Silver Spreads: Contango Crush Update - ZeroHedge.com

Silver Spreads: Contango Crush Update

A Continuation from Yesterday’s Story: Silver Contango Crushed – Short Squeeze Imminent or Position Limit Ruling Fall Out? (below)

Courtesy of FMX Connect

Silver spreads continue to sell off on Thursday. So far, any theories that weaker spreads are ultimately bullish for the physical metal have to be viewed suspiciously. We spoke with a couple of traders on the topic and our revised possibilities list is as follows:

Points

Silver spreads are being sold because..

1. There is a physical short squeeze coming.
2. The appearance of a short squeeze was manufactured as an exit strategy for a long to get out.
3. Spreads are being messed with in light of the CFTC position limit ruling.
4. Two-year silver rusts and spot silver doesn’t.

Counterpoints

1. Why is the market lower?
2. It’s an awful lot of money to spend to camouflage your selling. Millions,upon millions of dollars.
3. This theory remains entirely possible but the kind of sophisticated funds affected by the new regulation probably wouldn’t puke that way unless they were blowing out.
4. We’re no chemists, but we suspect this statement is somehow inaccurate.

For the time being, we can not discount that there is a short squeeze coming but more information is needed before we can know for certain. If a bullion dealer is selling spreads because they anticipate making delivery we think we’d probably be the last to know, that’s why we are think it is more likely than not that this a charade. Whatever the message may mean, it is certainly expensive to send.

There is one other theory worth mentioning. The most important thing to know is that history does not repeat itself but it sometimes hums a similar tune. What happened in 1997 we do not think will happen again, exactly the same way. In 97 spreads collapses and the market screamed higher, there was no misinterpretation of the signal. We think someone is being fooled or making a mistake, we just don’t know exactly how yet. There may be a sap at the table, but his identity is unclear for the time being.




FMX Exclusive: Silver Contango Crushed – Short Squeeze Imminent Or Position Limit Ruling Fall Out?




Courtesy of our friends at FMX Connect.

Silver Contango Crushed – Short Squeeze Imminent or Position Limit Ruling Fall Out?

In silver, the contango was hit hard about 3 AM this morning with 2 year futures coming in as much as 15 cents relative to spot. The Z11/Z12 futures spread settled 21.40 yesterday and the market today is 13/15. The H/Z futures spread settled 19.2 The market today is 9/11.

What could cause this?

Factually speaking, 2 reasons cause contango to collapse. The first is interest rates and interest rates would have to decrease a large amount for this type of move in the spreads. The second is delivery concerns. When a producer, bullion dealer, or speculator is short the front month, come expiration, it has a a choice: make delivery or don’t make delivery. There are 2 ways to avoid making delivery, Reissuing, which is essential covering shorts, and deferment. Deferment involves leasing the metal from someone else or rolling your short to a back month.

Last time we saw a contango move this significant was in 1997 before Warren Buffet took delivery. While more information is needed, and this could be a fake out we think the spread’s move is important. It happened during Asian hours and the Asian market has shown strong physical demand. If this continues in conjunction with higher lease rates you will more than likely see a short squeeze. There is another less exciting reason it could be happening. Additionally, it could be related to the CFTC position limit ruling. Silver position limits will be implemented in 2 tiers. The first tier is a limit on front month contracts. The 2nd tier limits the aggregate number of contacts for all back months combined. Someone could just be moving their position around to deal with the new regulatory structure. Our conclusion is that we are going to have a short squeeze or increased volatility in the spread market as major players shuffle their open interest around. Stay tuned..

US Mint Reports January Silver Sales Hit 26 Year High -ZeroHedge.com

US Mint Reports January Silver Sales Hit 26 Year High


When we had last checked on the total silver sales by the US Mint earlier today, the amount given was 3,407,000 ounces, a number which we had earlier speculated would be a monthly record if sales were maintained at the current pace. And as the number had not been updated we assumed that "either buying interest has ceased overnight (unlikely), that the mint is not updating its numbers (likely), or, worse, that the Mint has now stopped selling any form of silver for reasons unknown." Indeed, the result was the likely one, and following a quick check today on US Mint sales confirms that sales have once again surged following the Mint's delayed update. As of today they stood at a whopping 4,588,000, or nearly 1.2 million ounces sold in a few short days. This represents the biggest monthly total sold by the US Mint going back to 1986 when the Mint disclosed its first monthly sales record... And the month is not even over yet. In other words in just the first three weeks of January, the mint has sold more silver than in any month in its history according to its public records going back 26 years.

So the bad news is that while the bulk of Scotia Mocatta's silver bars continue to be sold out (and just the Valcambi 1kg bar is shown as available), the good news is that the kind folks at BullionVault were good enough to advise us that their physical silver inventory is now back and is on line (and contrary to our previous notification, the firm's physical shortage was not in Germany but in England, where its vaults are located) so our England-based readers can go ahead and purchase at will from said location.

European Silver Shortage Spreads To UK - ZeroHedge.com

European Silver Shortage Spreads To UK

On Friday we disclosed that major PM distributor, retailer and trading house BullionVault.com had run out of physical silver inventories in Germany (and possibly elsewhere) and was advising clients to seek the precious metal elsewhere. Today, we find that the UK joins Germany in what is now becoming the second round of the global silver shortage (the first one occuring in May 2010 when it was unclear just how the ECB would deal with insolvent PIIGS). Below is the warning by British BullionByPost notifying clients that the company currently has no silver bars in stock. Inventories are expected to be restocked later in February. In the meantime, as before, we urge customs agents to do a quick check of the cargo hold of all private jets (and time shares) registered to any banker making over $25 million. After all, surely the Tunisian president didn't come up with the idea to flee with 25% of Tunisia's gold entirely on his own.

BullionVault.com Runs Out Of Silver In Germany - ZeroHedge.com

BullionVault.com Runs Out Of Silver In Germany


With the US Mint selling silver at an unprecedented pace, it was only a matter of time before the silver shortage would be spotted across the Atlantic, where distributors ran out of both gold and silver on a daily basis during the first time Europe became insolvent some time in early May 2010. Sure enough, BullionVault.com has announced that it has run out of silver in Germany "due to high demand." In the meantime, the CFTC's actions have succeeded in allowing the JPM's suppression of precious metals markets to continue indefinitely, yet all its actions have really done is to provide a short-lived lower cost basis for the precious metals as there is no indication demand is subsiding. At some point the margin calls will come. Then not even Gary Gensler will be able to bail out JPM (we wish we could say the same about Ben Bernanke to whom JPM's role as head of the tri-party repo clearing market is irreplaceable in maintaining an orderly shadow liquidity market).