Silver Lease Rates are Negative again.

If we assume the downward trend since the high last May is the ceiling, and the upward trend since QE2 is the floor then the ceiling is around $36 and the floor is around $26. My gut says we will see a smack down once it hits the ceiling, knocking it down to the floor which it hasn't actually touched yet, and then it will springboard up and break that ceiling. If my gut is right that still depends how fast the price rises. The more rangebound it is the longer until it hits the ceiling and begins this supposed move. Or maybe the exact opposite of what I think will happen will happen

 

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It doesn't mean they immediately succeed. Speculators will take their bluff and buy the shorts and then the shorts are forced to pay them money not to take physical delivery. (impossible to deliver leased gold). Other entities will actually take delivery of the metal and this causes a mad scramble to locate physical. This game of chicken goes on until one side gets scared and then it collapses. This is exactly what happened last year when silver ran up to ~$50. You can look at my post history where I warned that would happen. And it did. Silver people here scoffed at the time that we'd ever see $40 silver again let alone sub $30, but this is what happened.

Anyone buying silver should try to make an attempt to understand how the price of silver is influenced. It's only your own money that you are going to lose.

 

I don't see silver taking a big hit. The Fed has announced 0% rate until the end 2014. If anything the Fed WANTS some inflation. With the economy begining to show signs of growth and oil going up, commodities of all types are going to gain.

If there is a military confrontation with Iran then expect a sudden BIG BIG spike in silver, gold.

 

^The Fed has to keep rates at 0% or the housing market, the TBTF banks, and their own balance sheet immediately turns to dust. The Western Central bankers have created an extra $7T+ in the last 4 years and that is incompatible with rising rates. However this is nothing more than a fiat currency heading into the abyss, and there is nothing new about that.

What is important on your list that will immediately affect everything, will be the price of oil. It it heads above $125 then it will be like a nuclear bomb dropped on the economy ,such as it is. It was $140+ oil that popped the housing bubble a few years ago. Given that nothing has been solved since then and we now have that much more debt out there, it's impossible to say what will happen. The USA is in unprecedented territory now. IMO, gold will be forced upwards but there is no guarantee that silver will.

If the USA is stupid enough to attack Iran, then that result is unknown. Everyone better hope that doesn't happen because that won't be a pushover like Iraq and it will infuriate the Chinese and Russians.

 

The danger would be Russia and China. Iran would be as big a pushover as Iraq. There is a world of difference between a major power with air superiority and a third world nation's military. I am not bragging up the US, the same would be true if China or Russia invaded Iran, no third world military can stand up to open battle for more than a few days to a major world power. However, that has nothing to do with guerrilla warfare, which is where the third world nation can win. Look at Vietnam. As for oil, it would be more psychological and/or interruption to the gulf shipments than anything. Iran's production has been declining for years now.

Sorry for OT.

 

I wish.

The reason I said February 29th is because that's the first notice day for delivery of March 2012 Futures contracts.

If you really dig deeply into open interest trends and who's buying what you can see how the pros play the game. Allegedly, at certain times just a couple of big banks control up to 25% of the open interest on COMEX silver. And the biggest one in particular is a primary dealer of the Fed. In other words, many people believe it's doing the Fed's bidding in the silver market. Since silver is easier to manipulate than gold because it's a smaller market, and since silver and gold are correlated, the theory is that the price of "real" money (gold/silver) can be controlled so that it doesn't overwhelm "fake" money (fiat)

... in simplistic terms.

 

If I learned anything last year it is that this market does not give a rip about fundamentals. They trade a year's worth of silver mining supply in paper contracts every single day, and that is what drives price action until such time as the physical market can no longer function without taking precedence. So I do think we will see one more hit before the price really gets going in June when the Pan Asian Gold Exchange opens up. Rising oil prices would definitely accelerate this.

So I completely agree with you that 0% interest rates will be inflationary, and that higher prices are just a matter of time. I don't think that the Fed wants inflation, I think that they have no alternative. Assuming they were to implement the Volcker Rule and pump interest rates up to 20% then we would be underwater in no time. It's just not a possibility with this much debt, and they are mitigating it as much as possible the only way they can.

The reason the economy is showing signs of growth is because every bank in the world is pumping liquidity into the global financial system. Japan did an intervention last week, and PBOC lowered interest rates too. The Eurozone is still talking about doing a $2 trillion LTRO as well. The Fed won't have to do any more QE if they implement negative yield bonds either since people will be paying to own them at that point and that will be added to the money supply. If they print their own money to buy these bonds, there's just that much more inflation.

 

Instead of speculating, why not look at a real example? Wasn't Japan at zero percent interest rates in the 1990's? I simply do not recall there being massive inflation in Japan at the time, instead it was a deflationary period. Why is the US so different than this real, recent example? I simply like to tie back to real world examples if possible economic forecasting, or else anything can be dreamt up and "justified". Maybe there are real reasons why its different now than then, its just the hair on the back of my neck stand up any time I hear people claiming, "its different this time".

 

Nonsense, Vietnam did it for more than a decade and the USA finally gave it up in defeat. Too many Americans holding this naive idea is the very reason that we continue to mix this country up in military conflicts which we can't extract ourselves from. No war is won by dropping bombs. You have to send in ground troops.

