Large speculators in most markets tend to be late, using outdated technical analysis to provide delayed confirmation of when to open a position in the futures markets. They are, more often than not, wrong.
The pros circle these traders like hawks, often selling them on the tops and selling shorts on the bottoms. We saw this play in recently. It created a buy signal based on an event that has only happened 3 times in the last 20 years.
Since exchanging for a physical explosion in 2020 that led to massive rallies in silver and silver, both metals have spent the last two years stuck in illogical price channels and moving sideways lower.
Faced with these low prices, China and Russia have been adding to precious metals, taking full advantage of unreasonable and artificially depressed levels.
In September 2021, I wrote an article entitled: China, the Petrodollar and Gold, in which I outlined how power is shifting from West to East and how China and Russia are using gold to their advantage.
This is evident over the past six months as the BRICS are now creating a new reserve currency to crush the US dollar. Russia is also proposing a new exchange for trading metals.
The Comex and LBMA have used paper contracts created from scratch to suppress the price for years. JP Morgan traders were found guilty of price manipulation again just a few weeks ago.
The Shanghai Stock Exchange in China already has a significant range in gold prices between the rigged benchmark futures prices. The purpose of the Shanghai bourse and the Russian proposal is to use physical metals and not produce faith paper, creating true price discovery.
If successful – and the evidence is already there in China – it will result in the futures markets being abandoned by traders fed up with price suppression, creating a much higher price of gold and silver.
While that is the theory, it could also lead to some sort of contango and lead to a strain on the Comex that may end entirely. Large amounts of gold and silver are already being withdrawn from the Comex, which is the same story for the LME.
Add to that the fact that interest rates will rise in a recession, which is a first, and the debt market will explode on the brink, which will only result in a rapid influx of money into precious metals.
All of this has led to a situation in which we now find ourselves, highlighted by the graphic below.
The latest chart of the COT report shows that the consistently wrong big speculators have flipped from net long to net short. This is at a time when silver is at a multi-year low.
They threw in the towel and went the other way. Much more important, however, are the commercials, the majority of whom are now net long after years of hedging their long positions by shorting paper.
As stated in the first paragraph, this is the third time in 20 years that this has happened. Just look at the charts to calculate the other two times.
Historically, this development has led to the formation of sizeable rallies and farewell waves from a major bottom. Although not always instant, it’s usually very close.
Could last week’s push into the 17s in silver be that bottom?
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