10-25-2019: December Silver: Bank Illiquidity Spells Trouble for Dollar-Denominated Assets

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Point & Figure

Internal Progrm
Third System

Historic Range

Random Chart
Calendar Spread

Level Table
Other Factors

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Silver appears to be rather directionless, so we had to double-weight our assessment of the news in order to break a tie. Opinions from analysts and large traders are very mixed on silver, but an interesting news item from a billionaire trader declaring why silver will go up suggests the banks are once again in trouble with toxic assets. Lowering interest rates in an economy where there is no sign of recession (yet) for political pressures weakens the U.S. Dollar, which is what the Administration wants, and causes investors to look more toward precious metals to preserve the value of their holdings. The totally irresponsible way the Republicans increased both the budget and the national debt by a trillion or more dollars has placed our economy on an insecure footing designed to reward the rich and punish the disappearing middle class and poor folk.

Many analysts are saying that Brexit negotiations are the major key to short-term movements in precious metals, and the dysfunctionality of the sharply divided British Parliament seems also to support silver. Silver recently is outperforming gold due to demand considerations for its industrial uses. This is even to the extent where in recent days, silver moved up while gold moved down.

We agree with the billionaire precious metals trader that something ominous is going on with the banks which need further regulation but won't get it under Republicans. That favors silver.

Intermarket Analysis

We fed Silver, Gold, and Platinum into a neural network to get the following result:

Parabolic Chart

December Silver:

Parabolic Chart

Nirvana Chart

December Silver:

Initial Chart

News Analysis

The upcoming Brexit vote in Parliament is adding support to precious metals. Renewed optimism on trade talks between the U.S. and China are adding pressure to precious metals. China's leaders are expressing similar optimism. It appears precious metals will rally if a Brexit "deal" is accepted and a timeline agreed to, The current deadline for the exit is nine days away as of this wriiting. That would tend to favor chances for vote failures and a rally. China and the U.S. will be meeting in Chile next month to conclude some sort of agreement, or so the White House is indicating. Exchange Traded Funds are buying gold rather heavily lately. Their holdings have reached the highest in 12 months. But managed money traders are liquidating some of their assets in recent weeks, setting up a recipe for volatilty. Analysts give about an 87% chance of another 25 basis-point interest rate cut at the October 29-30 Fed meeting. This would be good for equities and possibly bad for precious metals competing for investments with equities, although it would encourage inflation which is good for precious metals. The trade war between China and the U.S. will reduce global growth to 3% in 2019, the slowest in a decade. In assessing news impact on metals, Brexit considerations trump other factors like rate cuts.

A rise in appetite for riskier assets allowed silver to push a little higher recently at the same time gold was declining. Silver is being helped by its industrial needs and participation in our economy. Until recently, silver had lagged as haven seekers kept up with gold investments. Gold has been held back by recent rallies in equity markets and a selloff in bonds, reducing the appeal of gold as a safe-haven metal, while silver on the other hand has benefitted from more positive sentiment towards risk.

A billionaire investor, Eric Sprott, founder of Sprott Inc., said the that silver is going up. He sees a looming shortage of silver. He says dealers looking for supply are now paying premiums. There is also a lot of silver going into ETF's in India. He sees bank illiquidity lurking underneath the surface possibly caused by somebody blowing up their derivatives book with banks calling in loans to other banks for fear of a domino effect. He says the repo market and repo rates have surged to close to 10%, looking a bit like 2008 again.

Silver markets have recently been trading sideways looking for a catalyst to get moving. But silver is still technically in an uptrend according to one analyst, but not according to antoher working for Kitco. Kitco says gold and silver are now in a downtrend. Kitco says Capital Economics' chief commodites economist says the gold and silver rallies are over and forecasts $1,350 per ounce and $15.00/ounce average prices for 2020, down from current levels oif $1,490 and $17.40 for gold and silver, respectively. The belief there is that a rally in global growth will not be enough to boost weak physical demand for precious metals still too expensive in China and India. Import duties in India will produce an additional headwind.

In an Illinois Northern District court, two Deutsche Bank traders had the court refuse to dismiss indictments against them. In Dec. 2009 through 2011, they engaged in a scheme to defraud other investors involving interstate wire communications. They created false and misleading information regarding supply and demand. They would place orders, then cancel them before they could be executed in attempts to mislead traders. These are referred to as "spoofing orders." At the same time, they would place primary orders on the other side of the market.

Silver prices have been supported by an eroding U.S. Dollar Index.

Never before have U.S. fiscal and monetary policy been sleveraged so heavily to boost an economy that wasn't even in recession. Money Metals News Service says , "Something will break - and it could be the value of U.S. currency." (Duhh!) The Federal Reserve Note now faces devaluation pressure on multiple fronts. The Federal Govt is running a trillion dollar budget deficit, a far cry from the balanced budget the Democrats left the country with, and with an election year approaching, fiscal restraint is all but absent in Washington. Trump is trying to talk the Dollar down to help trade competition from China. They may not call it "Quantitative Easing," but in September Federal Reserve officials launched a massive new campaign of liquidity injections that will expand bank balance sheets by billions of dollars. That was prompted by trouble in the overnight lending "repo" market, where a lack of liquidity caused interest rates to spike to multiples of the Fed Funds rate. The Fed embarrasingly lost control of its own benchmark rate, threatening the credibility of its central planning powers. The Fed barely managed toi avert a wider financial crisis with its emergency market operations. It soon became clear that initial liquidity injections into the repo market would be insufficient for the big banks to depend upon it.

Former Fed Chairman Alan Greenspan said it's only a matter of time before interest rates go down to zero or even below to negative interest rates here as in many European countries and Japan. This type of "monetary madness" is an ideal climate for gold and silver. Public demand for physical bullion tends to go up during times of fear. That fear consists of accelerating loss of purchasing power in their dollar-denominated holdings, and being charged rather than paid interest to keep their money in banks.

