CONDITION RED: Important Silver Threshold Line Broken… What Next??

The important silver threshold line was broken briefly last week and continues to bump up against it in early trading today.  If the silver price closes above this threshold line by a significant margin, it could mean big trouble for the bullion banks who hold record silver short contracts.

I wrote about this in my article, WATCH OUT if Silver Breaks Through This Threshold Next Week.  The important silver threshold line is the 50 (MA), or what is known as in technical terms, the 50 month moving average line.  Because I used a 20 year monthly chart, the 50 (MA) line refers to the moving average in monthly terms.  If the chart is shown in weeks, then its a weekly moving average… and if it is a daily chart, then it is a daily moving average.

Here is an updated 20 year silver chart which now shows a 50 (MA) of $20.35:

Silver-10-Year-50MA-070816-Chart

Let me explain this chart, especially for new folks to the site and the industry.  While I focus on the mid to long term fundamentals of the silver market, professional traders look at these charts and trend lines very carefully.  Normally, I don’t spend much time looking at this info, but because we have now punctured an important silver trend line, what happens next could be very interesting.

There are two lines in this chart.  The RED LINE is the 200 (MA).  This is the average silver price based on a 200 month moving average.  What is important about this 200 (MA) trend line is that once the silver price moved above it in 2004, it has not fallen below it, except very briefly at the beginning of 2016, when it bounced off it.

Thus, the 200 (MA) in this monthly chart denotes a bottom that traders are looking at.  Because the silver price bounced off the 200 (MA) and is now trading at $20, traders believe silver will not fall below $14.65.  Thus, $14.65 is a strong support level for silver on a long-term monthly chart basis.

Now, there is the 50 (MA) BLUE LINE.  Ever since the silver price fell below the 50 (MA) line in the beginning of 2013, it has stayed below it for nearly three years.  However, it finally broke above it last week when silver hit $21 briefly.  Professional traders are looking very carefully at how silver trades over the next few weeks.  If silver closes above $20.35, the 50 (MA) trend line at a significant margin by the end of this month, we could see a lot more hedge funds and large traders jump into the silver market bandwagon.

However, the bullion banks who hold record commercial silver short contracts, will likely defend the $20.35 price at all costs.  Here is a Kitco 3-day silver chart:

Kitco-3-Day-Silver-Chart-50MA

Last night in early Asian trading (shown as a RED LINE), the silver price once again broke above the 50 (MA) $20.35 threshold line.  Then in London and U.S. trading (GREEN LINE), silver continues to bounce up against the 50 (MA), which is shown as a yellow dotted line.

The reason the bullion banks will likely defend this $20.35 price is due to the massive amount of commercial short contracts they hold.  Here is a Silver Cot Report Chart showing the massive increase in Commercial short contracts:

Silver-COT-REPORT-Chart-070816

The RED BARS at the bottom of the chart represent the increase in Commercial Net Short positions.  That figure is shown on the left part of the chart.  The Commercial Net Short position is calculated by taking total Commercial Short contracts and subtracting total Commercial Long contracts.

Commercial Shorts (154,486 contracts) – Commercial Longs (55,718 contracts) = 98,768 Commercial Net Short positions.

As we can see, the Commercials hold a record number of net short contracts.  However, if we go back to the end of 2015, the Commercial Net Short silver contracts were about 24,000 contracts.  This was at the time the price of silver hit a low of $13.85.

Which means, since the end of 2015, the Commercials’ Net Short positions have increased by a whopping 75,000 contracts.  Those new to the silver market need to understand that each contract represents 5,000 oz of silver.  Thus, the Commercial Net short position in silver is now 375 million oz.

Here is the big problem for the Commercials.  As the Commercials (bullion banks) have been adding to their net short silver positions, they continue to be underwater as the silver price increases.  While there is no way to know how much underwater the Commercials are in silver, we can make an estimate.

The Commercials have added 75,000 net short silver positions as the silver price increased from $13.85 to $20.50.  If the silver price moved up about $6.50 during this time, we can assume that the Commercials average price is half of that figure.   But, let’s be more conservative and just say the average price they are underwater is $2.50.  Thus, the Commercials are underwater $937 million, or nearly a $1 billion.  That could amount to one hell of a lot of losses if the price of silver continues to rally higher.

Furthermore, if the price of silver does close above the 50 MA of $20.35 at say $21 by the end of the month, then we will likely see more hedge funds and large traders move into the silver market as a leverage trend play.  This would cause the Commercials to be underwater at an even higher level.

This is why I call the breaking of the $20.35 Threshold line, CONDITION RED for the Commercials. 

Now, I don’t know what the short-term silver price outcome will be.  Although, as the Central Banks continue to add more QE to prop up the broader markets. this added liquidity may also make its way into the precious metals.

