[ZH] Silver Soars 17% From Intraday Lows: Biggest Swing On Record

This is a follow up on the post on Friday about buying Gold and Silver.
Here's a quote from ZeroHedge:

Silver is up over 17% from its intraday lows today - this is the biggest positive swing since our data began. All the previous major swings have been downshifts, most recently in September 2011 (-22% and -18% over 2 days). Volume is very high also. Gold is back above $1,210,up over $70 from its intraday lows...

Those who where planning to bottom fish had a very narrow opportunity both in terms of market depth and duration of the window in the middle of the night in the Asian hours.

Here are the screenshots (they do not show the Asian hours).

Contrarian Signal — Citi's Dutch Strategist calls "useless Gold a 6,000 years bubble, the longest-lasting bubble in human history"

After more than 3 years of steady decline (as forecast on this blog), pessimism around gold and silver have reached such extremes that these assets should now become vey attractive to true contrarian investors.

Here's the most anti-gold report I have ever read in my life:

The gold bubble is, of course, pretty impressive. Intrinsically useless gold has positive value. It has had positive value for nigh-on 6,000 years. That must make it the longest-lasting bubble in human history.

The author even question the fact that gold has any value at all, and calls it a 6,000 years bubble. Can you get any more bearish than that? I can't see how.

Based on this, I have added to my GLD (@113.29) and SLV (@14.99) positions.

Buying Gold and Silver

Quick update: I have bought some gold (GLD@121.50) and silver (SLV@19.60) as I find the correction to be very substantial and sentiment readings to be extremely negative.

Again, this is a short term trade as on the long term, I believe PMs will drop in value over the next few years, with silver trading in the single digits at some point, and that's the view I've been sharing since silver was close to $50.

Closed Gold and Silver position

I've been away for too long and have missed a number of opportunities with the markets... Including selling my gold and silver when the sentiment peaked a few weeks ago...

I just closed my long gold (open GLD@119.28 - close GLD@129.09)  and a long silver positions (open SLV@18.24 - close SLV@21.09) with a small gain, but disappointing compared to what it could have been if I had more time on my hands!

Gold and Silver Trade

It's been a very long while since I last posted here, as I've been extremely busy working 12 hours a day on the three projects that I have tried to run in parallel (most probably a mistake to have thought I could do that!). I have not even been in a position to find the time to trade or follow the markets as closely as I would have wanted.

But with gold and silver so depressed, I see value in them right now — at least for a short term trade, on the long term, I favor the depressed one digit silver price that I have been forecasting for a while. I've been quite vocal about all these "experts" who forecasting silver $150 or gold $3000 and took the short side of that trade while people were piling in on silver $47 all the way down to $36 but now that Silver is down close to 60% from the top, it seems like not a single soul is bullish on it... That's the right time for us, the realists and the contrarians, to become bullish and courageous and take the opposite side of that view.

Consequently, I have just opened a long gold (GLD@119.28) and a long silver positions (SLV@18.24). It might not be the very bottom, but probabilities are a in a favour of a relatively nice bounce.

JPY Gold Silver Update

The Japanese Yen is making headlines. And not the kinds of headlines that sound bullish -- the exact contrarian indicator for actually building a bullish case.

Here's one headline I just found (though it's not new): Shorting Yen Could Be Hedge Funds’ Favorite Trade in 2013

Here a few other points:

• Sentiment is ultra low. One of my friends even mentioned that the DSI is at 7% - the lowest in 8 years at least
• Like many other bloggers, Mish has been talking several times about how low is going and how fundamentals are supporting these levels. Well, whoever thinks in terms of fundamentals when it comes to markets is just rationalising, and at this levels, they are rationalising a trend that is about to reverse.

In the meantime, gold and silver have been scrapping bottom for several weeks, and I think a tradable bounce has started a few days ago.

Portfolio Update: closed silver and gold positions

Shortly after the Bernank announced their latest foolish policy, I closed my silver and gold long positions with a little profit on gold and little loss on silver. I am not happy with the behaviour of gold and silver, they failed to rally while equities did, and sentiment has been rising while price has not.

I've kept my long EUR.USD position, as it resisted nicely the risk-off trade yesterday, but I'll keep an eye on it as well.

