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What has been happening is that hedge funds have been liquidating long positions across the entirety of the commodity spectrum and building short positions in anticipation of further declines in the growth of the global economy. The craven capitulation by German Chancellor Merkel to the demands of the beggar nations of Spain and Italy, roiled the markets and scared the hell out of the shorts and enticed a huge wave of fresh buying to boot.
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Hedgers, which is what these folks are, cannot hedge anything in this sort of wild market environment. Their hedges get all blown to hell and force margin calls to them just like any other trader has to deal with. With these almost incessant price reversals, both up and down, reading the markets has become nigh an exercise in futility for risk managers. How are they supposed to hedge future production or future costs in an environment in which prices reverse 10% in a single day. Is this a change in the trend? If the market going to reverse? Have the market dynamics of supply and demand changed? What happens if we read this wrong and institute our hedges and then the market totally re-reverses on us again?
More and more commercials are no longer comfortable using futures contracts for risk management. Instead they are entering into private forward contracts innoculating themselves from this new brand of fools known as hedge funds. While the exchanges may pat themselves on the back for opening their doors to the HFT crowd, the hedge fund crowd and the quant crowd, ultimately they will merely watch the backbone of the futures industry slowly begin to exit. That will empty the playing field of the hedgers and leave the casino with only more of these other parasites to prey off of one another.
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If risk is out the hedge funds turn sellers, then look for this index to drop lower with silver going along for the ride and losing ground against gold.
If silver is going to get anything going to the upside, it will first have to mount a successful challenge of today's high near $28. Above that, resistance lies near $29 and then another dollar higher at $30. If silver can get a handle of "3" on it and keep that, then we will have a chance of seeing some fireworks.
If that is the case, EXPECT bullion bank selling and swap dealer selling to meet this rally. This is when that segment of traders will sell the silver market, on the way up, not on the way down as some of these "blame everything on Morgan" advocates continue to assert. ...