At some point, the Commercials may finally experience the SHORT SQUEEZE from hell as they will have to buy back their underwater positions as the price of silver surges higher.  This will cause an even more dramatic move higher in the silver price as the Commercials try to exit a bad trade.

That being said, the Commercials have controlled the silver price and market with their record short net positions in the past.  But, there is always a FIRST TIME for everything.  While I only look at these short-term trends for amusement, the mid to long term fundamentals point to a silver price that is considerably higher than it is today.

For Those Investors Who Point The Blame At The Precious Metals’ Analysts & Dealers

I have read comments on my site and on others from investors who have found a hobby or pastime in blaming precious metals analysts and dealers for the ills of lower gold and silver prices since 2012.  While this only represents a small fraction of the precious metal community, I would like to state a few logical points.

  1. Yes, we are guilty in the precious metals community of not realizing the amount of corruption, fraud and funneling of QE into bonds and stocks by the Central Banks since the end of 2012.
  2. Yes, precious metals dealers make a small commission on selling precious metals.  While some investors like to label the precious metals dealer as “SATAN” because he or she makes money whether the price of gold or silver goes up or down, I would like to remind you, most brokers selling anything, such as Real Estate, do the same thing.
  3. Total U.S. Silver Bar & Coin demand in 2015 was approximately 100 million oz.  If precious metals dealers made an average of 5%, at a spot price of $15.85 plus wholesaler premium, the total for the 100 Moz would be $85 million for the total precious metals dealer industry.
  4. How in the hell does an individual not understand that the U.S. precious metals dealer industry making $85 million selling silver is not such a crime when we consider the Big Banks dumped trillions of Dollars of worthless Mortgage Backed Securities and other assorted paper garbage on the Public’s back (Fed’s balance sheet). Furthermore, the Big Banks get free money and charge their clients interest on highly inflated Derivative garbage.
  5. The three large banks, JP Morgue’n, Blank Of America & Citicorpse made a combined net income of $57.4 billion in 2015 on completely fraudulent accounting.  However, total precious metals retail silver commissions of $85 in 2015 is two-tenths of one percent of these banks profits in 2015.

Maybe the individuals who enjoy berating precious metals analysts and dealers as the “SATAN”, why don’t you wake up and look at where the REAL FRAUD that is taking place in the Banking Industry.  Wake up and smell the FOUL MASSIVE DERIVATIVES MARKET.

Check back for new articles and updates at the SRSrocco Report.  You can also follow us at Twitter, Facebook and Youtube below:

Enter your email address to receive updates each time we publish new content.

I hope that you find SRSroccoReport.com useful. Please, consider contributing to help the site remain public. All donations are processed 100% securely by PayPal. Thank you, Steve

35 Comments on "CONDITION RED: Important Silver Threshold Line Broken… What Next??"

  1. Nice Work Steve!

  2. Thanks Steve.

  3. “….Although, as the Central Banks continue to add more QE to prop up the broader markets. this added liquidity…..”

    They found another way to prop up the markets. The Fed Reserve tells banks they can buy back their own stocks with cash they get for next to nothing; just be a supporting member of the Fed’s cartel, and keep your moth shut.

    https://www.youtube.com/watch?v=NRviff7XtHI

    Just keep coming up with ways to kick the can down the road.

  4. Rock on!

    Great analysis and great comments.

    The short squeeze from hell is rapidly approaching.
    If they somehow manage to beat the price of silver down it will be a good buying opportunity. We win either way.

    SteveW

    • That’s why I think a much greater fiat valuation of G, but particularly S, will be in very close proximity to an economic calamity. At this point it’s all a very delicate balancing act. If one decided to [inaccurately] view the central banks actions just as social altruism, you could say they are keeping everything from collapsing becasue of their interventions. In a sense that is true. They are extending the inevitable conclusion of what they started.

      • What bothers me most is I don’t think they know that they are acting insane, doing the same thing over and over and expecting different results.

        As a consequence, the world is going to pay dearly for their folly and the longer they maintain the charade the worse it will be for all of us.

        SteveW

        • I think they know what they are doing. Globalization agenda which requires gutting of the middle class. Part of that is low rates and QE which only help the wealthy funnel more of the wealth their way. The Fed says there is no inflation but prices have gone up substantially the last 5 years so only the already wealthy have purchasing power.

          The feudal lord model with a few lords and ladies and many peasants, who look more and more alike around the planet as globalization proceeds, to do the work to provide a they do not have to do anything lifestyle for the wealthy.

        • “What bothers me most is I don’t think they know that they are acting insane, doing the same thing over and over and expecting different results.”

          as long as they get same debt-response from the cattle, why shouldn’t they do the same thing? the world keeps working for them for free, and you think THEY are insane?

          “As a consequence, the world is going to pay dearly for their folly”

          that’s the plan. always was.

