Silver Shortage Shows Signs of Easing: Were Metals Dealers Holding Back Silver Inventories?

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notforsaleWith gold and silver in the early stages of what appears to be a MAJOR trend change, The Doc and Eric Dubin break down all the action, discussing: 

  • Fed Reverse Repos Supernova- 3 Alarm Fire at the Fed & ECB! 
  • Silver Shortage Eases As Premiums Decline Slightly- Were Metals Dealers Holding Back Silver Inventories? 
  • Derivatives Crisis Underway? HUGE Behind the Scenes Operations Attempting to Put Out MASSIVE FIRES
  • Eric Explains Why Deutsche Bank is a “Time Bomb That is Going Off at Some Point!

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

 

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Uncle Ben’s new book is out.  William Banzai7’s satirical cover would have been an improvement.

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Financial asset prices have mostly been moving higher since last week’s lousy US jobs report.  The Federal Reserve’s first move on the interest rate normalization front is now widely seen as a 2016 event;  the punch bowl remains well supplied and market participants have been throwing a party.

Following Friday’s close, Zero Hedge observed:

With China shut and The Fed going full dovish panic-mode over growth fears, world markets went crazy…

  • S&P up 7 of last 8 days +3.2% – best week since Oct 2014
  • Russell 2000 +4.5% – best week since Oct 2014
  • Nasdaq up 7 of last 8 (since Death Cross) closed above 50DMA
  • Trannies up 8 of last 9 closed above 100DMA +4.9% – best week since Oct 2014
  • Dow up 8 of last 9 +3.5% – best week since Feb 2015
  • “Most Shorted” +4.7% – biggest squeeze in 8 months
  • Biotechs -2.3%
  • Financials +2.2% – best week in 3 months
  • Asian Dollar Index +1.4% (worst week for USD vs Asian FX since Oct 2011)
  • Dollar Index -1.2% (worst week for USD vs Majors in 2 months)
  • AUD +4% – best week since Dec 2011
  • 2Y TSY Yields +6.5bps – biggest rise in 7 weeks
  • 5Y TSY Yields +11bps – biggest rise in 4 months
  • WTI Crude +8.9% – 2nd best week since Feb 2011
  • OJ +4.8% – best day since March
  • Silver +3.8% – best week since May

Zero Hedge is quick to point out that short covering accounts for part of these moves – and they’re correct.

The financial markets are skating on thin ice, and record-breaking reverse repos the Fed executed last month prove this in no uncertain terms.  Click here and here to read Dave Kranzler’s latest work on this subject.  Kranzler notes:  “Something occurred in the banking system in September that required a massive reverse repo operation in order to force the largest ever Treasury collateral injection into the repo market.   Ordinarily the Fed might engage in routine reverse repos as a means of managing the Fed funds rate.   However, as you can see from the graph below, there have been sudden spikes up in the amount of reverse repos that tend to correspond the some kind of crisis.”

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Beginning in December, 2013 the Fed started tapering its QE3 treasuries and mortgage backed securities purchase program.  That contributed to market instability the Fed subsequently addressed, in part, with the unusual swings and the magnitude of repo and reverse repo action.  But the underlying rot of excessive leverage and non-performing assets within the financial sector remains very high.  For a massively levered mega-bank like Deutsche Bank, it doesn’t take huge market moves for derivatives positions and counter party risk to jeopardize solvency.  It’s to early to be certain if problems at Deutsche Bank was the definitive reason for Yellen and company’s September freak-out, but Deutsche Bank is the most likely problem child, and DB’s exposure to Glencore certainly didn’t help.

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Speaking of Glencore, the company announced it will cut 2016 zinc production by about a third, which according to data by the International Lead and Zinc Study Group represents about 3.7 percent of 2014 global zinc mine production.  This helped boost base metals prices, including silver.  As I discussed with Doc, I don’t view the Glencore situation as a likely systemic risk catalyst directly (although impact to Deutsche Bank was and remains real – hence the September Fed reverse repo moves).  The company has major problems, but it is strong enough to cut back production even though that will hurt cash flow.  “It’s clear that there’s distortions,” Glencore’s CEO, Ivan Glasenbergcommented earlier this week in reference to speculators pushing prices below levels justified by economic activity.  “How big (of an impact) they are we don’t know, but eventually the fundamentals will prevail. The funds are playing various commodities on the derivatives side. Eventually the physical will drive the actual commodity price.”  Maybe precious metals industry CEOs can learn a thing or two from Glasenberg’s example?  Don’t hold your breath.

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On our September 13th show, I noted:

It really does look like precious metals attempted to put in a bottom this week and it’s even normal to expect a “sell the rumor” in advance of a possible Fed rate hike, and reversal going into and following the actual news;  a rate hike is built into market expectations, and another can kicking should also be interpreted by market participants as bullish for precious metals.  Time will tell.  Forecasting these most manipulated markets in world history is about as fun as ramming one’s head against a brick wall.  Nevertheless, odds are better than not that we’re past peak pain in the PM sector when considering these factors combined with the improving fundamentals.  Indian demand is going bonkers, Chinese demand is not far behind while the mainstream media and most of the conventional finance world continues to massively underestimate true Chinese consumption.  All the while, North American demand is on the rise.  We are now within the strong seasonal period for precious metals market demand.  Something has to give…

Give, it has.  My forecast was correct.  It was harder back then to see what we know today, what with the month long additional period of sky high premiums on retail products, periodic continued backwardation on LBMA and even the COMEX, declining vault inventories at the COMEX and other fundamental factors.  Now, given that Fed reverse repo freak-out in September, it’s more painfully obvious than ever that massive rot remains in the global financial system and the fundamental reasons to hold gold and silver as wealth insurance has seldom been more compelling.  Tune into the show for further specifics on the fundamentals driving precious metals.

Weekend Perusal:

 Thanks for checking out this week’s show!  – Eric Dubin, independent analyst and managing editor, The News Doctors