If you want to know why silver prices have gone nowhere lately, take one look at the chart and more specifically, the outlined ( IN YELLOW ) ellipse on the chart. That is the hedge funds' NET POSITION. They now have the largest net short position in the history of this particular disaggregated report.
These big and powerful speculators are what drive our markets and they continue to sell rallies in Silver. Either they are going to have to be forced out by some concerted buying or the path of least resistance in silver is lower.
My thinking is that it will take a definite shift in sentiment away from the current "economic growth is steady but slow" sentiment towards one of "economic growth is picking up speed and is increasing" in order to run these hedge funds out of their profitable short positions.
From a technical standpoint, that means we need to see an upside violation of some key overhead chart resistance levels. My studies would indicate that this region which will begin to provide a bit of discomfort to the funds will begin just above the $21 level and extend towards $21.25. If the bulls can take prices up to those levels, and NOT FALTER, they will spark some serious short covering.
Until then, rallies will continue to be sold.
Great read!! The liquidity dumps around the world will continue, gold prices will continue to bob. The Fed has everyones back with the exception of those w/o stock holdings, income, and ability to protect themselves. You know 90% of Americans..Just keep buying the dips and listening to our "recovery is just around the corner" until it is not.
ReplyDeletea must read...
http://www.zerohedge.com/news/2013-12-06/hugh-hendry-throws-bearish-towel-his-full-must-read-letter
The masters of the universe have us all covered...lol
Hey Dan, Thanks for the great blog. I always enjoy your analysis. In looking at your posted chart, I have trouble seeing the correlation between silver's price and the hedge funds net position. For example, 9/07 and 12/08 marked significant bottoms in silver while their positions were largely net short.
ReplyDeleteDonnie Miller;
DeleteI will try to get a chart created this weekend showing the silver price and the hedge fund activity for ya... it makes seeing things easier.
I can say this however... during a bull market, when it enters what we call a corrective phase, you will see long liquidation and fresh short selling by speculators. Some of that camp are booking profits or getting out to minimize losses while others are shorting to play the market from the short side as they are bearish.
When the market is in a bullish phase, that sort of setup will generally be the point at which the market starts nearing a bottom before it makes another leg higher. The initial leg starts with short covering and then is fueled by fresh buying as specs come back in on the long side once again.,
What concerns me with silver is that it has been in a bearish trend for a while now so the former price action/pattern generally does not hold. During a bearish phase, it is hedge funds/specs driving the markets lower by adding to shorts and bailing out of longs. Now that the hedge funds are on the net short of the silver market, rallies are going to be sold UNLESS technical levels on the charts are pierced. "
Hope this helps...
Dan
"My thinking is that it will take a definite shift in sentiment away from the current "economic growth is steady but slow" sentiment towards one of "economic growth is picking up speed and is increasing" in order to run these hedge funds out of their profitable short positions."
ReplyDelete@Dan :
- Debt forces are deflationary
- QE liquidity created seems trapped into the financial system without reaching Main Street and the real economy, with velocity of money decreasing.
In this condition, what are the chances that the economy grows back into "picking up speed and increasing"?
I think they are quite remote.
Maybe drivers for gold would be :
- a collapse of fiat currencies (reasons maybe financial war with China dumping their T-bonds, Yellen announcing she will print 200 billions per month, US declaring default on part of their debt towards China or other countries due to geopolitical tensions / regional conflict for example those japochinese islands? who knows...)
- a crach of the stock market at some point
- less pressure from the paper shorts because of dwindling physical stocks allowing them to "manipulate" prices down with leverage (but it seems that this system is able to survive much longer than some thought...and maybe will again many years)
But silver is not gold, as you mentioned silver is correlated also to copper and to real economy and growth. I don't expect a surprise growth in any of our western countries for the years to come with sluggish prospects, ageing population, debt, more debt, no loans from broke zombie banks, zero interest rates, etc, etc...a ratio of gold/silver at 80 would not surprise me in the future. We've been there before.
I just can't see the drive for silver coming in the near future. Am I wrong? :(
Seems like the direction to me Hubert.
ReplyDeleteWhen you are making up GDP numbers and backdating $500 billion in miscellaneous good will, and fears of govt cutbacks of employees will affect unemployment, providing 2 years of unemployment payments, stuffing inventory channels, it is a clue that we have a serious demand problem.
ReplyDelete