          • You guys may be right. However, if you are following the 24 Hour Spot Silver (Bid) on Kitco it sure looks like a tug-o-war going on. So if the gods at at war who knows what is going to happen – someone is going to end up with some serious mud on their faces.

            SteveW

  5. The better your articles, the more pageviews, the more paid trolls. Excellent, success comes with progressive troll mouthpieces.

    I have to add; measuring precious metals (money) in fiat (currency) always makes me sick. TBTF losing a few billion won’t be te tipping point. Physical shortages will.

    Hey, i know the drill.

    • Yes, but these naked short (and long) contracts will be fiat settled, and NEVER in physs. A loss of a few billion in paper vis-a-vis tens or hundrets of billions in fraudulent gains will not hurt them too much. They will close shop eventually and sit on a nice stack themselves when the spike occurs. They may have claim to a lot of metal over on the eastern exchanges too… These guys may be evil, but they are not stupid. They own the system and have an exact view of the paper AND phyzz markets… But I agree, phyzz shortages will eventually overcome their paper suppression scheme. When, how and to what degree this will change the official “price” we’ll have to wait and see…

      • Some are settled in physical now and always have been. They have to have some semblance of being a real market.

        Despite the official rules of playing their game, some players may choose to demand physical delivery when wholesale shortages become very apparent.

        ” But I agree, phyzz shortages will eventually overcome their paper suppression scheme. When, how and to what degree this will change the official “price” we’ll have to wait and see…”

        Yep. Before that time we are likely to see some time of premiums well above spot….so the mainstream media can continue to quote the COMEX price for the public…to extend the game.

        • CB’s and .gov don’t have a choice. They have to prop up ‘markets’, when they don’t, we have 48 hours before the whole system goes down. Everything is over-financialized, and fundamentals are deteriorating. The era of cheap affordable energy is over imho, now they try to squeeze the last drops out of globalization; the Hillarys, the endless EUnification, immigration and qe’s.

          Holding down metals is a very, very small part of the efforts being made to extend & pretend. When this baby goes down, you’ll need your pm’s for the afterparty.

          • “Holding down metals is a very, very small part of the efforts being made to extend & pretend”

            It is one of many interventions, but in my opinion a “linchpin” intervention. Stop the paper shorting and other manipulations of G or S, continue all others, and the whole thing blows up as fast or faster than ceasing any other intervention. In my opinion it would take less than two months. I don’t think G and S can make new highs without being the black swan.

  6. “The three large banks, JP Morgue’n, Blank Of America & Citicorpse made a combined net income of $57.4 billion in 2015 on completely fraudulent accounting.”

    This made my day, thanks!

  7. “Foul Massive Derivatives Market”

    YES.

    Those massive short contracts dumped onto the market by the bullion banks, to cap and force down spot price, are in no doubt naked. This makes these hollow contracts nothing more than derivatives.

    Don’t forget that these same bullion banks, are short 340,768 gold contracts on top of their silver shorts! With today’s market action being influenced by Ben Benanke’s visit to Japan and the CBJ commencing their helicopter “lite” money drop.

    Could this be an extraordinary monetary policy effort, on part of western banking cabal to regain control of the precious metals? Only time will tell. We should all know soon enough, as time grows shorter for that much dreaded margin call awaiting the bullion banks.

    They who sell what isn’t hissin, gives it back or goes to prison.

    • “Could this be an extraordinary monetary policy effort, on part of western banking cabal to regain control of the precious metals?”

      of precious metals? no. it is an ordinary (if end-game) monetary effort on the part of the (nothing western about it) banking cabal to maintain control of us. they don’t need no stinkin’ precious metals. what is gold compared to the human cattle that give it value?

  8. really? are they really anything underwater? With single HSBC buying up KGHM 3 years of silver production (as KGHM is public and on exchange it had to report bigger contracts, such as these, publicly, in 2015 and 2016), from just one producer that has less than 5% of global market share, multiply it by 20, and they can have spoken and paid for a billion or two or three billions ounces of silver. Thay just hedge it on comex that’s all, in the process sending the price to the basement and ripping off the producers hugely.

    • 3 years = 120 million ounces of silver

    • I see your point, but these are ounces in the ground. As fizzical shortages develop price will go thru the roof whether these are naked shorts or hedges of fizz in the ground, as supply cannot and will not meet demand at current or lower prices.

  9. Wow, brilliant and amazing analysis !

  10. How does a bullion bank lose money by taking a market making short position? I understand how they need to pay out to the counterparty owning the long position, but since they create these futures contracts out of thin air, why not just rip up the contract owed to themselves if the price is lower by the end of the term?

    Throw the newbie a bone.

    • That would blow up the paper scam. Lot’s of ‘very important people’, including you and me, are dependent on this paper world we created. To consume the future –> greed!