Portfolio Update: Long Again

I've reopened my long EUR.USD, silver, gold positions during the US trading day on Friday, and also went long the WTI. Stops are once again in place, however, I'm still hoping not to be kicked out of my positions by crazy intraday volatility...

Portfolio Update: Stops Hit...

My stops on gold, silver and EUR.USD where all hit in the overnight market where all three assets took a serious hit. My profits dropped from 300% on my position to only 80%. Disappointing.

I'll look into re-entering these positions and also other commodities soon.

Portfolio Update: Bought more Silver and Euros

Earlier today, I bought more silver and EURUSD. That was lucky, as the markets are now rebounding quite nicely, and positions that were slightly in the red near the bottom of the day are now up nicely.

Portfolio Update: Buying EURUSD, Gold, Silver

I just opened positions in Gold, Silver, and EURUSD, which, I intend to grow bigger in the next few days/weeks. Stops are in place as with any trade.

Silver and Gold Drop, Reaching New Lows

Just last week, I was speaking about a bottom on Silver and Gold being close. I was still waiting for a final leg down before jumping on the buying side, and I shared my opinion with one of my friends, who pinged me with his trade:

On 18 May 2012 00:14, PEJ wrote: 

Nice trade!
yes I saw. But I didn't want to go long futures contracts, and now, the rally has been too strong.
i'm wondering if it's not a headfake before the real bounce.

On 18 May 2012 00:08, PEJ's Friend wrote:

I went long Silver today
Good timing huh

I think we're now close to the bottom, we need a proper capitulation day, but it's very near now. Then we'll buy both PMs.

Gold and Silver Update: Sentiment is Depressed, Buying Opportunity is at Hand

Gold and silver have been a bear market for quite some time — it was already a year ago that silver traded close to $50/oz and we saw many idiots forecast the price of silver to reach $300 and the not-less idiot and incompetents at Sprott load up on silver at close to all time high, and forecast $150-$200/oz.

Sentiment on both silver and gold has hence became quite pessimistic, to the point where headlines are now very negative, and investors are pulling their money out — and reciprocally, the USD has become over extended, and sentiment over optimistic:

May 16 (Bloomberg) — Investors are reducing gold holdings for a third month, the longest stretch since 2004, and favoring the dollar as a haven from Europe’s debt crisis, even as Goldman Sachs Group Inc. predicts record prices for the metal. 

Bullion erased its gains for 2012 this week as the dollar rose against a basket of currencies for a record 12 straight days. [...] 

Hedge funds are the least bullish on the metal since December 2008. 

“Gold is just another risk asset,” said Michael Aronstein, the president of Marketfield Asset Management in New York, who predicted the 2008 slump that drove commodities down 66 percent in seven months and then the rebound in 2009. “It made you a lot of money if you took the risk eight or 10 years ago. A real safe haven would be a pile of high-denomination Swiss franc or dollar notes, stored in a safety deposit box.”
[...] 

“Usually, gold could be viewed as a safe haven or a contra play to the U.S. dollar,” said Bill Greiner, who helps manage $13 billion of assets as chief investment officer at Mariner Wealth Advisors in Kansas City, Missouri. “It’s really doing neither right now. It’s highly possible that we’ll see gold and commodities in general continue to drift down until the Fed steps in with some sort of quantitative easing package.” 

May 11 (Bloomberg) — Gold traders are the least bullish in five weeks after the metal erased almost all of this year’s gains, as political turmoil in Europe and mounting optimism about the U.S. economy drives investors to favor the dollar. 

Fourteen of 32 analysts surveyed by Bloomberg expect prices to gain next week and six were neutral, the lowest proportion since April 6. Bullion futures slid to a four-month low of $1,578.50 an ounce this week and hedge funds are making their smallest bet on a rally in about three years, Commodity Futures Trading Commission data show. 

[...] “When the market gets very nervous, then they buy dollars and gold finds it difficult to rally,” said Jesper Dannesboe, an analyst at Societe Generale SA in London. “Given what’s going on in the markets at the moment, any rally will probably just be a bounce before another setback.” 

