are not only not selling into the historic rise in price, they are strangely “getting smaller,” both nominally and in relative terms.  

So, friends, we are witnessing a very unusual event in the tiny COT universe of silver futures.  Very few people in the world are aware of the conditions we just related to all of you.  Most will assume that silver has been over-priced by crazy hyped-up speculators throwing enormous sums of capital at silver and that, they will conclude, is unsustainable.  

In fact, the current situation does include hugely increasing demand which is inarguable, but we Vultures know that the reason that silver has gone nearly parabolic is not just because of the demand – it is also because the “price police” have been in retreat.   

Funds and individuals sense that silver is on a rise, but they may not understand just how structurally bullish the market is, yet. We cannot know if this is The Event, or merely a warm up or a warning shot, but either way our desire to own and to hold physical silver and silver ETFs is certainly enhanced by this data.

Did we mention that the public senses that silver is on a rise.  Just below is the chart for silver holdings at SLV.

20101114SLVMetalHoldings10718t

Source iShares Silver Trust   

We’ve already commented about the remarkable increase to the metal holdings on the web log, but we show it here to emphasize that there is indeed heavy demand from the public involved.  That demand for physical silver isn’t limited to just SLV.  Other funds, such as the new Sprott silver fund, Canada’s Central Fund and other ETFs are now or have recently also been in the small market for commercial silver bars.  It seems there are lots and lots of buyers, but according to respected industry observers such as James Turk and Jim Sinclair, the availability of bar silver is becoming extremely tight.  

Did we mention that we believe that tightness in the physical silver market is a major reason that the Commercials have been unwilling to take much higher positions on the short side of silver futures? If that is the case there is one and only one cure for exploding real demand for physical metal into diminished and limited supplies – higher prices.  Prices high enough to call latent, long forgotten, but nonetheless extant private hoards of the metal back “into service.”  Higher enough prices for long enough that the usual flood of scrap makes its way through the re-refining process and into commercial bar stocks where most of the price discovery occurs.  Prepare for a wild, probably very bumpy ride ahead.     

Moving on, we have time for one more indicator this week, so let’s look briefly at the HUI, our preferred proxy for the Big Miners.  We note that the HUI more or less held its ground this week on the gold and silver selloff, so we can say that the ascending triangle or powerful cup with handle breakout remains intact – so far.  It is bullish that the Big Miners refused to “answer” or over-sell the gold pullback this week, but that very long “shadow” showing on the weekly graph is an ominous sign until taken out to the upside.  Very long spikes higher that are not reversed are often associated with market tops, thus it behooves us to watch the trading for the HUI very carefully just ahead.   

20101114HUIlongtermCupHandle

We are sure that by now, we do not have to remind Vultures to mind their stops, so we won’t mention it! 

Summation  

 • Both gold and silver appear to be in sharp, news-inspired reactionary pullbacks having surged to new event highs.  Both metals turned in higher highs and lows and neither has violated the previous week’s lows. (Gold $1,326 – Silver $23.96.) Thus, no material damage has been done to most charts and that is more bullish than bearish.  

• The very high to extreme volatility we spoke of in previous reports has arrived and we are as comfortable with our current stop placement as we can be under the circumstances.  We wish to protect a good portion of our substantial trading profits while allowing for high volatility for gold and substantial to extreme volatility for silver, but we are not willing to lower our stops to accomplish that goal at this stage.    

• As far as we can tell (without having the COT data for November 9 yet, which will not be released until tomorrow, Monday), the commercial hedgers and short sellers on the COMEX are not, repeat NOT selling futures aggressively. Indeed in the November 2 COT report the Big Sellers reported REDUCTIONS in net short positioning of 5,823 contracts for gold futures and 1,818 contracts for silver futures both on significant increases in the price of the metals. The relative net short positioning for the commercials in both gold and silver also fell in the report for November 2, from 46.5% to 44.7% for gold, and from 37.8% to a strangely low 35.3% for silver.

• Late this week we saw material reductions in the open interest for silver from more than 160,000 to roughly 148,000 contracts, which is usually inconsistent with an increase in LCNS, but we will not know for sure for about a week.    

• This week we witnessed enormous dip buying for SLV on huge, record volume, suggesting that demand for silver is intense into this sell down. Historically, heavy inflows into SLV have been less than bullish, however, we have never seen dip buying into SLV of this magnitude, so we will wait for the jury’s decision on this event. 

• We believe it is possible that both precious metals saw material short covering late Friday, but it is difficult to show that in the price action.  The lack of a late day rally in price hints there could be additional selling pressure right out of the gate on Monday, but if there is, given everything we have seen thus far, we would expect most any dip to be very strongly bid.   

• Below is the short-term gold/silver ratio chart for reference. 

