The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Monday, March 28, 2016.
Silver is the most managed commodity on the planet because its relationship to gold - because if its held down this will help control the price of gold. The status quo needs to have the multitudes remain complacent and distracted from their nefarious ways, because they are debasing everything, not the least of which is the currency. So a 'no fly zone' has been declared on silver because of its importance in maintaining the status quo's illusion - the balloons, bubbles, and other inflated deception. Because of this, silver has become the most important market in the financial universe, where all other markets effectively hinge on it like never before, which is a fundamental reality status quo price managers will regret in coming years.
That's right - the whole ball of wax depends on the status quo being able to keep silver suppressed, because if the genie were to ever get out of the bottle these days, gold would be close behind, and the bloated Western colossus would implode due to our interconnected markets. It was bad enough back in 2011 when silver attempted to push through the 1980 highs at $50, only to be turned back by Western paper pricing mechanisms (see below) at the time. However these days, with debt doubled since 2008 (government, corporate, and personal), and the world drowning in deflationary forces, and is as fragile as ever. So correspondingly, silver remains the status quo 'whipping boy' like never before, however this is set to change.
Why? Because fundamentals for silver are improving such that status quo price management mechanisms will eventually become ineffective in controlling this powder keg. Silver is a small and localized market compared to gold (which is why it was selected for its roll in the financial system because it's easy to control), where the US still controls global pricing. This is done via futures, ETF's, and the machines, where both speculator betting practices and algorithms are used to affect prices. Thing is though, when speculators become cautious on a market (buy puts and short sell), the computers can actually work against US price managers because precious metals will be squeezed higher like anything else, which as you would know from our sentiment studies, is what's happening in the shares right now. (i.e. via ETF speculator betting practices.)
All this adds up to make silver the most maligned market in the world; but again, a funny thing happens when this occurs. Prices need to catch up to fundamentals eventually. News concerning factors like negative interest rates (NIRP), money printing, and now helicopter money for the people would have sent both silver (and gold) flying ten-years ago, however today, because of intensified price management from our status quo friends, silver can't make it over $16. Whenever it gets to a possible breakout at this threshold, magically, the bankers show up to keep it capped, selling as much as a year's production in a single day without an ounce of actual metal to back it up. If you're a status quo crony this is 'business as usual' of course, because the alternative would be a vaporization of their fortunes, power, and jobs.
Of course try as they may, to a certain extent such an outcome is inevitable no matter how desperate they get, because on the most basis level the political economy of the human experience is reversing from Globalization to decentralization, so Western parasite classes will have fewer victims to feed off. It's a matter of survival for the increasingly disenfranchised - so you can count on this reversal going the 'full monty' as a more primitive (survival of the fittest) tone grips the global macro. This is where metals settlement exchanges in China come in, where once 'trust' evaporates in global trade, Western futures markets will become increasingly disenfranchised in terms of gold and silver trade - possibly ending in a complete power shift at some point - with the rise of more regionally polarized trading blocks.
This is what must happen in order to free precious metals from the grip of nefarious Western markets, where true demand / supply dynamics have an effect on price. Because as the debasement of Western currencies becomes more evident, which is coming on like a freight train right now, this will become increasingly important, even to those who would have you believe the opposite. Exactly what will trigger an acceleration point in the process is of course impossible to identify with any certainty, however it should be something surprising, like the Canadian banks blowing up, where at present the status quo would have you believe nothing bad ever happens to the conservative Canucks. Only thing is Canadian bankers have had to increasingly employ riskier lending practices due to the deflationary forces mentioned above, and now their balance sheets are dangerously impaired.
