Closing The Books

What a crazy week this was. Like you, I'm glad it's over.

For me, the action is somewhat bittersweet. I have no open trading positions so the decline in paper didn't impact me at all. Additionally, The Great and Powerful Turd had a pretty solid week of prognostication. I can't think of a single, paid subscription service that even came close to rivaling us this week. On the down side, though, I know that this week's action impacted some of you considerably and that's a drag. Relax and rest well, however. I'm extremely confident that the lows of the September-December "correction" are now in. If I'm right, your account will soon recover.

The action today only served to increase my confidence that the double-bottom in gold of yesterday and Wednesday was the selling crescendo of the correction. Silver looks good, too, as you can clearly see a reverse head-and-should bottom on the chart below. Barring financial or biblical armageddon over the weekend, I expect the metals to trade higher on Monday. Gold will move through 1600 and silver will pierce 30. From there, they will appreciate nicely and we will soon be able to officially declare the "all clear".

paper_12-16pmgold.jpgpaper_12-16pmsilv.jpg

The other item that increases my confidence is the continuing OI saga that we've been following here for the past week or so. Check this out:

  • Dec11 OI continues to rise. Yesterday, the OI had risen to 2317 contracts. The Comex then served 1823 contracts. This dropped the total OI to 494. Today, the OI has risen again by almost 500 contracts to 981. Now, all these people "jumping the queue" by taking delivery this month will likely not break the Comex. However, the simple fact that we've added almost 2000 new contracts this week should certainly pique your interest. A very interesting development, indeed.
  • You'll recall that yesterday's action in gold was a churning, base-building, bottom-making day. Gold traded in a $30 range but finished virtually unchanged. On a day like that, you'd expect front-month OI to remain unchanged, too, but that's not what happened! The Feb12 OI actually fell by 4000 contracts. To me, this is almost certainly due to The Cartel closing of short positions at the bottom. You can imagine there were also some spec longs that threw in the towel, too. Remember the critical adage: Follow the smart (bank) money and fade the dumb (spec) money. In this case, if I'm right, yesterday the banks were buying and the last remaining vulnerable specs sold. Exactly the OI action you'd expect at a bottom.

Lastly, check out the latest lease rate chart. The one-month has now "dropped" from -0.57% all the way back to -0.3%. Additionally, the 12-month rate is almost at its high of the year at just over +0.4%.

paper_12-16pmlease.jpg

So, there you go. I hope that we've been able to help this week and that any fiat you've been able to preserve will fatten your holiday gift fund. If you haven't yet btfd, you should watch the action next week very closely and prepare to do so. Physical is always best, of course, but since the paper market doesn't appear to be collapsing just yet, there may still be time to make some additional fiat in closed-end funds and the like. I'll have a special edition, guest post for you tomorrow so please be sure to check in over the weekend.

Thanks for an interesting week!  TF

125 Comments

beinki's picture

first

first?

Be Prepared's picture

Beinki - Loved your Last Recording

You shot and You scored!

Glad to be Closing the Book on This Week!

Vincent's picture

Thanks Thanks Thanks TF

Thanks TF!

StevenBHorse's picture

Follow the money aka the Commercials

Excellent point Turd. 

Just look at who is short euro's at this point. 

Hint....its not the banks.  Now remember what is positively correlated to the EUR/USD.

European American's picture

Putting It into Perspective

Putting it into Perspective.

The Hundred Million Dollar Penny

!

Eric Original's picture

Turd

So is this it?   Is this an official "Turd's Bottom II" call?

Eric Original's picture

beinki

Do you still have that "bug out bag" video?   I still ROFL when I think about that.  Would love to see it again. yes

GoldMania3000's picture

newsleter writers

none of mine said this was coming. fired one of them today:) or just want renew.  one says we are going to be doing some backfilling and sitting around these levels for a while.  the others are not short-term.. 

I Run Bartertown's picture

Turd

Great job calling the action and analyzing the week. I was still hoping for a bigger drop (I think you mentioned an outside possibility near $25ish, or somebody did) before 2012 began. Oh well, maybe next year's volatility will give me some even better spots to buy more. Have a good weekend!

survivalwstyle's picture

you should aLL

come to the speak 4 a drink!!! you're right mrF. long wEEk, long year...enjoyed everyday as best i could. your best is aLL you can do! peace.

Titus Andronicus's picture

Thanks Turd!

Looks pretty good.

The HUI and XAU also line up with your market estimations.

I went long some comex paper last night.  I'm going to try to stay long here.  Maybe add to my miners on Monday.

beinki's picture

Have a laugh on me

2turdledoves's picture

Thanks Turd, Bottoms Up!

Actually made a bunch of fiat on the way down this time.

