What I Think the Fluctuations and Trends In the Comex Silver Inventory Mean

21 April 2011

What I Think the Fluctuations and Trends In the Comex Silver Inventory Mean

 I took a quick look at the interactive Comex silver inventory chart over at 24hourgold to see what the big withdrawal from the registered ounces looked like. The chart only goes back to middle 2008.

Several things stand out for me. First, there are definitely big declines in the past, certainly on the order of the most recent decline this week.

There is one significant difference. Two of the biggest declines occurred at year end, and are indicated on this chart as circles.

There are another two large declines in inventory comparable to this week in April time frames, marked on the chart by rectangles.

So its just a normal thing, right?

Not really. The prior two declines in April occurred after significant builds in inventory from the first of the year. This year that simply did not happen.

For me the most significant aspect of the chart is the steady decline in inventory over the past three years, stepwise at times, but getting dangerously low now compared to the open interest in the futures market which that inventory supports. That is known in the trade as ‘leverage.’

I am sure that the exchange principals will pass rumours about a short squeeze and an attempted market corner, and try to paint this as some insidious anomaly. Yes there are speculators becoming involved, those who see what is happening. As the British government attempted to hold the pound to an artificial value, and was hammered down by traders, famously George Soros but primarily the faceless through the Swiss, so too the metals manipulation by the Anglo-American banking cartel is staggered, and probably going to go down hard, capitulate with a devaluation and disclosure, and move on from there.

I prefer to view it as the natural outcome of a long term manipulated market, in which artificial shortages have been introduced by long term interference with price. If you artificially depress the price of most things for a long enough period, in a market based system you will introduce systemic shortfalls that will only be corrected by either higher prices and investment in production, sometimes with long lead times, and/or with ‘rationing’ either overtly, or through public relations campaigns that seek to discourage demand from a group of the people while other segments take the remaining supply.

The Comex is headed for a default unless they can secure a large new supply of silver and increase their inventories.

And the same thing is happening, in relative slow motion, in the gold market.
In the gold market the bullion banks have been turning to the central banks for many years, drawing down their sovereign inventories and masking it at times with accounting tricks, until that trend changed a few years ago, and the central banks became net buyers after twenty years of selling, motivated primarily by the BRICs.

I wonder if the bankers can find a willing seller, a new source of silver.  And at what price.  And with what will they offer payment, what depreciating paper promise?

I would not assume that these are normal market conditions. I think that the financial engineers and their bankers are becoming very concerned, and afraid, for good reasons. What has been hidden will be revealed, what has been whispered will be shouted from the rooftops. They will spin stories to hide it, probably engage in scapegoating, blaming Islam or China or some other group for their perfidy. But at the end of the day, the result remains the same, no matter how they try to shift the blame. As the Americans like to say, ‘the jig is up.’

“They have sown the wind, and will reap the whirlwind. Their stalks of grain wither and produce nothing to eat. And even if there is any grain left, foreigners will consume it.” Hosea 8:7

Posted by Jesse at 11:49 AM

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