Counter-intuition

Wednesday, June 20, 2012 at 10:37 am

While we all wring our hands at gold being back under $1600, there may be reason to be joyous, instead.

Before we begin, please keep in mind that I have no idea what The Bernank and his minions will conclude his afternoon. How would I know? How would anyone outside of the Fed (and a few of their pals) know? So this is all guesswork, speculation and intuition.

Of course, we all can easily remember that virtually every time The Bernank has opened his mouth in 2012, the metals have been crushed. Regardless of what he says or doesn't say, down go the metals. Therefore, what you're seeing today is one of two things:

  1. The spec short algos are attempting to front-run The Bernank. They expect similar action today and are trying to sell ahead of the news. This is akin to the old equity dictum, "buy the rumor, sell the news". Fundamentally, by selling before The Bernank, much of the selling "dry powder" gets exhausted. When the actual news hits, there are very few sellers left and, when you have less sellers than buyers, prices rise.
  2. The Gold Cartel is gaming stops and jamming price lower, tricking HFT algos into selling even further. The Cartel then takes advantage of these lower prices to cover some shorts ahead of the news. (Remember, when an HFT algo sells, The Cartel is one the other side of the trade, buying.) Once the news hits, the metals rocket higher as shorts are squeezed and buy stops are triggered. This pre-news selling has the further effect of lowering the launching pad, too. Where yesterday a 2% rally in gold would have taken it to 1665, now a 2% rally only takes it back to 1630.

Either way, DOWN action this morning ahead of the 12:30 EDT FOMC headlines is a likely harbinger of much higher prices this afternoon.

Now, maybe you're saying to yourself: This Turd guy is full of crap. Well, OK, maybe I am. However, one of the events that began this amazing adventure for me took place on 11/3/2010. Do you recall what happened that day? That was also the day of some Fed announcements. The "markets" were waiting to find out IF QE2 was going to be initiated and for HOW MUCH? That morning, gold and silver were savagely beaten. On ZeroHedge, there was much hand-wringing and grinding of teeth. Into this mess strode The Turd with this:

by Turd Ferguson
on Wed, 11/03/2010 - 10:43
#695968

 
Obviously, Blythe decided to act early. The question is, what does this mean?
To me, the only reason for smashing gold now is this: The EE either knows or suspects that the QE2 announcement is going to be larger than anticipated and, therefore, PMs are going to rally sharply. So, crush the PMs now in order to cover shorts at lower prices before the blastoff.
Again, if anyone doubt the existence of the EE and their influence on today's action, simply look at a one-minute chart of todays' action. Violent one-minute downdrafts galore. Only the EE has the power to overwhelm the bid like that. They are clearly trying and succeeding in dropping price before the announcement. Again, why before? They are clearly afraid of getting their collective nuts and ovaries in a vise this afternoon.
I am very confident of a big price move UP later today.
Later that morning, I had the following exchange with a guy named "Harry Wanger", who old-time ZHers will recall was a real deltabravo.
by HarryWanger
on Wed, 11/03/2010 - 11:24
#696117

 
You think gold is getting hit now, just wait until 2:30. I hold lots of precious metals long term but am expecting a big sell off.
picture-15220.jpg
by Turd Ferguson
on Wed, 11/03/2010 - 11:28
#696125

 
Yes, Harry, but you may have already seen the majority of it. Don't look for gold to drop much below 1325 before the usual buyer(s) of size step in.
If Blythe had allowed gold to rally this morning up to 1385-90, I would be extremely nervous about what lies in store for us this afternoon. The fact that she chose to crush it before the announcement clearly means that the QE will be more significant than expected and that the PMs are going much higher.
So, here we are, in roughly the same position today. Because it's an election year, most everyone feels that the time is running short for The Fed to announce some kind of overt, new QE program. "If they don't announce it today, additional QE is OFF until after the election". Well, maybe. Again, what do I know? 
What I DO KNOW is this: Having the metals under pressure before the Fedlines is likely a GOOD THING. We shall see.
More later today, of that you can be certain.
TF

12:50 pm EDT UPDATE

Well, clearly, the market did not get an announcement of imminent, overt QE. This is not surprising. Again, it's an election year and The Fed is reluctant to make itself into political fodder. 

