evening wrap, january 13 (sliver)
“It is well that war is so terrible, otherwise we should grow too fond of it.” Robert E Lee
PPI tomorrow, most estimates on the 2% handle. It’s curious that the Fed has been saying 2% for years core CPI was .2 % and a rate cut on January 28 is a long shot.
Silver in a nutshell as of January 13
In all commodities, high levels of inventory translate into high open interest. When specs buy futures to go long and commercials sell futures to specs, the supply of the commodity goes up… so open interest goes up as prices go up.
When there is an excess of physical supply, commercials sell futures to specs and again, higher supply of the physical commodity is refected in rising open interest as prices go down. In both instances the market is functioning normally, either creating supply or managing the risk of too much supply.
The creation of demand and absorbtion of supply is the rising and falling of open interest. Both sides of open interest are price-responsive and fluid. Whenever prices move in either direction and open interest does not move, one side of the open interest is by definition inactive and possibly trapped. As you can see, silver open interest was 151,000 lots on November 21. Since that date silver prices are up 80% in 7 weeks and open interest has not moved because it can’t.
In my opinion, silver will not resume an orderly auction until open interest becomes price-responsive: 151,000 lots of open interest is equal to 755,000,000 toz and there are only 455,000,000 toz of silver in Comex warehouses. Open interest is not silver. It is a contract between a buyer and seller to deliver a standard quantity (5,000 toz) at a future date via standard settlement procedures.
Since January 8, 56,000,000 toz of silver futures have been sold in NY but OI has not moved! Simple arithmetic demands the conclusion that for every futures contract bought on the Comex an offsetting (March) EFP was sold, transferring 56 million toz to London. Why is this silver going to London?