The big short worked thanks to the Turds heads up call.

Diamond's picture

newsletter incompetence

The two newsletters I subscribe to didn't see this week coming either.  I knew I should have sold when Turd took notice of the negative lease rates for the bullion banks.  Turd, you are a true sage.  

I'm faced right now with the choice to renew one of my newsletters.  Not sure at this point if it would be worth it.

Economical Disaster's picture

We are HERE with GOLD

dec162011_2.gif

Gramp's picture

Hey, The Guy does what he can for us...

... Which is often times better than most!

I would think now would be a good time to put a few bucks in TF's tip jar, I do it monthly, I do not expect this place  to let me hang out for nothing. The more I learn, the more valuable this place becomes.

  p.s. I also signed Mod. Janes link on the Internet laws, you should read it over too.

Stormdancer's picture

Fukushima fun

State of Cold Shutdown: Hosono Says "No One Knows Where the Fuel Is, But I'm Confident It is Cooled"

Quote:
In a typical display of utter disregard for the general public, the Noda administration announced last night that there would be no more joint press conference where reporters could meet with TEPCO people and the government officials from the Cabinet Office and other relevant ministries and agencies, receive updates and ask questions.

The last night's joint press conference is to be the last one, now that Fukushima I Nuclear Power Plant is officially in a "state of a cold shutdown" and the accident has been decreed by the government to be "over"...

...and more anecdotal fuel for the "something is very wrong" fire:

http://fukushima-diary.com/2011/12/eastern-japanese-are-starting-to-have-bruise-on-their-bodies/

http://fukushima-diary.com/2011/12/more-bruise-on-eastern-japanese/

Quote:

Following up this article Eastern Japanese starting to have bruises on their bodies..

Japanese famous people are blogging about their mysterious bruise as well.

Nakagawa Shoko, a Japanese idol blogged about her bruise around her thighs on 12/10 and 12/11/2011.

She says she doesn’t know why she had them,and they look huge.

Another person is Inoue Harumi, a Japanese actress.
She had her third son have bruise around his legs though nothing was wrong until afternoon of the day.
She took him to a hospital on 11/22/2011, but nothing was wrong according to the blood test.

She thinks she wrapped the diaper too tight.

cpnscarlet's picture

Turd - Heart to Heart

Turd - I do thank you for your site and your personal demeanor, I am a "fan".

But you're human like us and need a reprimand once in a while - I guess that's what happens when you put yourself out in a public forum. And I always say that a friend is someone who'll smack you when you need it while an enemy deceives with kisses.

So here's my beef; your comment, "Physical is always best, of course, but since the paper market doesn't appear to be collapsing just yet, there may still be time to make some additional fiat in closed-end funds and the like" is not what's needed to be said right now IMHO. After the action of this week, I firmly believe that this is the most EFFECTIVE time to be buying physical to force the marketplace into true price recovery. The more people attempting to get their hands on physical, the better, especially now - the system is being forced (just as you stated) by people jumping the queue at the COMEX and getting in on DecemberThe force is there, and we need to add to it as much as possible. Even if you are 100% right about making fiat on good trades in some funds, the overall MARGINAL GAIN for breaking the COMEX paper scam by buying physical is very high NOW. It is time for the CIGAs to go to battle as opposing forces are pushed to the limit. My views are based on the current OI numbers as well as the flows and deliveries at the COMEX that appear to be real and not cash settlements (in Au, I only wish it was the same for Ag). I also think Kyle Bass' latest comments are prescient at this moment.

I hope you won't be too upset about this post, but I do hope you'll be moved by it. My motivation for writing came "out of nowhere" as I read your post and I'm more than inclined than ever to trust my gut. I usually don't post like this, but I feel very strongly about this moment in time.

GoldMania3000's picture

Rick Rule

“I personally don’t see that continuing for reasons that you and I have talked about many times, but could it continue for two or three more months?  Absolutely.  I’m delighted to see it as a buyer.  With regards to the smaller gold and silver companies, you’re seeing declines in all of the peripheral investments.  

I need to say, Eric, and you’re the first to hear this, it’s my belief that markets will break sharply lower in the very near-term because this week I’ve personally committed $10 to $15 million in money to the sector and normally I buy too soon.

I believe as you do, Eric, that if you have a choice in troubled times, and make no mistake these are troubled times, you would own gold and silver in preference to any fiat currency.  So I think in the intermediate and long-term gold does pretty well.

 
Brotha Bob's picture

Turds glorious bottom

Are we seeing Turds glorious bottom? How sweet! How round! How firm! ( yes, more Turd's bottome jokes - I can't help myself)

Thank TF for all the help. In stormy weather you steer a good ship!