After an initial plunge that was clearly timed to trip stops and create a cascade, the metals have rebounded. Gold continues to find buyers under $1600 and silver has buyers at $28 and below. Let's see how the rest of the afternoon treats us. As stated above in point #1, perhaps all those who were going to sell have now sold. In an environment where there are less sellers than buyers, prices rise. Maybe a couple of sweet-looking FUBMs on the way? We'll see...

Comments

LaMachinna's picture

First?

Submitted by LaMachinna on June 20, 2012 - 10:38am.

blush

SV's picture

Metals not savagely beaten

Submitted by SV on June 20, 2012 - 10:42am.

The pop in metals is coming because there is no way the microwave of radioactive market manipulation can persist unendingly, but the M.O. of these markets is to have a ubiquitous "nothing to see here folks" market - goal? avoid all noise and keep the market steady. But, of course, silver beats paper.

http://silvervigilante.com

Turd Ferguson's picture

BoE Headline

Submitted by Turd Ferguson on June 20, 2012 - 10:42am.
MODERATOR

News Headline Summary

(BoE)

BoE's Broadbent says case for more monetary stimulus has increased

OrangeAlert's picture

Thanks Turd

Submitted by OrangeAlert on June 20, 2012 - 10:50am.

Loved the look back too.  Just what I was thinking would prove support to your theory, a look back at when it happened last.  Then sure enough you provide that as well.

edit - 4th! 

Had to just to get some more ignores.

Desert Fox's picture

Come on Benny,,,

Submitted by Desert Fox on June 20, 2012 - 10:52am.

bring it back just a little bit more,,,,,,

DrkPurpleHaze's picture

Thanks...

Submitted by DrkPurpleHaze on June 20, 2012 - 10:54am.

...for the update.

We'll have to see what Ben has to say today.  A curve ball and a little chin music maybe?

Pretty sure Big Ben helped write the lyrics...

humbleprofits's picture

Turd, Thx.

Submitted by humbleprofits on June 20, 2012 - 10:55am.

I woke up thinking roughly the same thing today.  They may be jamming prices down before a run up.  I believe you have taught this man how to fish.  I will buy some metal now.  If it goes down, I'll buy a little more.

Off topic:  Anyone else notice 9mm ammo at Wal-Mart is becoming rarer and rarer?  I used to buy the 100 round boxes, but they seem to be out of stock more often than not at BOTH of their stores located near me.

PaullyMoore's picture

QE Roadmap

Submitted by PaullyMoore on June 20, 2012 - 10:56am.

I believe the CBs are buying bonds behind the scenes to keep the system afloat under the pretense of an improving economy. I don't believe they will come out with stated QE until the markets really need to be goosed (Dow and bank stocked crushed). Why destroy the system quickly when you can milk it slowly with just a few lies? Eventually, the money printing will catch up to them, but currency destruction is a psychological phenomenon caused by a lack of trust. By jaw boning up the economy and downplaying the need for QE, the Bernank will keep the masses believing in the system and on we'll march. 

Dr G's picture

Of course there is reason to

Submitted by Dr G on June 20, 2012 - 10:57am.

Of course there is reason to be joyed...gold Eagles for $40 less than they were at this time yesterday!

Count me in for some!

I agree that having the metals taken down before Bernanke is on front and center would seem to be a good thing, however this wasn't much of a take down in my mind, so that does worry me a bit.

I still think the Fed disappoints.

  • Seems the S&P is way too high for further easing (although oil is certainly where they would want it for easing).
  • Also, do they REALLY think that further easing will improve the unemployment status in the US? They can't believe that anymore.
  • And finally, easing in the amount of $700 billion just won't do much for the markets. Shocking, but it is true. They'd have to go over $1 trillion to get a response.

But what do I know?

Dr G's picture

@humble, Winchester brand,

Submitted by Dr G on June 20, 2012 - 11:01am.

@humble, Winchester brand, I'm assuming? My Walmarts (there are literally 10 within 15 miles) have the normal amount in stock. Some days it is full, others it has been picked over.

OrangeAlert's picture

Dow

Submitted by OrangeAlert on June 20, 2012 - 11:03am.

