(Particular observe – I hadn’t deliberate to publish this text to subscribers I despatched as a part of my twice-weekly subscription service ($34.95 per 30 days), however a most trusted advisor, Jim Cook dinner from Funding Rarities, Inc., strongly instructed I accomplish that. Since Cook dinner has by no means failed to offer strong recommendation for greater than 20 years, I can’t forged his recommendation apart).                                        

For the primary holiday-shortened buying and selling week of the New Yr, gold turned in a really sturdy efficiency, ending increased by $40 (2.2%), whereas a late day rally yesterday solely resulted in silver narrowing its losses for the week to 18 cents (-0.7%). Because of silver’s excessive relative underperformance, the silver/gold value ratio widened out by simply over two full factors to 78 to 1.

So far as attempting to elucidate the surge in gold costs and silver’s failure to maintain up over these previous few days, let’s begin with the apparent, specifically, nobody was promoting long-tern bodily silver to transform to gold. Gold and silver costs are set by manipulative paper positioning on the COMEX, so look no additional for explanations. As I’ve warned of late, we should gird ourselves for deliberate manipulative smack downs, equivalent to seen this week in silver (full with middle-of-the-night  non-economic value stabs to the draw back).

Nevertheless, this takes nothing away from the surge in gold costs, the place the current modifications in COMEX market construction and the still-extraordinary developments within the Financial institution Participation report, now together with yesterday’s new launch for positions held by way of Jan 3, nonetheless level to a “sea change” within the positioning of the banks. The actual fact is that the positioning on the COMEX was extra bullish in gold than in silver.

Importantly, though gold closed at six-month value highs on first day of buying and selling of the brand new yr and the cutoff day for yesterday’s COT and Financial institution Participation experiences, the deterioration (managed cash shopping for and industrial promoting) feared did not materialize and, basically, didn’t exist in any respect in silver. Gold is now increased by $250 from the lows of early November and one other $200 from right here will put us at all-time highs and it’s nonetheless my impression that many don’t belief the present transfer increased (climbing a wall of fear). Similar with silver. That’s music to a contrarian’s ears.

Let me run by way of the standard weekly format earlier than turning consideration to yesterday’s COT and Financial institution Participation experiences. I did get an e mail from a subscriber shortly after the experiences had been printed who requested, not concerning the particulars of the Financial institution Participation report, which he knew I’d cowl right this moment, however simply to provide him a “thumbs up” or “thumbs down” on whether or not the report coincided with my current conclusion of a severe and extremely encouraging change in financial institution shorting. My reply to Greg was “thumbs up”.

The turnover or bodily motion of steel both introduced into or faraway from the COMEX-approved silver warehouses snapped again sharply from final week’s subdued motion, regardless of this being one other 4-day work week. This week, some 7.8 million ozwere bodily moved and complete COMEX silver warehouse holdings rose by 1.6 million ozto 300.6 million oz. Holdings within the JPMorgan COMEX warehouse rose by a much-sharper 3.4 million ozto 152.8 million oz.

I do know I’ve devoted a lot time discussing the extraordinary bodily motion of silver within the COMEX warehouses, each just lately and over the previous close to 12 years, however I additionally know this is a matter not broadly appreciated. Fact be advised, I rely that as a private failure of me not with the ability to talk a problem that I’ve come to consider is each bit as essential as as to whether the massive banks step apart in including aggressively to brief positions ought to this rally proceed.

One factor that I consider is close to universally-accepted by most proponents of silver is that when the bodily scarcity reaches the purpose the place its existence can now not be hidden or managed, that would be the level at which costs can now not be contained by manipulative paper positioning on the COMEX, as has occurred for 40 years. It has just lately occurred to me that the terribly giant COMEX silver warehouse stock turnover – a phenomenon that exists in no different commodity –  is the purest signal doable that the bodily scarcity could be very shut at hand and it frustrates the heck out of me that I’ve been unable to convey that.

