"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, April 1, 2013

Silver Breaks Down

Silver has been struggling to get anything going to the upside for some time now but it has been able to hold above chart support near the $28 level; until today.

It broke down out of the bottom of a 6 week long trading range and in the process made a fresh 7+ month low. That is not bullish action no matter how you look at it.

If you have been listening in to my regular weekly interviews over at King World News on the Metals Wrap, I have been discussing the fact that this market has looked heavy due to the fact that it has been under attack from hedge funds which are playing the base metals such as copper, and silver, increasingly from the short side. That speculative money is selling rallies and working to push these markets lower and it has been having some success. Silver has managed to hold up but now looks to be falling apart.  I want to see another day's price action to learn whether this is just a one day wonder and a bear trap or the start of another leg lower down to the next support zone I have noted on the chart.

For the silver bulls out there - you must keep in mind that the way the speculative community at large looks at this metal, it must have an inflationary environment present if it is going to thrive to the upside. With the global economy showing no signs of inflationary pressures at the moment and with Copper continuing to wilt, it is going to be a near Herculean task to see silver generate enough bullish action to spook this growing contingent of shorts.

Notice the following breakdown of the HEDGE FUND positions in this market. Can you see the steady increase in their short positions and the continued liquidation of existing long positions. That data is only good through last Tuesday so my guess is that the hedge funds are NOW NET SHORT the silver market.

I should also note here that using the data provided by the COT which shows a definite breakout of the hedge fund positioning going back to 2006 as a starting point, the hedge funds have never been short silver since this data collection began! In other words we are looking at something that has not occurred in SEVEN YEARS! The closest the hedge funds came to being net short in the silver market was in September 2007 when their net long position has a mere 168 including futures and options.

For now, until we get some sort of spark or reason for these hedge funds to reverse their bearish leaning, silver looks to be headed lower. I would watch copper for any sign of a reversal to the upside but unless copper can do that, silver is going to get cheaper.