That would surprise status quo adherents and just about everybody else alike, because Canadian banks are supposed to be 'safe' - right? The fact Canadian regulators have recently refined bail-in rules to be 'more sweeping' shouldn't worry you - honest. But the trigger(s) doesn't have to come from abroad. There are plenty of things to worry about in the US from the election to bubble economy(s). So there's no telling what it will be. Little doubt exits it's coming. Most American's know something is seriously wrong, and more are beginning to take prospects for the future more seriously, which is a large part of the reason people are so angry with the establishment now. The mob is mad - and they aren't going to take it anymore. So go ahead GOP insiders - just try and steal the nomination from Trump. (See Figure 1)
Yup - there's nothing like a good dose of reality dowsed on overly confident and out of touch sociopaths to get a good stock market rout going, not too mention throw a good sized bid into precious metals. This has been a long time coming, so it's going to take some doing, but once it arrives - Katie bar the door. The situation us pictured in Figure 1 above, where as denoted, status quo price managers have had silver locked down (in a no fly zone) both in nominal and real terms since the 80's, with the Greenspan era the center piece of the epochal episode. As noted above, it's 'un-natural' for any market to perform in this fashion. It's reverse mania in essence. And the 'beach ball being held under water' analogy could not be more appropriate. Once silver is reclassified an official monetary metal again, which may occur in Mexico first, the lunacy if the past 30 years will need to be unwound. (See Figure 2)
How will you know the next big move higher in silver has begun? Answer: When RSI on the monthly plot above breaks back into the indicated channel. Once this happens, the implication is it will be destined to touch the top of the channel, and more. Right now, silver is having difficulty putting in a monthly close over the Fibonacci 233-month exponential moving average (EMA) also denoted above, however once this occurs we should have our RSI beak higher as well. Then you watch for consecutive monthly closes above large round number milestones like 20, 30, and 40. Then you watch for the trading increments to expand, where in the end (of the bull market), possibly in 2021 (the Fibonacci time extension from the year 2000), silver could be making daily moves greater than what it's trading for today. (i.e. 20, 30, 40...who knows?) (See Figure 3)
And while it's always possible the Silver / Gold Ratio may need to touch indicated trend-line support, which would imply likely bearish price action; however it should be pointed out that this is the only potential bearish technicals for silver I can find across the entire sector - on the same chart, make sure to also notice the fact RSI is on mega-diamond support, but the Bollinger Band Width Indicator® is also on support, set to come back to life at any time now. Take a good look at that RSI diamond. You don't see something like that every day. The implications here are that once the diamond is broken to the upside, silver should out-perform gold for many years considering the diamond took 30-years to trace out. The implication is silver would explode to the upside in price. The implication would be silver is a must own asset because it's the ultimate hedge (from a value perspective) for the chaos that is about to grip the world.
But can't central planners just keep printing money forever, keeping silver contained with paper market management protocol? Just look the COT reports for silver and gold from last week. Idiot hedge fund speculators keep piling in and the commercial banks keep selling. Open interest is at multi-year highs right now, which as you should know, has been bad news for prices since 2011. Is this time different? I guess we will find out, however at a minimum, one must be somewhat more cautious right now, especially if the ETF gamblers get increasingly bullish again as well. So keep an eye on the key ratios we follow here. If key precious metal open interest put / call ratios keep falling this week, and a pinned DUST ratio can't keep the Gold Bugs Index (HUI) above 165, at a minimum it should get beaten down to the 140 to 150 range, convergent to lateral support and the 50-day moving average (MA). With the COT situation becoming more dangerous, such an outcome obvious looks more probable now.
So the silver no fly zone is still in effect, evidenced by last week's dramatic pullback from important resistance at $16 (and 155-month EMA), along with what is happening underneath the surface in COT structure and put / call ratios, where even with hedging still in full force (DUST open interest put / call ratio is still pinned to the lows), the entire sector remains under pressure. The surge to new extremes last week in COT positions was quite surprising, and increases the probability of weakness into month end this week considerably. It will be interesting to see if damage is done to the monthly pattern, where a close below lateral support on the HUI at 140 would not be good at all, possibly signaling a multi-month correction. This is not probable with the open interest put / call ratio for DUST (see above) still pinned to the lows, however you should be aware of the importance of support at 140. In terms of silver, it would not be surprising if sub $14.50 trajectories are vexed, if not $14 itself.
Make no mistake about it however, this would be an excellent accumulation opportunity because good investing is once again possible in precious metals.