My pricey departed pal and silver mentor, Izzy Friedman, all the time referred so far because the “second of true”, as the understanding of too low of a value not inflicting a bodily scarcity sooner or later was inconceivable. But, apart from that primary fact, there was little to go on as indicating how shut we is likely to be to that second. The beginning of the extremely uncommon bodily motion of silver into and out from the COMEX warehouses started near 12 years in the past, virtually exactly on the time Izzy now not adopted silver, so I’ve been left to ponder the that means of the bodily motion with out the good thing about my mentor’s knowledge and enter.

That stated, let me state it this manner – I consider the extraordinary bodily turnover within the COMEX silver warehouses is the surest doable signal anybody might ever get upfront that the bodily scarcity is shut at hand. I do know that it has been 12 years since this bodily motion started, so who the heck am I to counsel it’s signaling we’re near the purpose the place the silver scarcity will quickly be extremely seen and unmanageable? I’d reply that, taken along with all of the extraordinary developments over this time, from JPMorgan accumulating a billion ozsilver and 30 million oz (perhaps extra) gold bodily place, to then settling with the DOJ and double crossing its fellow huge COMEX shorts, to extra issues than I can recite right here.  It’s the totality of the problems.

I’d level out that it has been practically three months the place complete COMEX silver warehouse inventories, after declining sharply over the 2 prior years (by as a lot as 100 million oz), have now hovered across the 300 million ozlevel. But, the turnover persists. With out getting too deep into the weeds, this implies to me that we could also be truly on the level the place solely new stuff introduced in can fulfill new calls for for bodily silver – and the place the silver within the warehouses  are owned by these not fascinated with promoting. Sure, that is very speculative on my half and it might simply prove we’re not as shut as I counsel. However would anybody choose I disguise my ideas and solely after the bodily silver scarcity turns into extremely seen, then say it was on my thoughts?

The flows of bodily steel continued to be regular within the gold ETFs, and this week, flows of bodily steel into SLV, the massive silver ETF, turned constructive, to the tune of 1.5 million oz, on account of final night time’s close to 3 million ozdeposit. Even when the deposit was designed to scale back the brief place , as I believe, it received’t be mirrored in Wednesday’s new brief report, however I received’t have the ability to talk about it till the subsequent weekly evaluation (because the report comes out late that day). Ought to there be a pointy enhance within the brief place on SLV, I do plan to complain anew to the SEC and BlackRock.

Turning to yesterday’s experiences, let me take care of the Commitments of Merchants (COT) report first. Since gold did shut at its highest value level  in six months on the cutoff on heavy buying and selling quantity (silver surged initially that day, however offered off fairly sharply into the shut), it was not unreasonable to worry important deterioration. Happily, that didn’t change into the case.

In COMEX gold futures, the commercials elevated their complete web brief place by 6200 contracts to 160,000 contracts. Whereas that is the biggest complete industrial brief place in six months, it nonetheless doesn’t look extreme. There’s no means gold might rise greater than $200 with out market construction deterioration, very similar to there’s no solution to make an omelet with out cracking some eggs. Furthermore, the modifications by industrial classes weren’t alarming.

The 4 largest industrial shorts added 2700 new shorts to a brief place now at 130,324 contracts (13 million oz), and the subsequent largest 5 through 8 shorts added 800 extra shorts, bringing the massive 8 brief place to 211,215 contracts (21.1 million oz). The raptors (the smaller commercials other than the massive 8) offered off 2700 lengthy contracts, lowering their web lengthy place to 51,200 contracts – nonetheless a really giant web lengthy place.

On the purchase aspect of gold, the managed cash merchants had been web consumers of 3704 contracts, consisting of the acquisition of 2157 new longs and the buyback and masking of 1547 shorts. Given the worth motion, the managed cash shopping for was fairly muted and provides to my earlier level of how unloved or disbelieved within the rally in gold has been up to now. The online managed cash lengthy place is now 54,581 contracts (109,140 longs versus 54,559 shorts), up from the web brief place of some months again, however nowhere close to near the  dangerously-large web lengthy positions of the previous.