Sneed Hearn's picture

Ann Barnhardt explanation of decoupling

For those unaware of her, Ann is the person who shut down her own brokerage as a result of the MF collapse as she could not guarantee the safety of her customer's money in the future's market. A very bright and ethical lady. What follows is from her column today at her website: http://barnhardt.biz/

Finally, a very simplistic explanation of how the cash commodity markets are soon going to decouple from the futures markets. This is a little complex, but stay with me. I think this is important to understand because none of us who have lived our whole lives in the U.S. have ever seen a market disintegrate.

The threat (or promise) of delivery upon expiration is what keeps the futures markets tethered to the cash markets. Up until now, if an unreasonably wide spread between the futures price and the underlying physical commodity market got too out of whack, a process called "arbitrage" would kick in. Arbitrage is when a party simultaneously buys and sells on two separate but related markets in order to capture an inefficient spread between those two markets.

I'm going to use precious metals as my example commodity because there are alot of metals guys reading this, and because the metals markets will be the big tell in term of when decoupling and thus total futures market disintegration is upon us. But these examples apply to all of the physical commodities.

Let's say that the physical silver market is trading far lower than the silver futures price. This is what is called a WEAK BASIS. The BASIS is the relationship between the cash market and the futures market and is very simply defined as (CASH minus FUTURES). If cash silver can be bought at $25.00 per ounce and the futures are at $30.00 per ounce, the cash is $5.00 under the futures. When cash is under the futures, this is called a WEAK basis.

Up until now, what would a metals trader do? In very simple terms, he would buy the cash silver at $25.00 per ounce and then simultaneously sell the futures at $30.00. Because he has short-sold the futures, he could hold the contract to expiry and then deliver the $25.00 cash silver he bought to make good on the contract and receive his $30.00 price. So his simple net profit would be $5.00 per ounce. As many traders saw this spread and simultaneously executed this same strategy of buying the cash and selling the futures, what effect would this have? Right. It would cause the cash-futures spread to move back in toward convergence by pushing the futures price down (lots of sellers) and propping the cash market up (lots of buyers).

Now the opposite scenario: a STRONG basis. Let's say cash silver is trading at $32.00 and the futures are trading at $28.00. A trader might take physical silver that he has in inventory and sell it in the cash market, and then immediately take those proceeds and buy back and equal number of ounces in the futures market and take delivery. Since the same number of ounces in the futures market cost $4.00 per ounce LESS, he would end up with the same number of ounces in his inventory PLUS $4.00 per ounce in CASH in his pocket. If he and many other traders saw this condition and they all sold cash silver and bought the futures, this would, again, converge the spread between the cash market and the futures market.

The lynchpin that is holding this dynamic together and keeping the futures markets tied to the underlying cash market is the fact that the futures contracts are deliverable, and a trader can either deliver or take delivery of actual physical silver via his futures position.

Are we seeing a problem yet? The futures markets have lost their viability and trustworthiness because of the MF collapse and theft. At some point in the not-too-distant future, people everywhere are going to realize that the delivery mechanism is not reliable. Heck, just holding cash and/or positions in a futures account is no longer reliable. The the market itself is not reliable, traders will no longer attempt to arbitrage these basis spreads because the risk to the trader that the rug will be pulled out from underneath them is simply too great.

And in the metals markets, the delivery process itself is . . . um . . . shall we say, easily corrupted? When you "take delivery" of physical metals, it doesn't get sent to your house. All you get is a certificate saying that X number of ounces are being held in a certified vault somewhere with your name on them. After the MF collapse, that sounds like a joke, right? A CERTIFICATE with my NAME ON IT? Yeah. That really is how it works.

When the arbitrageurs finally lose all confidence in the markets, the cash market will decouple from the futures because no one will be willing to take the risk of having their money, positions and/or physical metals stolen/confiscated. If no arbitrageurs are willing to trade these spreads - no matter how wide they may become - and thus there is no force causing the cash and futures to converge, we will see the basis spreads become extremely wide. As people flee the futures markets, the futures prices will drop, while the cash markets hold steady or even diverge and actually rise as all of the former paper players realize that physicals are the only remaining game to be played.

Watch for this. Watch for the gold and silver futures to sell off as people walk away from paper while the online cash dealers, seeing that market demand for their physical inventory is robust, begin to ignore the futures prices and hold their prices steady or even raise them. When you see this basis decoupling and absence of arbitrage, lo, the end is nigh. A parabolic spike is coming.

Turd Ferguson's picture

Cpn, no offense taken

MODERATOR

Yours is a very fair criticism. Avoiding paper entirely is, of course, the safest course of action. Now more than ever!
That said, I truly feared a meltdown of paper this week. We seem to avoided that fate. Therefore, my words are simply meant to convey that there mat still be a little more time to dabble in etfs, options and futures before the paper system seizes up.

cpnscarlet's picture

Ann B decouples

Sure, she's a "darling of the moment" right now, but hey, she's also an experienced commodities broker. Guess it might be good to listen to an educated opinion.