Notice how sentiment is explaining everything? Back when gold was trading around $1,900, you could read "When the market gets very nervous, then they buy gold and the dollar is just another paper currency being debased by the Fed"

May 9 (Bloomberg) — At a time when hedge funds are reducing bullish silver bets by the most in two years, analysts predict a rally as manufacturing expands from China to the U.S., boosting demand for the precious metal most used in industry.

Money managers cut wagers by 68 percent in two months as futures tumbled 22 percent, Commodity Futures Trading Commission data show. Prices will rally to average $35.40 an ounce in the fourth quarter, the third-highest on record, according to the median of 11 analyst estimates compiled by Bloomberg. [...]
The investment purchases will still leave a surplus estimated at 3,415 tons by Barclays for this year. A glut of metal has been no bar to rallies in the past four years, with prices almost tripling since the end of 2008. 

There are signs investment demand is weakening, with sales of U.S. silver coins tumbling 40 percent to the lowest since February last month, data on the U.S. Mint’s website show. Holdings through ETPs declined 1.4 percent since March 7, according to data compiled by Bloomberg.

An economic slowdown may also curb purchases by manufacturers. [...]
“For the average individual trader trying to make his way in these markets, trading silver is just a mug’s game,” said Dennis Gartman, the author of the Suffolk, Virginia-based Gartman Letter who has been trading for about 35 years. “The randomness of the movements keeps me on the sidelines.” 

Demand also may be weakening in China, the second-biggest user after the U.S., with March imports 36 percent lower than a year earlier, customs data show. That may be in part because of record domestic production, with mine output increasing 11 percent to 3,232 tons last year, almost twice as much as a decade ago, the Silver Institute estimates.

Stockpiles in warehouses monitored by the Comex in New York, which traded a daily average of $9 billion of silver this year, expanded 21 percent since the start of January, bourse data show. Inventories reached 142.1 million ounces (4,421 tons) on May 1, the highest level since September 1997.

[...] “The long-term bull market is still very strong,” said Charles Morris, who oversees about $2.5 billion at HSBC Global Asset Management in London. “Silver spends more time going nowhere than it does going up, but when it goes up it tends to do it very quickly.”

Finally, here are the charts of GLD and SLV. Ironically, most people bought at the peak, as usual, the day when the SLV volume was higher as the SPY marked basically the very peak of silver...

It's now about time to get back long on those metals, which I have been only shorting for the past year or so.

SLV peaked in April 2011

GLD peaked in August 2011

In a Blow to Silver Conspiracies, Blythe Masters Explains the Obvious on CNBC

There has been a lot of and lot of ink wasted on conspiracy theories about silver, and the biggest investment banks of all, JPMorgan, has always been targeted as a silver manipulator.

Only people who have no understanding of how an investment bank works can come up with these silly theories, and I have already debunked them in the past.

But this time, interestingly, Blythe Masters, the head of the commodities business at JPMorgan, explained it on CNBC to clarify for all the arrogant ignorants like Sprott and his conspiracy friends.

(Bloomberg) JPMorgan mostly hedges silver for clients, and large speculative bets aren’t “part of our business model,” Blythe Masters, the bank’s head of global commodities, told CNBC. 

Market participants “don’t see all our activity,” and bloggers have “a misunderstanding of the nature of our business,” Masters said today in an interview on CNBC. There is “an underlying client position” involved in hedge or forward trades, she said on CNBC. 

A multiyear investigation into the possibility of unlawful acts in the silver market is continuing after regulators analyzed more than 100,000 documents, the U.S. Commodity Futures Trading Commission said in November. [...]

Here are some of the latest interviews (March) on KingWorldNews of Sprott and Embry, the unbelievable ignorant speculators on the commodities markets:

1. Sprott on the 4th of March
2. Embry on the 22nd of March
3. Sprott on the 31st of March

Please be aware that if you believe in those theories, of if you have your money managed by this arrogant ignorants, you are up for a major major disappointment.

Harry S. Dent Turns Bullish on Stocks, Forecasts New All Time High

In one of the most amazing bear-capitulations of the past many months, Harry S. Dent, interviewed on GoldSeek Radio (link to the MP3 file embedded below, interview starts at about 42"30') on Friday, announced that stocks will make a new high, at about 1,600 S&P 500 points.

