SGS Notes: Wow! There's so much happening in the precious metals marketplace in the last 2-3 weeks, it's hard to just give you 4-5 articles… October 13 (yesterday) silver started off at $23.47… and today (Oct. 14) as I write this spot silver is at $24.63. The gold:silver ratio is down to 56:1… from its high of 65:1… and still has lots of room to go. This means that silver is still at LOW PRICES… and investors who take advantage of them still have lots of room for making profits. Remember, the historical ratio is 16:1. At today's gold price of $1381, that would price 1 oz of silver at $86.
The Long And Short Of What's Happening With Silver
by Chris Mack
10/12/2010 - FinancialArticleSummariesToday.com
Things appear to have changed in silver trading with the bullion banks nearing a position where they may have lost control of the markets.
Something has drastically changed in the silver market. The banks that once controlled the price of silver are now closing positions at a loss. The commercial shorts have begun to bleed money - and when blood spills sharks will circle. Hedge funds and traders that never even thought of silver before will begin to squeeze the shorts. If the big banks don't quickly regain control of the silver market they may lose it forever.
So says Chris Mack (www.tradeplacer.com) in a recent article* which Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com, has reformatted into edited [...] excerpts below for the sake of clarity and brevity to ensure a fast and easy read. (Please note that this paragraph must be included in any article reposting to avoid copyright infringement.) Mack goes on to say:
Anyone following the futures market for silver knows that the large commercial traders, banks such as JPM, always win. That is until now. Let's look at the history of short selling as it related to silver in the past, what has been occurring recently and what may unfold in the very near future, as follows.
During the bull market in silver that began in 2001, a pattern of trading similar to the "Martingale Betting Strategy" emerged in which 8 trading institutions sold short increasingly larger amounts of contracts into rallies until their sales volumes overwhelmed the market into a freefall. After the freefall they then repurchased those short positions at a profit and the rally process began again. This process of taking money from precious metals investors has been well documented by analysts such as Ted Butler, David Morgan, and others. The strategy was so successful that some futures traders began to front run the banks on their own using tactics such as the COT report and other sentiment indicators. As a result of their actions it has been argued that these large short positions have suppressed the price of silver by a multiple of itself. This may be proven sooner than many expected.
Over the last 6 weeks all was going according to plan. Silver rallied and the commercial banks shorted an ever larger amount of contracts as the open interest swelled to the point at which most silver analysts were expecting a correction. In the last 2 weeks silver rose by nearly $2 dollars and most were expecting to see an even larger commercial short position reflected in the COT report. Instead, the commercials actually covered 2297 contracts, and bought an additional 989 long contracts during the week of September 28th to October 5th when the price of silver rose by $1. The covering was down at what appeared to be a short term top to many.
THE NEAR FUTURE
While it can be speculated on how short covering could impact the market, a short squeeze could feed upon itself as it attracts capital. In five trading days of buying a net 3,286 contracts the price of silver rose by $1. However the commercial banks are still a net 62,127 contracts short so at that linear rate it would take them 94 trading days to cover with a silver price of roughly $117. The resulting losses would be around $15 billion. Of course markets aren't linear and after the second or third week of covering traders would begin to purposefully front run and squeeze the commercial shorts so it is unlikely that the positions could be covered that low or if at all.
Unfortunately, those of you who were hoping for a correction to accumulate more silver may not get it here as a price reset may be on the horizon.
US Mint Raises Premiums
Effective October 1, 2010, the United States Mint has increased the premium charged to their network of authorized purchasers for American Silver Eagles from $1.50 to $2.00 per coin. SGS, consequently, has had to also raise our prices accordingly.
SGS Volume Discounts
SGS has received several inquiries of late regarding our volume discount program. Our volume discounts apply only to non-numismatic rounds and begin with quantities of 200 ounces or more as follows:
200 -500 oz - $1.00 / oz discount
501 - 1000 oz - $1.50 / oz discount
1001 or more - $2.00 / oz discount
Volume orders will need to be placed by phone at present. We welcome individuals to enlist acquaintances to join them in a group order to take advantage of these discounts
Why The Coming Option ARM
Crisis Will Send Gold Higher
Investing In Gold & Silver
Is a 'No Brainer'…
How Dare You Take My Pension Becomes Refrain
Trader Dan Says Silver
Target of $25 has been
FED Says it 'MUST'
Debt Market Strips US
Of AAA Rating…
(One of the reasons for this week's dramatic rise in silver and gold prices!)
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"Gold would have value if for no other reason than that it enables a citizen to fashion his financial escape from the state."
William F. Rickenbacker