In Ted Butler's Archive


Conditions have aligned for the occurrence of a significant market event in silver and gold. Extreme technical considerations and supply/demand fundamentals have combined to create the likelihood of this event. By “significant market event,” I mean the sudden upward movement of several dollars or more in silver, and an equivalent price move in gold in a matter of weeks or months. I won’t pretend to pinpoint the exact timing of the liftoff, except to say that conditions currently exist that suggest it could occur quite soon. Such a significant market event would result in new multi-year price highs in silver and new all-time highs in gold.

By “extreme technical conditions,” I am referring to the historic COMEX futures market structures that exist in both silver and gold. Should those market structures become even more extreme with further selling it would enhance the odds of a price liftoff. By “extreme supply/demand fundamentals,” I am referring to signs of acute tightness in the availability of the world’s supply of good-delivery, industry standard 1,000 ounce silver bars. While I don’t foresee the same acute physical shortage in gold as I see in silver, given its dual investment and industrial demand, there is abundant world buying power to drive both metals sharply higher into the rally to end all rallies.

Here’s another consideration. Not only is JPMorgan no longer short on the COMEX for the first time in more than a decade, it is sitting on 1.2 billion ounces of physical silver and 30 million ounces of physical gold, on which it is already ahead by at least $23 billion from its average cost of acquisition, which I calculate at $18 for silver and $1,250 for gold.  Every five dollars higher in silver from here adds another $7 billion and every $200 higher in gold adds an additional $6 billion to JPM’s total gains. Now that JPMorgan has settled the latest of its many deferred criminal prosecution agreements with the Justice Department for offenses including precious metals manipulation, it is highly unlikely to rile up the DOJ by flagrantly manipulating prices in the near future. Better to quit while it is way ahead and reap an even bigger score by not re-engaging on the short side.

Someday in the near future, prices of silver and gold will penetrate the key moving averages they are currently below.  The question is what happens when the key moving averages in gold and silver get penetrated to the upside? This will likely be the beginning of the fireworks to come. Most COMEX trading is technical in the nature and this computerized trading kicks in when the various moving averages are penetrated. This rally could reach $30 in a short time. It would be reasonable to expect, over a short period of time that as many 30,000 net silver and 75,000 net gold contracts will be bought by the managed-money traders, including both new longs and the buyback and covering of short positions.

From this point, if the big shorts do not aggressively add new shorts, then we’re talking a significant market event that would push silver to $40 or more. For a wide variety of reasons, the time is ripe for the 4 big shorts to stand aside and not add to shorts on the next rally. Yes, the big shorts are powerful and the testament to that fact is just how long silver has remained artificially suppressed. At the same time all their power hasn’t prevented them from a $10 billion loss over the past two years after decades of nothing but profits. No one in complete control would allow losses to that extent. Currently, with the concentrated short position in silver being at six-year lows both from a dollar loss basis and how low their short position is currently, the big shorts are in their best position ever to call it quits and throw in the towel – as opposed to digging an even deeper hole by shorting aggressively on the next rally.

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