I’m beginning to suppose, if the previous huge COMEX industrial shorts (the banks) are as devious as I consider them to be they usually proceed to chorus from including aggressively to brief positions, apart from continued raptor lengthy liquidation, that the massive managed cash longs could wind up lacking a serious portion of an enormous gold rally.

Explaining the distinction between what the industrial offered and the managed cash merchants purchased was some web shopping for by the opposite giant reporting merchants and the smaller non-reporting merchants – however remember the fact that there wasn’t important positioning on this report.

In COMEX silver futures, the commercials elevated their complete web brief place by a scant 1300 contracts, to 44,200 contracts. Truly, there was no new shorting, because the raptors offered off 1300 longs, in lowering their web lengthy place to 22,100 contracts. The 4 huge silver shorts purchased again 100 shorts and held 44,085 shorts (220 million oz), whereas the massive 5 through 8 added 100 shorts, leaving the massive 8 brief place unchanged at 66,259 contracts (331 million oz). On this case, watching paint dry was good.

The managed cash merchants in silver truly offered 1039 web contracts, consisting of the acquisition of 1907 new longs and the brand new brief sale of 2946 contracts. The online managed cash lengthy place contracted a bit to 27,777 contracts (46,929 longs versus 19,152 shorts) – all the time excellent news. Each the opposite giant reporting merchants and smaller non-reporting merchants had been web consumers, largely through brief masking.

Turning to the brand new Financial institution Participation report, this month’s report featured a reversal of types from the prior report, in that the relative lack of financial institution promoting was extra pronounced in silver, whereas it was in gold within the prior report. From Dec 6 to Jan 3, whereas the whole industrial web brief place in gold elevated by roughly 30,000 contracts, the banks within the BPR solely accounted for 13,000 contracts of the promoting, with non-banks (quite a lot of swap sellers), accounted for the stability of 17,000 contracts. A s a reminder, the worth of gold rose about $80 over this time.

Wanting again from the BPR as of Nov 1, the whole industrial web brief place in gold elevated by 85,000 contracts to Jan 3, as gold costs rose by $200, and the portion of complete industrial promoting by banks was 30,000 contracts, in comparison with non-bank industrial promoting of 55,000 contracts. That is concerning the smallest financial institution promoting in reminiscence.

Thus, the “thumbs up” so far as my tentative conclusion of a sea change in financial institution shorting. After all, I suppose the banks might come onto the brief aspect at increased costs, so nothing is written in stone at this level. However let me run by way of silver first, earlier than I supply one more speculative conclusion worthy of the Twilight Zone.

From Dec 6 to Jan 3, the whole industrial web brief place in COMEX silver elevated by 12,000 contracts, as costs rose greater than $2. But, the banks accounted for lower than 2000 contracts of that promoting. From Nov 1 to Jan 3, the whole industrial brief place in COMEX silver elevated by 34,000 contracts on a rally of greater than $5. But the banks solely accounted for little greater than 10,000 contracts of the promoting, with non-bank commercials (swap sellers) making up the huge bulk of economic promoting. Uncommon, to say the least, and so far, very a lot in sticking to my sea change premise.

Having acknowledged that each one of this may very well be however a quick respite from the 40-year COMEX value manipulation, ought to the banks return to the brief aspect in an aggressive method, let me lay out a really completely different situation that may border on fantasy to many. Right here, I’ve to repeat that after I take a look at silver (and gold), I contemplate completely not one of the issues that many put into their combine – issues like inflation, rates of interest, the economic system, the inventory market, the actual property market, the destiny of the continued horrific warfare in Ukraine or the political circus I can’t appear to flee.

Don’t take me incorrect, all this stuff are essential to me (and everybody else) to a point as a citizen and fellow traveler of this journey we’re all on. However even when I, or anybody might predict the course of inflation, rates of interest, and so forth., over the subsequent yr or so, in relation to silver and gold, none of this stuff matter within the least. One doesn’t must look additional than the report modifications in inflation and rates of interest this yr in comparison with flat gold and silver efficiency. I’ve spent an excessive amount of of my life studying all this stuff don’t quantity to squat in making any distinction to the worth of silver and gold. The one factor that issues is the state of the COMEX value manipulation; as in, does it proceed or not.