I don't believe the Dow needs to get crushed to have more QE (or overt QE).  I think now is a perfect time.  The market is struggling, CPI just went down, and if they could get another 2012 Q1 type rally to new all-time highs, who wouldn't think the economy was doing well if they could get it back to $14,000?  Obviously us.  I really think the play is to let the economy tank after the elections.  More can be done once that's sorted out and the right people are all in place.  Whoever they are.

Gramp's picture

Right , Wrong, Or Indifferent...

Submitted by Gramp on June 20, 2012 - 11:06am.

Give you props for throwing it out there!

NFI what is going to happen with prices, but If there is strong decline, I'm a buyer.  Maybe I will be proven an idiot, but i think history favors my decision.

Keg's picture

Gun industry delights in election year ammo sales

Submitted by Keg on June 20, 2012 - 11:06am.

humble, I think you are seeing a trend.  Repeat of '08.

http://now.msn.com/now/0619-bullets-boom

humbleprofits's picture

Dr. G

Submitted by humbleprofits on June 20, 2012 - 11:11am.

OK, thx.  I will ask the salesperson when their shipments come in next time I am there.  Seems I show up after it has been picked over.

Thanks for the article Keg.

I Run Bartertown's picture

resistance to QE

Submitted by I Run Bartertown on June 20, 2012 - 11:14am.

is generally based on inflation fears, and the most visible indicator for people is gas prices.

They've dropped already, and from what I understand, the distribution channels runneth over - providing some additional buffer. If Syria is going to be going 'live' soon, they might know that blaming China/Russia will soon be an option for prices going up sharply.

I'm not predicting, but maybe the biggest gripe with QE can be 'lost in the shuffle' so they go with it soon. G20 did just come out pushing 'pro-growth' along with obamao. WTFDIK...

PaullyMoore's picture

Reasons why QE might happen now

Submitted by PaullyMoore on June 20, 2012 - 11:15am.

1.27 and 82.34.  But I think they can milk the Europe situation for a little longer and ignite some more panic first.  

indosil's picture

Seems like silver is upstaging gold

Submitted by indosil on June 20, 2012 - 11:18am.

Seems like silver is upstaging gold,,,,,,,,,,,,,,really moving fast

tread_w_care's picture

So . . . do we play with some fire here?

Submitted by tread_w_care on June 20, 2012 - 11:19am.

Looking at UGLD.  Small play.  Just for fun (yes, I'm a sick puppy).

Get your votes in on how stupid an idea this is before 11:30 a.m. EST please, thanks, mmmmmkay :).

The8thHabit's picture

My 2 cents

Submitted by The8thHabit on June 20, 2012 - 11:19am.

Hi Turd! Thanks for the great post as usual! As far as I remember the smackdown on 11/03/2010 was much larger than today. However, I must say it is fascinating. I am almost 100% sure there is no QE announcement coming today. Therefore, I was expecting PM to rally yesterday and this morning and than get killed at 12:30PM. However, it is other way around.  I don't know what to expect and can't wait until the announcement. But the most important I must say I won't be bothered either way. I do believe in the direction in the long term so who cares. Jim Sinclair said something to the point of if you in PMs for long time, it's irrelevant, if you on margin - you screwed. But popcorn for lunch today is necessary!  One more thing: I miss that HarryWanger from zerohedge, he was so entertaining!

Edit: looks like while I was typing things changed dramatically. FUBM? Now it's even more fascinating!

koan's picture

Hopefully

Submitted by koan on June 20, 2012 - 11:21am.

A little aperitif of what's to come going on just now?

notmessenger's picture

Ammo prices

Submitted by notmessenger on June 20, 2012 - 11:22am.

I haven't bought any ammo recently as I'm pretty well stocked (although you can never have enough :-) ) but when I happened by the ammo case at my local Walmart the other day I noticed the price on the boxes of ammo I normally get (Federal 9mm) went up $1.00 a box.  Now I'm going to have to do price comparisons again to see if it's still the cheapest source although I suspect it will still be.

Ned Braden's picture

XTY - Whad'ya think?

Submitted by Ned Braden on June 20, 2012 - 11:24am.

meegoreng1's picture

WHO DIED AND....

Submitted by meegoreng1 on June 20, 2012 - 11:25am.

made this Bermonkey and the Federal Reserve (an organization that is made up of international banksters)decide today the direction of every commodities, stocks, interest rates, real estate prices,GDP, CPI, every index that we monitor,  to name a few,  AROUND THE WORLD!

