Traveling on Thunder Road
As you are all well aware, years of observation and trading has led me to the conclusion that the precious metals "markets" are grossly manipulated, managed and suppressed. My confidence in this assumption is what makes the price analysis we do here relevant.
What is satisfying to me and the many others who have been trumpeting this cause is the gradual awakening of the investing public. The long-term policy of currency debasement combined with the long-term bull markets for the metals has brought attention to the metals sector like never before. With that attention comes additional critical analysis and, not surprisingly, much of this analysis comes to the same conclusion many of us "grizzled veterans" have been spouting for years.
Just in the past 24 hours, we've seen three very important "research" pieces be released. First came the latest newsletter from Sprott Asset Management. Though Eric tries to rein in some of his conspiratorial impulses, he nonetheless lays out some convincing statistics regarding the latest "Leap Day" samshdown:
Hot on Eric's heels came Chris Martenson. I feel like I know Chris a little bit. He is a sober and rational analyst who is trying his best to warn and educate as many folks as possible. Unlike yours truly, he is not prone to bouts of hyperbole, profanity and screaming. He is a serious individual doing serious work. (He's going to be a podcast guest in a few weeks so you'll get to know him better soon.) All of this makes his blog entry from yesterday all the more credible and relevant. If you haven't yet, please be sure to read it:
And this brings us to the Piece de Resistance. I first became aware of Paul Mylchreest last year. He's a serious analyst who works hard but likes to keep to himself. Again, unlike yours truly, he's not shouting messages from the rooftops, attempting to draw attention to himself. He takes a long time to study a subject and often writes lengthy and diligent missives, which he releases about every 90 days or so. Yesterday afternoon, he sent me a copy of his latest piece. Out of respect for his effort, I didn't want to just blindly shove it out into the public domain without his permission so I sat on it...which killed me because it's fantastic! As an endorsement, as soon as I read it I sent it off to Santa for his impressions His reply was: "This is spot on. Look at today as a prime example."
Paul lives in England so I didn't hear back from him until earlier today and he has given me permission to post it here but it is also readily available now through GATA and many other metals websites. This is wonderful because this piece needs as wide of distribution as possible. PLEASE read Paul's work. It is 57 pages so it's not a simple and short project. If you have the capability, print it and save it for posterity. Make a few extra copies and share it with your skeptical friends and in-laws. And how can you go wrong with a title of "The Thunder Road Report"? Thunder Road is, of course, the 2nd greatest rock-and-roll song ever written!
OK, now just a few words about the ongoing manipulation. As you heard The Witch and Ruprecht discuss, the chief problem with the Comex now is lack of human participation. Post MFG, the only entities seemingly left trading metals are WOPRs and monkeys. That makes it far too easy for The Cartel to manipulate paper price on a daily basis and it's also disrupting some of the "normal" trading patterns I've been following for years. Case in point, the OI numbers.
You'll recall that back on Tuesday, April12 gold options expired and "first notice" day is Friday. What we would normally be seeing this week is an exodus from the front-month, April12 contract and a "roll" of positions into the next front-month of June12. The curious thing is how this isn't happening in the same manner that it always has in the past and, again, I use this as evidence supporting my theory of declining market participants.
Tuesday was also the cutoff date for the latest CoT survey and that obviously impacts things, too, but check this out. On Tuesday, the paper gold price fell by about $1 on the regular Comex and then was raided (in advance of yesterday's smash) on the Globex. Usually, a Comex trading day where price was unchanged would lead to very little change in the OI, too. With first notice day right around the bend, I would have expected a flat total OI with a significant drop in April12 but a commensurate rise in the OI of the June12. Instead, we got this:
April12 fell from 113,399 to 68,524 for a loss of 44,875.
June12 rose from 169,283 to 193,335 for a gain of 24,052.
Total OI fell from 437,137 to 417,304 for a loss of 19,833 or 4.54% and is at a level not seen since early January.
So what does this mean? In a "normal" market, controlled by human speculators and hedgers, positions get rolled before expiration. One contract is closed and a new one is opened. On Tuesday, we instead saw the predominance of the HFT algos, whose only goal is to rapidly day trade contracts and then close positions before 1:30 EDT. I don't mean to overstate but I also don't want to downplay the significance of this. There is no such thing (yet) as true artificial intelligence. Sure, the WOPRs are programmed by humans but then they are set loose to trade off of technical signals and headlines. They don't think, they simply act. As the opposition, this gives The Cartels enormous, extra power to manipulate the paper price. Influencing price in order to fleece to machines becomes a quite simple project if you know in advance where the machines can be tripped into either "buy" or "sell" mode. And this, unfortunately, is the world we now inhabit.