Points from the interview:

• QE3 in the next 2-3-4 months
• Stocks and gold will like it
• It will be inflationary
• Now believes the stocks will finish 2012 in record territory
• S&P to reach 1,600 and Dow 15,000 by early next year before the Fed runs out of bullets
• Gold to gain 10-15%, Silver to reach the $40s but not make new highs
• At least a 70% crash to follow (2013?)

 

For those of you who have been following my blog or Harry S. Dent, you are probably quite aware of him being a vocal deflationist, and forecasting a market crash just a few months/weeks ago.

If Harry S. Dent is proven wrong on this call, it could very likely to be one of those capitulations which marks tops. Jeremy Grantham did it back in April 2010. Will it be a long term or a short term one? I can't tell yet. 

Silver down for the year — Portfolio Update: closing silver shorts

What a year for silver, the restless metal. It is now about to close the year down, after being up as much as about 100% in late April.

How many people where forecasting a drop in silver back when it was trading above $40?

SLV is trading at $26.50 as I'm writing this post.

As you can see on the SLV chart that I'm using as a proxy, the drop was nice but not as dramatic as the rise, which allowed for people to remain extremely bullish — including the crazy lunatics Eric Sprott and John Embry who bet the house on Silver... 

As you know, I have been short silver since the $40 and nicely profited from the drop. In October, and closed my $42 and $40 puts on SLV and acquired a bunch of $30 puts on SLV.

With only 5-6 trading left on those puts, I have decided to close the position, with an extra gain of +86% although I expect the drop to continue over the next few months. A rally in silver should be expect at some point, given that the drop from about $35 to now close to $26 didn't see much resistance. I will use any such rally to enter a new short position.

Please note that all the options are on the table as I might use further weakness to bet on a short term gain as well.

Gold: Still way too much bullishness

Gold is back to below $1,600 an ounce, so about 15% from the peak, and yet, it seems like bullishness has not abated much, quite the opposite: 

Gold Traders Most Bullish:

Gold traders are more bullish as investors buy metal at the fastest pace in a year to protect their wealth from Europe’s escalating debt crisis.

Eighteen of 26 surveyed by Bloomberg expect the metal to advance next week, the highest proportion since Nov. 11. Holdings in exchange-traded products backed by gold rose 108.5 metric tons to a record from the start of October, the most since the second quarter of 2010, data compiled by Bloomberg show. The extra bullion is valued at $5.99 billion.

Investors are now making a $130.2 billion bet on gold as European leaders meet in Brussels to seek ways to tackle the crisis that means Germany and France are under threat of losing their AAA rating from Standard & Poor’s. The European Central Bank yesterday cut interest rates for a second consecutive month to shore up growth, increasing the appeal of gold, which earns investors returns through price gains.

Gold survey results: Bullish: 18 Bearish: 2 Hold: 6

What about Strategists:

• Citigroup: Citi Predicts Gold At $3400 In "The Next Two Years", Potential For Move As High As $6000
• Goldman: $1,810/oz
• Barclays $2,000/oz
• UBS $2,050/oz 

Source for the latter 3: ZeroHedge

Even Mish, one of the lead deflationists, is bullish on Gold, with, what I believe to be, a wrong link between credit stress and gold prices... 

Sentiment seems to be way too lopsided to allow for any gain in gold to be sustainable, and after what looks like an eleventh year of gan for the king of metals and the one and true money, 2011 might have seen the top in gold for a long long time.

In the meantime, silver is back to about $28, having lost more than $20 per oz since the top earlier this year and the big divergence between gold and silver is making another bearish case for gold... 

Full disclosure: no positions on gold at the moment, and still short silver, but might close very soon.

Harry S. Dent Interview On the YES! Energy Summit

Harry S. Dent was interviewed on the YES! Energy Summit on the 11th of October — sorry for the late post, as you realize, I am still way behind my postings — where he discusses topics not related to the markets.

He discusses his past, entrepreneurship, and other interesting topics that he usually doesn't touch during his interviews.

Harry also discusses his new book, and the collapse of the major bubbles still in place. He forecasts Silver going back to $5 and the Dow to 3,800.