The Iranians know this and any attempt to take over that country would put both parties knee deep blood. Iraq was a pushover in comparison to Iraq and it scares me that people in this country have become so brainwashed to think otherwise. I'll say no more about this because it is off-topic, but this is generally what you seem to like to do in topics these days and I'm not going there, yet again. You already tried to bait this topic once. I only brought it up because it will create a huge unknown for the future.

 

Bankers don't fear inflation. They desire it. They have to keep inflation going because without monetary expansion, they get into trouble with interest and banks start to fail. The Fed can only expand the money supply by increasing borrowing by the public (public = anything not government). In order to increase public lending the Fed. drops rates. Traditionally this means people borrow more and the resulting effect of this money entering the economy is that economy expands. The fundamental problem the Fed has is their bullets are used up. Rates are now 0% and thus they have no direct way to continue to expand the money supply. i.e. You can make loans cheap, but this doesn't mean that people will take them.

What the Fed does fear is deflation. Deflation is destructive to the banking system as it removes currency from the money supply and hence banks can't make money. The problem is magnified by the reversal of fractional reserve banking. They will do everything they can to stop it including sabotaging other parts of the economy. Japan invented QE because of this issue and the Fed adopted it after 2008. QE means the Fed borrows money from itself, and then it uses the proceeds to purchase real assets in the economy. Hence it can expand the money supply without the public borrowing more. This is why the stock market goes up and why banks are able to unload toxic assets.

The end result of all these shenanigans is that we have simultaneous deflation and inflation in the USA. Unfortunately it's of the worst sort and of the same type that existed in Japan. The deflation is occurring in real assets like housing, property, business infrastructure, and rising in commodities that people consume.

 

>>>Fed does fear is deflation. Deflation is destructive to the banking system >>>

Yeah, exactly. The Fed wants some inflation, 3% or so. It will risk even higher inflation if it needs to avoid a recession/deflation. Inflation is easier to control with interests rates. Remember the 20% rates during the early 80s? Those rate broke the back of inflation.

Deflation is more problematic to cure.

 

Well, you're taking a bird's eye view on a subject that has a lot of facets to make a blanket statement. I don't know all the details myself, but it's not so cut and dry. The devil is in the details, and it appears to me it was their lack of appropriate responses at every step of the way that caused the deflation, not the zero percent interest rates which did not carry as much weight in the scenario as inaction by Japanese leadership.

http://www.aei.org/article/economics/financial-services/japans-lost-decade-outlook/
Only partially quoted:

 

Warning OT

nvm

 

Yes indeed. Japan did suffer huge inflation in world commodities and deflation in local assets. The Japanese public stopped borrowing and this caused a fall in housing and other assets that stalled the economy. I'm flabberghasted at the prices on some of the food when I go there for example. Japan has two huge advantages over the USA that helped with the issue. First, their local economy is not globalised. Second, they continue to be a huge manufacturer of high premium, high technology goods. They have also cornered the market on a number of manufacturing techniques involving metallurgy & ceramics that can't be gotten anywhere else now.

In other words a direct simplistic comparison to Japan and the USA isn't possible in the general sense.

 

Low interest rates are not only to spur lending but more importantly to motivate spending and investments in things other than stale bank accounts.

 

What it also does is incentivize banks to make irresponsible loans because they make money on the interest rate spread. I have been seeing billboards lately saying "Buy our home, and we'll rent yours!", because it's worth it to them to break even on renting from you so you buy the house because they get to profit on the 0% interest rates they loan to you at ~4% while simultaneously expanding their asset balance sheet. This gives the illusion of an improving economy when in actuality all it does is increase inflation and the overall debt.

 

A silver Web site is showing a chart of 20,500 silver contracts being dumped on COMEX within a 7-minute period last Friday. If that was the raid, it didn't work. Expect a bigger one this week.

However, the G20 just threw a wrench in the works by proposing a $2 trillion global bail-out fund. That should juice the money supply and be good for commodities.

The question is, will this week's raid be enough to push silver down against the headwinds of the evermore increasing money supply?

 

I'm thinking that silver will go higher. The US mint is raising the price of its silver coins. Do they know something about the direction of the silver market? With the mint raising silver coin prices and the recently approved tax holiday that is really another stimulus package that will lead to higher inflation and a weaker dollar, I'm guessing that silver will go $40/ounce by Memorial Day. I wouldn't bet my life on it though.

 

First, it was "paper" which means that the contracts were not backed by a silver metal obligation. Also if you notice the chart for silver contracts at that time, they had already established a 45 degree angle downward, so someone got nervous and decided to sell out their position in case it opened lower Monday. For every sale there was a buyer, and that raised enthusiasm and the price tilted back upward. Just somebodies lessening their exposure for the weekend. I really do not get where these reports mention "RAID", except that is their job , to sell silver bullion. Neither them , nor the mint, nor any of us know where silver will close next Friday, but one might do better following the professional sometimes than the PM sellers. IMO.

 

I have a question for those who know more on finance than I do. We talk about the big banks, ie JP Morgan, making moves to manipulate the price of silver to keep it down. I'm assuming this is done with paper contracts instead of physical metal. From what little I know about this, it seems to me that the more they do this the less their ability to control pricing becomes. Would they not get to a point where they lose the ability to control the spot price of a metal? If the physical holders don't sell, wouldn't the paper become meaningless?