      As long as there’s a paper promise, and 92% of the populace believes everything is awesome, the Pokemon hunt is ON!

  11. Steve , Great definitions with a brilliant wrap up. The fact is that physical silver really is a finite thing
    and all of the paper shenanigans cooked up will only stand for so long.
    When the CEO with a company supervising multiple mining projects from around the world makes
    the statement that today’s ratio of physical silver to physical gold being pulled out of the ground is 9 to 1,
    the world had better take note !

  12. Steve,
    Thank you once again for your persistence over the last several years. If anyone is honest about the juncture we have reached today, no analyst, pundit, nor economist predicted we would see eight years running at zero interest rates and now $Trillions in neg yielding bonds out to 50 years!!! WTF is

    Precious metals may be fiat nemesis, but the bankers still control the casinos. When the ‘Red Line’ falls and their vaults are empty, they will let silver rise as high as required in whatever denominated fiats to induce some selling. They’ll refill the vaults, reset the margins and chips and who will hold them accountable even of their exchanges default? This will continue until the final collapse of the currency, when nobody wants to exchange their PMs for fiat….
    How much longer until we reach that juncture? Until then, the beatings will increase until morale improves.
    The ‘Red Line’ that we all should be watching is the one governments and bankers cross as they destroy societies around the planet and suspend the rule of law.

  13. The banksters can add as many shorts as they want. It is abundantly clear they never intend to deliver whether silver or cash. All they have to do is unplug the market and it is game over for everyone involved, banksters, investors, or speculators.

  14. does your analysis take into account the fact that this “market” consists not of silver but of fractional reserve silver certificates?

    “some investors like to label the precious metals dealer as “SATAN” because he or she makes money whether the price of gold or silver goes up or down”

    (laugh) well yeah, it’s a commodity ….

    “Thus, the Commercials are underwater $937 million, or nearly a $1 billion … This is why I call the breaking of the $20.35 Threshold line, CONDITION RED for the Commercials.”

    condition red for those who think they know better than the commercials what the price is going to do, and who pile in at $20.40, and who then see their investment go into the red.

  15. “condition red for those who think they know better than the commercials what the price is going to do, and who pile in at $20.40, and who then see their investment go into the red.

    Steve is right about condition red for them; if they can defend it [as they have done since this article came out] they hope to flush the weaker hands. THAT is the red line. Unfortunately the hands get stronger as they create more currency that is looking for a place to go [exchange itself for].

    • “Unfortunately the hands get stronger as they create more currency that is looking for a place to go”

      heh. you make it sound like that currency is randomly distributed. it’s not, it’s distributed to The People – the “elite”, the “international financiers”, the “deep state”.

      see, that currency creation is not inflation. it’s wealth transfer.

      • it is channelled to the top 1% and the bottom 30% (food stamp program etc). it’s the middle class (or whatever is left of it) that loses out – when the the middle class is fully wiped out it’s game over and the whole thing collapses for good. the shenanigans may continue for a while longer as the addiction to the printing press will get stronger and stronger. though fizz PMs and the estern exchanges will eventually throw a golden/shiney spanner into their presses which will leave a lasting impression.

        • Good points gman and CHX,

          And that top 1% and central banks are buying physical gold [among other assets] with that currency. The middle class may be protecting themselves with silver as they can’t afford gold. My point is whether it is Westerners, Easterners, manufacturers, wealthy, or those of more common means, the metal is being bought up. But you know that.

        • “though fizz PMs and the estern exchanges will eventually throw a golden/shiney spanner into their presses which will leave a lasting impression.”

          in what way? the entire world economic system operates on fiat debt currency. the currency owners own the planet and everything that everyone does. any attempt to kick off the currency owners shuts down everything, and I mean everything. by the time gold or silver are being used as money again no-one will be selling anything, everyone will be hunkered down trying to find food. you’ll offer a maple leaf for a dead rabbit and twenty people will tell you “NO!” you’ll walk down the middle of whatever bandit-filled street remains wearing 100 oz of gold jewelry and no-one will look at you twice.

          • “you’ll walk down the middle of whatever bandit-filled street remains wearing 100 oz of gold jewelry and no-one will look at you twice.”

            An elite patrolling the street will stop their limo and mug you for it! lol

  16. https://premium.kitco.com/images/live/silver.gif

    There is definitely a tug-o-war going on. See above.

    I am not sure, but the free market forces seem to be more tenacious. So the “short squeeze from hell” may be on this weeks menu.

    Going to be an expensive lunch.

    SteveW

  17. Endeavour Silver looks like she’s primed for a nice little run … coming out of a nice little “cup & handle” formation ….

    http://stockcharts.com/h-sc/ui?s=EXK&p=D&b=5&g=0&id=p91202460338

Leave a comment

Your email address will not be published.


*