This one event alone shows what a F%&#up world we live in.

Wasn't it one of the Rothschild that said this: "Give me control of a nation's money
and I care not who makes the laws."

"From now on, depressions will be scientifically created." — Congressman Charles A.
Lindbergh Sr. , 1913

indosil's picture

Phew...the oscillation is just mesmerising..

Submitted by indosil on June 20, 2012 - 11:25am.

Phew...the oscillation is just mesmerising..,,,don't know whether it's the lull before the storm..can blow either way

Roger Godberd's picture

Euro politico muppets agree tobuy SPANKRUPT & WOPPER debts?

Submitted by Roger Godberd on June 20, 2012 - 11:25am.

Hope you are right TF. Looking good so far. Anyway we know the G20 wants more Queasy Money!

Eh?

How?

Aren't all the Europeans bust, well most of them? Where is the money coming from? ESFS? ESM?(ESM Treaty not ratified yet btw)!!

Oh that's right the markets will fund this new paper. Or the ECB will enter the market and buy the debt. After the ECB is funded by Euro member countries, who are mainly bust...or will be if they fund these purchases.

One small question if I may be so bold? What about next year?

Just a thought.

Spain already stated it will not impose the austerity conditions, I imagine Italy will do the same, and France is already taking steps to curb austerity measures...so the debt mountain and funding gap will increase.

There is no way this move fixes anything. Even if Germany agrees, which is uncertain, they will not want to spend the money, just pretend that the could if they wanted to in the hope this fools the market. I think we all know who will end up with egg on their faces.

More Euro Bond-Buying on Way?

http://blogs.wsj.com/brussels/2012/06/20/more-euro-bond-buying-on-way/

Hope you like the new suggestion....launching on Twitter. WOPPER Debts!

However, officials said Ms Merkel had subsequent conversations on the sidelines of the summit which led interlocutors to believe “she may be willing to do more”, said one European official. The official cautioned, however, that Ms Merkel had not yet committed to any course of action.

http://ftalphaville.ft.com/blog/2012/06/19/1051371/exclusive-to-all-news...

Dr G's picture

@notmessenger, if you are

Submitted by Dr G on June 20, 2012 - 11:27am.

@notmessenger, if you are purchasing just a box then it probably is. I've done a lot of purchasing online recently. I usually order a case--10 boxes--of each of my ammos once a month. For that a lot of the online places have free shipping and it takes 2-3 days to get to me. The prices have been cheaper than Walmart's as well. I've been using cheaperthandirt.com most recently.

They have different warehouses across the country, so ammo is cheaper depending on where it is shipped from and that of course affects shipping times as well.

Be Prepared's picture

The Lifelines are..... working?

Submitted by Be Prepared on June 20, 2012 - 11:29am.

Bugzy's picture

Operation twist is due to end late next week

Submitted by Bugzy on June 20, 2012 - 11:29am.

The obvious move would be an announcement to continue with it.

I am however cogitating as to what would happen if the they allowed it go.

No longer keeping short term rates low - All rates rise - would money flood out or in. You see high interest rates = bad stock market = money in.

But those who bought treasuries at low interest rates, would there be a rush for the exists before they lose principle? Or would more money flood in to get higher return?

There again - this is typical treasury bubble bursting?

So.......if there is a rush to the exits and not into stocks........where does the money go?

Also $US would rise - bad for exports (Do the US still export anything other than weapons?).

So - cancel operation twist with no QE - doubt it.

Obvious is to keep operation twist going. + Maybe QE

B

Be Prepared's picture

Food Freedom is now at the Discretion of Government...

Submitted by Be Prepared on June 20, 2012 - 11:31am.

ivars's picture

Could it be that FED comes

Submitted by ivars on June 20, 2012 - 11:32am.

Could it be that FED comes out with what would short term (<1 month) support continued sideways trading? Some vague enough encouraging enough statements?Measured not to change any direction yet meaningfully?  Stocks and treasuries are doing fine anyway, why touch them now? Let Europe play ( or not) its hand on June 28th -29th meeting.

The hit on metals is was really almost nothing, and, as I type, is even less.

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