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Silver Moves, Shorts Sweat

|Includes: AIG, BAC, Citigroup Inc. (C), CIT, FMCC, FNMA, GLD, SLV

   Lot's of movement in the Silver markets as we moved from August into September.    Millions of ounces of silver were taken out of the COMEX and Millions more pumped in with the net result that things were overall slightly lower, but the makeup of the Silver COMEX position has shifted slightly.   While most of the activity was in the eligible category in July, it shifted to the Registered in August so that the Start of the September period saw Registered stocks down by 1Moz compared to the start of july.   (Registered are stocks available for delivery against COMEX Contracts, eligible are stocks that are being held for other owners.   COMEX counts both as part of it's silver warehouse stocks)
Total COMEX stocks dropped about a million ounces from August to September and would have been down more if not for a 2Moz deposit on August 31st in the eligible category.     Registered stocks as of August 31 were 61.336 Moz.

The Commercial Short Position in silver on the COMEX stayed between 80-83% of all outstanding short contracts totalling 344-363 Moz short.   After an initial runup in price in Mid-August, the Short position rose to 363Moz and 83% of all short positions.    Prices dropped by a full dollar, then turned around last week and rose by 80 cents/oz while Shorts cleared nearly 1700 contracts.    That moved the price/short ratio back into clearly positive territory and put the Commercial Short position in a bind.    With the runup to $16, Shorts will have to add considerably (about 6,000 short ) to their position or become like the rest of us and become spectators to the movement in funds and those who don't want to miss the fun.

I don't think this is the big breakout, fundamentals are still against breaking the record highs.    But I believe that silver could work it's way to $18 by late September or early October.    If the stock market bubble bursts,  silver could drop as it did a year ago, or it may uncouple and follow gold higher as people flee for the safety of the yellow metal.   Stocks IMO are being driven by HFT programs and are overconcentrated in banking stocks that have no correlation to "banking" profits or return on loans.    When 30-40% of all volume in the past two months is being driven by 5-6 bank stocks (C, BAC, AIG, CIT, FNM, FRE) out of an average of 1300 traded each day, something smells.

Increased output of silver has been reported from a number of mines and industrial use is down, although investment remains strong.     Total world stockpiles still remain somewhat of a mystery but the majority of the consensus is that stockpiles are below 750 Moz.    At usage rates from previous years, that is less than 4 years stock, much of which is held in ETF's and investors hands.      This year could see the first mining surplus or a much smaller deficit.   Any true rebound in the economy or pickup in the developing nations could add to the deficit numbers.     Silver is still not on the radar of many news reports as the majority of attention is being paid to rare earth minerals which are in heavy demand at the moment.      Rare earth is enjoying a special comeback with many overlooking silver's contribution to the current economy and the demand for it.

Personally, I would add physical metals if the opportunity presents or hold on to what you have for the time being.

Disclosure: Long SLV, GLD, Physical metals, retirement accounts