Gold & Silver’s Step Sum Charts And Silver’s Open Interest

As of the first week of September gold investors have good reason to feel depressed; gold is down $50 since August 07^th with no sign of the long expected turnaround.  Still, for all the depressing market psychology we gold bulls must currently endure, technically things are not all that bad when we step back and take a longer term view of gold’s bull market and step sum.  In the chart below, do you see the bears having any success in driving the price of gold down below its December 2013 lows ($1188)?  Not really; gold has been in the same trading range for the past fifteen months.  However the big banks have been successful in doing what the bears needed done; killing any enthusiasm in the gold market.  No matter; the long-term picture shows our bull market in gold is still intact.

The next step sum chart shows gold’s current correction, and it seems that the step sum (market sentiment) is on the verge of breaking down.  Technically, a collapsing step sum plot should be good for the bulls, though the price of gold should see a short term decline when it does, but after that the bull market should return in full force.  But I recognize that the bears won’t be going away should that happen.  Why should they when they receive all the funding they want from the Federal Reserve and government regulators tacitly support their suppression of the gold and silver markets by turning a blind eye to their nefarious activities in the paper futures markets.  Sitting in our bunkers, the only comfort we bulls have is knowing that time is on our side as gold is still in a historic bull market.  It’s just that it doesn’t feel that way right now.

Here’s silver’s long-term step sum chart.  As noted in the chart, since April 2011 silver is down 61% on a net three up days in its step sum.  This is one hell of a bear box silver finds itself in.

Below is silver’s step sum chart for the current correction.  For the past fourteen months $19 silver has been a solid floor under the market; the question is whether it will remain so?  If the market wasn’t rigged in the favor of the shorts I’d be inclined to say yes, but prognosticating future silver prices is risky business; however for now seeing the $19 floor holding under silver is key.

What if silver does break below $19?  Well what if it does?  No market price today is a result of free-market discovery, but rather a “policy requirement” to keep hundreds of trillions of dollars of derivatives from coming into the money at the expense of the big Wall Street financial institutions.  Within the financial and precious metals markets are invisible Lines-of-Death; unknown prices and interest rates which, if crossed will render Wall Street’s elite institutions incapable of meeting their specific performance obligations to their counterparties.  These Lines-of-Death may not be too far away from current market prices; central banks are now buying stock futures just to support the current insane valuation in global stock markets, and they’re not doing this to protect pension funds and insurance company reserves!  And yes, of course central banks are selling paper gold and silver futures to keep the old monetary metals prices insanely low for the same reason. 

The key to when the free market will veto the market prices fixed by the “policy makers” may be found in silver’s open interest (OI).  I placed boxes around the three large silver price declines since January 2008; each one was associated with a large reduction in the number of active contracts traded (open interest) at the COMEX. 

The reason OI declined with the price of silver is because in these battles between the bulls and the bears in the paper COMEX silver market the bears won, and the bulls lost.  It’s a safe assumption that silver’s OI is nearing a short term peak and will (for the fourth time since 2008) once again begin to contract.  The real question is whether this contraction in OI will occur on declining prices as was the case in 2008, 2011 & 2013 when the bears won, or will the coming decline in OI occur with rising silver prices; a victory for the bulls.  I’m not making any predictions here as the bears (and their government regulators) recognize only one market rule: the bulls in the gold and silver market must not win. 

But the bears know that over the long term, they’ll lose because they’re banks and government bureaucrats, neither actually mines silver or gold bullion for the market.  However this doesn’t matter in the futures markets as when these banks sell a 5000 ounce silver contract, it’s only a promise to deliver 5000 ounces of silver sometime in the future.  As the futures markets are now managed, these banks are allowed by government regulators to promise to deliver more silver than the world produces in several months, or more in a just a few hours to contain advances in the price of silver.  But these promises by the big banks to deliver silver are insincere to say the least. 

The day is coming when insincere promises made by bankers to deliver tons of silver and gold sometime in an uncertain future will not be good enough to satisfy market demand, and that’s when this farce ends.  Expect it to end with a bang, not a whimper, and people will either be in or out when it ends, so the time to get in is now.

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