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September 21, 2014

Gold and Sliver Peak Ponzi

The number #1 question I asked Friday as silver was forced through the trap door on the chart:  what would happen with the big, strong longs in that complex?  If the intent of the short attack was to force a capitulation of this long or longs (Chinese proxies?) you would finally expect to see a good size drop in silver open interest (OI).
This number can be tracked here and on Friday shows yet another increase of 3,776 in silver futures OI to 177,289.  This is hardly a sign of strong longs forced to capitulate or being stopped out.  In fact it illustrates quite the opposite, the strong longs (regardless of who he/they are) simply added to their (his) position from naked paper sells or shorts provided by managed money slingers.

This is also illustrated by the Commitment of Traders (CoT) numbers from last Tuesday.  In the Sept 9-16 week the managed money slingers short position increased by 5,168 contracts to a new record of 42,249.   If we go back into the Crimex data from last Tuesday, we see silver OI was 171,260.  Since Tuesday and through Friday’s action we have witnessed silver OI expand by 6000 throughout what was obviously a concerted short attack.  If this was a long liquidation this should have gone down, not up.

From the silver OI increase, we can hazard an educated guess that slingers are up to about 48,000 naked short contracts (240 million ounces). With this wild onslaught they have forced a lower price but without dislodging the strong long/longs one iota, instead giving them even more cheap silver.  The strong longs appear to be playing rope-a-dope. Somebody is going to lose this game of chicken and my bet is it will be slingers.  Am I surprised they tried it to this extent?  Absolutely, but they will ultimately lose this gambit.

The same general pattern can be seen in gold.  The CoT showed managed money shorts up to 73,364 contracts.  14,863 new short contracts were added to take price of gold (POG) down from 1256 from 1236 (on Tuesday, the report date).

Crimex gold open interest is currently at low levels, which to me signals serious gold investors are using that exchange less and less. And with the new international exchange in China that trend should continue.  But despite the further drop in POG to 1217 at week’s end, OI increased slightly to 386,744 from 386,080, including 2448 more on Friday.  Again that is not the hallmark of long liquidation but of longs buying more paper shorts.  Most likely the managed money/slingers have pushed their Crimex gold naked shorts to at least 80,000 contracts (8 million ounces or 227 tonnes) and maybe much higher, to a new record.

7.78 tonnes of gold or roughly 1% of the total was extracted out of  the GLD Friday. Inventory, if indeed it is really there, is reported as 776.44 tonnes. Given that this is about equal to the appetite for one week’s delivery on the Shanghai Gold Exchange and now we have the new international gold market opened in China, it would seem plausible that gold will continue to move east and be sourced out of GLD.  This will be a real test to see how much real gold really remains in GLD that isn’t just script and leased out IOUs.

On Friday the Central Fund of Canada (CEF)  traded at negative 8.8% percent to NAV. Since the gold and silver in this fund is real and fixed, a discount this large is a measure of North American investor sentiment.

Simply put that sentiment suggests a proclivity to chase into Ponzi units (BABA, etc) , and avoid anit-Ponzi units (actual gold and silver).  However as illustrated in the analysis above, I do not really accept the premise that precious metals investors are actually long liquidating to chase the BABA like Ponzi units.

I haven’t coined this Peak Ponzi for nothing, especially ironic given QE support drying up.  Also telling is that timed with the end of QE,  44 venture capital start-up companies are in the IPO pipeline with a valuation of more than $1 billion each, despite no earnings and scarce revenues.

Although not on many radar screens or mentioned in the press, I am in addition focused on the Nov. 30 Swiss Gold Referendum. Given that this would involve buying 1700 tonnes of gold to reconfigure the Swiss Bank’s reserve holdings, it would be a game-changer.

This is especially true in a market where a few tonnes has to be rounded up from dark corners of empty western vaults and against a backdrop of huge managed money/slinger naked short positions.  In addition Swiss gold, allegedly stored in Canada and London,  would also have to be returned to Swiss custody. 
With 104 tonnes of Swiss gold at the Bank of Canada and 208 tonnes in the Bank of England, that would be an exercise we can only imagine.

King World News conducted an interview with Egan von Greyez, a veteran 42 year money manger located in Switzerland. He said the following.  I do find it a little hard to believe that the Cabal will let this one go without a fight. If not it could signal that the Cabal was already well positioned for such an outcome.
I’ve been in discussions with the people behind the Swiss Gold Initiative and I think they stand a very good chance of winning their referendum on November 30. There is no real opposition. The Swiss have always had an affinity for gold.
About The Author - Russ Winter is a veteran investor, financial writer, world traveler, and he blogs at Winter Actionables.  (EconMatters author archive here)

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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