Point & Figure Chart

 24.0|                                                                  R 10/22
     | CMX - Dec-19 Silver Mini, 2500 oz. $/oz.    Cm.=0.02  Lim.= 0.8
     |          XO
     |          XO    X
     |          XO  X XO
     |          XOX XOXOX
     |          XOXOXOXOXOX
     |          XO OXOXO OXOX
     |          X  OXOX  OXOXO
     |          X  O O   OXOXO
     |          X        OXOXO
     |          X        OXOXO
     |          X        OXO OX
     |          X        O   OXO
     |          X            OXO  X X
     |      X   X            O O  XOXO
     |      XOX X            O O  XOXO                X
     |    X XOXOX            O O  XOXO  X             XO
     |    XOXOXO             O O  XOXOX XO            XO
     |    XO OX                O  XOXOXOXO            XOX
     |    X  OX                OX XOXOXOXOX X         XOXO
     |    X  OX                OXOXO OXOXOXOXOX       XOXO
     |    X  OX                OXOX  OXOXOXOXOXOXO    XOXOX
     |    X  OX                O OX  OXOXO OXOXOXO    XO OXO
     |X X X  O                   OX  O OX  OXOXOXO    X  OXO
     |XOXOX                      OX    OX  OXO OXO    X  OXO
     |XOXOX                            OX  OX    O    X
     |XOXOX                            OX  O     O    X
     |XOXO                             O         O  X X
     |XO                                         O  XOX
     |X                                          O  XOX
     |X                                          O  XOX
     |X                                          O  XOX
     |X                                          OX XOX
     |                                           OXOXOX
     |                                           O O O
                              1111        111     111     11
Our computer tells us a non-conventional reactive approach works best for Silver on p&f charts. Therefore the above chart is taken as giving a buy signal.

Cyclical and Seasonal Factors

We are headed toward a cyclical low and a seasonal down period.

Cyclicals Cyclicals Seasonals

Internal Program

Our best-performing internal program is "Pattern". It is giving a sell signal.

Internal Printout 1 Internal Printout 2

Results of "Pattern" for Silver (blue lines = successful trades, red, unsuccessful): (Always in the market.)


Third System Confirmation

Our third system has triggered a sell signal. (Note, disregard the year on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)

Third System


The point value is $2,500 for the mini contract. Initial margin on a single contract is $5,720 for the maxi contract. Use of options is advised.

Historic Range

Scale trade buyers are entering the market for the long term in this price range.-->

Historical Chart

Commitment of Traders

Commitment 1

In the chart below, the yellow line is the futures price, read on the right axis. All other colors are read on the left axis. Blue is small speculators. Red is large speculators. Green is commercials. Large speculators with the best track record are getting increasingly-short.

Commitment 2

Interpretation of a Different Site Below (Their trader categories may vary from ours):

Commitment 3

Volatility / Probable Range

FB 1 FB 2

The average volatility shown below suggests that am uptrend remains intact from the last volatility low point.

Range/Volatilitiy Chart

Possible Future Prices

Random Chart

Option Recommendation

Our option trade recommendation is to Sell (1) Silver May 17.75 May Put and Buy (1) Silver May 17.50 Put @ 0.15 to the sell side or greater.

o 1 o 2 o 5

o 3

o 4

Calendar Spread

What the Jan. - Jul. calendar spread suggests to us is that buying the near contract and selling the far one is at most times profitable, which we think is a sign that these futures may go flat in the long run. The best time to enter or leave the above spread is when it is at or narrower buying the far as prices are rising and then selling the near, and exiting or entering when it is at or wider selling the far as prices are falling and then buying the near. At this time, we appear to be midway with no particular trend detected in either direction.

Level Table:

Level Table

The path of least resistance is down.

To view the chart below correctly use Microsoft Internet Explorer.

 20.0|                                                                  R 10/22
 CMX - Dec-19 Silver Mini, 2500 oz. $/oz.    Cm.=0.02  Lim.= 0.8
 14.0|-A-B-C-D-E-F-G-H-J-K-L-M-N-O-P-Q-R-S-T-U-V-W-X-Y-Z----|----|-- TPO= 0.396
       1 1 1 1 1                                       1 1           1
       0 1 1 2 2 1 1 2 2 3 3 4 4 4 5 5 6 6 7 7 8 8 9 9 0 0           0
       2 0 2 0 1 0 1 0 1 0 1 0 1 3 1 2 1 2 1 2 0 2 0 2 0 2           2
       4 6 0 5 9 4 8 1 5 4 8 1 5 0 4 9 2 6 1 5 8 2 6 0 4 1           2

Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary

Here's an intraday chart for a previous day ( 10/22 ).

Intraday Chart

                 Risk Versus Opportunity Report

                   SIZ9    December Silver

                      High Price:  19.03
                   Current Price:  17.5
                       Low Price:  16.75

                            Risk:  0.084
                     Opportunity:  0.171

                    (O/R) Ratio =  2.040

Overall Recommendation

Decision Weighting Factors
FactorsWeighted Points
Inter-Market Analysis - 1
Parabolic Chart + 1
Nirvana Chart + 1
News + 2
Point & Figure + 1
Cyclicals - 1
Seasonals - 1
Internal System 1 - 1
Internal System 2 0
Third System - 1
Historic Range + 1
Commitment of Traders - 1
Range/Volatility + 1
Level Table - 1
Other Factors + 1
Total + 1
Place 2 Decemvber Silver Mini Contracts on a Buy Watch with stoploss @ 0.48 below the get-in point when recent price is represented as "17.50".