Date: Thu Sep 15 2005 11:35
trotsky (@silver & ted butler's recent missives) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
as always, there is a lot to agree with, but also a bit of fuzzy thinking. for instance, TB keeps comparing the above ground silver supply to the above ground gold supply. as previously mentioned, this makes no sense. you could just as well argue that copper should trade higher than gold - after all, its known above ground supply covers perhaps three or four months worth of demand.
where Ted Butler normally shines is in his analysis of the CoT structure, but even there i don't agree with everything. for instance, i don't think that the much derided 'brainless tech funds' are really losing all the time to the commercial hedgers. think about it - silver rose from $4 to nearly $8, and the hedgers were net short throughout the entire advance, while the speculators maintained the offsetting net long position. true, when their net long exposure gets too large, a short term reversal is usually at hand, but staying net long during a big advance surely means you make more money than you lose.
the longer term outlook for silver is likely positive on account of the primary supply/demand deficit continuing to erode stockpiles - i agree with that. what i have more difficulty agreeing with is that a huge undetected conspiracy has actively manipulated the silver price for the past two decades in spite of there not being enough physical supply. Occam's razor applied to this situation says that the silver inventories that were used to fill the primary deficit have been far larger than anyone suspected. for instance, neither European silver traders nor China's government publish their inventory levels, so all we have are educated guesses by the Silver Institute and similar agencies.
however, it is inevitable that those inventories will be run down in the face of a primary deficit over time. it has just taken a lot longer than suspected. this does not take away from the fact that it's a long term bullish fundamental datum, but at the same time suggests an explanation for silver's previous dismal performance. note also that up until the '99-'00 period, ALL commodities had been mired in strong secular downtrends for the previous 20 years, so why would silver be excepted.
anyway, coming back the the current silver CoT report, whether it is or isn't bullish remains to be seen. the funds didn't increase their short positions without a reason, and i suspect the main reason has been the chart, namely the break of the uptrend on the weekly chart.
in order for silver to rise, we need them to change their mind and hop back on the long side. this means in turn that silver needs to regain its broken trendline decisively. this has not happened yet, and from a technical perspective it makes no sense to turn short term bullish until it does, regardless of the CoT report.
as an aside, i suspect that some of the fund short positions in silver may be intended as a hedge against long positions in the gold contract.
lastly, if the economy turns down ( and recent economic reports have suggested a slowdown was beginning even before Katrina hit, which will now be exacerbated in the wake the storm ) , gold can be expected to begin outperforming ALL other commodities, including silver. this is because gold reacts immediately to a widening yield curve and changing expectations regarding the direction of real interest rates, whereas industrial commodities tend to react with a considerable lag to such a development. normally they lead the economy down as well as up, so that if e.g. the next recession were to officially begin in qu.2 of 2006 , industrial commodity prices should be expected to turn down, especially relative to gold, well before that time. all of which suggests that it is not entirely unreasonable for the specs to add to their shorts in silver ( otoh, if silver DOES regain its weekly uptrend line, the covering of those shorts can certainly be expected to give the price an extra boost ) .
Date: Thu Sep 15 2005 10:48
trotsky (silverfox, 9:42) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
the short version of that reply is 'i have no evidence'.
that said, we're not totally without evidence. some of the data put together by Reg Howe , Turk et al. do look suspicious and suggest that central banks remain in the business of 'managing' the gold price. as we have seen that has had zero effect, as the up trend from the '00 low has developed like every other normal bull market would. this in turn tells us that worrying about it is a waste of time...
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