"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Monday, June 25, 2012

Comments on the Deciphering Silver article

To all;
Thanks for the comments and feedback on the recent article entitled "Deciphering Silver". Glad it was helpful.

To the skeptics - I would suggest you look far more closely at the comparison chart of silver and the CCI. It is evident you fail to understand just how hedge funds treat the risk on/risk off trades.

When the CCI moves lower, silver will GENERALLY move lower along with it. When the CCI moved higher, silver generally moved higher along with it, especially since September of last year when the chart pattern between the two has been almost identical.

The charts simply do not lie but it has been my experience that those with closed minds will never be convinced no matter what illustrations are shown them. For one to continue blaming Morgan for the downdraft in silver even as the CCI has been plummeting suggests that somehow MOrgan is responsible for taking the entirety of the commodity complex lower. Never mind the fact that hedge fund short positions are going up as the commodity sector goes lower -

By the way, have you noticed that the CCI is moving strongly higher today and SURPRISE, so too is silver.

Some of us old time traders well remember the link that used to be between silver and soybean prices. Typically when soybeans were moving higher in a weather market, silver would move higher as well. Guess what - Soybeans are in a full fledged weather market as the drought pattern worsens over the MidWest and the entire grain complex is soaring with new crop corn locked at the limit up price.

It sounds weird, but we traders back then would draw a connection between rising grain prices and inflationary pressures and would oftentimes buy silver as a result. Looks like the old link might still be there, even though the equity markets are moving lower today and there is some light strength in the US Dollar.

If grain prices start a strong trending move higher and begin gathering more upward momentum, it is going to impact the general price of food moving foward and that will be inflationary from a supply standpoint. The big question is what will happen to the demand side of the equation if high grain prices begin choking off demand, particularly in a rotten global economy. The battle royale between the macro picture and the various fundamentals across the commodity markets continues.

Hold on to your hats!


  1. The purpose of the Strong Dollar policy (Greenspan term) is to increase dollar value relative to commodities. One of the tools the manipulators use, besides interest rates, is currency market manipulation, including the currencies of Gold & Silver.

    That the CCI tracks with silver could be a sign that the currency manipulators are achieving their goal.

    If I worked for a hedge fund, I would take the effects of government intervention in markets into account. Therefore I suggest that it is illogical to have short-term money in silver if I suspected that there was a policy to keep the price down for that quarter.

    In other words, do the hedge funds take actions of the Cartel into account when making investment decisions ? If I was working for a hedge fund, being judged by quarterly results, I would have zero money in silver UNLESS I had inside info on short-term moves, or maybe subscribed to Dan's or David Morgan's subscription service.

    Of course, for those with a more long-term view, the recent price action is a gift.

  2. Hedge funds look at the market on quarter to quarter basis so they treat everything as risk plays including gold, and they are always outplayed by Wall St banks. The deciding factor in the equation is therefore IMO not hedge funds but the sovereigns like China, Russia and so on. They are steady buyers in the physical gold market and their pocket is so big that they cannot be manipulated with margin-calls or what not dirty banker tricks. Such steady sovereign buyers are not there in the silver market, which is the main reason why silver is more sensitive to hedge fund volatile algo-trading.

  3. Is it a coincidence that the EUR/USD chart follows the CCI spot on as well?

  4. The day is over, gone, when you would buy silver in the hope that it would appreciate against a relatively stable dollar, such that you can sell your silver for dollars and gain purchasing power in a relatively stable economy. That was the story of the past ten years. To repeat, that day is over. Today, one buys gold, and only gold, in the hope that one may have it in one's tight little fist on the day gold is pegged in some way to an officially devalued dollar. On that day the dollar becomes good as gold, and silver no longer trades as a monetary metal. On that day silver reverts to its industrial value, which may be, at best, $5-$6 ounce. The time for investing in silver is past. Today, it is all about gold and finding a way to own gold in a form and place that will guard it against the inevitable confiscation that will precede a dollar devaluation. Half_Monty.

    1. I am not a wiz, but I do know this, as far as silver goes, time will tell. Time has a way of telling the truth.

      If you think you are absolute right, hold on to your hat the wind is starting to blow.

    2. To Mr Brault, with all due respect why such the bash on silver?? Silver has been used as money for thousands of years (check the bible). Wasn't there a silver standard before gold? Silver has been correlating right along with gold as well!!

