9/20/09 Do Not Fear The Shorts – They Can Never Give Up

Precious Metals Market Analysis, By Michael Pennington (Copyright 2010 Pennco Coins)

As I said above, the Commercials in gold and bullion banks in silver are trapped. They have been shorting these metals for eight years and each $1 move up in the metals costs them millions. This is why they continue to sell Gold and Silver short. They have to protect their massive losses. But it is all illegal naked shorting – a game where they use paper to replace physical gold and silver. But we know that can’t be done, and why the regulatory authorities permit this to happen after the scandals of the past year, can only be explained that they are complicit in helping the government do anything to cap the price rise. Because of their great losses, they know they can never give up. The banks are promised a bailout for all of their losses. After all it is just more taxpayer money. So when we look at the report from last week we see an incredible increase in the net short position to yet record numbers again:
* Commercial Short positions are up 16,000 contracts in the last three weeks;

* Total Contracted Silver Shorts is now 619 Million ounces.

* Excessive leverage : Comex has only 60 Million ounces registered for delivery. (more than 10-1)

Commercial Traders increased their short position by 15,811 contracts or 79 million ounces in just the last three weeks while dropping their long positions by 3,400 contracts. That puts the Short vs Long ratio at 3.48, the highest since July 11, 2008 when silver was $18.38 per ounce.

While not a surprise, the willingness of the Commercial Traders to short so many contracts in the face of rising prices to offset the sudden demand is curious in the least. This is especially true since the COMEX does not have the silver on hand to back up even 10% of the contracts that have been written. I don’t believe they have anything close to the 60 million ozs they claim. I believe they are out completely.

If one goes to Timingcharts.com, it can been seen that the Commercials first became net short in 2001 and have NEVER become net long since. The entire bull market in Gold has been accompanied by a down trend of increased short sales by the Commercials.

And, if you look at the chart below, you can see that breaking to a new low (greater Commercial short reading) does not necessarily lead to a reversal downward in the POG, but may actually occur before a rise in the POG as occurred in 2004, 2005, 2007, and 2008.

Since the U.S. Dollar is inversely correlated to Gold, I decided to compare the U.S. Dollar COTs for Commercial activity with the price of Gold. Interestingly, it seems to show that when there is a turn upward or net increase in purchases of the dollar by the Commercials, the Price of Gold soon thereafter turns up. Again this last week, after a reversal up in purchases, Commercial net buys of the Dollar have continued to increase. Odds would seem to suggest that, looking at the current COTs, there is more to the upside for gold.

So the $1,000 question is will we see a big dip in the metals with their next slam down or will we all witness the mother of all short squeezes? From what I have seen and read recently, the vulnerable side right now is the short side…they are MASSIVELY exposed and the longer we remain at these levels the worse it gets. The more they pile in, the less ammo they have left and the worse it will be if we push higher. You’ve got to ask yourself why the shorting effort is so concentrated here and why it has not been a success….POG has remained high and strong in the face of this major shorting – likely the biggest short position ever, and look where we are….still above $1000. I’d say that this really looks quite a bit different then the scared longs are painting it (or nervous shorts)…this is some seriously bullish stuff.

We will now probably churn sideways for several weeks before the next big move up which should be even stronger than the last couple of weeks. One of these days, gold and silver will begin to look and act like a real bull market…because it hasn’t in years. Right now, what I see in the market is a lot of ST bearishness and fear….probably exactly what we need to shoot higher from here. You can always count on the gold market to perform in a manner most contrary to what investors expect!!


About Pennco Coins

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This entry was posted in Dollar, Federal Reserve, Gold, Gold to Silver Ratio, Palladium, Platinum, Silver and tagged , , , , , , . Bookmark the permalink.

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