Are BIG New Lows Ahead for Silver?

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With Oil Plunging to $35, and Silver Hitting New 5-Year Lows at $13.68 Ahead of the FOMC, The Doc & Eric Dubin Break Down the Action, Discussing:

  • Silver Smashed to $13.68Are BIG New Lows Ahead?
  • Fed Set to Hike Interest Rates in the Face of Credit Markets Seizing Up
  • High Yield Bonds in MELTDOWN..It’s Likely Just Begun
  • Deflationary Snowball Gaining Momentum & Heading Downhill?
  • Supply Destruction Sowing the Seeds for Next Bull Market – Anglo American Slashes Production, Lays Off 85,000

The SD Weekly Metals & Markets With The Doc & Eric Dubin is Below:

 

WarIsHell

 

Data dependent my arse.  If the Fed was truly data dependent, the strains now visible in the high yield (junk) bond market would have Yellen and company talking about sustained liquidity provision, not interest rate normalization.  In the last month, investors have been dumping high-yield bonds at the fastest pace all year.  Selling overwhelmed Martin Whitman’s Third Avenue Management, which shut down redemptions on a $788 million high yield fund on Dec. 9.

The carnage is most stark in the commodities sector, but distortions run across the entire debt market, made all the worse given appreciation of the dollar and a developing world debt overhang.  The 22 component Bloomberg Commodity Index is down 24% this year, it’s third annual decline and the longest period of decline since the index began tracking commodities in 1991.

bank of america merrill lynch high yield index

There are bona fide deflationary forces raging throughout the shadow banking system.  This is hardly the time for the Fed to raise rates.  But there no longer is such a thing as an “appropriate” time to raise rates.  The Fed is truly stuck.  They’ve set expectations for a December rate hike high enough that to not raise rates would seriously damage what little creditably the Fed enjoys.  Thus, the Fed will begin rate normalization next week, and the global economy is going to accelerate to the downside.  A “one and done” hike is a distinct possibility.  Just a 25 basis point hike to the Federal Funds rate translates into an approximate $800 million liquidity reduction.  The global shadow banking system is so leveraged that it can’t sustain traditional interest rate normalization.
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Silver (1)

There was no sign of the cartel letting up this week.  Gold outperformed silver, which is partly reflecting an increased probability that the global economy is mired in a deflationary spiral.  But neither silver nor gold were able to top last Friday’s bounce higher.

Commercials trimmed their Comex gold longs by 5,937 contracts and added 5,149 short contracts per the Commitment of Traders (COT) data released on Friday.  The picture pained by the COT data remains very bullish for gold.  We’re certainly set-up to see the bullion banks take excessively short gold speculators to the cleaners going into next week’s Fed announcement.

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Thanks for checking out this week’s show – Eric Dubin

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