An Examination Of Recent Crimex Forensics

Yet again, the Friday swoon in precious metals was accompanied by another uptick in open interest (OI). In gold contracts in particular, OI increased 7,730 to 387,742 contracts. Silver increased 808 to 172,686. And yet again, these are hardly the hallmarks of normal liquidation.

As you can see from the Comex OI chart below, it was the divergence lower in open interest (especially in April-December 2011) against a high price that warned the silver price was topping. Although small moves can be noise — nor is it precise to the week or month — it gives a fundamental clue when extremes develop and the rubber band gets overstretched. That would be now with high OI against a low price.

Source: GotGold

The commitment of traders (CoT) covered the period of Sept. 23-30. Gold fell from 1,221 to 1,211 during that period. Silver fared worse, from 17.71 to 17.00. Looking at the managed money/slinger suspect for gold, it appears he was not adding additional shorts during the period in question, although no doubt he was back late last week. The slinger monster short position increased by only 44 contracts to 80,341 with POG at 1211.

If you think the elusive “liquidation” finally occurred within managed money/slinger longs, you would be wrong (yet again) as that number actually increased 837 contracts.

You would have to move along to small specs to see where the “supply” came from. This was the point where small specs decided to jump on board the gold-attack game, shorting 3,924 contracts and tossing 653 during that week.

The managed-money crowd was aggressive during the week shorting silver. Slinger now has 44,535 contracts (about 223 million oz) short. It is no doubt higher now. Run your eyes over following chart up to the 45,000 line and you will see the historic levels.

Source: GotGold (Sept. 16). It was at 44,535 as of Sept. 30.

If you eyeball the long positions yet again, there are no signs of long liquidation. In fact, swap dealers are net long, which is a rare occurrence. Yet again, the price is being set by aggressive short sellers, or a seller.

The large producer/merchant net position (difference between longs and shorts) of 18,626 contracts is a price hedge presumably against silver inventory held (in the case of mints and jewelers). But as you will see in the final section of this post, coin sales are suddenly exploding. This will reduce merchant silver inventories, which in turn reduces the need to hedge price. That may be another trigger to force a massive slinger short covering rally.

Fundamentally, there have been way too many future contracts sold on silver relative to economic principles — such as production, cost of production, supply and demand — and by those who have no silver to deliver.

I have little doubt that next week we will get even more wash, rinse, repeat stories of large physical demand from various sources, particularly when China opens back up for business on Wednesday. And surprise, surprise they are bone dry on silver inventory.

Source: US Mint

If the manipulators thought this attack would flush out many longs or even discourage physical demand, it has completely failed.

These last charts are from the US Mint. Of particular note are silver Eagle sales just for the first three days of October. These are already closing in on levels seen for the entire months of July and August. Also on the last day of September, 765,000 ounces were sold. That’s one-third of all global silver production in just one coin product and of course there are others — nothing to simply dismiss, especially coming from a western and not just eastern acquirer. We should watch carefully to see if this demand spike continues.

The Eagle is a premium price coin, which makes its demand all the more impressive. Notice in recent years that there are seasonal spikes during the November-December holiday season. But we are barely into October. So much for the “liquidation” and “poor demand” theory.