Silver prices and technical analysis

October 15, 2015 03:26 PM

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Q&A 

To what extent do the manipulators use technical analysis? 

The way that they use it ... They use it to make money. The commercial traders, I think, they're in this for a lot of reasons we can go into. Who's controlling them? Who controls the fed? But on the surface, they're using it to profit. 

Today, for example, maybe over the last couple of days, they allowed these managed money traders to maybe come back in before they would fleece them by putting the price back underneath the 200-day moving average, so it looked like everything was going to keep going up because, technically speaking, we just crossed over a huge ... We stayed above the 200-day moving average. 

The manipulators, again, they use it because they could put the price where they want it, and they know the trade structure. They know how these managed money funds trade. In fact, they broker their trades. They're the dealers for these guys. They're just gaming them. They're playing them. They're playing it for a profit. That's what they get on a surface. No one's watching, so they can do it all day long. They're still involved, unfortunately. 

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Steve believes that the manipulators don't care about technical analysis, and that manipulation's done for political reasons. I agree and I disagree. I think that they use technical analysis to game it, to make money. It justifies their existence if they're making a profit. JP Morgan has a perfect trading record. But you're right in that there are political reasons, I believe, that are connected to this.

The purpose of this, the reason why I want to bring it out is because it allows regular people like you and I ... instead of going out there when the price is moving and trying again to find some crazy correlation, or being sucked into the commentary that usually follows like I haven't seen any of the stories yet, but you'll see them come up.

Someone will say, "Oh, yeah, the silver price is down because we have deflation. China is not producing. Greece is going to turn over again," and all these really sort of loosely-connected reasons, when the trade ... You can see the trading actually happen in the data.

I think that's why it's important to kind of keep people sane. Some peace of mind. Even for long-term investors, because there's really no way to turn all of this off. The information is out there. It's so easy. You can turn on your computer and it's right there, whether it's the price or a commentary about the price. I feel like many people become disillusioned on this journey and forget about really ... Again, it's a veil. This all puts a veil over really the underlying fundamental supply and demand reality. . 

I'll add here that there is a legal precedent for intervention in these markets, at least in gold, for example. 

If you follow any of GATA’s (gata.org) work, you can go through their essays. There has been a legal precedent for intervention in the gold market for years, primarily through the exchange stabilization fund (ESF), which was created at the end of World War II. 

I haven't seen a legal precedent for involvement in the silver market, but we've gotten to the point where the regulators are completely captured. The fox really does guard the hen house in these markets. There's not going to be any regulatory intervention. 

If you take the combined budgets of the CFTC, the department of justice, the SCC, the GAO, all of them combined don't even come close to the money power behind even one investment bank, like the JP Morgan for example. Any kind of lawsuit or suit will just go on forever. 


Chris asked the question about signs of shortage

That's one of the factors that I think will eventually break the back of paper trading. I haven't heard anything brand new this week. More of the same. There's certainly controversy. I've heard some people say they can find silver, or there's a slight delay - but only for certain products like the American Silver Eagle. Premiums, I've seen people report from 20 to 50% premiums on Eagles, but ‘normal’ premiums for rounds or junk, small bars, for example.

There's definitely something going on. The US Mint continues to report significant demand. We've seen it out of Perth also. On the surface, the fact that this demand exists, is incredible given the overall sentiment. 

Even if you move beyond sort of hearsay from the retail demand side, but if you look at like US Mint Reports or what's coming out of Perth, the fact that we are so down in the dumps in terms of sentiment overall ... 

Nobody sees this market, and yet demand has been so strong. That goes against human nature. Either Ted's right that there's major intervention by someone who knows better, or we're small but collectively there are enough of us that see this as an opportunity.

I don't know if I believe that. I think that even people that understand the opportunity still can't get over what they see in this price, this illusory price that's created by these points that I've been bringing up. 

We certainly haven't seen or heard any more evidence of that particular retail shortage developing into a wholesale shortage, although if you look at what Ted Butler brings up every week, (to which no one makes much comment about,) is the very visible and frantic “into and out from” silver COMEX warehouse inventory. 

No other commodity is exhibiting this kind of massive turnover. That's huge, but only time will tell if that develops into a wholesale shortage.

If you know the story and you see lower prices, then many people look at it as a buying opportunity. Especially for a long-term investor. 

As I reflect on who we're talking to or who you guys are and as time goes on, I’ve witnessed an interesting phenomenon. You've seen this go on and on. We've seen swings from single digits to 20 back to 8, up to 50, back down to where we are now.

If you're brand new and you have an open mind and you can see the fundamentals clearly enough or objectively enough, then many see manipulation as a gift, an opportunity not to be taken for granted. 

However, I don't think that's fair for most of us who have been here for a long time, many people who want to retire, who have been waiting for this. It seems like the writing has been on the walls for years. 

Maybe that's the definition of long-term investment, but many people see this as, “Wow, here's another opportunity to buy low”. I think when we moved to the 200-day moving average, and given what we know is likely about the positioning that transpired as we got there, it would been prudent, if you were thinking of buying, to wait until we get pushed back down, which is the normal pattern that's developed.

While you can't predict, or I think forecast accurately, you can come up with a spectrum of probability, and that's something we are developing that as we discuss these issues.

Again, the purpose of this was to kind of create some sanity by understanding what the major price influences are. This is a series that we've been doing. We began by introducing the key factors, and then we've been doing in these episodes, these shorter episodes, a subsequent deep dive into each one of the categories. 

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About the Author

Jeffrey Lewis has been an advocate for silver purchasing for the past six years. He writes regularly about it at silver-coin-investor.com