These are some new materials and ideas for those who follow Harry S. Dent. He also gives away — as a free download — a pack containing 4 audio CD and 2 PDF documents about the coming debt collapse.

You can watch the video interview from the link above or download the FLV file directly here.

Silver Bullishness Remains High

Silver slumped as much as 48 percent after reaching a 31- year high of $49.845 in April. It is now trading at about $30, yet analysts believe it will average $38 over the quarter, meaning it should jump by 25% very rapidly and stay there for minimum 3 months.

Is that reasonable, really?

People are still putting an 'if' before the word 'recession'. What are they thinking? We've been in a depression for more than 3 years now! It's just not visible to bankers who have been bailed out, but to the average Joe, it's a different story...

Oct. 20 (Bloomberg) -- Silver, the best-performing and most-volatile precious metal of the past year, may rebound from a bear market as investors bet on growth in developing nations and an extended European debt crisis. 

The metal may average $38 an ounce this quarter and rise to a record $42 by the final three months of 2012, compared with $31.97 at 9:19 p.m. in Singapore yesterday, according to the median in a Bloomberg survey of 11 analysts. 

[...] “Prices now look relatively cheap to where they have been recently,” said David Wilson, an analyst at Societe Generale SA in London and the most accurate silver forecaster tracked by Bloomberg in the two years through June. 

“The backdrop is still very supportive for gold and we think that silver will leverage off the back of that. Emerging markets are going to be important for demand for sure.” 

Silver slumped as much as 48 percent after reaching a 31- year high of $49.845 in April. Used in everything from jewelry and coins to solar panels and film, the commodity returned more than any other major precious metal over the past year with a gain of 34 percent. 

The metal tumbled 28 percent last month, the biggest drop since 1980, as equities and commodities slumped on signs growth was slowing.[...] 

“The fundamentals still look very weak,” said Suki Cooper, a commodities analyst at Barclays Capital in New York who expects silver to average $27 in the fourth quarter of next year. “The downside still looks much more vulnerable, given that we’re not seeing the same strength in industrial demand that we have seen previously, and given that mine supply still looks very healthy.” 

Silver may also fail to protect investors’ assets should economies tip back into recession. It slumped 24 percent in 2008, the most in almost a quarter century, as gold rose 5.5 percent. Investors for now are getting more bullish. [...]

(Re-)Discovery of This Week: Markets Can and Do Crash Upward

If you ask any long term market participants what a crash is, they will come with a definition quite similar to Wikipedia's — although this definition is very narrow as it refers only to stock markets and won't take into account the crash of a single stock:

A stock market crash is a sudden dramatic decline of stock prices across a significant cross-section of a stock market, resulting in a significant loss of paper wealth. Crashes are driven by panic as much as by underlying economic factors. They often follow speculative stock market bubbles.

The previous definition might be widened to something like: a sudden dramatic decline of an exchanged traded instrument's price.

And generally speaking, nobody considers there's any chance or probability for markets to "crash" upwards: something like a sudden dramatic rise of an exchanged traded instrument's price.


This fact is so entrenched in the markets that the skew and volatility smile of options always show a wide difference between downside and upside moves.

Well, this week, we saw two very rare events: a melt up of the stock market and of silver, of historical proportions, something like a "reverse crash".

On the chart below: the ES (E-mini S&P futures contract for december) moved from 1,100 to 1,188.5 in 3 trading days and if you look at the RSI chart (red chart below the volume) you'll see how extreme that measure got, far more extreme than during any decline since August.

If such a move would have happened on a decline, people would be crying out "crash" and would be again asking the government and the Fed to come to the rescue...

It was a good selling opportunity, so I liquidated my long ES position at 1,184 and actually went short, but got my stop hit a few hours later, as I got only a few minutes of trading time, had to act quickly and I didn't expect the market to rise above 1,187...

Even more spectacular, was silver, which dropped from $42 to $26 in a few trading days, prior to rebounding from $26 to $32 (a 26% move) in 26 hours. This was one of the most spectacular moves I've ever witnessed:

Unfortunately for me, I was not in front of my computer to act on this one. Anyway, I do not see this as a sustainable rally, and I think we'll see lower lows in the next week or two.