Just need to say it - we all know what SHOULD happen, question is when and how many more ways will the cartel try to stop it.

Turd Ferguson's picture

PLEASE READ!!!!!!!!!!!!!

MODERATOR

The post by "Sneed Hearn" above.
What Ann is saying is exactly what I've been trying to say all week. She just effectively put it into English! Maybe she's not so crazy after all. ;)
It is extremely important that you understand this. Read it over and over until it sinks in!!

cpnscarlet's picture

Another funny aside.

Before I sent in my post to Turd, I took a look at the meaning of the word "prescient" just to make sure I said exactly what I wanted to about Kyle Bass' latest comments. I was just about to close the page on my browser a minute ago when I noticed the online dictionary's usage sample -

pre·scient

/ˈprɛʃənt, ‐iənt ˈpriʃənt, ‐ʃiənt/ dictionary_questionbutton_default.gif Show Spelled[presh-uhnt, ‐ee-uhnt pree-shuhnt, ‐shee-uhnt] dictionary_questionbutton_default.gif Show IPA

adjective
having prescience, or knowledge of things or events before they exist or happen; having foresight: The prescient economist was one of the few to see the financial collapse coming.
 
Twilight Zone.
TheGoodDoctor's picture

Ron Paul at 2 million already

Ron Paul at 2 million already for the Tea Party Money Bomb. laugh

https://secure.ronpaul2012.com/?sr=28-gmb

Economical Disaster's picture

Turd

Like they're going to send you a letter or phone you when all paper collapses..? Most people never learn their lesson. .Rememebr how mad you were when "thought" you lost some dough from MFing Global ?just sayin..

Arjen's picture

decoupling

Surely it doesn't really need to be explained. When noone trusts paper and they stop putting their money into it, of course paper and physical or gonna go their own way. 

However the word '"noone" seems more important to me than it is seems to be given credid. When 5 or 10% of traders lose faith in the paper market, those arbitrageurs that are still remaining should be well enough to fill the gap it seems to me. In fact, i would think only a relative few of them are needed to keep prices tied to each other. Only when the vast majority of players are gonna get out of paper, it would decouple imo. 

Finally, the discussion that i got into recently was not about how, if or why there could be a decoupling at some point in time. No doubt i believe there could be and hope there will be. It was about evidence that is happening now and the indication that it would be happening already at bulk scale. I see no way that the bulk scale price could strongly diverge from the retail price since it seems easy to me for those that are wealthy enough to be in the bulk market to arbitrage and fill that gap. 

I have hung out at some local gold forum for a while and like everyone I was (and am) waiting and hoping for the end of the comex and the whole paper market to collapse so that the physical market can get its way to real value. Weekly there were enthusiasts posting that the premium on a kruger was rising somewhere and they thought it was going to happen now. It probably made me kind of cynical about people announcing it was going to happen now. As for me, i don't expect it to happen like this, i expect it to happen not at all, or only as a side effect of a mayor shtf crisis.

Smiddywesson's picture

Decoupling

It ain't over yet folks.  TPTB control paper markets over the short term, a little decoupling isn't going to force their hands just yet.  Please hear me out.

The same powers that let gold and silver rise 20% each year for ten years obviously did so because they were buying and they didn't want to break the price suppression game and cause the paper price to decouple.  Traders chase momo, and TPTB know this.  When faced with a decoupling threat, they can just let the paper price rise and lure in more gamblers hungry for momo, who will of course, displace the ones who wisely flee.  I'm sorry, but Ann Barnhardt's excellent analysis ignores that most market participants, especially the professionals, don't know anything at all about how the markets work below the surface.  They think it is actually a market.  To say that the preponderance of traders will wise up to their danger and ignore momentum flies in the face of market history where gamblers making money in front of a steamroller is the norm for the end of a scam.  There is more smart money at the beginning of every trend than at the end, and this will be no different.  TPTB can't defy reality, but they can stall by rewarding foolishness.

It ain't over yet, but grats to Ann for pointing out another canary in the coal mine that the end is coming.

Caveat:  So TPTB might be forced to give back the MFG money (so what, they got the physical and escaped their predicament) and will probably have to give the gold bugs a little sugar, but I still say there will be lower prices before the end.  Even if they have to ramp paper prices now to undo the decoupling damage and lure in idiots, you can bet the forces of darkness will unleash everything they have against gold near the end because the paper game will be over anyway.

Turd Ferguson's picture

True that

MODERATOR

Good point.

Response to: Turd
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