    3. Steve, indeed the wind is starting to blow. That is my point.

      derry, as Dan has often pointed out, silver works best as a pure inflation hedge, hence its appreciation in the 70's and over the past ten years. But today we are investing against Armageddon, and that calls for a position in gold. If the dollar must be saved by being pegged to gold in a devaluation, then, yes, the industrial value of silver will rise by the amount of the devaluation. This might double or triple silver's industrial value, say from $5-$6 to as much as $15-$18. But there would no reason to own silver as a monetary metal. So it would probably be valued well below its current spot price and vastly below the hundreds of dollars an ounce some envision. My opinion. Half_Monty.

    4. Robert Brault,
      there are only three ways to deal with the amounts of debt:
      a) Growth must be bigger than (growth of debt + interests).
      b) Inflation.
      c) Default.

      Since for scenario b) Silver would be the best hedge and you call the Silver trade a trade of the past, you believe growing out of the debt from the current levels is possible. Therefore you believe in unlimited exponential growth. QUED.

  5. Even though this blog mostly relates to gold and silver, check out the action in the grains. Corn went limit up today, wheat and soybeans look incredibly strong. There was a similar situation in the grains in July of 2010 where they outperformed everything, just before QE2. That's not to say QE3 is coming. Do grains play catch-up to the downside, or do the other commodities play catch up to the upside?

  6. Dan, any thoughts on crude oil vs. silver?

  7. Dan...money velocity for MZM is an entirely different picture if you look at the long term trend. The trend has been sharply lower since 1960! In fact its present value is lower than it has ever been! I dont know what has caused the collapse, but I would have to bet more QE isnt about to reverse the trend. M2 velocity has a similar picture. I dont think these indicators are useful as references anymore.


  8. Italian version of "Deciphering Silver" > LINK

  9. Thanks Dan. A pro-precious metal voice that does not call every move downward a result of manipulation.

    Currently even a blind one can see, that the inflationary pressure has vanished and deflationary forces are the main concern.
    Central banks fear the monetary metals in an inflationary environment, because they show how fast FIAT-money is losing purchasing power. And if central banks and governments want to use financial repression to reduce debt, then manipulating strong PMs lower is logical.

    Since Silver is primarily an inflation hedge and is performing less good in deflationary scenarios, because of it's big industrial component, it is quite logical that it has come under pressure since QE2 ran out and that gold has been outperforming silver.

  10. Dan-

    Sooooo... what about that 500 level in the CCI? Looks like the CCI is bouncing off support, with the next level of even greater support at 450.

    Agree with you that the commodity markets are waiting for the printing presses as a triggering event, but the energy that seems to be building beneath them looks to be adding enough fuel for a pretty significant move when the print button does get pushed....

  11. It's important to underscore that both the cartel manipulation and hedge fund dynamics occur and are not mutually exclusive. The two greatest examples are the Feb. 29th 2012 Uncle Ben bombing day and the Sunday evening / Monday morning ruthless bombing following the effective nationalization of Fannie Mae and Freddie Mac that marked the EXACT 2008 top in the commodities sector. With respect to the later, even stoic Don Coxe called it a Central Bank and Treasury coordinated "midnight massacre" of commodities. Once the central planners set the trend, the hedge funds followed. THAT is the norm, more often than not. While it's not 100% clear what JPM is doing in the last two weeks re. silver, and that Dan's thesis certainly has merit, only someone that has not studied the market manipulation thesis deeply could maintain the position that manipulation doesn't happen. Nothing could be further from the truth. In fact, manipulation is quite often the first order event, with a chain reaction of hedge funds to follow.

  12. Dan, why do you think silver will get to $24 and not stop at $25 ?

    Is there a historical precedent, where the stairsteps down tend to be 8%-ish ?

    I would be very grateful if you could tell us how to get direct access to trading information that shows outstanding/open buy & sell orders. Does one need to join an exchange and pay a membership fee to get access ? e.g. the LBMA in London.

    I subscribe to the CFTC CoT reports but glean little from them, except maybe at the end of April 2011 when there was a huge (10%) reduction in silver shorts, in the report for the period closing the last Tuesday in April, right before the consecutive May 2011 the margin increases.


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