  

20101114GSRsmall

• The gold/silver ratio traded down to a 48 handle at one point Tuesday, but has now moved back higher to about where it ended the week prior. 

• Repeating from last time:  We will continue to make the case that for most of this generation’s experience the GSR has been artificially high for all the reasons we have noted in previous writings.  We strongly suspect that silver is in the process of returning to its historic relationship to gold with perhaps a near-term target of something close to its 20th Century mean in the high 40s. Then, over time, we expect to see the GSR even lower, closer to its historic “comfort zone” of between 15 and 20 ounces of silver to one ounce of gold. Note please that our initial target for the GSR was hit on Tuesday. We now believe that target may have been conservative. We'll see.

20101114GSRlongTermWide 
 

We remain long-term bullish for gold and silver bullion.  We have seen nothing in the data to discourage that bias. Until such time as we can make the case for increasing confidence in fiat currencies on a global scale and decreasing confidence by the global populace for precious metals, we are forced to retain this key bias.  We remain in a long-term secular bull market for precious metals.  

• Repeating from last time:  We remain grateful that we hold, in addition to our short-term trade positions, a reasonable portion of our assets in actual bullion.  We think everyone should. 

• Finally, we believe we have indeed entered a new era for silver metal, one where the production/consumption deficit that has been eroding world stocks of the metal for decades will finally become apparent to enough people that a rapid material shift in the public perception of silver will occur.  It is already underway.  More and more people will come to understand and respect the second most popular precious metal (and learn about its real scarcity relative to gold metal).  We just do not know if this current surge even is The Event of that launch, or if it is merely a warning shot or a rehersal. But the resurgence of silver as money is almost certainly coming, friends and fellow Vultures.  AND THAT IS WHY WE TRADE SHORT-TERM USING STOPS INSTEAD OF TRYING TO GUESS. WE ARE HEAVILY LONG SILVER IN VARIOUS FORMS, BUT WE ARE NOT ARROGANTLY SO IN OUR SHORT-TERM TRADING. HOW ABOUT YOU? 

• Sooner or later the Trading Gods deal harshly with trading arrogance.  Best to keep that in mind, or maybe tape it to one of the trading screens.    

 Our valued readers will find much more technical and fundamental commentary in the linked charts just below. (Note in this public version are two examples of the one-dozen “live” technical charts in the full GGR.)

Got Gold Report Charts 

    • Gold, 1-year daily 

    • Silver, 1-year daily 

Vulture Bargain Hunter call-outs this week:  Over the past two weeks we personally added shares of the following VBH candidates/Vulture Bargains:   Riverstone Resources (TSX:RVS.V or RVREF) at USD $0.775 

The remainder of the Vulture Bargain portion of the report has moved to its own section in the password protected subscriber section.   

That’s it from Houston this week.  Until next time, thanks for honoring us with your time and with your business.  Subscribers make this service possible.  Good luck, good trading and as always, MIND YOUR STOPS.  Got Gold? Got Silver?   

Disclosure: The above contains opinion and commentary of the author.  Each person should study the issues carefully and, as always, make their own informed decisions. Disclosure:  The author and/or his family currently holds a net long position in SPDR Gold Shares (GLD), net long  iShares Silver Trust (SLV), long the following “Vulture Bargain Candidates” or “Vulture Bargain Stocks” mentioned in this report or within the last year: Timberline Resources (TLR), Paragon Minerals (PGR.V), Forum Uranium (FDC.V), Odyssey Resources (ODX.V), Hathor Uranium (HAT.V),  Bravo Gold (BVG.V), Millrock Resources (MRO.V), Atna Resources (ATN.T), Riverstone Resources (RVS.V), Constantine Metal Resources (CEM.V), Rye Patch Minerals (RPM.V), Evolving Gold (EVG.V) and currently holds various other long positions in mining and exploration companies. The author receives no compensation from any company mentioned in this report with the following exceptions: Bravo Gold, Millrock Resources, Rye Patch Gold and Eurasian Minerals are sponsors of Got Gold Report. 

 ***

(Ed. comment Tuesday, November 16, 05:45).  We are including the revised table now that the COT data has been released. The updated closing table is below.)

20101115TableRevised 

 


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The Original
Vulture Speculator

Trading gold, silver and mining shares since 1980 with a focus on taking advantage of volatility extremes, Gene Arensberg analyses the markets through a basket of technical and fundamental indicators and shares his findings from time to time here at Got Gold Report. Mr. Arensberg has been quoted in the Wall Street Journal, Dow Jones MarketWatch, USA Today and dozens of other news organizations.

"I've been a huge fan of Gene and his amazing work for years..."

Brien Lundin, CEO, Jefferson Financial, Host of the annual New Orleans Investment Conference and Publisher of Gold Newsletter


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