I’ve laid out the crucial issue of will the massive commercials add aggressively to brief positions on rallies too many instances (and being incorrect in guessing that they received’t), in order that I don’t want to elucidate why I’m so excited concerning the current proof within the COT and Financial institution Participation experiences  that the banks have been hanging again in including shorts so far. I additional consider they could have excellent cause for hanging again. I believe it’s straight linked to unbelievable bodily turnover within the COMEX silver warehouses, regardless of my lack of ability to convey convincingly my argument.

I consider the many years of silver value suppression (nowhere close to as evident in gold or some other commodity) has achieved one of many strongest dictates of the regulation of provide and demand, specifically, in any consumable commodity, any extended and synthetic value suppression should ultimately finish in a bodily scarcity or the shortcoming of present provide to fulfill present demand. That is extra sacrosanct and immutable than any of the teachings of the world’s nice religions. The issue in silver, versus some other commodity, is that big stockpiles of steel accrued over time; a lot in order that it was inconceivable to know upfront how a lot silver might come to market earlier than present out there inventories might now not complement present manufacturing. Let’s face it – it’s fairly troublesome to foretell the precise timing of a seminal occasion occurring for the very first time.

That’s the actual message of the unprecedented bodily turnover within the COMEX silver warehouses – it has persevered and intensified exactly as the flexibility to attract from present inventories has been steadily depleted. Nobody would argue that when the exact second of fact arrives and no extra important bodily portions can be found  at present costs – no recognized drive on this planet (besides maybe JPMorgan) – shall be able to offering bodily silver – no authorities or industrial entity. And whereas JPM could also be able to forestalling the bodily crunch by sacrificing its masterfully-acquired bodily hoard, that’s about as removed from the way it usually rolls, as is feasible.

Since these in control of operating the continued large bodily turnover within the COMEX silver warehouses are exactly the exact same  banks on the COMEX which have come to be leery of including new brief positions as aggressively as previously and since these guys don’t want me to elucidate to them how crucial the bodily scenario in silver has develop into, there would seem to a different connection laborious to disclaim. Actually, these in control of the bodily silver  turnover within the COMEX warehouses know in addition to anybody that after the silver scarcity instantly hits with a drive intensified by a 40-year violation of the regulation of provide and demand, there shall be little anybody can do to stop a value explosion of the ages.

Maybe essentially the most singular spectacular achievement of the 12-year intense bodily motion within the COMEX silver warehouses is that it has succeeded in protecting the world’s industrial silver customers and fabricators fully-supplied on this just-in-time world. The minute the on-time silver deliveries hit a snag, some customers, in looking for to avert future supply delays, will transfer to order further or stockpile silver. It will set off a sequence response. The miracle is that it hasn’t occurred so far.  Some could argue that it means it’ll by no means occur, however as provide chain difficulties have developed in all kinds of varied gadgets over the previous couple of years, it appears to ensure a silver provide snag sooner or later – the distinction being that any such “minor” snag in silver ought to quickly escalate into a person in opposition to man free for all.

The one factor these banks, together with JPMorgan, can presumably do when the bodily silver storm hits is to batten down the hatches, with everybody looking for shelter, as attempting to conquer a bodily scarcity 40 years within the making is just not doable. And that, my associates, is what I believe is behind the sudden reluctance of the banks which have all the time been most comfy on the brief aspect, to be as closely brief as they’ve previously. That is additionally very a lot consistent with the huge positioning modifications of the previous yr and nearly every little thing essential over the many years.

Look, I’m not attempting to be a wise-guy with all of the solutions who can even have the ability to pinpoint precisely the exact second of liftoff. As all the time, I’m simply attempting to make sense out of verifiable public information. On the identical time, it’s high-time somebody stands as much as admit that  the unprecedented bodily turnover within the COMEX silver warehouses is so uncommon that ignoring it’s now not a official possibility if one professes to have an curiosity in silver.

Ted Butler

January 7, 2023

www.butlerreseach.com