It's all part of why I beg most of you to simply stack physical and avoid the paper trade. As documented above by Sprott, Martenson and Mylchreest, the paper trade is now a complete sham where the only way anyone can consistently profit is by trading alongside The Cartel. (SPOILER ALERT: We'll be discussing and planning for this in much greater detail next week.) Most of us have neither the time, the tools nor the inclination to fight The Forces of Darkness every day. Therefore, your best strategy is to remain vigilant and use every manufactured correction to accumulate physical metal at a "sale" price.
Lastly, the incessant wailing and grinding of teeth at every downtick has to stop. First of all, it's annoying. Those complaining are acting like little crybaby children and they're driving everyone crazy. Stop it! The metals are manipulated and managed. Period. And if this bothers you and makes you want to sell your only protection against the coming economic disaster, then go right ahead. Let yourself be just another useful idiot member of the masses. However, if you visit this site regularly because you are aware of the inevitable crash of The Great Keynesian Experiment, I must ask you: Why do you even give a shit about today's paper price? Why does it matter? Gold will be higher in fiat-conversion price 6 months from now. It will be higher 12 months from now and it will be even higher 24 months from now. Eventually, your physical metal will become the single most important financial asset you have. So, again I ask you: Why do you care about today's paper price? It doesn't matter. It only matters if you're trading and, as I've tried to lay out above, if you're blindly trading against The Cartels and the WOPRs, you're doomed to eventually fail anyway. The only way to succeed long term is to buy when everyone is selling and you must sell when everyone is buying AND you must cash out whatever profits you generate and take delivery of physical metal. Period. Amen. Hallelujah. Pass the Tylenol.
Additionally, the whiners also need to ease off the KWN people. That site is full of valuable information that is provided for free and nobody is forcing you to read it. To blame "KWN pumpers" for your own personal trading losses betrays your inexperience and casts you as simply another whiny troll who is reluctant to take responsibility for their own actions and decisions. There's way too much of this nonsense in the world today and lack of personal accountability is, in large part, responsible for our current predicament of financial and governmental tyranny. KWN serves a purpose in the "metals world" and all should visit there regularly but, if you get all hot and bothered by James Turk proclaiming that $60 silver is coming by the next full moon and then you rush off headlong into some short-term silver calls, that's your problem not Turk's or King's or mine.
I owe you a few charts so here are a couple. Note that nothing unusual is taking place. The price of paper metal is simply going through a basing period following the manufactured correction and subsequent bottom. Please be patient and, as always, BTFD.
OK, that's enough for now. I've been at this for about two hours and MrsF has a gardenful of plants she wants me to stick in the ground today. As always, hang in there. Try to relax and smile. You are doing the right thing and you are on the right side of history. Stay the course and be happy.
p.s. Here's The Boss performing today's theme song.
3:45 PM EDT UPDATE:
I don't even know what to say.
As of the close yesterday, total gold OI fell by almost 10,000 contracts to just 407,387. I personally can't recall a level that low. Even in February of 2010, with gold near $1100, total OI was 450,000+. Here we are at $1650 and 2+ years closer to the end and total OI is 10% lower. Incredible! What other proof do you need that the Comex is now almost entirely populated with Monkeys and WOPRs? Additionally, paper price has now fallen by about $150 (8.5%) from the late Feb highs. Total OI has fallen an amazing 71,657 contracts for a drop of 14.96%.
What does this mean? As discussed back in December, is the Comex fading into irrelevance? Maybe.
In the meantime, this has to have price implications. Has to. It has to. Over the past five trading days, total gold OI has fallen by 28,000 contracts (6.5%) while price has actually risen about $11. WTF?!?! There is no doubt that the stage is being set for an upward jump in price. The Cartel is clearly lowering its net short position while spec longs are dumping and NOT rolling. This has to mean higher prices ahead. It has to.
In silver, things are equally interesting. Yesterday, while price declined almost 80 cents, total OI surged by over 4,000 contracts. The only possible explanation for this is the establishment of brand new shorts. And, there is no way that its the EE adding shorts down here at $32. Not happening. This has to be almost entirely new large and small spec shorts and they are about to get fleeced. Total OI is back to 114170. The last time total silver OI was over 114,000 was on 2/29/12. Does that date ring a bell for ya???
Look, I may be dead wrong and we may currently be in a brand new paradigm on the Comex and my way of looking at things may be about to send me the way of the Dodo Bird. However, these numbers truly are astounding and paint the picture that we are on the verge of some solid UP moves in paper price.
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