Friday, November 12, 2010

LIMIT DOWN! Lofty commodities tumble: Are Chinese bankers giving us a buying oppurtunity?

[These are very exciting times for me to have taken a hiatus, but some things (namely, midterm exams!) have been gobbling up my time.  Perhaps I should stay away, as gold and silver are up a solid 20% since I last wrote one month ago.  I hope I'm not going to regret this, but I'll write anyway...]

Commodities boards around the world are nearly all red today, and some commodities (including sugar, silver, oats, soybeans, corn) have hit limit-down--even multiple times, as the massively speculative realm of margin-bought commodities comes under heat from various sundry news stories.  Oh, it is quite unfortunate that we live in a world in which the prices of commodities are largely controlled by the interpretation of "news stories" by a small collection of individuals running the commodities trading arms of about ten large international banks, individuals and banks which have absolutely no intent of ever using, let alone taking delivery, of the "assets" they purchase and sell on paper only, individuals who have likely never been on a farm or in a mine in their entire lives, but indeed this is exactly the world we have--and you can thank the banksters.  We are witnessing yet more of these whims and interpretations today.

If people didn't think the above condensed explanation of the world commodities markets to be accurate before the fabled summer of 2008--that summer when oil hit $148/barrel despite zero change in supply and a marked drop in demand--then they certainly realized this explanation to be sadly true within a few months of that summer as by December 2008 the very same "rare" commodity slid to under $30/barrel.  The international commodities trading system is perhaps the most socially destructive result of the international fiat banking system, as it manipulates the real price of real stuff, and real people need these real things and really suffer when banksters manipulate the markets with contracts on non-existent "assets" based on debt.   And just in case some goldbugs had recently come to like or even trust these banksters as they watched gold and silver prices climb in price to records--just in case they were thinking, "Well, its only bad to have massive bankster-run market manipulation when they are driving down the prices of metals--but its okay when they are driving up the prices," well then today these confused people are getting a reality check, written with lots of big red numbers indeed.  We kid ourselves if we think that the Fed is going down that easy!  No way!

We are seeing the death-grip these banksters still have on commodities today, as the "market" "responds" to "new stories."  The big story this time, the story apparently so important that these insane markets must immediately price the "news" into commodities, is that perhaps, maybe, sort of, we think, it is possible that China is going to increase interest rates.  


Market response: "Increase interest rates---do you mean that China is going to increase the price of money?  Heaven forbid!  Curse those "currency manipulators"!  How dare they!"

"By all means, we'd better move quick!  This is surely reason enough to drop the price of sugar by 12% in a single day, don't you all agree?!  To the algorithms, quick!"  

"Commodities rout, commodities rout!" 

Is this an exaggeration?  Sorrily, it is not--sugar really dropped almost 12% today "based" on the rumors of possible Chinese central banker moves.  Of course this is not a reasonable response--not in a sane world where sugar prices are controlled by supply and demand--but in this insane world of bankster-run commodities and equities markets, it is apparently a perfectly justified response.  So let us review what else are perfectly legitimate responses to a rumor about what Chinese central bankers might do:

15 Perfectly legitimate responses to rumors about Chinese central bankers:

1.)  Sell oil, down 2.8%

2.)  Sell canola, down 4.8%

3.)  Sell cocoa, down 3%

4.)  Sell corn, down 5.2% (limit down)

5.)  Sell coffee, down 3%

6.)  Sell soybeans, down 5.3% (limit down)

7.)  Sell wheat, down 4.8%

8.)  Sell sugar, down 11.7% (limit down, twice)

9.)  Sell oats, down 5.1% (limit down)

10.)  Sell copper, down 3.6%

11.)  Sell gold, down 2.8%

12.)  Sell silver, down 6.1% (limit down)

13.)  Sell platinum, down 4.5%

14.)  Sell palladium, down 4.8%

15.) Launch a mystery missile off the coast of California (wait a did that get in there...)

These are just today's numbers.  Most of these commodities were also hit yesterday, precious metals especially.  Silver is an interesting case here, as silver has been a great story over the past 90 days.  The once insurmountable $22/oz price level is now a distant memory.  Even today's $25/oz numbers are very appealing considering the $29/oz of a couple of days ago.  There can be no denying that the recent huge moves in silver are abnormal, despite what silver perma-bulls constantly claim.  I am as big a fan of silver as anyone, but you have to be realistic here: there has not been a fundamental change in the role of silver over the last 90 days that can justify a nearly 60% increase in price; what there has been is a massive devaluation of USD coupled with a corresponding massive move to commodities for value protection.  Lets look at the 6-month chart of USDX, courtesy of StockCharts:

USDX is still knocking on the tombstone of its previous all-time lows of 74 and 71: in case you cannot read it, that lowest dip is below 76.  Now, lets look at silver over the same period:

As you can see, this is not a perfect correspondence: silver was not tracking USD until perhaps September, but since then has.  Now, look at gold:

Gold is a different story, because of gold's currency status, but as of yet, silver simply does not have the same currency clout, or even alternative-currency clout as gold.  (This is not to say it shouldn't or it won't or whatever, it is just a fact that silver remains a commodity play, not a currency play like gold, in my opinion.  Please do not overwhelm me with pro-silver emails--I am already very pro-silver, and the Bankster Report mascot proves it!)  We all know that silver is quite volatile, but what we have seen over the last three months are moves several standard deviations beyond even the "normal abnormal" moves in silver.  Here is an interesting analysis of past silver spikes, and the drops coupled with them.  You'll see that historically the post-spike corrections have been between 22% and 36%.  My own research has confirmed this.

But let's discuss lovely silver a little more.  Since silver broke $20/oz during the first part of September, the metal has moved as high as 47% to the extremely short-lived November 10 high of $29.39/oz, and has since fallen to below $26/oz: in fact, silver fell 9.7% within a matter of hours after hitting that high earlier this week.  One major reason for this price drop was the fact that COMEX that very same day announced an increase of 30% on the required upfront-cash needed to support silver margin contracts: simply put, this gave the paper silver crowd the choice of selling at a profit or fronting more cash to maintain the long contracts.  Given the huge sell-off, we know what their choice was.  Honestly, this could be expected because of the huge advances in silver since this 3 1/2 month-or-so-long rally began, as investments have already been very profitable, especially for the paper crowd and even more so for those buying on margin: paper investors especially who entered the market at the beginning of this rally have already seen a 59% increase, excluding the many-times multiplier of margin contracts.  The COMEX announcement offered an excellent reason to take the chips off the table and cool-out for a little while, and a big part of the market did just that.

So whatever the reasons--China, COMEX, mystery missiles, Venus--silver sits this weekend at a level last seen a couple of weeks ago before the (unreasonable, in my opinion) 15%-per week moves of the last couple weeks.  Still, it seems like a long time ago that silver was at $25/oz, especially for those of us looking for another buying opportunity.  This weekend well may be it: since I starting writing this very post at market close, after-market silver has rebounded about 1.4%.  Gold is also in the mid-$1300's, which seems strangely "cheap," as strange as using the terms "$1300" and "cheap" in the same sentence.  Monday's prices will demonstrate to us whether or not last week's $27 and $28/oz silver levels are indeed the "normal" now, as some people are beginning to speculate.  

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