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Gold and Silver over the next month or so

March 9, 2011

marketoracle

Last month I calculated Silver was about to go ballistic – I think a 28 % price rise is pretty impressive in one month. I presumed gold would follow at a more leisurely pace. It did. Short term though the fundamentals of each are disconnected. Gold is reflective of safe haven mode where as silver is in highly speculative mode.

Silver hasn’t finished yet by a long shot, but it is pausing for breather. In January I thought out what is happening and it seems now we are due a pull back. In January I did ludicrous calculations to prove the state of the market to justify my thought process. The dips are now very shallow. I was surprised that silver broke $35 so quickly and seems to be hanging on. The hedgefunds that accepted a cash premium reported to be as much as $50 rather than holding out for delivery of physical I think are going to try another raid. Of course the strategy is known now although the outcome may well be the same.

Gold is now the one to watch. Silver is in game mode. Who knows what’s going to happen. It is definitely going up all the way into the autumn. Some reporters are predicting a 2-3 year bull run for silver.

Gold is now the one to watch as that market is more reflective of  the world and is a much bigger market to move. I think now we will see $1650 by the year end. and silver possibly as much as $45 by the end of May. Remember silver is still in *backwardation. The ratio will then be 30:1 if silver hangs onto it’s gains and makes $55 by the year end.  *That is the spot price is more than the buy price in 3 years and the spread is getting wider.

Bear in mind though that if someone has taken large deliveries of physical silver it could well be within their interests to break the paper market and risk a loss on that therefore balancing the gains in a huge physical spike up. A figure on Harvey Organs blog (see below) recently surprised me in that only 4,000 contracts standing for delivery has been mentioned as the tipping point. With funds available I’d be taking delivery of physical through a silver ETF and load up through the comex. Then I would force delivery from the comex. At the last minute I would sell  my physical silver to comex through a third party to deliver plus a cash premium back to me.  And then repeat.

What also worries me is the sort of deal that may have been done. To get an 80% premium maybe there were other strings attached, See the cut and paste below. Given that the market is allegedly highly manipulated we could see some more strange happenings. I have no idea if the note below is a true reflection of what really happened.

Here is what is posted by Louis Cypher:

“Wynter_Benton update on their recent raid

With permission, I can update the results of our raid. It was successful beyond imagination but that “success” has spawned even more questions about the price of paper silver going forward. It was reported by SGS that he heard that on Friday Blythe was offering 30-50 percent premium and that at least 4500 hundred contracts will stand for delivery. I am here to give you a more accurate update (and a first hand account of what happened on Friday Feb 25). Our group was detemined to stand for delivery going into Monday because we were not going to take a 30 percent premium on a price of $33.50. It was reported that Blythe offered 50 percent premium. That was not even close in our case. We got over 80 percent premium. That’s right. Over $50 per contract on the condition that our group sell all our contracts. Our counterparty even threatened us with the ghost of Herstatt. They openly admitted that they could not deliver even 20 million ounces to us but that if we stood for delivery they would be sure that they make delivery to everyone else before they defaulted on us which would make us ‘unsecured creditors’. They told us directly that they could not allow even 5000 contracts to stand for delivery because they could not deliver a mere 20 million ounces. Like Vito Corleone said, “I’m gonna make him an offer he can’t refuse.” And indeed we did not refuse as this was our intention all along.

These sets of facts from our traders lead us to believe that the paper price of silver may have a difficult time surpassing $36 because if the counterparty at the Comex is so willing to pay north of $50 to dissuade people from standing for delivery yet the paper price of silver is still under $35, then we suspect that losses triggered by derivatives is the main reason for the price suppression of silver. We can see no reason why they would not allow the paper price to go up yet are so glad to pay off the comex contracts to show the world that so few are standing for delivery. In our mind, Comex could default with if as little as 4,000 contracts stood for delivery. We are very curious to see how high the paper price of silver actually trades during this run.
Posted by Louis Cypher”

Richard Hartley

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